After reading and trying to understand how the current popular cryptocurrencies such as bitcoin, dogecoin work, the only conclusion I am able to arrive, based on my limited brain, is that this is the biggest bull crap Ponzi Scheme ever, and I’m surprised so many ethical leaders such as Elon Musk is supporting this scheme to defraud less informed, and making quick bucks while they can. Let me explain why I think this way.
- Bitcoin is anonymous. That is a common misconception. While the wallet address is not directly linked to the real identity of the holder, it is possible for investigators to find out. And the wallet address itself is in fact very traceable public info on the block chain. In fact, should government require a real identity based registration of every wallet account, much like when you open a bank account, people would know exactly where this “money” has been transacted. The loop hole is that today there is no regulation on opening on crypto wallet. it’s like you can open an bank account with fake or no identify info, and use it to transfer money. China want to move the offical yuan onto the similar digital encrypted data base technology for the exact reason that now they can actually trace every penny. If you want privacy, good old Cash is your friend. There is nothing that ties a pile of dollar bills to the identity of the holder.
- Bitcoin as a currency. Many people under the impression that Bitcoin is just like USD, Euro, a currency but decentralized, not issued by governments and banks. However, the claim that you can buy tesla, house with bitcoin is more a publicity stunt than any Practicality. First, bitcoin transaction is painfully slow, it takes about 10 to 20 minutes to verify, sometimes up to hours. Image you swipe your credit card, and have to wait for 20 minutes for the transaction to go through. The more people are actually using, transact on bitcoin, the more congestion it will have on the verification network, hence the slow it gets. Imagine the whole world transact on bitcoin to pay for food, grocery… it’ll be so slow that everyone’ll just wait in line. Second is the energy needed to compute the transaction. It takes huge amount of energy to do the transactions that it’ll take half of worlds power if everyone’s actually using it as currency. Third is that the network only can perform 4 transactions per second, compared to 1700 transactions per second for Visa. no way everyone’s gonna by swiping their bitcoin wallet. Fourth, if everyone’s using bitcoin, that would be the world will be on ONE single monetary system, there won’t be USD, EURO, Yuan. Every country using one currency that their individual government have no control off. Is that a good thing? some may think this is taking power from the government over load. But in practice, tying every country to one currency is very bad for local economy. Not every country is in the same economical state, much like the problem with EURO, having poor country like Greece being on the same money system as Germany pulls down Germany while making Greece too expensive. Greece need to have cheaper cost of labor and material as a less developed country to attract businesses, being tied to Euro means they can’t devalue themselves to make it more attractive. Five, and most importantly why this will never happen. Currency is the tool that each government and country controls it’s economy and society, it is backed by the country’s military power and people’s trust in the government. That’s what give paper money, USD, Yuan it’s value. People say USD is not backed by gold, true, but it’s backed by US government, US military and US economy produce. Bitcoin is backed by a computer algorithm and a network of computers. The government can easily outlaw the cryptocurrency exchanges, transactions, making it not usable or convert-able to government’s own issued currency.
- Bitcoin as an asset, or story of value. This makes a bit more sense. It can be seen having the same function as gold, real estimate(land, house), or Art. where society collectively agree it act as a token to that holds to a certain value. However, Art works are usually long established it’s value by academia, and it’s truly not reproducible. Real estimate has real world use, as people need a place to live. Gold has real world use as well in making nice looking things or making electronics work. what’s the real world use of bitcoin other than purely supply/demand derived value? nothing. Paper money can be used to wipe ass or burn, stock of company is tied to the ability for the company to make actual goods, and real profits. what is bitcoin’s value tied to other than pure supply/demand? Nothing.
- Bitcoin is finite, 21 million coins ever, therefore it has to be worth something! That’s a common misconception. yes, this version of bitcoin is artificially limited at 21 million, but just like an artist making a limited run digital prints of an art or limited toys, there is nothing that stops them from making a second batch, or a slightly different variant of it. Change the year, then call it year 2020 edition, 2021 edition, or yellow color limited 100. Red color limited 100. unlike a piece of vangogh that was made in the past and truly can not be reproduced, these so called limited quantity collectables are purely artificial limitations. the bitcoin after 21 million won’t be called bitcoin, but nothing prevents bitcoin 2.0, bitcoin 3.0, bitcoin batch 4. in fact, there are already 4000 variants of bitcoin like cryptocurrencies, that are essentially alternatives and expansions to the supply of “digital cryptocurrency”. the fact that anyone can issue their own crypto token is exactly the problem, it’s like allowing everyone to print their own money. Joe Dollar, Jane dollar, steven dollar. as long as there is enough fool to recognize my steven dollar and willing to trade USD(uncle same dollar) for it, I’m happy. but intrinsically , there is nothing making Bitcoin special and finite that the alternatives can’t replace. You can’t replace gold with silver, or aluminum, you can replace bitcoin with dogecoin, as long as everyone agrees.
- So what is Bitcoin or crytocurrency? nothing more than an instrument, vehicle, or token for speculation, gambling and a tool for ponzi scheme. it’s like the chips they give to you at a casino. it has value as long as the casino is willing to exchange it with you back to USD. you carry this chips to another casino, they may or may not honour it. It is conceptually no different from the tulips used in the tulip mania speculation. substitute tulip for bitcoin, it has a better transaction verification, i give it that, but nothing else. is the block chain technology useful? yes, it is a clever way to record immutable records, preventing people from changing the records. is it a real asset or practical currency? no. is it any instrument to extract money from later fools? absolutely!
- is it a ponze scheme? by loose definition, yes. how do the holder of it in 2020 make money? from people in 2021 willing to pay more for it. and how do 2021 guy who paid more for it make money? from 2022 guy who’s willing to pay even more. when no one is willing to pay more it, does it increase value on its own? nop. the last person holding the coins will have no growth. and no one will want to buy it off from him, so he’ll be force to sell at loss, and when everyone wants to cash out , it’ll fall back to zero. but the early guy already got rich by the money that later guys donated. nice.
Conclusion. if you think this scheme will go on much longer, and at this point in time, you are still “early” and many more much later fools will join, then go ahead, get in to make some quick money, just don’t be the last holding the beg. for the rich guys like Elon Musk, they are just playing along with this world wide gamble with 2% of their cash, which is nothing. it’s same as if they spent 2% to be lottery as a diversification of their cash portfolio, just for the heck of it. if they loose all, no biggie, if they happen to hit jackpot, great. are you betting your 2% or 100% on it? or 200%? don’t mistaken it as anything more than a gamble.
after thought: maybe i should put 2% into this lottery as well, hmmm… 2000 bucks that I can afford to loose.