Is Crypto a Ponzi Scheme?


Crypto is a trillion-dollar market that has turned digital novelties into a real-world currency used to buy everything from software to virtual real estate to illegal drugs. It’s also an investment vehicle and a form of money that isn’t backed by a central bank and can be hard to retrieve if it’s stolen. That has made it attractive to investors looking for higher returns than the stock market offers and to speculators who aren’t interested in the long-term stability of traditional currencies.

Despite its many risks, crypto is here to stay and is rapidly expanding into new areas of the economy, such as stablecoins and blockchain applications that promise to transform the way we share, store and move data. For example, companies are using blockchain to track supply chain inventory, locate items in real time and verify the quality of products as they travel from factory to consumer.

But even as the technology evolves, many questions remain. This is partly because of regulatory uncertainty — governments have been slow to develop rules for the sector, and the underlying technologies are designed to be hard for them to control.

It’s also partly because of the people involved. You’ve probably heard stories of friends, co-workers or relatives who have plunged down the crypto rabbit hole and emerged with a new obsession, Internet friends and an inability to talk about anything else. (There’s a name for it: getting “cryptopilled.”) The big winners in the crypto boom have built enormous fortunes that could disappear if the market crashes, but they’ve also become some of the richest people on the planet.

Some critics say that crypto is a Ponzi or pyramid scheme, with early adopters reaping the rewards while the latecomers lose their money. They also argue that purchasing a cryptocurrency doesn’t really reflect a belief in its underlying value. Buying, for instance, Bitcoin doesn’t necessarily reflect a conviction that Apple’s underlying business is healthy; rather, it’s an attempt to make a quick buck.

Other critics point to the fact that crypto is used mostly by affluent, often male, white people and suggest that it’s a tool of the “alt-right.” But the crypto world isn’t an intellectual monolith. It’s home to right-wing Bitcoin maximalists who believe crypto will liberate them from government tyranny; left-wing Ethereum fans who want to overthrow the banking system; and a host of other subcommunities with wildly different ideas about what crypto should be.

Finally, there are concerns about the environmental impact of the crypto industry. The Bitcoin blockchain alone uses a staggering amount of energy, consuming roughly 200 terawatt-hours per year, according to Digiconomist, a website that tracks crypto usage. That’s comparable to the annual energy consumption of Thailand. But the same properties that make crypto attractive to white supremacists — anonymity, censorship resistance and speedy transactions — may also make it useful for people fleeing oppressive regimes. That has regulators working to create new rules for the sector while also preserving its innovation potential.

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