“How Will Cardano Prevent the Concentration of ADA/Governance Power in the Hands of a Few ADA-Stakeholders?” This is a question I’ve seen frequently; so, this thread is dedicated to answering that question and exploring all the implications associated with this topic.
Weak Institutional Integrity Creates Economic/Political Power Concentration. One of the most significant reasons that financial power concentration occurs in non-ADA-based markets and societies today is because politicians in national governments with weak institutional integrity (e.g., the USA, UK, Mexico, most African countries, and virtually all countries with high Gini coefficients) invariably design their laws, industry regulations, banking systems, and political systems to favor the rich because it’s the rich who fund their political campaigns. The institutional structure of their governments actually creates incentive structures that make economic/political power concentration inevitable.
The Vicious Cycle of Institutional Structural Bias. All this might seem intuitively obvious to many people, but to understand specifically how/why Cardano can resolve the economic/political power concentration problem both in the real world and within the ADA currency market, it’s useful to understand the precise mechanisms that perpetuate the financial and political power concentration in many countries today. It begins with a vicious cycle of institutional structural/systemic bias with the following characteristics:
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Tax-breaks and income-shifting opportunities for already-wealthy individuals and corporations that enables them to evade/avoid tax liabilities, which amplifies and perpetuates dynastic wealth accumulation.
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Captured regulatory regimes that systemically encourage and perpetuate the economies-of-scale that perpetuates the dominance of the largest corporations (e.g., the 10 largest corporations on Earth today wield more economic power than 92% of all countries combined); which leads to. . .
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Concentrations of financial and broad economic power into a tiny number of so-called “too-big-to-fail” banks.
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Monopoly Market Power. The banks then convert their increased financial power into monopoly market power to kill competition, engage in coercive acquisitions of smaller companies, and gobble up ever-larger swaths of economic activity throughout an economy.
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Wealth Transfer. As the banks grow in size, power and influence, they systematically transfer wealth from the general population into the accounts of the banks’ executives, shareholders, and their wealthiest corporate and individual clients.
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Debt Bonanza. With favorable regulations, market monopolies, and access to cheap money from the Federal Reserve, the banks exploit the fractional-reserve banking system to cram as much debt as politically possible down the throats of citizens.
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Loss of Economic & Labor Power. As the society drowns in debt, the general population loses their economic and labor bargaining power vs. the largest banks and corporations, thereby perpetuating the cycle of economic power concentration in the hands of a few.
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Loss of Political Power. As the society loses their economic power relative to the banking system and large corporations, they lose their political power over the laws and regulations that govern their society.
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Neo-Feudalism Emerges. With economic and political power lost, the society is powerless to escape the economic and political oppression because the government is no longer operating based on democratic principles. Instead, it’s operating based on a form of feudalism, in which the largest banks and corporations have taken control of the society and its means of production, leaving scant wealth creation opportunities for the general population.
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The Cycle Continues. To thank the politicians who provide all those systemically embedded benefits above, the beneficiaries of those benefits (those who are already rich and powerful) return the favor with a never-ending river of political campaign donations to keep their favorite politicians in control of the regulatory, taxation, legislative, legal, and electoral systems. This is what enables them to block democratic institutional reforms. So, the cycle continues.
How Does Cardano Resolve All Those Problems? Among other features, Cardano stake delegation enables individuals and societies to efficiently pool their ADA to offset the concentration of ADA stake power in the hands of a few large ADA stakeholders. Thus, the stake delegation process enables millions (eventually billions) of people to pool their ADA democratically to offset the power of the largest individual stakeholders.
Can’t the Whales Pool Their ADA, Too? Yes, the largest stakeholders can try to fight the ADA masses by pooling their ADA together, too, which is what happens in corrupt and dysfunctional economic/political systems today. However, the key difference in Cardano Land is that there are no politicians to corrupt, no institutionally biased laws and regulations to manipulate, and no structural incentives for the vast majority of the ADA stakeholder population to collude with the whales or attack, hijack, and undermine the integrity of the system. So, ADA pooling does not have the same nonlinear corruption amplification effect that financial power concentration does in today’s easily corruptible economic and political systems.
Visualizing the Worst-Case Scenario. Given the law of supply and demand, it’s extremely unlikely that any entity, including most governments, would be able to acquire enough ADA to control 50%+1 of the global ADA stake before the price climbed and made their acquisition campaign too expensive. Nevertheless, it’s theoretically possible that some perfect storm of events (e.g., discovery of a temporary security flaw/glitch in Cardano, combined with a nasty bank lobby campaign, and a government(s) making it illegal to transact in ADA . . .) could hit the price of ADA very hard. That would create a great buying opportunity for some deep-pocketed malicious actor(s).
The Cardano Bill of Rights Prevents the Worst-Case Scenario. Every democratic system contains the seed of tyranny by empowering a majority to oppress a minority. The U.S. Founding Father’s resolved this issue by codifying a legally binding Bill of Rights, which is why I proposed the “Cardano Bill of Rights” previously. Without a Bill of Rights (and perhaps a broader Constitution), there is no technical or sociological way to prevent the worst-case scenario; and our community will live in perpetual fear that the worst-case scenario is just one perfect storm away from destroying humanity’s future in Cardano Land. (Later, I will post some example provisions on the “Cardano Bill of Rights thread”, which I think are essential to preventing the worst-case scenario described above.)
Community Alignment is Embedded within Cardano’s Architecture. As more and more ADA stakeholders join our community, the interests of an overwhelming majority of them will be aligned with creating a stable ADA currency and a vibrant global community. Why? Because nobody wins by gobbling up a bunch of ADA and then nuking Cardano Land, except for banks, governments, and a few unscrupulous early competitors. That means we only need to worry about a relatively small group of potential adversaries, which is why I wrote Blockchain Patent War Coming.
Cardano is the Community and the Community is Cardano. With the risk of ADA market concentration substantially mitigated as described above, we can focus on the more fundamental process of eliminating economic/political power concentration in our societies without sliding into communism. The only way to do that is to be a community that humanity wants to join, based on laws that deliver true justice, and an economy that distributes value in societies equitably and sustainably.
Those are a few thoughts to consider with respect to the “ADA power concentration” issue. Hopefully this helps to allay various fears and concerns that I’ve seen in some other threads. Looking forward to more thoughts and ideas from our lovely community.
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