The Breakdown - How Bitcoin Can Help Break Cycles of Poverty

Episode Date: April 11, 2021

This week’s edition of “Long Reads Sunday” features NLW reading Bradley Rettler’s “The Rich Get Richer, the Poor Get Bitcoin.” It is an argument that, far from being just a speculative tool for the already wealthy, bitcoin represents a disruptive force that can combat wealth inequality.  -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.combexor.io and Exodus. And produced and distributed by CoinDesk. What's going on, guys? It is Sunday, April 11th, and that means it's time for long reads Sunday. Now, I'm not going to give a long intro to today's piece. I will only say this. The deeper we get into this Bitcoin. cycle, the more that we're going to get questions about what Bitcoin means for society.

We're seeing that a lot in the context of energy consumption, but I think we're likely to see it a lot in issues of wealth inequality that even outside Bitcoin are driving so much of the global discourse. Today's Long Read Sunday selection is by Bradley Rettler, who you may even remember from my show on the philosophy of Bitcoin a few weeks ago. In March, he wrote a piece called the rich get richer, the poor get Bitcoin. Can Bitcoin solve wealth inequality? And I'm excited to share it with you today. Introduction. Global wealth inequality is increasing. Meanwhile, government-backed currencies, where most of the poor save their money, are devaluing each year. Poor people lack access to banking and they can't get credit. This is at its most extreme in

economies in crisis, but is true all over the world. Using Bitcoin can mitigate these problems and level the playing field for the world's poor as we work toward economic justice. Owning cash is a losing game. Between 2016 and 2019, the inflation rate of the Venezuelan Boulevard was 54 million percent. Of course, no Venezuelan wants to hold bolivars because they are worth less each day. For those who do have bolivars in their bank account, banks have strict withdrawal limits. Families use upward of 10 debit cards from different accounts and different banks just to buy groceries. Given the government's stranglehold on finances, the average person cannot

easily acquire other assets, and their bolivars are also often confiscated by police or the military. The situation is not unique to Venezuela. Many countries' government-sponsored currencies are rapidly devaluing, including Turkey, Nigeria, Lebanon, Zimbabwe, Argentina, Iran, and South Sudan. The privileged wealthy in those countries have no problem weathering the storm. They have abandoned the ship of local currency for the lifeboats of foreign equities and foreign currency. The poor, by contrast, have no such luxury. They are paid in local currency, pay others in local currency, and save what they can in local currency. They lack the opportunities of the wealthy. Their ships are sinking, but they have no lifeboats. As their currencies devalue, the poor share of

the country's wealth decreases because they lack access to safer investments. Making matters worse, most countries have no banking system. For example, 76% of Kenyans don't have a bank account. They make due instead with the M-Pesa payments network via mobile phones. This works well as a medium of exchange, but not for storing value. Should the Kenyan shilling devalue beyond its current rate of 5% per year, their options are limited. The wealth gap increases. This phenomenon isn't unique to countries with rapidly devaluing currencies. It's just more noticeable. Almost every government-backed currency is designed to devalue over time. The wealthy store very little of their wealth in cash or cash accounts. The rest of us aren't so lucky. When we want to save,

we save in fiat, and that's a losing play. It is very hard to stash away just a few hundred dollars in real estate. Most of us don't have a way to buy fractions of houses. One might think that apps like Cash App and Robin Hood are helping people who are only able to invest miniscule amounts in the stock market. This is a sorely needed service, but it's not without concern. First, both sell order flow to Wall Street, allowing Wall Street to use that information to front-run retail investors. Second, they both use slow, centralized clearinghouses, which can prevent retail investors from making purchases they want to make, like buying stock and GameStop. The wealthy also easily take on low-interest debt in a currency that gets easier to pay back.

over time and use it to buy assets that hold or increase their value. The poor cannot. They have less access to low-interest debt, and so pay off debts less easily. Almost every country's currency is designed to devalue over time. This is a debt forgiveness program for the global rich, rich individuals as well as rich countries. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. Barrow against your digital assets at just 5.9% APR. earn passive income with yields of up to 12% and swap between more than 75 market pairs with the instant Nexo exchange. Try the Nexo wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io.

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Bitcoin can help, whereas governments can issue. their currencies at will, for example, the U.S. government printed $9 trillion in 2020, 22% of all U.S.D ever minted. This is not possible with Bitcoin. The rules embedded in Bitcoin's software dictate that its supply schedule will unfold predictably until there are 21 million BTC by 2140. The supply is capped at $21 million. And Bitcoin is inclusive. To buy some, you only need access to a phone or a computer with an internet connection or visit a grocery store with a Bitcoin ATM. It is significantly harder to invest in stocks or get a bank account. especially for those who aren't already socioeconomically privileged.

The global poor can safely hold whatever wealth they have in Bitcoin without worrying about that wealth being devalued as a result of increased supply. Bitcoin is resistant to seizure, which also benefits those who flee oppressive regimes with their life savings. Cash is bulky and gold is heavy. Authorities and thieves detect and confiscate both. How does one get their life savings to their new country? One solution for many has been to keep Bitcoin in a digital wallet with a memorized seed phrase. To do this, one memorizes a string of 12 random words which can be used to unlock their Bitcoin's

savings when they arrive safely at their destination. And would-be thieves have no idea which random person traveling through an airport has such a wallet. Bitcoin can also help solve problems in countries with healthier economies, including the U.S., my home country. I'll talk about three. Credit, banking, and storing value. First, credit. Credit is a tool to build wealth. People who can borrow to, for example, buy homes or start companies, can then pay back the debt slowly as the currency devalues. But those who need it most get it the least. U.S. history has also shown that credit is not extended equitably. The clearest example is redlining, where the federal government color-coded neighborhoods in terms of willingness to loan at various

interest rates, and for those color-coded red, the federal housing administration refused to ensure mortgage loans to people living in those neighborhoods. These were primarily lower-income black people living in urban areas. This locked lower-income black families out of home ownership, which is the primary vehicle for rising to the middle class. Redlining was banned in 1968, but its effects are still seen today. Black families own 1% of the wealth in America today. They own 0.5% in 1863 when the Emancipation Proclamation was signed. White families today have nearly 10 times the net worth of black families

and more than 8 times that of Hispanic families. Being shut out of the credit market is economically devastating, and so people seek credit elsewhere. Each year, 12 million Americans, 6% of American adults, take out a payday loan, making it a multi-billion dollar industry. The average loan is 375, and the average loanie pays $520 in interest. The second problem is a lack of banking. Over 7 million U.S. households were unbanked as of 2019. Unbanked people pay to cash their paychecks to get money orders to pay rent and utilities, to get prepaid debit cards and so on. The average unbanked family

pays $2,400 a year on financial tractions like these alone, a whopping 10% of their annual income. the unbanked pay approximately $89 billion per year in total transaction fees. Bitcoin mitigates both the banking and borrowing problems in the U.S. In relation to banking, it's important to note that the unbanked still have income, but it comes in the form of checks that cost money to cash. Bitcoin costs nothing to receive in about $10 to send. And with protocols like lightning that run on top of the Bitcoin network, the cost per transaction is pennies. If unbanked people were paid in Bitcoin and could pay bills in Bitcoin, the cost of their financial transactions would be minuscule. and they can easily and cheaply convert some of their Bitcoin to USD if they so desire.

Bitcoin can also help those who have turned to payday loans. Such a loony is often unbanked, and remember, the unbanked pay $2,400 per year in transaction fees. Cutting those transaction fees to less than $1 per year would mean that they'd keep the equivalent of $200 per month. Since the average payday loan borrower is $26 short per month, a significant majority of those who take out payday loans would no longer need to do so. They could avoid this predatory industry altogether.

So much for banking and credit. Finally, consider storing value. There are systemic factors that make it difficult for people who aren't already wealthy to store value. Regulators tend to think that, for people's own good, they shouldn't be allowed to make risky investments, except the lottery, apparently. So the rich get richer because of their access to stable stores of value like hedge funds, venture capital investments, and so on, and the poor do not. Holding Bitcoin at least keeps their money safe in a currency that won't devalue due to increased supply. One might think that holding cash a savings or checking account isn't risky. First, not everyone can open a savings account. Bitcoin is more inclusive. Second, savings accounts aren't risky in this sense. Your money will be there when you need it.

But they are risky in another sense. Your savings will be less valuable to you when you take it out. $100 in 1950 is worth $1,080 today. By holding USD for 60 years, it loses $1,000 in value. Bitcoin, by contrast, has gained value every year of its existence, save one, and it has gotten less volatile every year. And of course, one needn't save only in Bitcoin. People deserve a vehicle to store the fruits of their labors. Some people have access to many such stores of wealth, but those who need them most tend not to. Bitcoin can fill the gap now, even as we fight for a more equitable and just system for all. All right, back to NLW here. I don't want to spend long on this, but I do think that the point that I want to make and something that I've observed is that I think

that it's powerful to bring the conversation of economic justice into the Bitcoin narrative. Bitcoin has historic associations with libertarianism, and it makes sense why. It is a permissionless system. It does not run based on leaders. It cannot be compromised by leaders, and so is a natural fit for that ideology. However, as you can see from this conversation, it also offers a huge amount to people who view themselves as on the political left and who have priorities such as economic justice and the reduction of wealth inequality. This is an asset that by definition cannot be limited to one group or another. It is available to any group for any purposes that it serves. And by giving Bitcoin access to this language of economic justice, I believe it could turn many

people who might otherwise find themselves as opponents into allies in a way that could be extremely powerful going forward. Something to chew on for this April Sunday. But for now, guys, I appreciate you listening. I hope you're having a great weekend. Until tomorrow, be safe and take care of each other. Peace.