Why cryptocurrency isn't a Ponzi scheme

Significant strides have been made in democratizing both access to and use of scarce resources.

You probably already know that the crypto economy is often said to be based on a Ponzi scheme, but you may not know why. This is something that you have probably observed previously. It could only have grown because irrational speculators bought ectoplasms in the hopes of finding even more irrational people to sell them to for a profit.

This would continue until the end of the sales growth caused the bubble to burst, leaving the last buyers, also known as “greater fools,” with assets that were rendered useless and were no longer able to be sold.

Bill Gates said in June 2022 that “Crypto and NFTs are 100 % based on bigger fool theory.” This revelation came as recently as 2022. When you consider that in 1995, many people still believed that the Internet would just be a fleeting fad, reading this can make you grin.

The argument that Bill Gates and other cryptocurrency skeptics make again and over again is reminiscent of the protagonists in Tex Avery’s stories, who are able to dash into the abyss as long as they don’t look down, but their fall is inevitable.

The type of fraud that has been called out by Bill Gates and others can be carried out in any kind of economic system, from conventional finance, as in the infamous Madoff scandal, to the pyramid selling of diet products, in which the sellers are compensated based on the number of people they recruit into the scheme.

As recently shown by the conviction of Forsage, a cryptocurrency investment fund, scammers are active in crypto finance as well. Forsage defrauded several million consumers by promising them huge interest rates on their investments.

However, despite the fact that a significant portion of the returns of the cryptocurrency economy is dependent on the expansion of its user population, the Greater Fool hypothesis does not underpin this phenomenon, as Bill Gates is under the impression.

Any economy, in order to expand and, as a result, earn a return on investment, plays a big role in the rise in demand, and the system may break down if the supply gets too much higher than it. From an economic point of view, you can tell what a Ponzi scheme is by comparing the interest in the product to the number of exchanges.

This is due to the fact that the promised return is too large, and the plan is intended to serve the interests of only the first sellers. On the other hand, the worldwide market for cryptocurrencies does not provide any kind of return guarantee.

Also, even though some of the demand for crypto finance products comes from the hope of making money, that demand, like the demand for any other type of finance product, is also driven by innovations that have helped create a market. Using currencies that aren’t tied to a country’s government or banks makes exchanges easier, reduces the risk of inflation, and makes it easier to get credit, especially in developing countries.

Blockchain technology makes it possible for transactions to be completed more quickly and at a lower cost. If the crypto economy may make you think of pyramids, it is more likely to make you think of the pyramids in Egypt.

More than 4,500 years ago, the emergence of these enormous monuments follows the introduction of cereal farming on very fertile land. This allowed both an increase in the profitability of labor and an accumulation of capital, which also led to an increase in population, a phenomenon quite comparable to that of the industrial revolution. Additionally, it allowed for an increase in the productivity of labor, which in turn led to an increase in population.

But instead of leaving it at that, people in ancient Egypt took stones out of the ground and put them on top of each other. This increased the technical knowledge of a workforce that no longer had to do much research for food.

Additionally, expeditions were mounted to mine rare resources, such as gold and turquoise, which, due to the fact that they were completely non-fungible and easily transportable, led to an increase in international trade and wealth, along with the development of art. Moreover, the wealth produced by the industrial revolution led to the creation of many jobs that were considered to be “useless,” such as building pyramids.

These jobs have no other purpose than to redistribute food to the workers and help them improve their skills. They also help the people at the top of the hierarchy get more respect and money.

Despite this, the development of the crypto economy is a significant step forward since it makes it easier for more people to have access to and benefit from scarce resources. It is no longer required to be a pharaoh or a member of his court in order to be able to go out into the world to mine for value or engage in commerce for it.

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