A memory from my early years as an economist: the arms race between the US and the USSR was at its peak. Ronald Reagan was determined to bring the Soviet regime to its knees due to the suffocating size of military spending, which is why the US spent about 5% of GDP on armaments. The Soviet Union tried to keep up, but could not: it would have to spend about 50% of its GDP to stay at parity! In the end, Gorbachev realized that he had lost the battle and surrendered. At the time, the Soviet economy was struggling to survive, but the results were increasingly disastrous. Among other things, the production of wheat in the country (by the way, mainly in the rich plains of Ukraine) was completely insufficient, so the USSR was one of the main world importers of grain.

In one of the years at the beginning of the ninth decade of the last century, the disaster of wheat production was even greater than usual. Imports of American wheat (many times through intermediaries, among which Romania was at that time) were no longer enough. So the head of the Kremlin decided: we buy directly and pay in gold. This is how the USSR avoided a major food crisis. Gold on wheat quickly cleared the American silos!

No, my article is not about the collapse of the USSR, ultimately due to the inability of the communist regime’s land to produce effectively. And not even about Ukraine – the granary of the Soviet Union. It’s about bitcoins. A crypto toy that has reached over $28,000 (again) after falling to 16,000. I’ve been reading online media about crypto game enthusiasts looking forward to seeing Bitcoin reach $30,000 and then $60,000, when in reality it’s been a year or about that time ago. And I suspect that many enthusiasts are waiting not only to make lots and lots of money from Bitcoin’s price movement, but also to triumphantly prove the naysayers right.

I’m sure there are many very dedicated cryptocurrency enthusiasts out there. They truly believe, for example, that there is no difference between Bitcoin and gold. Sorry, but there is a difference: the amount of gold increases year by year, while the supply of Bitcoin is unchanged; so gold isn’t even worth as much as bitcoin! I think this is a really absurd joke: how can you compare an impulse in a computer to the oldest and most stable form of value expression in human history through referentiality with intrinsic value? It is difficult to convince those who believe that the Earth is flat that it is not. But I’ll give it a shot: If bitcoin existed when the USSR paid for wheat imports with gold, how would Americans react if the USSR said they paid for wheat with bitcoin? Would it be anything but unbridled laughter?

But let’s see what a crypto-something really is: it’s an agreement between those who participate in a scheme; some sell, others buy momentum in the calculator; the price increases only because more players are attracted by the mirage of winning from nothing; there is no other amount involved in the scheme other than the price paid by new players to buy the units used by old players. That is: a Ponzi scheme! From start to finish! The fact that it does not promise a definite mechanism for multiplying the original submission absolves the promoters of the convention from any responsibility, assuming that it is ever discovered who they will be. But the mechanism by which a rising price attracts more and more entrants, who in turn wait only for the price to rise further, is part of the strict definition of any Ponzi scheme.

In this game, the only winners are actually the middlemen – those who arrange the transactions between sellers and buyers and get the margin between the bid and the offer. With one condition: they don’t start believing the nonsense they’re selling themselves and do something other than simply combining sell and buy orders; that otherwise they will go bankrupt like FTX last November.

How do these Ponzi schemes last so long? First, because they used a very attractive script to promote. God, strictly limited and, say enthusiasts, strictly controlled at all times makes cryptocurrency impossible to inflation (unlike, of course, currency issued by central banks). In fact, the hint that the explanation begins with is that cryptocurrency is money. But this is not true. Crypto is just a convention played only between those who accept it. This reminds me of a joke I knew from childhood: “Mom, I sold a pen for 1000 lei!” “And who gave you so much money for a pen?” “he did not give me money; he gave me two pens for 500 lei each.” It’s true, some sellers accept cryptocurrency payments, but these payments are really small and used as a marketing hook. If a trader really sells a lot of cryptocurrency, he can easily suffer from what happened to Elon Musk: Tesla liquidated btc shares with a loss of many millions of dollars, and now Tesla cars are only bought for money, not for fiction.

Second, cryptocurrency uses advanced technology: the blockchain. This technology really seems to have great potential. You simply cannot equate the technology and the product based on it. But the cryptocurrency promotion script did just that: “Look, this is a 21st century development! Cryptocurrencies are the future!” I agree that blockchain is special, but why should it be associated with fiction?

Thirdly, unlike classic Ponzi schemes, cryptocurrency does not promise a certain profit. This happens if and only if the unit price increases. And he can really grow a lot. Bitcoin, the most popular cryptocurrency, was worth 40 cents in 2010 and will reach over $67,000 in 2021! True, after that it fell below 16,000, but this was the basis for the start of a new rally. BTC has now reached over $28,000 and may rise further. And the price increase, meaning potential profit, attracts more and more players – great for BTC holders if they buy below the current price. But that doesn’t change the fact that any price increase actually means another player is brought into the game! The gain of one is definitely the loss of another. The game is and cannot be anything other than a zero-sum game. I mean none other than Ponzi!

The success of the cryptocurrency was also associated with a relatively long period of low interest rates in the banking market. But this one seems to be coming to an end. This does not mean that the phenomenon of cryptography will die out just as quickly. The illusion of getting rich from nothing and a very wide base from which to choose participants can be very skin-tight. Read the whole article and comment on Contributors.ro