|Are Cryptocurrencies a SCAM?|
Cryptos are digital currencies that you can exchange for cash and stuff or other cryptocurrencies.
A lot of people are using these because (A) Everyone is doing it (B) As an investment (C) As a medium of exchange free from government control.
But are Cryptocurrencies a scam?
As in YES, and NO.
Cryptocurrencies are virtual, i.e., they aren't real, and have no 'real' value other than what people are willing to pay for them.
Let's look at the most popular crypto, BITCOIN.
Some might say that it's clearly a scam because you can't do anything with it other than sell it to someone else at a higher price.
Bitcoin's strength relies on the fact that people are willing to trade in it.
Much like the US dollar. The US dollar is not gold-backed, hence the purchasing power of the dollar depends on what the rest of the world is willing to give in return for dollars. The dollar is the reserve currency, means it depends on the confidence of other countries in the dollar and its own domestic purchasing ability. In other words, it is mostly whatever we want it to be as the collective of dollar users.
Bitcoin and other cryptos work on the same concept. As of now, their value is determined purely by collective public interests and moods.
If confidence in bitcoin is high and the public's mood is good, the price goes up. Consequently, the price can also go down as users find bitcoin harder to use or if public interest or sentiments fall. It works exactly like a stock in the stock market. Btw, stock markets go up and go down. We call this volatility.
There are 4 things a currency needs to have and be able to do:
- As a unit of accounts.
- A store of value.
- As a medium of exchange.
- As a way to repaying the loan, in the same way it was handed out.
Bitcoin and other cryptocurrencies fail in most of these criteria.
Cryptos can't be a store of value because you don't know what its value will be tomorrow. It is currently impractical to transfer bitcoins between two people because the transaction costs are too expensive and other cryptos will follow suit. You can't give out loans & even keeping simple accounts will become impossible to do with this much volatility, if you don't know what you're getting in return for your goods and services then you can't do business.
Then, of course, we actually do have some really bad people in cryptos.
All these thousands of cryptos are being produced and marketed in an aggressive manner and the public thinks they are buying the next bitcoin. They jump on the party train because they fear missing out again. This is called the pump-and-dump strategy. They hype up a coin that they own, other people join in and they buy some coins, then they get out when the price goes way up and leave the others holding the bag.
Often the price crashes right after the price has rallied up enormously and it never recovers back to the same levels. Some people lose a lot of their money permanently.
Not to mention, some ICOs are just outright scams. Read this article.
Then you have the privacy and security issue. With so many hacks and breaches in crypto-exchanges, is it a safe option to keep them with a third party? Your computer isn't free from hacking either and your deposits aren't guaranteed like they are in a bank. If someone takes your bitcoins, you can't get it back because that's how cryptos work. You can't even get a chargeback because of 'THE BLOCKCHAIN' framework does not allow any mistakes to be erased.
Should you buy bitcoin or any other cryptocurrency?
You can, and you might just become the next bitcoin millionaire and retire at 23 or buy a yacht.
Before you consider putting some serious money in cryptocurrencies, just consider one thing.
Would you have bought stock in Myspace or pets.com?
Both of them were thought to be revolutionary at the time but soon went belly up when sanity returned to the investors' side.