Bitcoin debuted in 2009, launching the modern era of cryptocurrencies. Since then, individuals and institutions have made and lost fortunes in crypto, and as the digital asset market evolves, supporters champion its potential, while detractors believe that it’s a house of cards. In this informative video, commentator James Jani shows how crypto assets carry great risks for investors and the broader financial system. Investors will find this a robust examination of the negative externalities associated with cryptocurrencies.
- Bitcoin created an asset class of digital monies that enthusiasts believe will fundamentally alter the global financial system.
- Blockchain as a digital payment network is highly inefficient.
- Digital currencies, tokens and NFTs may be among the biggest financial lies in history.
Bitcoin created an asset class of digital monies that enthusiasts believe will fundamentally alter the global financial system.
Cryptocurrencies are now firmly embedded in financial markets. Investors can hold and trade nonfungible tokens (NFT), stablecoins and other digital assets. The hype surrounding cryptocurrencies reached dizzying heights in February 2021 when the artist known as Beeple sold his digital art NFT for more than $69 million. The NFT craze continued and reached ludicrous levels, as NFTs of apes and cats commanded multiple thousands, if not millions, of dollars.
“The purchase of people’s artwork…wasn’t done through $69.3 million in cash – that purchase was made using cryptocurrencies.”
Satoshi Nakamoto created bitcoin in 2009 with the vision of revolutionizing the modern financial system. The new digital currency and payment architecture would not rely on a central clearinghouse or institution but on the distributed ledger innovation known as the blockchain. The invention came amid a sharp global economic decline that led many individuals to distrust international markets and to embrace bitcoin.
Blockchain as a digital payment network is highly inefficient.
Right from the start, cynics scoffed at the notion that bitcoin was a transformative financial and payments force, given its fixed supply of 21 million coins and its transaction processing speed. Bitcoin’s network is only able to process seven transactions per second, while MasterCard can handle 5,000 transactions per second. And to process those seven transactions, bitcoin’s proof-of-work model requires an enormous amount of energy for computers to validate the ledger in real time.
“Most bitcoin mining done today is done by huge mining farms in warehouses. Bitcoin for the most part failed in its objective of trying to become a global currency outside of illegal use purposes.”
Bitcoin has not turned out to be the revolutionary digital currency that Nakamoto envisioned. In fact, the blockchain founder has been missing from crypto dialogues since 2014.
Digital currencies, tokens and NFTs may be among the biggest financial lies in history.
Many critics compare bitcoin and other crypto platforms such as Ethereum to a Ponzi scheme, akin to embezzler Bernie Madoff’s heist. The Ethereum blockchain has spawned the development of thousands of new tokens. Entrepreneurs released these tokens in “initial coin offerings” (ICOs) that were often backed by celebrity endorsers who hyped the digital assets. But many ICOs ended up being frauds.
“Most of the people buying bitcoin are not buying it to use as a currency, they’re buying it as an investment…Ponzi schemes are kept alive by continuously finding new recruits and new markets to tap into, so that money is continuously being poured into the scheme.”
Crypto enthusiasts are always pushing the “use case” for the underlying cryptocurrency to justify its valuation. But detractors contend that the pursuit of wealth by individuals at the expense of others lies at the very core of digital assets. Government regulation of crypto assets, which are unregulated securities, might help to keep fraud in check.
“There’s only one question that remains: At what point does the ticking time bomb go off?”
In the final analysis, crypto investors may be at substantive risk for losing wealth in their holdings, if and when the cryptocurrency ecosystem implodes.
About the Speaker
James Jani comments on current issues on his YouTube channel.