The Great Ponzi Scheme?

Everybody under a rock (including Patrick) by now knows what cryptocurrency is. According to the Pew Research Center, at least 16% of Americans have either invested in, traded, or used crypto in one way or another. If you are one of the 84% of Americans who have not used crypto or dabbled in NFTs, then maybe you have met a “crypto bro” that can’t stop talking about his dog coin or monkey art “going to the moon.”

As of writing this article the global crypto market cap is $2.26T which means that there is $2.26 trillion worth of people’s (hopefully) hard-earned money invested in these “assets.”

Nothing, however, compares to the popularity of Bitcoin, a once irrelevant piece of digital nonsense that has evolved into a globally respected asset class. It’s so respected, in fact, that a third-world country in Central American has adopted Bitcoin as a legal tender (the name of the country rhymes with Mel Balvador).

So that’s that, right? Cryptocurrencies are the future reserve currency of the world, correct? Or is it a safe store of value and inflation hedge, like digital gold? Is it even an asset class?

Let’s explore.

What is crypto? Google’s dictionary defines crypto as “a person having a secret allegiance to a political creed, especially communism.”

…not quite what were are trying to define, so, what about cryptocurrency?

Cryptocurrency is “a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.”

There we go.

Crypto allows two or more parties to transact amongst each other without their payment being processed by a third-party payment processor such as a bank, Visa, Mastercard, or PayPal.

So basically it’s cash, right?

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Cash, and other fiat currencies, are regulated by central banks that can, with the snap of their fingers, increase the supply of money at any point. If you studied economics in high school, you would remember that high supply can lead to lower demand which eventually leads to the devaluation of an object; which in this case is money.

So what makes cryptocurrency so special? Unless you are Dogecoin, which increases its total supply by 15 million per day, most crypto, such as Bitcoin, have an irreversible fixed supply.

And inlays the problem. Anything that has a fixed amount can become valuable. A rock with a specific unique moss pattern can become invaluable. But does that rock deserve the title of the future reserve currency? Should I pay $50 thousand for it? What makes Bitcoin deserve the hype?

The hype.

By this point, it’s hard not to compare Bitcoin fanatics to cult members. Thousands of posts flood the internet everyday warning of the impending hyperinflation crisis that is looming right around the corner in the United States like it’s Weimar, circa 1923. Laser-eyed Rockstar investors such as Michael Saylor and the Winklevoss Twins constantly remind you to buy Bitcoin.

Thanks Michael. Maybe, I too, can become as filthy rich as you. All I need is sunshine, a fractional share of Bitcoin in my pocket, and a swarm of clueless apes pumping up the price with hard earned money. Cue the laser eyes.

To make matters worse, there is nothing, in essence, that makes Bitcoin so outstanding compared to other cryptocurrencies, other than it’s fixed supply of 21 million coins, and the fact that it is the first cryptocurrency to be popularized globally (to my knowledge). In fact, there are 9 other cryptocurrencies on crypto exchanges with even less fixed supply. Why aren’t they worth the trillion dollars in market cap?

To make matters worse, it is highly inefficient as a currency. According to coinmarketcap.com, the premier crypto value tracker, it states that Bitcoin transactions can take anywhere between 10 minutes to 1 hour. Good luck ordering a cheeseburger at McDonald’s while the price of Bitcoin falls 40% while you wait for the transaction to work. Can it be fixed in the future? Maybe?

Oh, and, let’s talk about volatility. Cryptocurrencies, as a whole, are not stable. Now, while I understand that one Bitcoin = one Bitcoin, we are living in the real world, and one bitcoin has had its price fluctuate between $40,000 and $60,000 in the span of two weeks. Again, imagine trying to purchase anything in the real world (not the metaverse) while your purchasing power has shrunk in a matter of minutes.

Maybe nobody saw how Squid Game token lost over 99% of its value when its developers decided to flee with millions of dollars in their pockets.

People always mention the value of the US dollar falling, but never seem to mind when their prized horsecoin falls 80% in a day. “Buy the dip bro!!”

So let’s see what we have so far;

  1. Bitcoin, and most cryptocurrencies are highly inefficient ways to transact (at least for now).
  2. They are extremely volatile in nature.
  3. They are regulated by developers (shocker).
  4. They are advertised by rich devs and investors, whose sole purpose is to grow their net worth through pumping and dumping tokens.

So after everything, what is the purpose of crypto? Is it to get rich? Is it to store wealth? Is it transact without the interference of Big Brother?

Yeah… it’s kind of all of those things, and none of those at the same time. Kind of like a Ponzi Scheme, except everyone is willingly participating in the fun.

#Dogecointothemoin

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