Yes, All Crypto Is Just a Pyramid Scheme

Cryptocurrency has, obviously, taken the world by storm in recent years. Promises of riches and glamour and the idea of investing a couple of dollars that can turn into millions in a matter of a couple of years has obviously enticed people from all walks of life. The unfortunate reality of this beloved investment medium is it’s all just a leveraged pyramid scheme.

Now, before people turn out in droves with their pitchforks and demand retribution, let me just say…

So is everything in life

The corporate structure is literally the guys at the bottom get paid the least, and the people at the top got in early or had some friends in high places, and they’re at the top with the most benefits and best pay. Similarly, the stock market is only slightly different from Crypto. Ultimately, the goal with the stock market is to buy in early, and hope to offload your bags to someone else on the other side of the trade. The only real difference between stocks and crypto is the fact that the underlying value of crypto doesn’t come from the assets of the stock, but rather the community and utilization of the token.

The entire investing world is this concept of “get in early, and offload your bags to the next guy” so acting like Crypto is exclusive in this matter is either incredibly shortsighted or simply ignoring reality.

Venture Capital vs Cryptocurrency

To put that in perspective, Ethereum would be pretty worthless if people didn’t use Ethereum. At its beginning though, no one really used it and they bought solely based on the potential for future use and “What it could be”. Now, depending on what stage you invest in the likes of Startups, odds are, they are either completely worthless or not worth much. They have very little cash, assets, and might not even have a working product. You’re investing for the potential for future growth. In fact, most startups fail, and there are just dozens looking to get that funding to help the project.

Similarly, in Crypto, most Crypto’s have little to no value at first. They are a dime a dozen and you’re weeding through the worthless ones to try and find something with potential. Once you find a couple that you think do have this inherent potential, you invest based on ‘future utility. Ethereum has thousands of cryptocurrencies based on their blockchain and used by millions of people all around the world. Even though Ethereum could have pretty easily failed at first, now, in order for Ethereum to fail, every single token based on their blockchain would also have to fail in order for it to completely crash and burn. That’s highly unlikely.

Don’t get me wrong, there are plenty of scams

Yes, obviously the entire industry is riddled with scams and is in pretty desperate need of friendly regulation in some capacity. That being said, the likes of Bitcoin and Ethereum will definitely continue to go up over time and won’t be going anywhere.

Nearly everything over time, especially things involving money, has resulted in tons of people trying to exploit the system using scams in the beginning. As people learn the scams, they stop working, the industry becomes more regulated, and it becomes mainstream. Once it becomes mainstream and more reputable, but most of the money is already made.

Think about Tesla, honestly, I don’t know how much more money there is to be made in the stock, but if you bought when it was on the brink of bankruptcy and 1/1000th the price it is today, then you’d make tons more money, whereas today, I don’t see it going another 1000%, as that’d require tens of trillions of dollars.

How exactly does Crypto work?

Underlying all of this is a lack of underlying all of Crypto. What causes a Crypto to go up? What’s a good use case to actually make a token go up?

Most tokens start out trading on Decentralized exchanges like UniSwap and PancakeSwap. This is because it’s incredibly simple to get started, and only takes 1 person to start a crypto and get it listed on a decentralized exchange. How this works is you have your token and the native token of whatever blockchain you’re on.

For example, let's say you have a token, “XYZ” and it’s on the Ethereum Blockchain. You just have to buy Ethereum and deposit it into Uniswap and it is good to start trading. The price is determined by the amount of XYZ to the amount of Ethereum in Uniswap. So, if you have 1 XYZ token and 1 ETH token deposited into the LP, and there’s a total supply of 10 XYZ, the market cap of XYZ will be 10 x (the price of Ethereum). Since the amount in the liquidity pool is 1 XYZ and 1 ETH, you can only buy XYZ with ETH, and how it increases is the same equation as above.

If there’s 1 XYZ and 1 ETH in the liquidity pool, that means in order to buy .5 XYZ, you need .5 ETH, but the new amount in the liquidity pool after that is .5 XYZ to 1.5 ETH. Meaning… the price of XYZ actually just tripled.

Use Case

What makes Bitcoin so popular is the underlying notion that “There’s an infinite amount of fiat to buy a limited amount of Bitcoin”. While there’s no perfect answer to what makes a good crypto, things like a ‘finite supply’ of the token, tokens that have decreasing supply, and instances that will ensure the token is consistently used help to ensure the token continually trends up.

Conclusion

At the end of the day, Crypto is just as much of a scam as everything else in life. If you know what you’re doing, you can make a lot of money in the area. If not, then you don’t have to use it, but it’s definitely here to stay.