Understanding the Effect of Blockchain & Cryptocurrencies on Income Inequality - Defiway
How Blockchain and Cryptocurrencies Can Influence Income Inequality photo
By: Natali

How Blockchain and Cryptocurrencies Can Influence Income Inequality

Table of Contents

Historically, human society was always economically divided. But technologies disrupt those moral orders, making each new generation more privileged than their fathers. And blockchain has the potential to drastically change the economy, making it more accessible to everyone involved. This technology brings true inclusivity by providing various financial services to underbanked populations. So, those people will have more ways to earn money, including international freelancing, decentralized lending, and investment opportunities.

The peer-to-peer blockchain nature eliminates the need for middlemen such as banks and credit bureaus. It reduces the wealth concentration in those traditional institutions, enabling more equitable wealth distribution. But how exactly does crypto help to solve world wealth distribution problems? Stay with me by reading this article to find it out!

Understanding Income Inequality

It’s the unequal distribution of income across different society sectors. The most common reasons for it are geographic placement and historical background. Some countries have the opportunity to transfer businesses and home ownership through the generations for 500+ years, like in the USA or Western Europe. Eventually, those countries have more wealth even in the poorest parts of society.

Other countries were exploited by empires till the XXI century like Sub-Saharan African countries, Southeast Asia, and even East Europe. Despite those regions being rich in natural resources, and having millions of educated people, those regions still struggle to bring equity into their societies.

Other challenges are just derivatives of this historical inequity. By this I mean education and skills inequality: while some can study international affairs and law, others need to work hard in a field since middle school. It leads to a gap in the labor market: while some districts become even more wealthy, others turn up into a dangerous ghetto. It leads to technological and healthcare inequity. While people in wealthy neighborhoods and cities can use the latest tech and support there in the leading clinics with the best doctors, others can’t afford to buy even one laptop for the family or visit the cheapest clinics.

And it results in social and political instabilities. Armed protests become more and more common. Investors slowly but surely become afraid to invest in those regions, which leads to economic downturns and rounds of layoffs of the poorest society members.

So, income inequality becomes even more prominent. You can read more about it in Daron Acemoglu and James A. Robinson’s book “Why Nations Fail”. It’s my favorite non-fiction book, and I highly recommend reading it. They also show ways those towns, countries, and regions can solve those challenges. So how exactly inequality drives crypto to become a part of our daily lives? Is blockchain part of the solution?

What are Blockchain and Cryptocurrencies?

Blockchain is a decentralized ledger that records transactions across computers. It consists of a chain of blocks where each holds a set of transactions and a reference to the previous block, referring to the block right behind it. Every bit of data is secured by cryptographic encryption. And it made all data on blockchain immutable to any challenges.

The decentralized blockchain nature eliminates the need for a central authority to store and validate any action. This technology provides a secure and transparent framework for various services including supply chain management, decentralized finance, and more. Cryptocurrencies are the most common way to use blockchain. Generally speaking, crypto can be considered a type of blockchain token. A token is a digital asset representing a value or utility on a blockchain network.

Various factors affect the price of a cryptocurrency, such as supply and demand, market liquidity, hype, market speculations, technologies, current regulatory development, etc. The main thing about them is that they aren't regulated by any central authority (except stablecoins from central banks of developed countries - CBDC), so you can use them anywhere.

Blockchain, Cryptocurrencies, and Income Inequality

Blockchain’s freedom provides new opportunities for everyone, reducing inequity and improving various industries, including finance, supply chain, governance, etc. This technology has the potential to change societies affected by income inequality. Cryptocurrency and dApps enhance the financial market by providing services for under-banking and nonbanking communities. It is still common in emerging economies or low-income households even in developed countries.

With blockchain, people can have direct control over their digital assets and engage in various financial activities without waiting for permission from the bank. It unlocks new ways to earn money. Freelancers can work worldwide, getting a salary in crypto from international clients. People who moved from unprivileged areas can instantly send money to their loved ones. They no longer need to wait a few hours or even days to get the money transfer.

It means that more people will get access to investment opportunities. Even though most cryptocurrencies are volatile assets, people still can get profit from them. People can buy prospective currencies, wait for the maximum price and sell it. For those looking for safer ways to build their wealth, I recommend taking a closer look at crypto loan services. You can lend some sum to the other user, and they will pay you back with pre-described interest. Investors can build their first wealth from that “interest” money. Borrowers can take that money to invest in their small businesses. It will boost the economy and lowers income inequality since more people will get access to the fair borrowing process.

Blockchain also enables asset tokenization It eases fractional ownership, making those investments more accessible. For example, if 4 investors just bought an apartment to lease it, they can get their revenue corresponding to their investment share in the smart contract. Once they decide to sell it out, everyone will get their portion of the money. But we should understand that income inequality brings many barriers. People from unprivileged areas often lack proper digital education, while some don’t have internet access and modern smartphones to use dApps.

Moreover, unequal resource distribution has an impact even on the crypto world. People who have more money in the first place can risk buying prospective coins, lending crypto to build their wealth, or becoming early adopters. Poor people fight for every penny, so they don’t have that much freedom of action in the first place. So they have become people who borrow in crypto and pay interest to lenders.

Case Studies: Blockchain and Cryptocurrencies Tackling Income Inequality

We already see dozens of real-life examples of how crypto can change world wealth distribution and fight income inequality. Crypto even helps people in rural areas, like Impact Market in Cambodia. This service aims to empower farmers and other rural artisans by providing them with direct access to global markets without intermediaries like holdings. Farmers can prove the provenance of their products through smart contracts, while people can buy their products directly. This initiative helps bridge the gap between rural producers and international buyers, giving workers more fair income opportunities and reducing income inequality.

BitGive is known as one of the first blockchain-based nonprofits, using cryptocurrencies and blockchain to streamline charitable giving. Donors can track their donations and see how they are utilized in real-time, fostering trust and accountability. People in need can use this money to get a better education or start local businesses. Speaking of more general cases, decentralized finance services raise digital and financial awareness, and provide opportunities to access various services without relying on traditional financial institutions. It’s a Binance, Defiway, and Aave service that you may use for most of your daily needs.

Tokenization of your assets with services like Polymath, Treum, and OmniToken democratizes asset ownership since it becomes easier to buy new ones because you can split it up with other potential investors remotely. Decentralized job platforms like Ethlance or CryptoTask remove employment barriers and provide more international income-earning opportunities in underserved communities or emerging economies.

Blockchain technology also has the potential to enhance the transparency and security of voting systems, reducing the risk of voter fraud and manipulation. By enabling immutable records, blockchain-based voting systems Agora, Voatz or Follow My Vote can promote fair representation and reduce inequality in the democratic process.

The Role of Defiway in Addressing Income Inequality

The Defiway has multiple tools that can help to solve this problem in societies with income inequality. Defiway Wallet is a secure non-custodial multi-chain wallet where you can hold, send and receive crypto assets. You can access it from a mobile application or web service, so it acts like a hot wallet, while in reality all your tokens are stored in the secure cold wallet. The PayRoll services will ease the lives of freelancers and remote workers from underprivileged communities. They finally get the freedom to work with international clients and don’t be afraid of payment schedules. Once the employer invites staff to the platform, they set up a payroll model and fund it, and the employee receives the payout within the chosen timeline.

For those, who don’t receive regular payments or try to set crypto as a payment option for their business, I recommend Defiway’s Pay service. It has easy integration into any CMS, so you can build a seamless checkout experience. Your customer selects any cryptocurrency supported by Defiway, we process the transfer with the least possible fee, and you receive your earnings. This tool unlocks new possibilities to earn money in various industries, including e-commerce, gaming, trading platforms, etc. If you want to exchange cryptocurrencies between various networks in the fastest, safest, and cheapest possible way, I recommend you Bridge. Crypto bridges are platforms that act like bridges between separate blockchain ecosystems, facilitating the transfer of digital assets across these networks.

While most bridges need you to sign multiple smart contracts (at least 2), in Defiway you sign just a “Send” smart contract. It drastically eliminates hacking attempt possibilities since most criminals hack users by using vulnerabilities of “Approve” smart contracts.

The Future: Blockchain, Cryptocurrencies, and Income Inequality

Predicting ways that inequality drives crypto to change our world, it’s challenging but feasible. Firstly, blockchain will increase financial inclusion by providing access to various financial services to underbanked or unbanked people. They can build their wealth by providing direct loans even for $50-100 worth. Although they can get less than $10 in revenue, it is still a way to start a lending career. Borrowers can take that money to invest in their businesses. It will eventually boost the economic involvement of unprivileged populations since they don’t need to fit into bank standards of “perfect investor” or “perfect borrower with a stable high income”. This democratization opens new financial horizons to a broader range of people, making the finance industry more equal for all.

It will slowly but surely lead to full crypto legalization. We already see how blockchain disrupts existing regulations by implementing new frameworks. And we will see more and more laws. It’s a good sign! It will show other businesses that blockchain and crypto are trustworthy, so we will see even more unexpected collaborations and integrations with traditional systems that help to fight social and economic inequality.

But it’s not some immediate process. Blockchain adoption may take 5 or even 10 years. During it, many businesses will have problems with blockchain’s scalability and energy efficiency. It’s cheaper to develop an old-fashioned proof-of-work network, but it is less efficient than more modern consensus mechanisms.

Also, we should understand that this technology even widens some gaps. Blockchain will help to build wealth for educated people from unprivileged communities. They will finally get the chance to use their finance and computer knowledge to earn decent money. But people in regions with poor education will become even more underprivileged. So every blockchain and tech-related business should take on the “teacher” role and educate their current and potential customers as I do it for you.

Final Verdict

Income inequality is one of the biggest problems of modern society. While the rich are becoming richer, some can’t afford rent or even food. And it’s not only a problem in some communities. It’s a global problem caused by geo disparities leading to poor education, lack of technological advancements, and unfair labor market dynamics. Recent statistics show that 57% of US citizens have less than $1000 in savings. And it’s one of the richest and most progressive countries. People from less privileged regions face even tougher inequality. And blockchain and crypto tools can change it for good, making our world a better place.

These technologies provide more financial inclusion and wealth distribution even to the previously unbanked populations. People can get direct access to various investment opportunities and transparent transactions. They can invest in prospective coins, lend money and even buy multiple assets such as fine art, homes, and cars with crypto services. If a person doesn’t have enough money, they can just partially own the asset by splitting the token into multiple parts where each investor will have partial ownership.

But we all should understand that the wrong approach may even widen inequality. People with constant internet access and fine financial and technology knowledge will build their wealth even if they are poor now. But people from communities with poor public education and lack of internet access will miss this opportunity and become even more flawed. So, blockchain businesses need to educate their current and potential customers to fight income inequality and build their client base in a friendly manner.

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