The Crypto Pyramid Scam

Last week, in a hallway conversation at the conference I was working, I found myself in a brief discussion around cryptocurrencies.

While there’s probably no connection between that concept and the classroom-related themes in our program (although someone has likely tried to find one), our membership is interested in exploring all kinds of tech. Another thing that makes these events fun.

At some point in the conversation, someone asked how much crypto I had. When I replied “none”, the surprised response was that they expected a long-time (read: old) techie like me would have gotten in on Bitcoin at the beginning.

Nope. Mostly because I don’t get it.

I do have a relatively good grasp of how a blockchain, the foundational technology for cryptocurrency and related derivations like NFT, actually works. I’ve even read of some interesting theoretical applications for the concept.

And early on in it’s history, I did give Bitcoin a try. Sorta.

Around 2010, when it was started getting some buzz out in the real world, I installed a program that was supposed to let my computer use spare cycles to mine for coins. One more experiment with new technology that was soon deleted.

However, what I don’t understand is why anyone would exchange real cash for digital currency. Beyond drug dealers, money launderers, scam artists, and others who work very hard to hide their transactions.

As the recent high-profile bankruptcy of cryptocurrency exchange FTX illustrates, not to mention the wild swings in value that almost all crypto systems have experienced, putting money into crypto is far more an act of gambling than investing.

To me the whole system looks like a classic pyramid scheme that relies on feeding the money of more and more suckers into the bottom of the system in order to create profits for the few at the top. It’s certainly nothing like actual money that can be used to buy products.

Not to mention the negative impact on the environment1 that results from sucking down nation-sized amounts of electric power to “mine” new coins.

As best I know, there are around 40 different cryptocurrencies (also called digital or virtual currencies) in active circulation. The term “circulation” being applied very broadly since none of these systems have much real-world application. Their usefulness exists primarily in the minds of theoreticians and anti-government conspiracy nuts.

I know it’s old-fashioned, but I like the kind of money that can purchase actual groceries at the local store.

The picture is a stock image from an article at CNBC showing a physical coin with the Bitcoin logo and a chart line on the increase. Unlike the wild up-and-down path followed by the actual value of Bitcoin.

1. The linked article, from the Columbia University Climate School, also includes a good, short history of Bitcoin and summary of how the mining process works.

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