Is Crypto a Ponzi Scheme?

round gold colored and black coin on person s hand

We’ve talked before about crypto currencies and blockchain tech and I’ve told you before that the subject often leaves me with more questions than answers.

Cryptocurrencies are intended to be a decentralized alternative to traditional financial institutions. When you use a bank and want to send or receive money from another person, the money first goes through the bank. The bank keeps a record of deposits and withdrawals from your account in its ledgers. Crypto uses a decentralized ledger that’s updated by users. 

There’s been a lot in the news lately about the crash in value of cryptocurrencies. There was even a recent Congressional hearing on the matter. I was surprised to see that one of the star witnesses was a favorite actor of mine, Ben McKenzie. I’ve watched him over the years in The O.C., Southland, and Gotham. Turns out he also has a degree in economics and has been a very vocal critic of cryptocurrencies. I was impressed with his testimony because he managed to put into words a lot of the things I’ve been thinking about the subject.

The actor said, “Cryptocurrencies” are not currencies s by any reasonable economic definition, as they are
unable to fulfill any of the three functions of money. They are a poor medium of exchange, unit of account, and store of value. You cannot create ‘trustless’ money because money is
trust. We made it up; it’s a social construct. Like all social constructs, money relies on trust
forged through social consensus. You can no more create a ‘trustless’ money than you can a
governmentless government or a religionless religion. The applicable words are anarchy and
cult.” Mckenzie says cryptocurrencies meet the definition of a Ponzi scheme.

You can check out his full testimony at this link:

Or, if you refer a video, check out highlights here:

Sometimes when people say that something is just so complicated that you can’t understand it, that means that either they don’t understand it either or that there’s no legitimate way to explain how it works.

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