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Cryptocurrency, Featured

Causes and Consequences of Wealth Inequality, How Cryptos Can Bridge It

Wealth inequality is a reality in this world. There are a range of international and domestic factors that are leading to wealth inequality. The problem of wealth inequality has a cascading effect on other problems. For example, there is ample evidence that wealth inequality invariably leads to educational and employment inequalities. When it widens, it leads to unsustainable economic growth and may even lead to political and social conflicts. Therefore, it is essential to briefly describe those factors and understand the potential of cryptos in neutralizing some of those. 

Causes of Wealth Inequality

A combination of economic, social, and individual factors is responsible for perpetuating wealth inequality in the world.

Distinct Salary and Wage Structures

The salary and wage structures of every job are distinct and this leads to wealth inequalities. The structures may also vary for different individuals doing the same job. For example, an experienced individual in a company is likely to earn more than a novice. Even if companies sell the same product in the same region, there is no guarantee that salaries and wages shall be the same. This is because each company has a distinct marketing strategy, vision, mission, and market share. 

The labor market is the main determiner of distinct salary and wage structures. In most countries, the supply and demand cycle determines the policies in the labor market. For example, wages can be high, if there is low supply but high demand for a skill and vice versa. 

Education Levels

It is an undeniable fact that education levels play a crucial role in determining the wages and salaries of individuals. Sometimes, it can play a decisive role too as some jobs require only specific educational qualifications. It is common knowledge that those having higher education have better chances to gain and impart advanced skills and therefore earn more. Consequently, they may earn more than those who have less education but have more job experience too. However, market factors such as new technological changes or new economic policies can override this factor and perpetuate income inequality by rendering previous educational qualifications irrelevant. Therefore, it is erroneous to assume that highly qualified individuals will always earn higher wages. 

Personal factors

Personal factors like individual abilities, traits, priorities, family background, and friends play a vital role in perpetuating wealth inequality. It is true that some individuals have better financial knowledge than others and remain determined to grow and prosper. The other controversial factor that experts like French economist Thomas Picketty claim is that there is a direct positive correlation between higher IQ and wealth. For some individuals, family background, especially inherited wealth plays a key role in determining the lifestyle of individuals. 

Consequences of Wealth Inequality

The consequences of wealth inequality are largely harmful to individuals, societies, communities, and the national economy. 

Poverty Levels Rise

Widening wealth inequality can increase poverty levels substantially. Elise Gould and Jared Bernstein of the Economic Policy Institute have stated that the US poverty levels could have been reduced but rising wealth disparity in the last few decades prevented it. Extreme cases of wealth inequality halts national progress and can lead to widespread exploitation.

Crime Rates Increase

Wealth inequality has a positive correlation with crime rates. It may increase both violence and criminal activities. The reverse is also true in most cases. For example, when wealth inequality decreased in Canada, the incidents of homicide and robberies also declined.

Causes Economic Instability

It is not a mere coincidence that whenever wealth inequality rises, it invariably leads to economic instability. Sometimes, higher levels of income lead to financial crises, growing unemployment, rising debt, and inflation. 

Negative Impact on Health

The health parameters of a country suffer because income inequality deprives many individuals from gaining adequate healthcare. It also causes stress and anxiety. Infant mortality, obesity, large-scale mental illness, alcoholism, and chronic diseases become the norm.

Role of Cryptos in Reducing Wealth Inequality

Cryptos have tremendous potential to reduce wealth inequality in the long term by providing access to financial resources and opportunities.

Offers Access to Financial Opportunities

Cryptocurrencies such as Bitcoin and Ethereum can resolve the financial problems of unbanked and underprivileged people. Satoshi Nakamoto purposely created and developed a blockchain such that centralized currency manipulation can be subverted. The World Economic Forum (WEF) admits that because of cryptocurrencies like Bitcoin, many people have gained access to open accounts and manage finances. Since 2020, the whole world has witnessed the rise of DeFi users. 

Cryptos Foster Innovation

The crypto technology blockchain can foster innovation in many sectors in the world. Innovations can be a great equalizer and bridge wealth inequality to a large extent. For example, Bitcoin because of its decentralized nature has been given official status in El Salvador, Argentina. Moreover, Bitcoin today remains the main basis for most cryptocurrency projects.

Promote Better Wealth Redistribution

Wealth redistribution holds the key to minimizing the problem of wealth inequality. Cryptos have the potential to promote social justice and can facilitate faster international transitions. It does not need the help of intermediaries and can benefit low-income earners. The cryptos because of blockchain can increase both transparency and accountability, thereby, improving wealth redistribution. 

Also Read- Crypto Wallets Can Protect Financial Freedom

Conclusion

Cryptocurrencies can minimize the problem of wealth inequality in several ways. Therefore, compared to fiat, its decentralized feature has the potential to break free the shackles of economic inequality and deliver financial freedom. The world today needs to understand the primary causes and harmful consequences of widening wealth inequality. Therefore, cryptos should be allowed to reduce the gap substantially.

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