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Rich-Get-Richer Effect Observed in BitCoin Digital Currency Network (technologyreview.com)
28 points by soofy 301 days ago | comments


bbbhn 301 days ago | link

It would be great if MIT Tech Review dropped its political agenda and just, you know, reported on technology.

These "rich-getting-richer" addresses may actually be held by businesses, and the reason they are gaining more links and BTC is because more people are storing their BTC with that business.

The study doesn't provide nearly enough evidence or context to justify MIT Tech Review's politically-loaded rhetoric. There are ways to report on the Bitcoin network without mucking it up with divisive classist rhetoric.

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Aqueous 301 days ago | link

If this article is slanted, it's because reality has a bias, not MIT.

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Natsu 301 days ago | link

There are actually two halves of Matthew's law: the rich get richer & the poor get poorer. I wonder why they didn't say anything about the other half? I suppose you might think it was entailed in the first, but I'm not sure how valid reasoning that would be if it's not zero sum.

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bdcravens 301 days ago | link

Perhaps there's an idea in there about those stuck with mining equipment that can't get an ROI due to difficulty increases.

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oakwhiz 301 days ago | link

Due to the deflation, wouldn't the poor get richer in the exact same proportion?

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Mikeb85 301 days ago | link

Deflation makes the value of currency go up, so the rich would get richer.

In an inflationary world, the rich actually get poorer, but typically have the means to invest and thus negate the inflationary loss...

The reason for the typical rich-get richer scenario in the real world is that the rich have enough assets that they don need to be liquid that they can invest and increase their wealth, whereas the poor need to keep their assets liquid for potential hard times, and thus by not investing they lose value to inflation.

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Mikeb85 301 days ago | link

Of course this makes sense for Bitcoin. Early adopters had a much easier time accumulating currency, and likely ensured a way for them to keep control of a good amount of currency in the future.

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ewillbefull 301 days ago | link

This article has already been disputed. As bitcoin has grown businesses like Bitpay are starting to handle payments for merchants, and exchanges and other businesses are beginning to coalesce bitcoins into wallets. That is why bitcoins are starting to become more concentrated, not because some individuals are earning more.

It's actually very difficult to make bitcoins with bitcoin investment, there's only risky bets and day trading right now. There are no reliable interest-bearing instruments.

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Aqueous 301 days ago | link

Another way of saying this: When it rains, it pours.

And of course this is true. For any given node in an example network, the number of incoming links to it is the same as the number of people who have already 'vouched' for that person. Obviously, more links are given to those who already have higher credibility in virtue of being vouched for. In a social network this is true and in an economy this is true. The more incoming links you have, the stronger your 'brand,' the more incoming links you have.

More than just a currency, what BitCoin offers is the most complete data on any economy. In no other economy is a complete record of every transaction, and every amount of every transaction, available. I wouldn't be surprised if BitCoin's economy becomes an extremely popular laboratory for academic economists to study actual, real-life economic effects with great precision.

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morgante 301 days ago | link

From my reading, this simply has nothing to do with the Matthew Effect. They are measuring volume of transactions, not necessarily value and certainly not wealth accumulation.

Naturally, those who engage in many transactions initially are likely to engage in even more transactions in the future (ex. a new exchange starts with many transactions and gets even more over time). This has no correlation with actual wealth.

If we were to apply this logic to the real world, one would reach the startling conclusion that delis are wealthier than high fashion boutiques.

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yetanotherphd 301 days ago | link

This is complete garbage. A bitcoin account in no way represents the wealth of a person. If you look at the graph, you will see that bitcoin accounts typically change in their "wealth" by orders of magnitude over the period of a month.

So if this is some way represented the real economy, it would be saying that in a given month, some people get 1000 times richer, some get 1000 times poorer, but in some average sense, the rich tend to get slightly richer.

The whole article has the feel of researchers taking the data that exists and is easy to analyze, doing some simple computations that are completely meaningless, and then pretending these computations have some implications for society.

EDIT: I was mis-reading that graph, but the point remains that bitcoin accounts are no a meaningful quantity (if we are interested in the wealth of individuals). In particular that figure (and their observations that the rate of growth is higher for higher balances) only applies to the subset of accounts whose balance increases. When you look at the accounts whose balance decreases, almost all of the time the balance goes to zero.

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alexeisadeski3 301 days ago | link

I can't wait for the whole rich-get-richer meme to go the way of the dodo.

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bdcravens 301 days ago | link

I think the idea here is that we worry too much about the rich getting rich, as if that's an evil to be prevented. As long as some underlying benefits hold true (poor get richer, society gets richer), we shouldn't worry about what's going on at the top.

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freshhawk 300 days ago | link

But those underlying benefits don't hold true when you have so many scarce resources. That's going to be the case for a long long time.

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freshhawk 301 days ago | link

So you are saying it's not a real effect that is observed? That's a surprising statement to me.

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Mikeb85 301 days ago | link

It's a real effect but nothing inherent to a market economy. It's more a result of human behavior....

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clicks 301 days ago | link

Why are we presupposing the market economy to be free of human behavior in any case? In practical terms a market economy will always be involved with human behavior... because it's a market where all parties involved are human.

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Mikeb85 301 days ago | link

A market economy presupposes a market ruled by supply and demand, free from regulatory interference. In such a market, there is no inherent mechanism to make the rich richer, or the poor poorer.

Rather it's human behaviour which determines wealth and distribution of wealth. So while this effect is certainly something that economists study and will continue to study, it's entirely due to human behaviour, independent of the 'type' of economy. Even in Communist countries you see this effect - the ruling party consolidate their wealth and power while the subjects are handed out a finite amount of resources/wealth.

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quadrangle 301 days ago | link

"A market economy presupposes a market ruled by supply and demand, free from regulatory interference."

Science does not spent time on fantasy. Science is for things that exist in the observable world.

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fennecfoxen 301 days ago | link

Excuse me. I spent some hours in high school physics learning the non-relativistic way to add velocity vectors, to say nothing of simplifying assumptions ignoring friction or wind resistance. Turns out it's a pretty good approximation in a variety of common cases. This is as much "fantasy" science as the example you're complaining about is "fantasy" economics, and either are darned useful ways to idealize problems where the discrepancies between the real world and the fantasy world are small.

Now if you'll excuse me, I'm off to go work on my Turing machine with infinite memory and all that jazz...

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Mikeb85 301 days ago | link

There are markets in this world where governments cannot reach. There are also planned markets, and everything in between.

Economics is as much theory as it is observation. Much like other sciences, for example, math and physics.

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freshhawk 300 days ago | link

Hmm, I definitely agree it's entirely due to human behaviour, that's where my confusion came from. I'm confused about how you expect this "meme" to die. It's never going to. It's inherent in any system with a disparity in power between the involved actors if the actors are even remotely free in their choice of actions and even a single actor is willing to act selfishly.

An economic system with the controls in place to stop the Matthew effect would look nothing like a free market.

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alexeisadeski3 301 days ago | link

It's import is exaggerated.

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gametheoretic 301 days ago | link

Ideas will persist as long as there are willing believers, no? Young-earth creationists are still alive and kicking...

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poolpool 301 days ago | link

Well this sure is a post you made on the internet.

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nodata 301 days ago | link

Why?

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dcc1 301 days ago | link

People getting rich of bitcoin are the enthusiasts who understand it and use it daily, like myself

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mahyarm 301 days ago | link

How about cost of miners in this analysis. Power cost, hardware cost, time cost?

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