Is the Cryptocurrency Market a Giant Ponzi Scheme? – Facts vs Fiction



Ever wondered what cryptocurrency is? Yes, this is one of the most discussed topics out there, with many still confused on whether it is an investment or another Ponzi scheme that could drive investors into bankruptcy. Well, quite frankly, scams and Ponzi schemes exist in the thriving cryptocurrency industry, especially around DeFi, NFTs, and the new tokens that are launching on the blockchains like (BSC) Binance Smart chain.

This is why the crypto market offers a unique challenge compared to other types of markets. Unlike most assets, crypto exists only in digital form and can only be transacted online. Some schemes have emerged in the crypto industry, which has pushed commentators to tear apart the blockchain industry, terming it fraudulent.

One of the reasons the cryptocurrency market is seen as a Ponzi is because there is no income-generating option. In fact, you only make money in crypto through capital appreciation and nothing else. In essence, many buy crypto with expectations of gaining profit when the value of the particular crypto goes up.

However, to know the truth about the crypto market, we need to understand what actually crypto market is and where it even came from. How did the crypto and the blockchain technology begin, and what has it taken to get this industry established to where it is currently? Keep reading to learn more.

The Crypto Market History

Although crypto feels fairly modern right now, it started long ago. Several attempts were made to have digital money before the current iterations of crypto came into existence. The Crypto market is an idea that began in the early 1980s. The purpose of this currency was to make untraceable transactions and send or receive money in a manner that does not require any entity to perform the transaction.

The earliest form of digital payment currency was the Digicash. It was created by American cryptographer David Chaum. However, it could not surpass the test at the time and failed in the 1990s. This gave birth to competitors like Paypal, skrill, and others that handled transactions in the existing Fiat currencies.

Crypto trading

Also, in the 1990s, cryptocurrency needed a set of encrypted keys for a transaction to be completed by the recipient. However, that has been changing, and now we have wallets and addresses which both the sender and the recipient will need to have for a transaction to be complete.

Later, further attempts were made at establishing a cryptocurrency. The idea of the crypto market materialized in 1998 when Bit Gold and Hashcash were designed. From this point, the banks were no longer required. Instead, the users of the currency simply needed computer power to process complex equations and receive Bit Gold as a reward.

The Birth of Bitcoin and the Satoshi Enigma

After the initial success of BitGold, it was discovered that transactions could be copied easily. However, a decade later, a mysterious person or group of persons named Satoshi Nakamoto made a publication(whitepaper) named Bitcoin which explained that Bitcoin was a peer-to-peer electronic cash system. The whitepaper also explained the foundations of blockchain technology.

Bitcoin operates on a technology known as Blockchain, which is in the bitcoin foundation. By this, they meant that the sender, receiver, and a third party needed to confirm the transaction. The transaction was then recorded in a digital record called the blockchain. All other digital transactions can be located on that record.

This again allowed anonymity and trust because a transaction can only be traced to a particular bitcoin wallet and not the people who transacted. However, as much as it is excellent for privacy, the big challenge is anti-terrorism and money laundering. This is because the blockchain can be used to send and receive money to fund terrorism missions.

Also, because of anonymity, complexity, and regulations changing, Bitcoin and other cryptos have become more vulnerable to scams and frauds. However, as earlier mentioned, cryptocurrencies are not Ponzi schemes. Regulatory bodies have also issued warnings to investors about Ponzi schemes and scammers using cryptocurrencies to defraud others.

This technology formed between 2008 and 2010, and from 2010 the crypto market was born with Bitcoin pioneering other coins with a valuation of $1.06. Through January 2015, bitcoin prices grew steadily to about $152. Currently, the Bitcoin value is closing into $ 1 trillion. It is highly volatile and has been experiencing significant swings.

What are Cryptocurrencies?

Bitcoin (BTC) has remained the pioneering crypto in the crypto industry. But there are many other cryptocurrencies. Cryptocurrency is decentralized digital money designed to be used on the internet. Bitcoin, launched in 2008 by Satoshi Nakamoto, is the first cryptocurrency and has remained the strongest crypto by value and capitalization.

In over a decade since the value of BTC began rising, other cryptocurrencies like Ethereum, Litecoin, Dogecoin, and other alternatives came into existence. Cryptocurrencies are designed to make it possible to transfer value without the need for a middleman between the buyer and seller. Cryptos are not issued by governments and are neither controlled by any entity.

Currently, there are many other cryptos to choose from. They include Ethereum, which is second to Bitcoin by market capitalization, Binance coin, Tether, Cardano, Dogecoin, Polkadot Theta, and others. Additionally, it looks like cryptocurrencies are on track towards wide adoption. Blockchain technology and cryptos are likely to continue to grow in popularity.

Besides, having the support of significant invertors like JP Morgan MicroStrategy, Tesla, and others, the crypto industry makes headline news these days and influences the world economy. Currently, Elon Musk is the world’s richest man, courtesy of cryptocurrencies, whose valuation total up to half of his wealth. There are over 15000 cryptocurrencies in existence with a global capitalization of about $2 trillion. The cryptos are traded on about 400 crypto exchanges.

How Do Cryptocurrencies Work?

The simplest transaction of crypto is from one person to the other. The process is simple though there will be a few requirements for it to succeed. All cryptocurrencies are stored in virtual stores known as Wallets. Therefore, the transaction takes place between two wallets (from senders’ wallets to recipients’ wallets).

It’s also worth noting that each wallet has public and private keys (these act as passwords to access the wallet). The public key is used to create an address in the wallet where the crypto will be stored or received. The private key helps verify the transactions coming from your wallet address or being received at the wallet address.

Crypto purchasing methods have also changed over the years and have become relatively easier to trade using centralized exchanges like Coinbase and Binance. The crypto transfers work using an electronic ledger known as the blockchain, allowing everyone to participate with a computer and an internet connection. But how do you invest in cryptocurrency? Here are some details.

Investing in Cryptocurrencies

Understanding how to invest in cryptocurrency is very important. You need to know the particular crypto you want to invest in, how to buy the crypto and whether it is a safe investment for you.

Please keep in mind that cryptocurrencies are a new type of investment. It’s therefore essential to be knowledgeable enough on crypto before investing. Cryptos get their value from the blockchain security they are using and the level of adoption by communities using and supporting the crypto. They are therefore prone to scammers because if you send your crypto to the wrong address, it’s likely that you will never recover it.

Crypto markets

There are four significant steps that you can take when you decide to invest in cryptocurrencies. Of course, there are users who use decentralized exchanges (DEX), which have been enabled by blockchain and hardware wallets. But there is a more straightforward and simpler approach to investing in cryptocurrency. Here it.

•       You need to open a crypto investment account. You can choose among the variety of exchanges and open an account. All you need is your personal information, SSN, and photo Identification. The best exchanges include Binance, Coinbase, Robinhood, etc.

•       Fund the account. In this case, you will need to exchange your local currency for dollars to buy the crypto you want. You can also connect the trading account to your bank account to complete the purchase.

•       You need to have done reasonable due diligence on the crypto you intend to buy. There are thousands of assets in the crypto market. Spend time researching and understanding potential upside and downside risks.

•       Lastly, place your trade. After putting in the necessary order form information, click the buy button and wait for the confirmation message. However, remember some fees will be incurred in buying, and these depend on the cryptocurrency you intend to invest in.

It’s good to keep watching over your portfolio by staying tuned to the crypto markets to know what is happening. You don’t need to be wealthy to invest in cryptocurrency. However, about 10 dollars is a good start because of the additional fees. Storing your crypto in your wallet is free.

Cryptocurrency Wallets

Crypto wallets are digital stores for digital currencies and other assets. Many cryptos wallets are software apps or hardware devices. The wallets are made of a public wallet address and private keys. Therefore, when investing in cryptocurrency or NFTs, you will need a crypto wallet. The crypto wallet must also be compatible with the cryptocurrency being stored to enable the user to send and receive crypto quickly. There are two significant types of cryptocurrency wallets that you can choose from.

•       The software crypto wallets. These are wallets that are free and accessible through your computer browser. They are the most convenient based on the fact that they are accessible online. However, they may get hacked. Examples of these include MetaMask and Coinbase wallets.

•       The hardware wallets. These can be used to store both public and private keys. You will need to connect them through Bluetooth or a computer USB port. A good example is Ledger, Trezor, and Keystone.

The Future of the Crypto Market

In many ways, 2021 has been a breakthrough year for the cryptocurrency industry. Many investors have grown to be millionaires and billionaires. Investing in cryptocurrency is a personal decision. But as the widespread adoption of these assets continues, it will be too hard to ignore the growth potential.

There have been instances where the crypto market has been hit hard of course. In September 2021 for example, China banned all cryptocurrency transactions, leading to the price dip that effectively put some breaks on the crypto surge. Most recently, Russia also followed suit. The SEC has also been fighting tooth and nail to bring the crypto market under its regulation. However, according to Federal Reserve chair Jerome Powell, SEC will not be banning cryptocurrency in the US. The Future is therefore brighter for the crypto market from a global point of view.

We hope this information will help you in your investment process, but this is not investment advice. Every investment carries risk, especially in this industry, so DYOR before making a decision.


Tabitha Nyamburah

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