In this article, Vitalik argues that a high Gini coefficient is not a big problem in crypto because crypto does not measure life quality. Aka someone with only little crypto is not starving. They are just less invested.
I don't think most people care about the Gini in crypto because they are afraid of the crypto poor starving. I think they care because a high Gini means there are some super rich that could flood the market with their coins and make the price tank.
So the discussion in crypto about Gini is held from an investment perspective.
The whole point of my post was that instead of the Gini we should use a more targeted index that specifically measures the presence of super rich that can unilaterally flood the market with their coins, and does not concern itself with whether the long tail of users has 0.03 coins each or 0.003 coins each.
> Cryptocurrencies, even those that turn out to be highly plutocratic, will not turn any part of the world into anything close to dystopia A
This is only true iff the meme that "crypto is eating the world" is false, i.e. if a future where crypto is more and more enmeshed in an individual's economic life doesn't pan out.
This is possible and maybe even likely, but it is somewhat ironic to hear such a bearish case on crypto's usfeulness made by vbuterin :)
> First, start with some utility function representing the value of having a certain amount of money. `log(x)` is popular, because it captures the intuitively appealing approximation that doubling one's income is about as useful at any level: going from $10,000 to $20,000 adds the same utility as going from $5,000 to $10,000 or from $40,000 to $80,000).
This is not intuitive to me. Intuitively, going from 10K to 20K is not the same as going from 1M to 2M. In the former case, you cross the USA poverty line[1], in the latter, you can afford a couple more Lambos.
Is there something I'm missing in the use of the word "utility"?
> Is there something I'm missing in the use of the word "utility"?
Vitalik uses the word "utility" the same way (mainstream) economists do: A numeric estimation of the satisfaction, pleasure, benefit, advantage, or happiness given by an increase in wealth.
What you're calling out is that the concept itself is problematic: as you pointed out, the assumption of log-utility of wealth is not entirely accurate because, in reality, increments in wealth have diminishing utility.
There are other limitations with the idea, for example, is it possible to capture in a utility function the well-accepted notion that losing a given amount of money is more painful than it is pleasurable to gain it? Or that receiving a small amount of money now may have much more utility than receiving a large amount of it in the future? Maybe, maybe not, but this is how economists attempt to capture and quantify human behavior regarding our wants and needs for wealth, inadequate as it is.
OK, come on. It's a deflationary asset. If you got in early you're sitting on a bunch of it you get to be insanely rich if it's the main means of exchange. When people are being more honest about it they fantasize about that happening and getting to lord it over everyone else.
Its very clear too, looking at the cryptocurrencies with the highest market caps. Very few are inflationary because the goal is to make the founders wealthy.
Take a look at any subreddits for these currencies too and you'll find the same sort of thing too. For example, I think the tech behind polkadot is a neat idea, but go to r/polkadot and all you'll find is discussion about prices and staking rewards.
I have a lot of mixed feelings about the space. A lot of the tech is pretty interesting and is pushing distributed consensus forward. On the other hand, 99% of people involved are trying to make a quick buck.
I hadn't really thought of the legitimate cryptocurrencies that way. The early adopters would explain their large holdings as just being an unavoidable consequence or necessary for them to keep the project alive. But you're probably right that they deliberately set things up to be entrenched powers over everyone.
When I think of it that way, the Proof-of-Stake looks like it benefits mostly the large, early holders. I could be wrong but the current 6.1% return Ethereum gets is a very nice mining profit available to large stake holders. It seems like staking would be most easily done by people who already have large holdings and want to generate income from it. In that sense it's almost kind of feudal and I am wondering if POS was at least partly set up for that purpose.
Are you using deflationary in the traditional finance sense or in terms of supply as it's used in the crypto space?
If the former, am I understanding correctly that you're upset ETH is an appreciating asset?
If the latter then you're incorrect. Right now it's inflationary and after the merge to PoS it'll still be inflationary but less so. EIP 1559 has a gas burning mechanism that can make ETH deflationary but it depends on usage. Even if that is the case, it will only be short term until an equilibrium with the price is met (as ETH price increases, less gas will be needed/burnt, reducing the effect on inflation).
What does this have to do with his post? You seem to be implying that this post is some kind of ham-fisted defense of wealth inequality in cryptocurrency, but that's not what it says at all.
It’s not currently deflationary. It has less inflation over time yes but the two aren’t the same.
I don’t see why you think anyone is lording this over someone. The blog just addresses that the gini coefficient doesn’t fit well here. You can agree or disagree with that but you just seem to be hurling insults for whatever reason.
Bitcoin is deflationary, Ethereum is not. Even with the changes in EIP 1559, that just introduces instability in supply. ETH 2 introduces inflation, which is what made wealth inequality so bad to begin with. People holding assets that outperformed the money made out better than those who didn't have the capability to do anything with their money as it depreciated in their bank accounts as they wait for the inevitable bills to come.
Bitcoin will take care of fiat money, and Ethereum, too. It's solving for the $1 quadrillion dollar problem, and after a few decades or generations, wealth around the planet will begin to be a little more evenly distributed, since even the Bitcoin billionaires will eventually need to spend their Bitcoin.
Of all the crypto-quadrillionaires out there, I trust Vitalik the most to not be just in it for the cash. He really does have a vision for Ethereum's place in the world, whether or not you agree with it.
He's conspicuously burned or donated hundreds of millions of dollars (albeit not super liquid) in other crypto assets basically because they were a distraction. He's given away billions in Eth, and has approximately 0 conspicuous consumption.
I mean yeah, obviously a single number can't distinguish different wealth distributions. That's not exactly a problem with the Gini coefficient, it's just a limitation you have to accept if you want to summarise the full distribution with a single number.
You have the same problem with any distribution that you want to summarise with a single number, e.g. colour temperature, CRI, house price indexes, rainfall measurements, etc. etc.
A Gini coefficient is only useful if you treat it as a currency of a sovereign state, but it has basically no attributes of a good currency - and certainly doesn't have a state. It's not broadly accepted anywhere, it's not the unit of account for anything and nothing is priced in it. So yes, to your point, a Gini coefficient with that in mind makes no sense.
However because it says "currency" on the sticker, someone's gonna run the numbers as though it is one.
I would argue in 2021 the only thing that qualifies as "an entire society" is the whole world.
So unless you're measuring the world as a whole, you're measuring communities that have porous relationships with the outside world to some degree or other. But of course, cryptocurrencies are still much more porous than countries are.
When calculating Gini coefficient for crypto, do you include people that have 0.000001 BTC? Do you also include people that have exactly 0 BTC (and possible don't even own a wallet)?
But of course I believe in practice Gini is not calculated over people but over wallets.
Lot of people miss that individual crypto assets are deflationary, but the crypto market as a whole can be persistently inflationary b/c it's so easy to just fork or spin up a new coin.
Only deflationary if everyone rallies around bitcoin and ignores the altcoins, which isn't really what's happening.
I don’t understand how your comment is meaningful. If for example the USD was deflationary, and I argued it wasn’t because I could print my own currency at home, I don’t see how that would benefit anyone
[+] [-] TekMol|4 years ago|reply
I don't think most people care about the Gini in crypto because they are afraid of the crypto poor starving. I think they care because a high Gini means there are some super rich that could flood the market with their coins and make the price tank.
So the discussion in crypto about Gini is held from an investment perspective.
[+] [-] vbuterin|4 years ago|reply
[+] [-] ashtonkem|4 years ago|reply
[+] [-] asymmetric|4 years ago|reply
This is possible and maybe even likely, but it is somewhat ironic to hear such a bearish case on crypto's usfeulness made by vbuterin :)
This is not intuitive to me. Intuitively, going from 10K to 20K is not the same as going from 1M to 2M. In the former case, you cross the USA poverty line[1], in the latter, you can afford a couple more Lambos.Is there something I'm missing in the use of the word "utility"?
[1]: https://en.wikipedia.org/wiki/Poverty_threshold#United_State...
[+] [-] arianon|4 years ago|reply
Vitalik uses the word "utility" the same way (mainstream) economists do: A numeric estimation of the satisfaction, pleasure, benefit, advantage, or happiness given by an increase in wealth.
What you're calling out is that the concept itself is problematic: as you pointed out, the assumption of log-utility of wealth is not entirely accurate because, in reality, increments in wealth have diminishing utility.
There are other limitations with the idea, for example, is it possible to capture in a utility function the well-accepted notion that losing a given amount of money is more painful than it is pleasurable to gain it? Or that receiving a small amount of money now may have much more utility than receiving a large amount of it in the future? Maybe, maybe not, but this is how economists attempt to capture and quantify human behavior regarding our wants and needs for wealth, inadequate as it is.
[+] [-] emodendroket|4 years ago|reply
[+] [-] DenseComet|4 years ago|reply
Take a look at any subreddits for these currencies too and you'll find the same sort of thing too. For example, I think the tech behind polkadot is a neat idea, but go to r/polkadot and all you'll find is discussion about prices and staking rewards.
I have a lot of mixed feelings about the space. A lot of the tech is pretty interesting and is pushing distributed consensus forward. On the other hand, 99% of people involved are trying to make a quick buck.
[+] [-] onetimeusename|4 years ago|reply
When I think of it that way, the Proof-of-Stake looks like it benefits mostly the large, early holders. I could be wrong but the current 6.1% return Ethereum gets is a very nice mining profit available to large stake holders. It seems like staking would be most easily done by people who already have large holdings and want to generate income from it. In that sense it's almost kind of feudal and I am wondering if POS was at least partly set up for that purpose.
[+] [-] hanniabu|4 years ago|reply
If the former, am I understanding correctly that you're upset ETH is an appreciating asset?
If the latter then you're incorrect. Right now it's inflationary and after the merge to PoS it'll still be inflationary but less so. EIP 1559 has a gas burning mechanism that can make ETH deflationary but it depends on usage. Even if that is the case, it will only be short term until an equilibrium with the price is met (as ETH price increases, less gas will be needed/burnt, reducing the effect on inflation).
[+] [-] darawk|4 years ago|reply
[+] [-] bogota|4 years ago|reply
I don’t see why you think anyone is lording this over someone. The blog just addresses that the gini coefficient doesn’t fit well here. You can agree or disagree with that but you just seem to be hurling insults for whatever reason.
[+] [-] cryptoquick|4 years ago|reply
Bitcoin will take care of fiat money, and Ethereum, too. It's solving for the $1 quadrillion dollar problem, and after a few decades or generations, wealth around the planet will begin to be a little more evenly distributed, since even the Bitcoin billionaires will eventually need to spend their Bitcoin.
[+] [-] JohnJamesRambo|4 years ago|reply
[+] [-] bpodgursky|4 years ago|reply
He's conspicuously burned or donated hundreds of millions of dollars (albeit not super liquid) in other crypto assets basically because they were a distraction. He's given away billions in Eth, and has approximately 0 conspicuous consumption.
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] IshKebab|4 years ago|reply
You have the same problem with any distribution that you want to summarise with a single number, e.g. colour temperature, CRI, house price indexes, rainfall measurements, etc. etc.
[+] [-] Animats|4 years ago|reply
Now, governance concentration, that's a useful metric for a cryptocurrency.
[+] [-] arcticbull|4 years ago|reply
A Gini coefficient is only useful if you treat it as a currency of a sovereign state, but it has basically no attributes of a good currency - and certainly doesn't have a state. It's not broadly accepted anywhere, it's not the unit of account for anything and nothing is priced in it. So yes, to your point, a Gini coefficient with that in mind makes no sense.
However because it says "currency" on the sticker, someone's gonna run the numbers as though it is one.
[+] [-] vbuterin|4 years ago|reply
So unless you're measuring the world as a whole, you're measuring communities that have porous relationships with the outside world to some degree or other. But of course, cryptocurrencies are still much more porous than countries are.
[+] [-] steerablesafe|4 years ago|reply
But of course I believe in practice Gini is not calculated over people but over wallets.
[+] [-] known|4 years ago|reply
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[+] [-] text70|4 years ago|reply
[deleted]
[+] [-] bpodgursky|4 years ago|reply
Only deflationary if everyone rallies around bitcoin and ignores the altcoins, which isn't really what's happening.
[+] [-] nemothekid|4 years ago|reply