By cryptocurrencies, two extreme opinions are clashing often: crypto fans say that the new technology will revolutionize the world, the opponents claim they are nothing more than an especially large ponzi scheme, or snowball system. Are we all here in the middle of such a system? Deutsche Version – German version
Hybrid Games
As I recently wrote in german, pure pyramid schemes have nothing, but nothing more to offer than a distribution game: the money changes owners, but no real value, no goods or services are sold and bought.
However, since this systems are considered a serious crime in all countries, many organizers have invented hybrid systems (such as Multi Level Marketing, MLM) where goods or services seem to be involved. But mostly at unrealistic prices.
Fresh meat wanted
Ponzi and Pyramid schemes are usually described as something where no value is included in the game, and previous players are paid out merely with the money from newer players. At first glance, cryptos seem to be such a gamble: When new investors come onto the market, Bitcoin and almost all other stocks on Coinmarketcap.com's list rise. If investors leave the market, the price falls.
But "normal", conventional capital markets, such as stock exchanges, are also known as markets where the more fresh money flows in, the more prices rise. And mostly nobody calls them pyramid schemes.
Perpetual motion machine
If it's a pyramid scheme, it's very sophisticated. I'd say they invented the perpetual pyramid game. When the price falls, new investors come. When the price goes up, a lot of people get out.
But there are always those who think Bitcoin will be worth more in the future. The game may never be over. (Or maybe only if something much better is invented.)
Faster and cheaper
Are cryptocurrencies more than just a fraudulent game? Yes. They have important functions, offering fast and cheap global money transfers, most cryptos already have this service. The question is, is that worth $268 billion? (The market capitalization of all cryptos Wednesday at Coinmarketcap.com.) Visa (V) is currently worth 269 billion dollars at Bloomberg, almost exactly the same as all cryptos. Western Union (WU) only about 9.3 billion.
No, money transfers are certainly not worth that much. Especially because Visa or Western Union also have advantages, are officially regulated and pay dividends. Bitcoin does not pay dividends, nor do most crypto currencies. (Others yes, like Steem, but due to the inflation in the system we schould ignore it.)
Many new clever values
But there are other values in the system. Anonymity. (Even if with limits.) Smart contracts. Data that can never be erased from the Earth's surface again. No more censorship. Many see decentralisation, independence from states and central banks as an advantage (which also has disadvantages, but let’s discuss this better another time). "Elimination of middlemen" - the cancellation of expensive participants in the distribution chain. The list can still be extended.
Conclusion
So are crypto currencies a pyramid scheme? I tend to answer “no”. They actually have some characteristics of these dubious games, but they also have an intrinsic value. Many of they advantages are ignored by some old-fashioned economists. (Most of them are older and don't know much about technology. Cryptos seem to be a generation issue, too.)
I think they'll regret their insight. (“Heavier than air flying machines are impossible” – said some people about 130 years ago.)
(Translated with Deepl and corrected manually.)
Disclaimer:
I am not a financial advisor and this content in this article is not a financial or investment advice. It is for informative purposes only, or simply to make you think, entertain, increase testosterone and adrenaline level. Consult your advisers before making any decision.
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