Crypto Currency: Fake Notes or a Ponzi Scam

The skepticism is being subdued to euphoria over the past few weeks and the hitherto conceptual cryptocurrency (popularly bitcoin) is now at your door step. Cryptocurrency exchanges are started publishing full page advertisements in leading national dailies. The recent judgement of Supreme Court, opened the opportunities for the Crypto Business. The Order stated that in the absence of any legislative ban on the buying or selling of cryptocurrencies, the RBI cannot impose disproportionate restrictions on trading in these currencies. This opened up opportunities for crypto business.

 The Crypto currency business is still remains as a business with “Cryptic Business Plan”(The plan nobody knows other than the promoter). The marketing done by various “Crypto Currency Exchange Houses” is such that they become successful to create a kind of FOMO (Fear of Missing Out) feeling among the ordinary people. The stories of overnight price movements, are being marketed as an opportunity and a panacea to get rich quickly. But who is getting Rich is remains a bigger question.

What is Crypto Currency: It is basically a computer programme which is based on the latest technology concept known as Block Chain, where information is stored is blocks and each block is connected to the neighboring blocks with a computer coding mechanism that ensure the continuity of information. The information saved in the block is decentralized and is distributed across computers spread across the world.

What is Bitcoin: The crypto currency world is having a number of crypto programmes namely Bitcoin (the market leader), Ethereum, Shiba Inu, polkadot, DogeCoin etc. Its estimated to have more than 4000(!) crypto currencies in existence as of today. Bitcoin is the market leader with more than 65% share in the entire cryptocurrency world. Though you can buy any Cryptocurrency, for better understanding of the concept, we take Bitcoin as the example in the forthcoming paragraphs.

The origin of Dogecoin is worth googling J and it will show how to sell a crap.

How to Buy Bitcoin: The BitCoin ( though it is said to be a currency it  not a currency and to be read as a complex computer programme code)can be bought through exchanges only. The exchange itself is an online platform, which reflects the realtime transactions to the user.  In India, “popular” exchanges are WazirX, CoinDCX, ZebPay etc.  You have to download the crypto exchange app (acts as Online platform as Online share trading platforms), do the basis “KYC’ to get registered and go. The exchanges act as the facilitator to convert fiat currencies such as Dollar, Rupee etc to Cryptocurrency and viceversa.

The purchase of cryptos give you an opportunity to own cryptic currency in your wallet along with the opportunity to gamble. Efforts are being made by various corners to make this gambling legal by recognizing the Cryptos as an asset class, which some countries accepted while majority not. In India, its not a legal tender, though it can be traded in Crypto Coin exchanges. There are some juice shops, and businesses accepting payments in Bitcoins.

How Crypto Business Works: The confusion begins with this. Each user with get a Crypto wallet and the users will get credit equivalent to the fund invested in the respective fiat currencies. As on date of writing this, One Bitcoin means $59,000 and  you will get 1/59000^th value of Bitcoin on a Dollar.

The Traps of Bitcoins

1.      Coin Exchanges: The coin exchanges are App based platforms. You have to remit funds to the accounts of these platform via upi/gpay etc. Once you remit funds, the platform will display it as you have credited the bitcoin/crypto equivalent to the fund paid to the exchange. You start believing that your fund is growing/falling as informed on the daily charts. But it may not seem so. The app platform can be manipulated such that you will be made believe that your account is credited with crypto currency, and actually it may not. You will be able to redeem also and as long as the exchange remain solvent. The solvency of the exchange is depend upon the flow of the fund; ie, the fund inflow is more than the outflow, you will not feel the cheat. You will get your money back otherwise, you will join the bandwagon of those, who  were already got cheated by other ponzy schemes.

  The coin exchanges are registered as private limited companies and the platforms are the brand names of these companies. The ownership of WazirX as per 2020 Audit report belongs to Zettai PTE ltd, which is a Singapore registered company (formerly known as Zanmai Pte Ltd . The most intriguing/suspecting factor is that the company brought 11Cr as investment, but carefully avoided the disclosure of the investment. The details of exchanges such as CoinDCX, Coinswitch details are not available in public platforms except certain news reports, that seemed to be selectively disclosed by the companies. If you google about the details of these exchanges with keywords such as trust, safe etc. you can find the answers as “yes” drafted by these companies in Google.

2.      The Limited supply conundrum:  The Bitcoin said to be derived its value from the demand-supply economics. If you go deeper into the process of this “limited value” you can see that the argument is fake. A bit coin can be divided into more than a million piece. The exchanges offer you to purchase bitcoin as low as for Rs 100/-. A dollar is just 1/59000 piece of bitcoin (this denominator will be changing for every day). If the value of the bitcoin surges to 1Million, then the  value of one US Dolllar would be 1/1Mn. You can divide a bitcoin into a million/billin/trillion or more pieces.  The supply hence is practically unlimited.

3.      The shady freeflow of information: The flow of information is said to be free and available to all. Still a minority of the population is “invested” into this. The value of the Bitcoin is greatly influenced by the tweets of the headweights such as Elon Musk. The people closer to such influencers make a killing on the fluctuation of the value of the Cryptos. It is a known fact that it is the operators who are cornering the major portion of the revenue of a crypto transaction. As the Crypto Exchanges are the custodian of knowledge w.r. t the crypto transactions and values, they will be making more money than anyone else in the game.

4.      The Private Currency: The Cryptos are projected as private currency backed by the  Demand-Supply economics. When the cryptos are sold, as a replacement to currency, the crypto become akin to fiat currency, backed by the soverign nations. When the sovereign backup or not validated by the soverign laws, the cryptos remain as fake currencies. It’s known that more than 4,000 crypto currencies are in circulation. In otherwords, more than 4,000 fake currencies are in circulation. Since it got an aura of being “Technology item”, the “fake”ness is being ignored conveniently. Its upto the countries to take a decision on this.

5.      Ponzi Scheme:  The crypto currencies are nothing but a more complex ponzi scam, where in those came early make money and those followed are likely to get cheated as they may not getting enough demand for the crypto as they bought. Many friends, especially who wants to make quick buck are jumped into this bandwagon on the hope of hitting the mine. However the difference is that unlike the ponzi schemes, the value of underlying asset, the Crypto, shall remain as a pertpetual zero coupon bond at the hand of the holder, the  value of which shall be fluctuating as per demand/supply.

(I still don’t know how crypto can enter India, as the entry of Crypto to India FEMA regulations and applicable taxes and also the same shall be treated as Foreign Currency (any medium act as a storage of value or exchange of values or acts as tender, amount to be treated as currency. In that context, as Bitcoin is an external tender issued not by the soverign government, shall be treated as a Forex. I think RBI still have the opportunity to protect)

Additions

India to legalise Crypto (13/02/22)

The logic of lobby's pressure behind crypto to legalise in countries like India is simple. As in Ponzi scheme, the demand of  Crypto  is  positive only when people are joined on the lower ranks. The sustainability of value of crypto lies only in its demand. The demand can be generated only when more people want to own it. When the number of people who joins into the crypto bandwagon, then only the cryptic currency can keep it's value high. The investment in crypto is so far done by people of developed economies and the HNIs who have exposure in these countries. If there is no reselling opportunity, then there is no value for it. Their crypto can sustain the value only when the demand is there. The move of Indian Government is thus a morale booster for the gamblers in Crypto.

Myth: Crypto is independent (22.03.2022)

One of the biggest claims of Crypto is it's independence. The biggest risk of crypto is it's volatility. All experts are unanimous on it. The independency and volatility are paradoxical. The independent nature of  Crypto creating a borderless world. But in reality crypto is subservient and is acting in accordance with the whims and fancies of  influential hyper rich like Elon Musk, Abrshmovitch etc. It's value shall skyrocket or slumber on a tweet in its favour or against.  In otherwords, the independency is bogus. The fiat currencies are backed by economic activities and it's value is determined by the economical growth of the respective countries. Thus the so called independence is just a myth. 

The article is still under progress and shall be updated periodically.

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