How to Sign In
Introduction to Business In the News Blog
cancel
Showing results for 
Search instead for 
Did you mean: 
X
Bitcoin, Failure, Fraud and Errors
218 Views
0 Comments

The biggest mistake that many would say, with regard to Bitcoin, might be to buy it or waste time thinking about it at all. Others would say that the biggest mistake was not buying it a year ago or more. As it happens, a few people have made a lot of money over the short term by owning it. But Bitcoin has no underlying value, so owning it is always temporary, and is always a bet that others will make a stupid bet regarding its perceived value and you (an owner from a different point in time) will profit from the other owner's untimely bet. Bitcoin ownership seems like a Ponzi scheme.

 

It is a marketing and finance fact that virtual currencies have declined in value by more than half since their high points near the beginning of 2018. What has gone wrong?: 

"Hackers draining funds from online exchanges. Ponzi schemes. Government regulators unable to keep up with the rise of so-called cryptocurrencies. Signs of trouble have appeared at nearly every level of the industry, from the biggest exchanges to the news sites and chat rooms where the investment frenzy has been discussed." In terms of what may be going wrong, this is just a start. 

 

One question that arises is: Is Bitcoin a Ponzi scheme?

 

 

These are the two attributes that identify an entity as a Ponzi scheme:

  • No economic value is created. 
  • More people are needed as investors to keep things going. 

Bitcoin supporters claim that the economic value that is created is an easy-entry, non- government controlled way to participate in transactions. This might be true. See if this explanation of bitcoin makes sense to you: 

 

In any event, Bitcoin's value has roller-coastered between $5,000 and $19,000 in less than 40 days, and that volatility makes it a very risky investment. But the entities that trade in Bitcoin, such as BitConnect and My Big Coin are entities actually structured as Ponzi schemes. As such, they have encountered Federal prosecution. 

 

Source: "As Bitcoin Bubble Loses Air, Frauds and Flaws Rise to the Surface," by Nathaniel Popper, New York Times, February 5, 2018. 

Follow up

  • What mistakes have you (or those you know) made with Bitcoin? In what ways, if any, have you acted prudently and skillfully? 
  • According to the article, what is "Proof of Weak Hands Coin"? Why did it go wrong? What other cryptocurrencies are similar? 
  • What are the computer issues that surround the "mining" of Bitcoin?  Why are they significant?
  • According to the video, why is Bitcoin NOT a Ponzi scheme? How can it survive without new investors?