The ideal of "fair distribution" in cryptocurrencies (and Steem): Can it exist in real life?
There's much discussion about "fair distribution" in many cryptocurrency projects, whether they are Proof-of-Work, Proof-of-Stake, ICO/IPO'ed, premined, etc etc.
The issue has also been raised for Steem, especially since the vote weight is directly correlated with the amount staked (Steem Power). I've been discussing this in the comments of the various articles and there are two points that I have to write over and over - so, hopefully, I'll write it down once and use it as a future reference.
There are two main arguments:
1. "Voting is unfair - someone has 50 votes, another has 5, the first has 0.01$ the second has 400$"
The concept of money-backed-voting (putting your money where your mouth is) prevents the phenomenon of fake votes. It is very easy to forge votes in the online world: You just create multiple IDs and vote the same thing. The process can be automated (bots) with high efficiency. Taking this into account, Steemit has solved this issue by requiring money-backed-votes. Spammers can create 500 fake ids for upvotes and yet their votes will remain worthless if there is no Steem Power (=money) backing these votes. This is a revolution in terms of online opinion measuring reliability, whether we are talking about online polls, online voting, etc etc.
Interestingly, similar suggestions of money-backed-voting had appeared last year during the "blocksize-debate" on whether the BTC-economy was in favor or against a fork. Some were arguing based on online polls and internet discussions, others were saying "let's see who supports what by signing with our coin holdings".
Returning to how Steem operates, it should be noted that if the votes weren't backed by money, content creators would be saying "oh this is a rigged game, those with most bots and fake-IDs get the most money". It would be a highly discouraging and unfair playing field that promotes scamming.
Having said that, is "whale voting" better? The answer is yes. Is it an optimal system? Not by any stretch of the imagination. Isn't there discouragement when people don't get "whale votes"? The answer is yes - and it is dangerous if we have payouts of 0$-0$-0$-0$-0$-0$-0$-0$-0$ and then one 20k USD payout because it just so happened that 20k USD guy was on a whale watchlist...
Can the current system be improved significantly? It's up to the curators to do a better job. Now, if they are not doing so it may mean that a few tweaks in the incentives might be needed in order to alter their behavior towards a more favorable behavior pattern that is better for the ecosystem.
2) "If coins were better distributed, everything would be better"
I don't disagree with that but my question to the above rationale is "for how long can this state last"? There is a misconception that there can be a fair distribution of any cryptocurrency token system: It only ever accounts for the very short-term. The mid-term and long-term distribution will tend towards real-life wealth distribution where we have phenomena like 8% of the population owning near 83% of the world's wealth[1].
The basic problem lies in the "substrate" of the fiat money and asset world. It is the inequalities at that level that prevent fair distribution in cryptocurrency.
The poor have too low an income for their needs and the rich have an excess supply of money. The first group sells their reserve assets to survive, the second group invests their excesses in whatever they can, including overpriced assets (luxury cars/villas/jewelry), art pieces etc.
It is precisely this fundamental difference that creates inequality in all fields, including eventual cryptocurrency-distribution. A poor man will have to part with his coins because he needs to cover real life needs. When the price rises 100-200-300% he will be like "Oh God, this is the best thing that has ever happened to me". When he sells and sees the price going up another 1000% it will be unfathomable to him how that can happen. But that's because his reality is much different than the rich man who can throw a few millions as "investment" with his "excess" money - which he probably made off another ...investment.
So as time progresses forward, and assuming an equal initial distribution of a cryptocurrency, there will be many that sell and few (with big money) that can take large pieces of the pie as the smaller stakeholders cash out. The concentration levels will -in the long run- typically reflect the level of concentration of wealth in the other fiat/asset markets.
"...Ok, I hear you, but what is the solution?"
Did I say that I have a "solution"?
As can be understood from what I've already written, any "fair distribution" in the cryptocurrency level is not sustainable in the mid/long-term due to the fiat/asset wealth inequalities influencing the cryptocurrency market. Anything sort of a radical wealth redistribution in society will not change that. And even then, such a redistribution will only be short-lived as long as the mechanisms for wealth concentration are in place:
Fiat money / debt-backed money and governments being controlled by certain "interests" are two of the biggest redistribution mechanisms in favor of the Elite. To counter these two problems it would require a Gold/Silver monetary system (some would disagree - but that's an entire discussion unto itself) and a way of governance that is exercised with less representation and more direct citizen participation. But, again, this is beyond the scope of our current discussion...
Relevance to Steem
Steem already has a high concentration of wealth in a few hands, but the ownership pattern does not reflect the actual wealth (fiat/assets) owned by the market players. This means that those that hold a lot of Steem Power are not necessarily "filthy rich" in terms of fiat or assets. Assuming Steem is successful, alive and kicking in the mid-term, the long-term convergence with the global wealth distribution pattern will necessitate significant transfer of Steem tokens from the current top-owners to rich investors and funds.
In the meantime a lot of new entrants and authors will be climbing the ranks through their earnings while smaller investors might want to enter with moderate stakes - and they will get the most bang for their buck when Steem price is down. So, overall, this means that the situation with Steem distribution is very likely to improve considerably with an increased number of participants holding smaller stakes.
[1] https://en.wikipedia.org/wiki/Recent_Distribution_of_Wealth_in_the_World / Pyramid of Wealth
There is my old post about ideal cryptocurrency with "fair" distribution:
http://steem.link/L0IHi
I know that my ideas there are flawed but may be they could provide some insights for smarter people.
By the way, I can't answer you there: http://steem.link/UIfJ2
So I answer here: You say that 'The wealthy 1% and owns >50% of the global wealth.', but in Steem we have situation where 1% owns >90% of all the wealth. So, world inequity seems way more healthy for me.
Technically it's just "tokens" with fluctuating value. Fiat wealth inequality, and in particular people with "excess" / "reserve" money that they can "invest" into these tokens, is what gives these tokens value.
If you spread those tokens to all people in a uniform way, they wouldn't have the same value. There would be dumping -at any price, even 100 times lower- because most people would say "these are worthless tokens to me, I have real life needs" and there would be no investor to elevate the price, because virtually no-one would have spare cash to invest.
The difference between steem and the world, is that steem is so concentrated that its bound to get better because it can't get any worse, while the world is still in a phase of wealth consolidation into the hands of the few. In other words most participants in the world economy will get poorer next year (as wealth consolidation continues) while most participants in steem economy will get richer next year (as wealth is increasingly distributed) and it trickles-down-to-the-small-guy.
We just need more economic activity or else.
Absolutely agree. Steem - it is the best social media platform among other social networks and the money-backed-voting is a quite fair system.
There are a two kind of people here: invertors and bloggers. And at point of blogger's view STEEM is far more attractive platform since no other social networks have rewarded users for their content.
Why do I have to repeat to you again that Steem's 80% to the top 0.1% is not concordant with the power-law distribution of wealth.
...per the power-law distribution of income/wealth it gets 85% concentrated to say the top 20% of content producers and roughly 38% to the top 1%...
The difference between steem and the world, is that steem is so concentrated that its bound to get better because it can't get any worse, while the world is still in a phase of wealth consolidation into the hands of the few. In other words most participants in the world economy will get poorer next year (as wealth consolidation continues) while most participants in steem economy will get richer next year (as wealth is increasingly distributed) and it trickles-down-to-the-small-guy.
The world is a system where you participate no-matter-what. Everyone does. And it is assured that by next year, the average citizen will be poorer compared to the Elite due to the wealth-consolidation trend.
Steem is a system where you join to participate (if you so want). As you do so, you start with 0 and can only improve your position and go upwards. One could argue that the world is a dis-empowering system for the average person while steem is an empowering system.
You started with zero. You didn't invest anything. However you are now 3-4k richer and have more steem power to exercise your voting and curation. This doesn't happen in the world. Even doing nothing will harm you financially due to cost of living and sustaining yourself.
Your argument makes sense to someone who has no capital to risk. Those who invest their effort, time, expertise, and monetary capital, have to choose the winning horse amongst competitors. The highly skewed distribution of Steem is an uncompetitive attribute w.r.t. to competitors which correct it. For example, I argue the vested interests prevent fixing the major insoluble flaws.
Yes, I'm talking about non-investors.
If we analyze the investor crowd then those who invest their capital in something speculative (and dangerous) typically have an excess of capital anyway so the arrow of wealth transfer is from the rich to the poor (bloggers, photographers, etc). Even if steem somehow goes to zero, at worst some rich people who invested will have paid a lot of poor people for their content plus some whales for their development, mining or witness involvement.
Serious bloggers are investors of their talent, effort, and opportunity cost capital.
I found this post after you posted it on the Bitcointalk thread about Steemit. There is fair and then there is "it just is". You can worry about fair all day and it won't make a difference. You can deal with '"it just is" by figuring out how to excel in that environment. Knowledge and hard work tend to make things quite "fair" for those willing to put some time/energy into and endeavour. My latest Steemit post is here: https://steemit.com/bitcoin/@bitcoinmeister/bitcoin-price-stability-means-increased-market-cap-how-the-market-values-steemit-will-there-be-another-ethereum-hard-fork
Hi! This post has a Flesch-Kincaid grade level of 11.4 and reading ease of 56%. This puts the writing level on par with Michael Crichton and Mitt Romney.