Nobel prize winning economist Paul Krugman recently said to the media that the overhyped blockchain has proven to be “useless”. The shut down of TradeLens is only one of the events he cites to support his anti-crypto views that he has been sharing for a long time. In 2011, he had published an op-ed in the New York Times called the “Golden Cyberfetters”, and last year described the crypto industry as a long-running ponzi scheme.
Krugman considers cryptocurrency markets to be a massive bubble that has been inflated to it current heights for the fear of missing out. His recent op-ed in the New York Times shows the many things that are wrong with the state of crypto and blockchain industry.
Another reality check comes from Joe Lonsdale, the co-founder of Palantir (co-founder Peter Thiel and others), a company that makes software for fraud, counter-terrorism and national security, spoke to Fox News, sharing his view that most crypto companies would eventually shut down as they are based on an industry-wide ponzi strategy.
A ponzi scheme is one where those who come last end up parting with their money, buying worthless assets from those who bought them earlier. The first sellers thus keep the profits, and the last buyers suffer a loss once the price of the asset collapses or the scheme is shut down.
First Terra Luna, then Celsius, followed by the massive collapse of FTX and then BlockFi has sent shivers down the spine of crypto traders and followers. They are now hoping for the same miraculous spurt in prices that occurred in 2017 and 2021.
Lonsdale considers crypto lenders, crypto tokens and other players to be part of a vast ponzi scheme, and cites lack of proper regulations as a factor that will cause an eventual collapse of the crypto bubble.
On the positive side, the fact that a currency like Bitcoin allows for money to be sent across without involving intermediaries is a great facility, and Lonsdale acknowledges that, as it can be handy when dealing with bad governments. It can help one get one’s money out of China, Venezuela or Russia.
The ICO craze led by whitepapers is well known, and goes to support Lonsdale’s view that the valuation of tokens is not based on cash flow or what value is being created, but what anyone would pay to buy a token. If a revolutionary new blockchain platform wants to create fairies on earth, and someone thinks their token is worth a dollar, then that’s the price it goes on to sell for in the market. As is now known, many such tokens were reduced to smithereens, crashing to tiny fractions of a cent. To visualize the price of these crypto tokens, think of a zero followed by five zeroes after a decimal.
Free markets determine prices, and so there is no “actual” or “real price” of anything. In the case of crypto tokens, investors can get lured by what they think is a “good price” to buy a token, when eventually the business, assuming it to be honest and transparent to the core, could be just a scheme or an idea waiting to fail, like any other startup or new business. It is well known how many new businesses, crypto or not, survive the very first year or two.
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