Can a new cryptocurrency redistribute wealth in a more fair way?
When Dr. White first announced his new Ethereum project, I was quick to express my support and interest:
I was grateful to later be invited by Micah to review his contract, which he publicly shared yesterday, to commemorate the 8th anniversary of Occupy Wall Street.
In that post, he gave me a nod for giving the contract a final look. I’ve gotten some questions about what this look involved, and so I’d like to share here.
First of all, my primary goal was the enthusiastic support of a teacher. We should always celebrate a person learning new skills, and especially applying them to such noble goals as redistributing wealth, and Micah’s reputation following Occupy carries enough weight that I wanted to give him the best feedback possible, to help ensure his projects were met with the best reception possible.
One issue was that as I started reading, the release date was already written in the contract, 5 days out, and so it was fairly clear that this was scheduled for release regardless of what I wrote, which is what happened. I provided a simple document of notes, but I did not hear back until the launch, and clearly this feedback did not effect any change in the project.
The big questions you should ask when redistributing wealth are:
- From who?
- To who?
The answers in this currency are:
- From people buying or transacting in the currency.
- To the holders of the currency, in proportion to their holdings.
This was a surprising discovery for me. I initially had braced myself for an identity registry to allocate recipients, a mechanism I am pretty skeptical of on its own, despite it having some big fans:
My biggest issue was nearly exactly summarized by Vitalik, so props to him for being the first commenter on the announcement thread:
I would actually take Vitalik’s concern further.
Naturally all three of us agree that the current distribution of wealth is not optimal (otherwise why would you be making or critiquing a redistributive currency?).
While I agree with both Micah and Vitalik that wealth inequality is bad, I posit that transactional inequality is also very bad, in the other direction, exacerbating the problem!
The poor spend more of their wealth in a given period of time than the rich do. In fact, in the U.S., the bottom 30% spend 182% of their income (according to the Bureau of Labor and Statistics), putting them deeper and deeper in debt.
If you combine this with a redistribution in proportion of total wealth, you find yourself taxing the poorest people deeper into debt, while distributing it according to the prior distribution, which gets worse with each transaction.
If I were to invest in Sparkle, I would think the best strategy would be to move a lot of money in as early as possible, so that you receive the tax of others buying in, but I’m not sure you’d break even…
You’d pay 3% up front, so you’d be trying to recoup this 3% loss. Let’s say this made you proportionally the sole investor, effectively 100% holder. Each new investor would be paying 3% but only 2% to the pool, and each new member would be diluting your gains from each additional member.
I tried running those numbers real quickly, and it basically suggested you’d be waiting for about 3x your investment to be contributed before recouping your original contribution.
Because buying the currency is optional, the only reason a person would choose to transact in it is because they wanted to participate in its particular redistribution experiment, but since I expect that most holders of Sparkle are crypto investors, and not the poor and needy, I don’t presently see a strong case for transacting in it as a form of charity. This of course could change, if plenty of sparkle was distributed to those who need it, but in that case there would be both the challenge of convincing investors this had happened, and the question of whether the ongoing interest would be useful to those people, who might just need to spend the money immediately.
I love this ecosystem, and I love the kinds of minds that it draws. I am very grateful to have people discussing what is a most fair redistributive currency, and I’m grateful for having gotten to review this one.
One major challenge for everyone in this ecosystem is how to adequately collaborate. If you read the comments to Micah’s post, it’s a long line of people basically pitching their own versions of this project: Some use an identity registry, some use a web of trust, some use inflation. Some have a commission to their authors, and some even don’t (this one does).
I wonder how these things might combine. Will some bonding curve simply be “fair enough” to capture the world’s imagination, or will we have many many experimental coins, all with exchange between them?
I tend to think the latter, and the only way we’ll really find out either way is by trying many things, and for that, Sparkle is a gleaming success: 30 days from concept to a public, global economic experiment. As we lower the bar further on economic creativity, I only expect projects like this to become stronger, gain better common language, and hopefully, to unite more participation from a broader community of support.
Thanks for your initiative, Micah, we all need more of it!