The unequal distribution of fiat money and Bitcoin

7 min readFeb 4, 2022

Preliminary note: This article isn‘t suitable for beginners, but for inhabitants of the Bitcoin rabbit hole with an interest in money, economics and society.

My last article was about the autobahn of Bitcoin FUD. Billions of people travel on it. They follow the signposted rejection of Bitcoin without checking whether they can arrive at the desired goal: timeless preservation of the value of one’s assets.

Another challenge Bitcoin must overcome on its way to becoming a global currency is its uneven distribution. I‘m aware that the unequal distribution of Bitcoin is currently less than suspected [1]. That doesn‘t change the point that money makes money. A lot of money leads to even more money [2]. Private equity or venture capital firms are only two examples for this. Among other things, they invest in productivity improvements that keep the cash register ringing.

Unequal distribution of wealth = f(money‘s usage, people, hardness of money)

The uneven distribution of wealth is based on three mechanisms that reinforce each other.

The first reason for the unequal distribution lies in money itself [3]. By exchanging it against products or services we negotiate or accept their prices. These prices reflect the value that we are willing to pay. Like a measuring instrument, prices indicate the subjective value that a good has for individuals [4, 5]. You can also think of it like the scoreboard of a game. In the game of life, money indicates how far a person has come in material terms. Thus, assets serve as a benchmark on which birds of a feather flock together.

This brings me to the second reason. The high-score of money has a particularly motivating effect on some people, depending on their motives. They measure their lives not by the number of social contacts or the amount of experience gained but by the degree of their independence - which is lived out easier having a large fortune than having a small one [6]. Financial independence lifts people from a herd animal to a human drover.

This interplay between money and people has been with us since the invention of the first instruments of payment. These two factors are the basis of the first-degree of unequal distribution of money: people differ in their wealth.

Our long search for the best money seemed to end with the discovery of gold. People increased their wealth with it, because gold is both limited and counterfeit-proof [4]. These properties make gold a sound money and ensure the preservation of its value. Later, people got receipts for the gold which in turn were used as paper money [7].

The third reason was created by Richard Nixon in 1971 when he decoupled the nation’s money from gold [8, 9]. With that decision, he started the second-degree of unequal distribution of money (and other assets). Since then, states no longer have to deposit gold for new money. Instead, they multiply the money by lending it out. With each loan financial institutes create new fiat money out of nothing [10]. Because new fiat money needs time to affect the market, it has the desired buying power for the loan taker. Since new fiat money takes time to be priced into the market, it has the desired purchasing power for the borrower. But as soon as they make their purchase, the new money circulates. This devalues both savers’ reserves and borrowers’ debts [11]. Perseverance is punished and actionism is rewarded.

The enrichment of the borrowers at the expense of the savers is known as the Cantillon effect. It only works with fiat money. The Cantillon effect accelerates the redistribution of purchasing power from savers to borrowers. As a result, in the fiat system the rich get richer and the poorer get poorer than would be possible with sound money like gold or Bitcoin.

Bitcoin can set limits to the money’s concentration, but doesn’t stop it

Bitcoin could fix everything, Lola Leetz says in her remarkable article [12]. Unfortunately, I cannot believe in this as long as there is no weapon against the unequal distribution of money. The most widespread use of Bitcoin in the world would mitigate the unequal distribution. But the current concentration of money can’t be changed even by Bitcoin’s current protocol version.

A mental leap to a future with Bitcoin being the only world currency illustrates this concentration of money. Bitcoin’s main function is decentralized maintenance of value. If this is combined with an increase in productivity, Bitcoin holders will benefit exponentially longer from their sound money than Satoshi holders. The same applies to the accompanying decline in prices: some live on the bright side of life, some can take a timeout, and those without Satoshis stay heteronomous.

The world-wide distribution of Bitcoin is studied by the analysts of Glassnode. Following their data, 13.54 million people currently have one or more Bitcoins [13]. For comparison: if all 21 million Bitcoins were distributed evenly among all people, each would own about 265,051 Satoshis. But only a small number of the approximately 7.92 billion people in the world will be able to actually own that many satoshis. Even the continuing distribution of Satoshis will not change this, because the number of hodlers is increasing just like the number of their Bitcoins [14].

Individuals avoid disadvantages

Hodlers will think twice about investing their savings or betting on the deflation-related appreciation of their Satoshis. They will make this decision considering their amount of bitcoins. If Bitcoin were already the world‘s currency today, only 13.54 million of about 8 billion people would have the financial leeway to make profit-promising investments.

If someone knows about how risky investments really are, it’s the venture capital industry. 30 to 40 percent of their investments are lost. Only 10 to 20 percent of them provide decent returns [14]. As a result, the Satoshi holders will not have sufficient start-up capital to spread the risk. For the Bitcoin holders, however, the start-up capital is not a problem. Their gains may become more concentrated in the deflation-related Bitcoin system than in the inflationary fiat money system.

Investors are individuals. They prefer to protect themselves from losses rather than hope for gains [15]. For that reason, only a few risk takers with sufficient Bitcoins will multiply their assets. Everyone else needs to save their Satoshis for the timeout at the end of life. The gap between rich and poor will continue to grow even with Bitcoin because only huge fortunes enable investments that can beat chance.

What if switching to Bitcoin is not worthwhile anymore?

The points mentioned so far make me worry that people without Bitcoin will be put off by its uneven distribution. I see a point in time when the Bitcoin community will stop growing further. The Bitcoin FUD’s creators sense this and turn it to their advantage. Unfortunately, I see no way to estimate after how many billions of Bitcoiners this point will be reached. What is your guess? Leave a comment.

The optimist in me takes comfort in the fact that fiat currencies and shitcoins are forced into moderation by competition with Bitcoin’s function as an independent store of value. Therefore, I assume that we will find back to the first degree of unequal distribution of money with the ongoing adoption of Bitcoin.

The pessimist in me is unsatisfied with a reduction of Bitcoin to its function as a store of value. It is as if I was allowed only to look at nature without walking and living in it. To be honest, the idea behind Bitcoin is too good to use Bitcoin only as a store of value. I would like to see Bitcoin as the undisputed world currency. And it is in our hands to create convincing facts today for this — not just arguments. The individuell advantages need to outweigh the disadvantages of Bitcoin‘s usage at least 3.5 times [16, 17]. In return, we must not reflexively dismiss unequal distribution as FUD. Only people who own Bitcoin can expose FUD as lies. For everyone else, the unequal distribution of money and Bitcoin is reality.

In my next article, I will give a suggestion on how we can cement Bitcoin’s path to becoming the world’s currency.

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