Cryptocurrency Is Great MLM Scheme
Crypto world is crammed with various threats and warning signs are all over the place. Almost half of ICO born last year has collapsed, many of existing projects are a sheer scam and their initiators would never create real ones. Stories of cryptocurrency billionaires carry little credibility: in early May a co-founder to Ripple Chris Larsen was reported to have a fortune of $59 bln which made him outrank Mark Zuckerberg. But the crypto market meltdown that followed drained him of $44 bln. Sounds not quite safe, does it?
One may also remember another almost fabulous case of the anonymous Bitcoin creator Satoshi Nakamoto yet unidentified with huge cryptocurrency wealth on his account that may impact the market adversely. And what about the Markus and Willy bots that levelled up bitcoin price from $150 to $1000? This all resembles some Hollywood movie and people have to bear it in mind, films like this usually end up with some small group of people growing rich while the rest are back to square one.
Despite many people regarding cryptocurrencies as a great democratic power that allows managing one’s funds independently from banks or states, this market is actually under control of a limited group of individuals. Up to 40% of all bitcoins are owned by only 1 000 people. So cryptocurrencies are more like a huge multi-level marketing scheme rather than the currency of the future.
How do such schemes work? Any asset must be in demand for it to have value. To increase the demand one has to attract new participants. That’s how it works. Revenues of earlier members depends on the number of people invited, so their wealth grows manifold as the scheme gets more popular. As experience has shown, such projects come to an end when there are too many participants which causes the whole scheme collapse. Everyone except for those who initiated it are left with nothing.
Are cryptocurrencies really a scheme like that? Those invested into specific cryptocurrency are seeking to attract new members for each coin price rises along with the demand on it. However, hype around single cryptocurrency will not last forever and will eventually die down. As a result, those joined later are left in the dust while those invested at the start gain big.
A belief in possibility of making easy money especially with frequent stories about someone else who did so keeps people far from having a cool head. Trying to make money on instant hype many up-and-coming programmers create new cryptocurrencies. At present there are 1523 cryptocurrencies with a coin of most of them worth less than a penny. But if this penny reaches a dollar value, the original owners of this cryptocurrency will boost their fortune hundredfolds.
Speculations are a shadow to cryptocurrency market, more and more prominent investors turn their attention to this fact with such iconic figures of the market as George Soros and Warren Buffet among them. However, this leaves cryptocurrency staunch supporters undaunted – they still believe this technology will replace fiat and put traditional banks to rest.
There are lots of examples with hype over something boosting its price, making it a bubble and finally bursting. The most frequently mentioned one is Tulip mania of 17th century in Netherland. There are also more modern cases: in late 90s American entrepreneur Ty Warner started making up Beanie Babies teddies, and watched the demand to remain limited to make people believe these teddies are rare. The price came to thousands of dollars, some investors regarded the toys as a new asset type. What was the result? The bubble crashed, but made Warner a billionaire with a fortune assessed at $2.7 bln.
Some cryptocurrencies create the same situations making certain lucky ones millionaires just because they managed convincing enormous number of people that they can make the cheapest money ever. Innovative nature and technical complexity of cryptocurrencies allow veiling large-scale multi-level marketing scheme. They existed before, the only difference is that now people acquire invisible coins rather than flowers or plush toys.