The year is 2018 and we are currently in . The island nation, famous for its leniency and friendliness towards , seems to be in the middle of a conundrum: on one hand, their regulatory laws have been well received among traders and investors; on the other, one of their exchanges .
Fast forward to November, all seems well again, and then there’s another headline: 8 people have been arrested, following what seems to be . Japanese media outlet Asahi Shimbun claims that the scammers tried to get away with more than $68 million, and as Western media picked up on the , they quickly gave it a familiar name: “The Ponzi Scheme.”
This name was not an error or an exaggeration: the perpetrator, a ghost company called Sener, convinced its victims to invest on their own project, which they advertised via live public seminars. They managed to steal from more than 6,000 individuals before it was over, usually enticing them with the promise of high returns if they brought more people on board.
’s was not the first occurrence of this kind: Back in 2016, Trendon Shavers after he got some investors to drop over 146,000 to a fictional company called Savings & Trust, only to defraud them a few months later. His case actually started in 2013, when was only five years old, and the amount he gained was worth around $800,000. Three years later, when he was finally imprisoned, that amount had rose to $97 million.
The “ Ponzi Scheme” delusion
The idea of has always been a little hard to understand. The idea of , in general, may not be something you can just accept, mainly because it doesn’t really seem like something that should be at everyone’s reach. The world of is filled with IT jargon, financial jargon, and a lot of free market uncertainty. Also, we should not forget to mention that is the preferred payment method of dark web criminals. It might be a few years until we can finally make it a little more palatable for all audiences, we have to admit we’re just not there yet.
These features, along with the aforementioned Ponzi schemes (because they are, indeed, Ponzi schemes), make some people distrustful — if not utterly frightened — of in general. It’s fine when your friend says that he doesn’t trust , or , or any other crypto alternative, because you can always talk to them about it. The problem arises when people in power start to turn those fears into actual legislation. is not a Ponzi scheme. It never has and it never will be. You can (successfully) build a Ponzi scheme using , which is the proof that and crypto are tools which can make or break the finance world. However, calling in general “a Ponzi scheme” is wrong at best, and disingenuous at worst.
Now, we’re not about to turn into theorists, but here’s the point: a couple of weeks ago, to justify the country’s reluctance to adopt and regulate in a safe manner. His name is Anurag Agarwal, and he isn’t your college buddy, he’s the CEO of the Indian Investor Education and Protection Fund. Mr. Agarwal also serves as the Join Secretary for the Ministry of Corporate Affairs.
This person is using his position of power to push a dated argument in favor of preventing that Indian users get to trade and . This is wrong, and it brings me back to my previous point: it seems that these people are not acting only out of fear and ignorance, we might be wrong there. It’s starting to look like a deliberate effort to keep out of the Indian equation, because honestly, how can you still believe the whole “Ponzi scheme” argument? Surely a person that works with investors and Corporate Affairs has a good understanding of this topic. Right?
Why isn’t a Ponzi scheme, and the arguments that say otherwise
It is quite sad that we still have to discuss this particular line of reasoning. that we should not have to explain at this point. usage is actually growing, and yet, we still get the Ponzi scheme argument every now and then. But hey, we also have flat-earthers and anti-vaxxers in 2019, so what can we expect, really?
What we are about to write here has been said before: we are not making a major breakthrough here, but people like Agarwal have the power to influence others. Understanding the line of reasoning behind politicians like Mr. Agarwal is crucial to move forward with .
First of all, you need to know exactly what Ponzi scheme is: basically, you give your money to a certain person as an investment, who then convinces other people to give them money as well. Said person then pays you a little more money that you initially invested to convince you of investing just a bit more and to bring more people in.
The guy will tell you that the more people you bring in; the more money you’ll gain. However, the money that guy uses to pay you back actually comes from the other investors’ pockets, not from profits. Thus, the guy receiving the investments gets richer, and all the investors get progressively poorer. Companies like Amway and Herbalife have long been accused of being pyramid schemes, and the jury’s still out on them, even if most people agree that they are all quite shady nevertheless.
Another day, another chapter in “The War on ”
The key proponents of the Ponzi scheme theory claim that works in a very similar way, one that is even worse given that has no inherent value. Here’s why they’re wrong, however:
- They will usually mention the highs and lows of cryptocurrency, predicting a huge eventual collapse that will leave everyone without bitcoin. They will also say this while gleefully ignoring that this has already happened before bitcoin, in their beloved fiat currency economy, many times. Besides, who’s the Ponzi here? Who’s going to take home all the money? Satoshi Nakamoto? Give me a break.
- bitcoin is not a pyramidal structure. Blockchain technology is as horizontal as fiat currency. Nobody is forcing you to invest on bitcoin for some strange future profit: this is just one aspect of the current state of cryptocurrency. Exchanges today don’t just deal with bitcoin: you can trade everything from US dollars to gold to stocks, so why are cryptocurrencies the only forbidden item? bitcoin is just another tool for buying and selling stuff, the rest is blatant fear mongering.
Paul Krugman, the revered American economist, stated last year that was “” Honestly, we’re not saying it isn’t: any new technological development is susceptible to become a sort of cult attraction to anybody who’s interested. Some people camp for days at a storefront to get the latest iPhone, and some others claim that is the be-all-end-all of financial progress.
However, he also used the Ponzi scheme argument, and this is a guy who’s literally a Nobel prize in Economics. His opinions are bound to have some reach, and to change some people’s minds. However, when you look at it, he’s only looking towards the future, as most of its detractors are: they’re using the same old tired arguments that have nothing to do with . In essence, they just don’t like it.
is based on things that we already know as users: that ’s openness makes it susceptible to usage by criminals, that it has no inherent value, etc. Mr. Krugman aptly states that the US dollar, in comparison, is different because it’s more convenient and does have an intrinsic value granted to it by the US government. This is, of course, true, but it might not always be the case. The dollar used to be backed by gold reserves, which gave it actual, intrinsic value. Nowadays the dollar has value because the US is powerful, plain and simple. It has no intrinsic value, only potential, just like do.
Krugman’s opinions, as well as , are what fuels the distrust of people like Mr. Agarwal, which in turn keeps you and me from being able to use safely. We’re not saying that you should not believe them, we’re just saying that their opinions are not 100% objective or scientific. We’re talking economics. The government should not be able to keep you from using a different kind of currency or it on an exchange. is not a public health matter like measles and anti-vaxxer parents, it should not be banned anywhere. Criticized, yes. Regulated, of course, but never banned, and especially not because of plain ignorance. That’s the whole point.
Why Startups are necessary to change this reality
As we have explained before, the fact that are something still new, makes them vulnerable than some other system as protections nor education has been deployed about it. However, this is something that different startups and well established companies are fighting against by creating different platforms to allow you and everyone you know to use in a safe space.
is one of such companies that seeks, in its particular case, to open the door for the unbanked and underbanked populations in India towards a banking system that seeks to include them rather than hiding them under the carpet. (the basis behind every ) is a very potent tool to help those with little organization to operate with well established clarity systems (exactly what everyone wants for their money, clarity and trust).
So far and after having test runs with 1000 different citizens of the country, we have seen by ourselves how positive this system can impact the population of the country as they have new opportunities for funding. What is more, this allows people that may never have access to a proper bank, to finally do something as common as buying online or paying basic services using their telephones.
Therefore, this kind of platforms help nullify the danger that ponzi schemes may seem for different users as they seek to protect rather than expose users to the danger of irresponsible crypto usage. Clear rules tied with legal responsibilities are the real answer that many should be seeking when trying to adopt , as they are most likely going to be staying around for the next couple of decades.
Published at Wed, 08 May 2019 17:50:55 +0000
