Ponzi, Pyramids, and Cryptos, OH MY!
I’m technology minded. I enjoy reading and learning about it, but when it comes to knowledge of how some technology works, I may as well have been born yesterday. It also seems to me that there are quite a few people that are caught up in a cult style fervour about crypto technology, and most of these people seem to be in it for the quick money. These investors are in it for the smash and grab/pump and dump style of investment with little regard for underlying technology.
As I often feel misinformed about these things, I do my best to research what it all means. A friend of mine has been into investing for some time. He has also made his fair share of money of the rise of crypto mania. We were discussing the merits of Steem. He has been hesitant to get involved because it “sounds like a Ponzi scheme”. As a totally green person in the investing world, I was like…
What even is a Ponzi scheme?
By now, you’ve heard of Ponzi schemes or at least heard the name before. There are much better explanations around than I can give here. Basically, they are a parasitic ecosystem that relies on new investors to pump in money. This new money is them distributed to earlier investors to provide a “profit”. Really, there is no profit and the scam artist who has set up the scheme takes the money and runs. When the new investors stop coming in, the guaranteed profits dry up. Original investors decide to pull out their initial investment. By this time though, the scam artist has already taken all the money and run, leaving them free to drink cocktails on the beach of a non-extradition country until the day they die. This leaves everybody who invested at a loss, with no hope of getting their money back. Pyramid schemes are similar. Yet different
The pointy ends of pyramids
Ever heard of Amway, Herbalife or Scentsy? They are some of the biggest active multi-level marketing businesses in the world. These companies get people to “buy-in”, this money goes to the person that recruits them. That person then gives a portion of that to the person that recruited them, and so on, until you get to the top. Sounds like a certain geometric shape doesn’t it? The recruits then get the priviledge of getting to sell their crappy products and encourage their friends to join, and then their friends and family, and so on...
Both of these systems are predatory in nature and rely on desperate and trusting people to keep them going.
How does this fit into Cryptos?
It wouldn’t take much for a group of computer science majors to set up a crypto and present an ICO. I mean, if you could pay off your university degree in a few months with very little work, wouldn’t you? This Fortune.com article shows that last year there was a ICO failure rate of 59%
Bitcoin.com says the total funding of failed projects from 2017 was $233 million.
You can see that it would be easy to ask for an investment on an ICO/Crypto currency with very little intention to progress it. It makes it especially easy to achieve this off the back of the cryptomania that we saw late in 2017. People with very little interest in the technology and wanting to make a quick buck are happy to put money in on the promises of high returns.
What does this all mean?
There are definitely scams in the crypto space. Most of these scams target people who don’t really know what they are looking at, or talking about. What I hope I’ve shown here is that you need to be careful. Is Steem a Pyramid or Ponzi scheme? I’m told it isn’t. People often talk about it with such hype that it sounds like a shitty Amway product. I’m doing my best to work it all out.
I am very interested in the technology behind these things. I guess time will tell, I mean, I was metaphorically born yesterday when it comes to this stuff. Better to learn to walk before I run a marathon right?
I think that Steem targets an audience outside of cryptocurrency, and for this reason, I don't think it is a Ponzi scheme. No one is trying to sell this as a product, it is simply a social media platform that rewards you for joining in.
It is true that If you invest more you can earn more. But in saying that, you can start with nothing and if your content is good, you can still earn a lot.
The other thing about Steem is, there are a group of people who call them selfs the Steem cleaners, these people make it their job to find bad content or people exploiting the system, and then downvoting them.
Downvoting
If you get downvoted on this platform it can do a couple of things.
I think with these things in place, It is hard to call Steem a Ponzi scheme as there are measures taken to ensure that it isn't that. This platform isn't making one person rich, rather it gives everyone the opportunity to earn money for content that they create.
The other thing about Steem is, it is inflationary. It works very much like a current form of Fiat well at least SBD does anyway. So with that, there isn't a finite worth of currency here, which sort of gives it more of a value, and should keep the price fairly even and stable.
Fun fact
Originally SBD (steem based dollars) was meant to be worth $1. However, the market did impact that, there has been talk amongst the witness's to force this $1 rule. I don't know if that will actually happen and personally, I think the price should be set by the market, considering the community is really what runs this platform.
I see what you are saying. There does seem to be a good amount of control in the quality of content on Steem. It’s interesting to me that the witnesses would want to tie the value of Steem two a fiat. Wouldn’t it just make sense for the market to dictate it?
Yes It would, Now one thing to note that it isn't the witness who created this, the creators of the Steem blockchain had said they wanted one SBD to be worth $1, not the witness's, The witness's just make sure it runs efficiently and to do changes to the blockchain with a majority consensus vote. I agree that the market should set the price.
The other thing to note is, You don't have to invest any of your money in Steem at all in order to earn money. So with that how can it be a ponzi scheme?
Yep, this is the key point. Steemit actually lets you create something of value from nothing at all. That is proof enough that this is not a ponzi scheme for me.
My account actually holds value and using Steem I have been able to build a reasonably diverse crypto portfolio. And this was done by simply writing a few (well many) blog posts.