What is Crypto and How ‘Ponzi’ is it?

We’ve all heard the bang. If you’re anybody who’s anybody living in this century, you will have probably come across the term ‘cryptocurrency,’ or as the younger folks conveniently refer to as they vape, ‘crypto.’ Money, or some form of it, has been around for years- roughly 7000 years. The general progress of things started off with value-based coins that later switched to banknotes weighed off, mostly gold… and then things got shaken up.

In the age of 1’s and 0’s, quite a few things changed, including cash. Cryptocurrency is any form of digital payment used as a medium of exchange and is stored on cryptography. It is a decentralized payment system that operates independently from banks, financial institutions, and governments (which explains why some countries are a little edgy towards it). Instead of real money being exchanged in the real world, crypto is a digital record of ownership recorded on tamper-resistant public ledgers and wallets; these ledgers are called blockchains.

Bang for a Buck

So, if the whole concept revolves around intangibility, what good can it possibly be used for? As of late, crypto can be used to purchase luxury goods, cars, insurance, and even e-commerce products, and it’s gaining momentum. The reason it is valuable, or at least generally holds its value, are simple supply and demand rules. Crypto is created through ‘mining’, a process in which computers solve complicated processes to create a unit of crypto, limiting the amount of the currency in circulation.

Is it Safe?

So, is it? I mean, what good could it possibly be if any fellow with a 50 Pound hacking CD (yes, I’m from that generation) can steal your crypto, mine, or even counterfeit it? As mentioned earlier, crypto is stored in blockchains; a fool proof public ledger system that is (almost always) watertight.

Now for the mining part. Crypto comes with a unique key needed to extract and trade your currency and losing that key means losing your assets forever. In fact (and this is going to hurt a bit), Stefan Thomas, or better yet known as ‘the man who lost $265 million’, was a crypto expert who was paid in Bitcoins (the first and most famous cryptocurrency) a decade ago when Bitcoins were just worth a few dollars. Fast forward to today. The value of Bitcoin had skyrocketed from a few dollars to $38,000. And Thomas still owned his 7,002 bitcoins. However, after losing his key, he irreversibly lost all his savings and gained what potentially could be the most painful Christmas dinner story ever.

Ponzi’ing it Up

Short history lesson: Charles Ponzi was an Italian con artist and swindler who operated in North America in the 1920s. He devised an investment scheme, affectionately named after the man himself, called the Ponzi Scheme.

The system was simple (but brilliant); he paid older investors with newer investors’ inbounds, offered consistent payments, had no actual product or service in circulation, and promised no risk. This system sustained itself for a while until the ‘pyramid’ crumbled, and only the ‘top gun’ kept his profit.

Sounds familiar, right? It shouldn’t really. Although the no product or service part is similar to that of crypto, the latter does not promise consistent payments. It also doesn’t assure little risk on investments; in fact, crypto is very volatile to market variables. In late 2021, China, which has the second-biggest economy in the world, announced a crackdown on crypto, sending  prices plummeting- a move crypto is still recovering from today.

The Bottom Line

To wrap it all up, cryptocurrency, in many senses, is the poster-child currency for the digital age. It is safe, secure, and technically impermeable to foul play.

Despite its relatively jittery stance to market changes, sustained investments have made it a go-to for millions of people looking to make a quick buck. It may not be able to replace physical money just yet but it sure does give it a ‘run for its money.’

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