Are Blockchain and Tokenization the Holy Grail in Eradicating Wealth Inequality?By Jan 28, 2020 3 Min Read
The vicious cycle of wealth inequality is continuously wreaking havoc across the globe as the gap between the rich and poor widens. Realistically, the vast accumulation of wealth in a few hands tends to corrupt political systems and manipulate markets worldwide. For instance, the top 1% in the US holds 42.5% of all national wealth, and similar trends are witnessed in other countries.
Blockchain and tokenization could prove to be ideal in fighting the wealth inequality challenge, as they can break the vicious cycle of wealth inequality by promoting ownership of high-performing asset classes. This will enable any person to invest and partially own lucrative assets, such as commercial real estate.
Additionally, a blockchain-based accounting system coupled with digital tokens could instigate accountability and transparency in banking channels. Through this approach, banks will be prompted to market to their clients what products to be sold based on their preferences and interests. In turn, clients will enjoy maximal commissions and returns.
Tokenization allows for fractional asset ownership, which is ideal in tackling the wealth inequality menace. Notably, tokenizing real-world assets, such as art, real estate, and cars, will be instrumental in enabling the majority of the global populace to be part of this high-valued asset economy.
Realistically, ownership is fundamental in any thriving economy as people are presented with the chance to expand their wealth by buying and holding assets. This concept is guaranteed by tokenization.
In case of any debt, tokenization will come in handy in fractionalizing it into smaller token-tranches. Consequently, a market for these tokens can be created, enabling investors to trade them at a discount to par value in case they want to exit the investment plan.
Blockchain allows for smart contracts to be executed, whereby the agreement terms between the buyer and seller are directly written into lines of code. They can be programmed in such a way that they permit the automatic execution of ancillary provisions like a loan roll-over as this will disallow taxation at expiration.
Blockchain enables direct P2P investment
By leveraging on distributed ledger technology (DLT), direct p2p investment will be prompted between citizens and governmental investment agencies. This will guarantee transparency as all stakeholders will be in a position to know the amount of funds received, the number of bond-tokens issued, and the ultimate beneficiaries of the funds.
Mark Yusko, the CIO and CEO of investment advisory company Morgan Creek Capital Management, believes that blockchain technology is crucial in alleviating wealth inequality. He said, “The government and the elites want to have all the wealth, so they manufacture inflation and the wealth flows to the top. […] And that's why we have the greatest wealth inequality in the history of mankind. Bitcoin helps solve that because now we can opt-out as an owner of assets from that fiat system.”
According to the World Bank, 1.7 billion people across the globe do not have accessto loans and do not have bank accounts. Through blockchain-powered cryptocurrencies, such as Bitcoin, they will be provided with financial services, and this will be instrumental in tackling wealth inequality. Blockchain and tokenization are, therefore, instrumental in eradicating wealth inequality as it is a challenge that is continuously wreaking havoc globally.
Image by Pepi Stojanovski via Unsplash