Trump's crypto projects are scams, but is the the entire industry corrupt? The answer might surprise you
Welcome to ‘You Asked For It’ the weekly mailbag column for Banter Members!
A reader writes in response to my piece about Trump’s gigantic crypto fraud:
I have no sympathy for anyone investing in crypto. Let’s remove all the buzzwords and see it for what it really is. A ponzi scheme. You put money in to gain shares... sorry tokens... that you hope someone else will pay more for later on. On Wall Street, you’re buying shares of profit generating companies or limited supply earth materials for the most part -- that is before the criminals at the banks gamed the system by introducing Vegas style gaming aspects like futures betting, short sales, etc. Housing has a similar model, where you hope the structure you purchased on the land it sits on will be worth more to someone else someday if you properly maintain it. Now look at Crypto. It’s not based on anything of value -- just digital scarcity -- a completely imaginary, intangible object whose only value is what the next sucker to be reeled in will pay for it. When users buy in, that money doesn’t just transform into crypto -- it sits in a bank account that the platform manager is free to raid as they see fit to buy homes, cars, and cocaine.
When investors cash out their accounts, there is supposed to be enough money in that bank account to pay them, converting tokens back into hard cash. That cash is typically pulled from the investments of new suckers. If everyone cashed out at once, the system would collapse, much like a bank. But there’s no protection or regulation for these platforms. So the scheme is built upon perceived value -- keeping investors in the sack with ledger and balance sheets that are pure fiction. Yes, the whole economy is built upon this type of blind faith, but at least there’s a perception of agreed value for goods and labor despite the government routinely minting more money and burying itself in debt too complex to imagine -- the foundation for inflation. All the recessions of our lifetime will pale compared to the next one that will soon be here when everyone realizes crypto, blockchain, and AI that generates consistent revenue are all a pipe dream sold to us the same way Springfield was conned into a monorail.
My response:
This is actually an incredibly important topic, and one that I think people really do need to understand properly. And it’s not because I personally find the technology interesting — it’s because crypto, or more accurately, blockchain technology, is transforming parts of the financial system right under our noses.
It’s not just me saying this either. Just last week, JPMorgan CEO Jamie Dimon sent a letter to shareholders warning them that that the tech is real and that “we need to roll out our own blockchain technology,” in order to compete.
I worry that those who don’t get to grips with crypto and blockchain are going to get left behind in the next phase of the economy, so I’m going to try to explain where the reader is accurate, where they are not, and how to think about the space more clearly. Because distinguishing between what is genuinely useful technology and what is essentially a giant Ponzi scheme isn’t easy. But once you understand some of the basics, you at least have a framework…