During the first quarter of 2018, the World Bank president likened cryptocurrency to “ponzi schemes”. She was one of the most influential financial authority to do so. Prior to then there have been questions asked on the legitimacy and genuineness of cryptocurrencies. So is crypto wealth a scam or something worth your attention?
US federal authorities arrested the founder of PayCoin and he was subsequently slammed with a $9 million fine and 20 months imprisonment last September. Incidents such as this have raised speculations that crypto wealth could be as a result of sharp practices.
Viewed With Suspicion
There are many in the crypto community that insinuate that the negative publicity the industry receives may point to the suspicion that governments are skeptical about the safety of crypto investments and are generally suspicious of the industry in the bid to protect investors.
This may not be strictly true considering that various governments have been working to understand digital currencies and there are several that are considering national cryptocurrencies or the so-called central bank backed digital currency (CBDC).
Some Influencers Wary of Crypto
Granted, not everyone will believe the fact that cryptocurrency will be the future of finance. With its apparent lack of regulatory and central authority and the belligerent attitude of some governments, the perception of many is that there is something fishy or fraudulent about cryptocurrency.
This is why people like Jamie Damon classified it as a fraud while many other industry leaders such as Bill Gates said they would short Bitcoin if the opportunity arose.
Others have labeled Bitcoin and digital currencies ponzi schemes or at best multi-level marketing scheme or digital fraud. But before we jump into conclusions let’s look at things from both sides and get a few facts straight.
Is Crypto Wealth A Scam?
So is crypto wealth a scam as the allegation goes? Let us start by defining the technology. Blockchain the technology on which cryptocurrencies are built makes it possible to record data and other important things on it in a way that is transparent and inalterable.
This means that the technology is reliable and dependable so all parties involved in transactions can trust transactions made on the blockchain. This is the genesis of the creation of the so-called trust-less system which eliminates middlemen such as banks from financial transactions.
How People Make Wealth with Crypto
Now having cleared the air about the technology behind digital currencies and showing that this is the best there is and have been in terms of transparency, we have to look at crypto wealth and how people are making money off cryptocurrencies.
Bitcoin is just like modern paper money which has no intrinsic value and so used primarily as a means of payment. Although national currencies derive their values based on the backing of governments, Bitcoin and other cryptocurrencies derive their values based on consensus.
Crypto Enthusiasts Mostly Prefer Coins to Fiat
By consensus, it is implied that there are increasing number of people that are aware of the usefulness of these coins are actually willing to adopt them as means of transfer of value. With increased adoption comes demand for the coins and more demand results in higher values for the cryptocurrencies.
The creation of crypto wealth is a direct consequence of adoption of tokens that were before now unknown to most people. Bitcoin for instance started as a cryptocurrency that technically savvy people mined and stored as hobby. At inception, people could transfer many coins to buy trivial things or even for fun.
In 2010 for instance, one of the early adopters of Bitcoin bought two pizzas with 10,000 bitcoins. Those pizzas in today’s bitcoin value would be worth $40 million. Of course no one knew then that Bitcoin would become something so valuable.
In another instance, there were sites that were giving out free bitcoins in just 7 years ago in the quest to make people take note and adopt it as a currency. The adoption happened but not then but in a surprising manner.
How did this happen?
Increased Bitcoin Awareness
We really cannot dissociate the value of Bitcoin from adoption. The fact is that cryptocurrencies are subject to market forces just like any other thing of value is the single most important reason for publicity Bitcoin receives. This is why there is a strong link between the technical aspect of cryptocurrency development and its economic aspect – a field called cryptoeconomics.
Bitcoin which was a peripheral digital currency in 2009 through 2o16 came to prominence in 2017 with massive adoption and consequent rise in value. People who acquired the coin when it was worth little invariably benefitted from the rise in value of the coin.
The demand for Bitcoin spilled out to other coins and led to a general coin market bullish trend that benefitted most investors. This created a new class of wealth based on investments in digital currencies.
A New Class of Wealth
The effect was such that values of tokens soared and crypto enthusiasts gained hundredth or thousandth percentages from their investments. The trend was so pronounced that luxury goods sprang up to service the new crypto wealthy such as seen with When-Lambo which targeted selling Lamborghini supercars to the crypto rich.
ICOs were another source of quick wealth to crypto enthusiasts and the ecosystem had its fair share of crowd-sales especially in 2017 through 2018. Previous ICOs such as Ripples and Ethereum generated tens of millions of dollars but no one expected that ICOs could raise hundreds of millions in minutes.
Tezos, Bancor, EOS, Filecoin, SirinLabs and even more recent crowd-sale by Telegram are eloquent testimonies to the fact that crypto wealth is real. Not just were these massively successful token sales, the value of most of these tokens made investors good money.
Founders and Investors Became Rich
An offshoot of this phenomenon is that many founders of crypto projects became intentionally or inadvertently millionaires since most of them are holders of their own tokens. This has been a tradition since Satoshi Nakamoto mined the genesis block for Bitcoin ten years ago.
This is why it has been an unwritten policy that all projects earmark a fraction of their tokens for team members and why these teams generally become super rich if the project becomes a success.
The furor behind crypto wealth is mainly as a result of the fact that many tokens fail the utility test and seem to have the singular intent of making founders and investors rich. This is why industry leaders like Vitalik Buterin have expressed concern over this trend to the extent of threatening to ‘leave’.
Miners and Speculators Too
Crypto wealth is not limited to early investment and the consequences of demand and adoption. There are many crypto enthusiasts that have built wealth through speculation and others through mining.
Miners are the maintainers of cryptocurrency networks. They are responsible for the generation of new coins and are rewarded when they succeed in mining new blocks of the coin and with transaction fees.
Mining Isn’t That Simple Anymore
Although it can be energy and capital intensive in proof of work coins, the reward can be immense when the value of the coin appreciates. There are coins that are resistant to expensive and specialized miners that can be rewarding for enthusiasts with lower budgets.
Creating digital asset wealth through speculation and trading generally involves understanding price movement and trends taking cognizance of technical and fundamental factors. An experienced speculator can do this consistently and incrementally build up their digital assets to substantial levels.
Crypto wealth is real, nevertheless it is instructive to know that most experience hodlers of cryptocurrencies ensure that their funds are kept in a way that they are safe from hackers. One of the ways this is accomplished is through specialized wallets.