Are there experts in the crypto-industry?
Current crypto-hype in large IT companies makes everyone believe there are experts in the topic. Folks jump into investments thinking they join to the success with someone who knows what they are doing. But it turns out it’s not.
This leads me to a question: Are cryptocurrencies the pyramids of the current decade?
This kind of comparison is not new, but as a developer highly involved in everything that happens in IT and in FinTech specifically, I find more and more parallels between two ideas. For some, they allow earning. But for the majority, they only give hope for a miracle (to become rich, achieve what they want, etc.).
Neither was the goal of cryptocurrency creation, actually. Technically, the two main big ideas behind them are:
- The idea of storing information about transactions in the form of a chain of records dependent on each other — Blockchain (broke a record in the middle, the chain “breaks” and all subsequent records automatically become invalid);
- The idea of confirming each new transaction by performing some valuable computing work in a distributed network of decentralized “workers” — Proof-of-work. I must say that there are other ways to confirm transactions, but so far, the idea of ”wasting time and electricity” has turned out to be more workable than others;
That’s it. There was no talk of any earnings or profits. At the same time, cryptocurrencies have existed for about 15 years and still cannot break through a thick layer in FinTech. For a moment, the classic pyramids (the so-called Ponzi scheme) appeared more than 100 years ago, so in comparison with this idea, cryptocurrencies are still young, and you can try to draw parallels and understand what else they can grow into.
Unhealthy signals in crypto
Cryptocurrencies can have reasonably practical uses. But at the moment, even in regulated environments, they are more often created and used for hype, marketing of individual companies and their leaders.
What can we say about countries where regulators cannot reach out to potential fraudsters? Here we very often see fraud in its purest form, attempts to “hit the jackpot and hide,” confuse end users, and sometimes even “cut” from the government investments.
In 2021, we all saw one of the last attempts to do something with cryptocurrencies: NFT — one another game in an attempt to make money on something new and incomprehensible.
What makes them attractive and remind me of a pyramid:
- The opportunity to “jump on the train of success” earlier than others and become rich. It usually comes with arguments of the right moment and the low price initially.
- Everything is based on “faith”: lack of any confirmation of declared quality or performance. Unclear “roots,” (the original companies or the people who created the product). There is no way to talk to the source. And in both cases, the explanations are vague and so abstract (and in both cases, it is intentionally so) that even technically savvy people cannot distinguish a technical Fake from an actual working model. I know it’s true for the world of science as well; however, we should distinguish the absence of proofs (in pyramids and crypto) and technically complex proofs (math, physics, etc.). In the world of cryptocurrencies, the terms are complex, so it is frequently misused, and very few specialists at the moment can talk about “crypto” in a technically correct language.
- The ability to touch the “new big idea” without the necessary knowledge. Opportunities being sold are deliberately reduced to the level of “understanding” by a client who is willing to invest. Everything is explained so that the one thinks he/she understands what it is about.
In fact, any really big ideas were based on mathematical apparatus and then had to go over a tough time check (before it became clear that the concept is vast). An unprepared person hardly has the opportunity to keep up with them on purpose.
Unhealthy trends in 2021
Unfortunately, things are only getting worse. Here are some trends of 2021:
- Every self-respecting IT company has open vacancies with the Crypto prefix. That is, more and more products will appear on the market, with the prefix crypto, blockchain, token, etc.
- Media people often jump on the hype wave. Price surges certainly have beneficiaries. For example, Elon Musk in 2021 either hated or praised individual cryptocurrencies, which led to huge jumps in the latter’s price.
- A couple of years earlier, we saw dozens of so-called ICOs, during which funds were raised, and then the organizers evaporated in an unknown direction.
Everything that happens to cryptocurrencies is someone’s attempt to hit the jackpot. In general, this is nothing more than an idea with no practically helpful solution so far. It may appear, but as long as the scales are in the balance between those “for whom it is profitable” and “for whom it is not profitable,” the latter are winning.
The financial sector is driven by technology, but it is not based on technology (Boom!). Instead, it is based but on relationships between big companies and “uncle Bob’s,” agreements and contracts, handshakes, and even personal sympathy.
A company’s success in the FinTech sector depends on negotiating with several intermediaries and issuing a financial tool with the lowest possible commission so that clients are not afraid to use it. We are not always talking about convenience or UX, here it is from case to case. Therefore, FinTech is (mainly) the B2B sector. That is, more companies are working with companies in it.
FinTech enters the B2C sector and works with end clients, but only to make the client essentially a Business (profitable for itself) and a source of profit. This is why your bank is constantly offering new tools, from insurance and protection to cost control. All this is a concern with a downside (I’m not saying that this is very bad, I state that any coin has a downside).
Many financial instruments have not changed for decades simply because they are already profitable. For the last ten years (or more), FinTech companies have been bringing their old technologies to Asia and Africa. They took it out as it is, changing nothing. They are applying essentially the same ideas to a new, not yet matured audience. Expanding the scope is good for the end customer, but it’s not always the best solution, so you need to understand that they did not do it out of kindness. That is, someone, benefits greatly from it.
Are you familiar with the structure of most Forex brokers? The idea is to find people willing to bring all their pennies and with huge leverage (10x, 100x, 1000x, etc.) from the broker to convert them into other currencies in the hope of that the rate will jump up… and there is no certainty that this will happen since trading occurs in short periods: mainly during the afternoon session of the exchange for 8 hours (from 9 am to 5 pm).
Today you are lucky, and you are left with nothing the next day.
Don’t be tricked
See the parallel with cryptocurrencies? Many people buy them only to sell them profitably and convert them back to their currency. And this immediately leads to fraudulent schemes, and states consider it their duty to protect against it. That’s why cryptocurrencies will only become widely-used when there is a way to control them. So that can convert their clients into a controllable source of profit, which is against one of crypto’s main ideas — decentralization (above). So, in anyway, the idea of cryptocurrencies will degenerate into a controlled technology sold to the uninitiated in every corner under the guise of a decentralized blockchain tokens.
I am sure that many of us had or have relatives who were influenced by the classical pyramids and belief in miracles. With cryptocurrencies, they are even more vulnerable.
In the article, I draw parallels with what we are already familiar with. Want it or not, cryptocurrencies will stay with us forever, like the pyramids. And it will continue to spread.
And in order not to unknowingly fall into the trap the next time you decide to replenish the wallet of virtual “bunnies,” be vigilant, watch your feelings and sensations. Ask yourself, why are you doing this? Do you have any practical working needs? Or are you craving a quick profit at this moment? In the latter case, most likely, it will trick you.
Good luck!
