Recently, Bitcoin has plummeted all the way, and fell below the $18,000 mark on June 19, which is the lowest point of Bitcoin since December 2020, and the risk of virtual currency trading speculation has once again become the focus of public opinion. In recent years, the price of virtual currency has risen and fallen frequently. my country’s financial sector has issued many documents, clarifying that virtual currency-related business activities are illegal financial activities, and reminding investors to be alert to risks.
“What exactly is virtual currency?” The author of this article believes that virtual currency is becoming the biggest Ponzi scheme in human history.
Since Bitcoin was officially born when Satoshi Nakamoto published “Bitcoin: A Peer-to-Peer Electronic Cash System” in 2008, the debate around virtual currency (Cryptocurrency) has not stopped for a moment. Followers of the so-called “decentralized” currency regard it as a belief and believe that virtual currency will eventually lead them to the ideal land; some people think that virtual currency is just another paradise created for speculators; some people firmly oppose and Resist virtual currency.
Among the top 100 richest people in the world, at least 90 have publicly expressed their “bad-mouth” attitude towards virtual currency, including Microsoft founder Bill Gates and “stock god” Warren Buffett. Warren Buffett believes that the only thing that is certain about virtual currency is that “it does not generate any value”, and he publicly stated that “Bitcoin is rat poison and must be avoided”. And his old partner Charlie Munger even bluntly said that investing in Bitcoin is an “evil and stupid” thing.
“What exactly is virtual currency?” In its essence, the author believes that virtual currency is undoubtedly the largest Ponzi scheme in human history.
Old scam, new form
The so-called “Ponzi scheme”, in short, is to absorb funds by promising high returns, and then use the funds of new investors to pay the interest of previous investors to create the illusion of making money, and then defraud more funds. Until this snowballing method becomes unsustainable, the lie is exposed and the bubble bursts.
The traditional Ponzi scheme revolves around high cash returns, and “high interest + storage absorption” are its two most prominent features. With the development of the financial field, Ponzi schemes have also evolved into new forms, which are no longer just about cash, but are covered with rights and interests. This type of Ponzi scheme can be classified as “equity type”, and it has three main characteristics: first, it is based on equity that can be denominated; second, the equity can be traded and circulated; finally, and most importantly, this equity is not Associated with any asset, productive labor, or social value, but is entirely fictional.
The theory of value is the foundation of economics. Relying on the exchange of value, human beings build an economic society, and the creation of social value must be realized through production labor and the circulation of products. The basic purpose of finance is to estimate the present value of the social value that can be generated in the future based on the combination of existing production relations and means of production, to realize value transfer through transactions, and to provide investment and financing guarantees for the real economy.
Equity Ponzi schemes are frauds in financial disguise. One of the basic laws of finance: The farther a financial product is from reality, that is, the higher the degree of “departing from reality to reality”, the greater its risk. Going back to the two world economic crises in the 1920s and 1930s and in 2008, one thing in common is the financial shift from the real to the virtual. For example, subprime loans are built on top of housing mortgage loans, and countless financial derivatives are designed layer by layer, which eventually deviates from the real value of the corresponding real estate, triggering the subprime mortgage crisis, and eventually evolved into a global crisis. financial crisis.
The so-called “equity” of the equity Ponzi scheme is completely unrelated to any real assets and productive labor, so it does not have any real value, and it can be considered that its distance from the real society is infinite, which means that its The risk is close to infinity.
Comparing several basic characteristics of virtual currency, it is not difficult to find that it is very consistent with the equity Ponzi scheme.
1. Equity. All virtual currency projects will generate coins with no real value by mining or issuing, and forcibly give them a series of names that are completely irrelevant to the real world, such as “consensus value” and “co-governance value”. An equity priced based on fiat currency.
Second, liquidity. Obviously, all virtual currencies can be freely traded, and it is hard to imagine that the so-called “currency circle” will tolerate the existence of a virtual currency that cannot be traded. After years of development, virtual currency has had many secondary trading markets, but many times these trading markets are not as open, transparent and fair as people initially imagined, but are full of insider trading, black-box operations and security loopholes.
Three, worthless. Whether it is compared to the currency cast by metal in the traditional sense, or the credit currency issued with the endorsement of the credit of the sovereign state in modern times, the virtual currency is not bound to anything of value, nor does it have any social value of productive labor. Its price support is entirely dependent on two decisive factors: the confidence of current participants, and the number of subsequent new participants.
And this is exactly the same as the basic operation mode of Ponzi schemes – all Ponzi schemes must have a steady stream of new investors to join in, so that the whole scheme can be maintained. To borrow a popular saying in the game industry, “From the perspective of the development of the game industry, the first important thing is the gameplay, the second important thing is the world view, and the third is technology.” For Ponzi schemes, the first The most important thing is to pull new people, the second most important is to pull new people, and the third most important is to pull new people. This is also why the operation of all virtual currency projects is completely based on marketing, and the technical investment is almost negligible.
So it is easy to understand that Musk can turn his hands on Dogecoin as a cloud, and turn his hands into a rain. Just sending a tweet can make the price of virtual currency flat. It is easy to understand. In the early days of the rise of virtual currencies, the market was flooded with countless ICOs (initial coin offerings), based on the same logic. After the appeal of ICOs waned, concepts such as “airdrops” followed. Behind all the tricks is actually what Bill Gates called “the foolish theory”: it is not scary to be a fool, the scary thing is to be the last fool, so you need to attract more fools.
Can everything in the world be to Earn?
Smart currency traders later discovered that although the “airdrop” gives free virtual currency, but because it is “free”, it is easy for “new investors” to pay less attention. In order to maintain the Ponzi scheme of virtual currency, the currency circle has tried every means to add various packages to it. The recently popular “X2E” model is the latest emperor’s new clothes.
X2E refers to a series of virtual currency projects in the name of X to Earn, including M2E (Move to Earn, earn while running), P2E (Play to Earn, earn while playing), etc.
The seemingly charming business model of “running and making money” is actually a phishing strategy of the project party. The hidden trap behind it is: the generation of virtual currency (especially tokens that do not require mining) is completely irrelevant. cost. X2E is actually an “airdrop” (referring to providing free cryptocurrency), the only difference is that it allows users to earn through some simple daily activities, so that users feel that it is valuable because they have paid a certain amount of labor. . Its ultimate purpose is to attract users to the hype trading of rights and interests.
The core condition for the continuation of the equity Ponzi scheme is to continuously add new users and continue to conduct transactions. Only in this way can the price of equity be stable. When the daily new users and transaction volume reach a certain level, the price will increase. It will continue to rise, allowing early “investors” to profit. At the same time, this kind of price increase will become more and more attractive to new users, and so on and so forth, it seems that there are no flaws, and everything is fine.
However, this state is actually based on a very fragile balance. Everyone has to believe that the cycle can go on and on. Once malicious shorting, no successor, tight funding, or changes in regulatory policies affect the confidence of participants or the determination of latecomers, this seemingly delicate cycle will instantly collapse and the value will return to zero. In the final analysis, this is still a Ponzi scheme, a game of drumming and passing flowers.
With the popularity of the X2E concept, more and more such projects have sprung up. In addition to M2E and P2E, R2E (Read to Earn, while reading and earning) and W2E (Write to Earn, writing while writing) have also appeared. Earn), E2E (Eat to Earn, earn while eating), etc. What’s more, they have launched the L2E (Learn to Earn) project, which takes education as an entry point to reach out to minors who do not yet have the ability to make economic judgments.
Marx once said, “If there is 100% profit, the capitalists will take risks; if there is 200% profit, the capitalists will defy the law; if there is 300% profit, the capitalists will trample everything in the world. When a Ponzi scheme’s new campaign begins targeting innocent children, its operators have lost their basic humanity.
What is fried is the mirror, and the loss is real money
Nowadays, virtual currency is attracting more and more speculators to participate in the potential of getting rich overnight, and X2E under the guise of various names has penetrated into all aspects of real life, waiting for the opportunity to wield a sickle to harvest ordinary people from all walks of life. people. And as a complete scam and a 100% risky speculation, the risks involved are undoubtedly huge and real.
In May of this year, UST, which was once the world’s third largest stablecoin, and its linked virtual currency LUNA staged an “epic zero”. In just a few days, the LUNA coin fell from a maximum of $100 to a minimum of $0.00000112. The market value of more than 40 billion US dollars evaporated instantly.
There are many opinions on why LUNA and UST collapsed in an instant, but the one that is rarely mentioned is that they combine two types of Ponzi schemes, cash-based and equity-based, and are intertwined. On the one hand, unlike other stablecoins, UST does not use the same amount of US dollar deposits to anchor the 1:1 exchange relationship with the US dollar, but forms a price balance with LUNA through the supply and demand relationship and guarantees each other. It also satisfies the characteristics of an equity-based Ponzi scheme; on the other hand, the project party launched a wealth management project with an annualized interest rate of up to 20%, which absorbed a large amount of funds from new investors, but did not generate any actual income to achieve the promised return. , the conditions for a cash-based Ponzi scheme are also met.
Since LUNA and UST have no corresponding actual value, the value guarantee of the two does not have any credit foundation, and it is all supported by the confidence of all participants on the castle in the air. When someone smells the smell of a Ponzi scheme and starts to withdraw, or the project party cannot maintain a high interest rate, it is easy to cause panic, which in turn triggers a series of chain reactions. The risk of a single Ponzi scheme is already enormous. The combination of the two types forms a death spiral, and the risk increases geometrically. It is not surprising that the “epic level zero” overnight.
From an outsider’s point of view, the collapse of LUNA may just mean the bankruptcy of witnessing a lie, and adding some after-dinner talk. And for those who were in it, it was a nightmare they didn’t know how to deal with. A Twitter screenshot circulating on social media at the time showed the tragedy of one participant: it took him a year and a half to convince his wife to put their entire $1 million fortune into LUNA, As a result, he lost 98% in a few days, and he “doesn’t know how to face his wife and his future life”.
The risks and hazards of “specializing coins” can be seen from this.
The badly played virtual currency, the misunderstood blockchain
From 2013, my country’s central bank and other departments issued a document clearly indicating the risk of hyping virtual currency, to 2017 strictly prohibiting various types of virtual currency ICO (coin issuance), and then strictly prohibiting various types of virtual currency “mining” and trading in 2021. The attitude towards cracking down on virtual currency is consistent and firm.
It is worth pointing out that the original huge value of blockchain technology should not be ignored because of virtual currency.
From a technical point of view, blockchain is essentially a method of using broadcast data transmission to achieve consensus on data structure, traceability, authority and verification, forming a distributed and open and transparent information system. Virtual currency is just a simple application based on blockchain.
Including NFT, which has been on fire in the past two years, is essentially a blockchain-based database technology. Whether it is blockchain technology or NFT database technology, purely as a technology, there is no specific business attribute. As long as correct industry guidance is carried out and clear laws and regulations are formulated, they will play a huge role in various application fields such as digital economy, digital culture, data rights, privacy protection and computing power network in the future. The “Public IT Systems” with blockchain as the primary form will innovate the design ideas of the entire information system from the bottom, thereby improving the capability and quality of the information system in the new era.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/peoples-daily-online-virtual-currency-is-a-dream-and-a-ponzi-scheme-after-all/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.