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- 1 Pareto’s 80/20 rule implies that roughly 80% of outcomes result from 20% of causes./a>
- 2 Over the years, this principle has been employed in many different sectors.
The Pareto 80/20 rule highlights the unequal distribution of results in varied sectors. Vilfredo Pareto, an Italian economist, observed that 20% of the population in Italy owned about 80% of land in the country at the beginning of the 20th century.
Following this, the principle has been applied in different sectors which brings attention to the uneven distribution of results. But how does it apply to cryptocurrencies?
Pareto 80/20 rule in regard to cryptocurrency can be observed in some notable ways like
- Wealth Distribution
Wealth distribution is uneven in cryptocurrency. There are only a few major investors in any coin. They are referred to as “Whales”. They are relatively less as compared to other investors. This shows that the distribution of wealth is not equal and so the Pareto rule is believed to drive the wealth distribution.
2. Network Security
The security of the network depends on a limited number of nodes. Not all nodes participate in blockchain security. Relatively their amount is less as compared to other nodes. These nodes which are frequently run by significant entities contribute unevenly. This way the Pareto rule is also employed here.
3. Smart contract
The usage and development of smart contracts relies on a small number of people but the outcome or usage of it is vast. A limited number of developers of smart contracts means a small number of people and businesses make contributions to create smart contracts. However, it influences the development of blockchain in a huge way.
4. Project Success
Many investors show interest in the area of initial coin offerings(ICO) and token launches. But they invest with the major teams. This means a relatively small amount of projects receive the investments. Hence, here also the 80/20 rule implies.
5. Airdrops
Airdrops and launches are only for limited people. Either those who are part of the community or those who have completed certain tasks. This shows the inclination for fewer people.
Is There Any Negative Impact of Pareto Rule?
Although this rule in general shows that it is applied to different sectors, negative impact can not be ruled out. This highlights that the project should focus on putting an equal opportunity policy to deal with the concentration of wealth and power.
One way is to support decentralized access to financial services removing the socio-economic and geographical restrictions. Also, the project can think of setting up fair launches and airdrops. They can distribute the tokens widely across the community.
Summary
The Pareto rule shows how important it is to recognize the main players of any industry. The rule applies to varied sectors. Many cryptocurrency and major projects when studied keenly show that a limited amount of people or projects are giving the maximum output.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
