By Subhash Jangala
On 14th April 2021, Bernie Madoff, the mastermind behind the biggest ponzi scheme in the history of human civilization passed away at the age of 82 in a United States federal prison even though serving his 2009 sentence of 150 years in jail. He was accused of “not just a bloodless crime that takes place on paper, but one instead that takes a staggering toll”, in the words of the US District Judge who awarded him the maximum jail-time that federal prosecutors had requested.
Quite remarkably, at the exact same time, in a distinct element of the exact same continent, a bizarre bull-run kicked off for Dogecoin, a meme-based digital currency surprising monetary professionals and commentators across the globe.
A short background having said that on Madoff’s ponzi scheme merits focus. “One big lie” was how Madoff himself described the asset management arm of the firm a day ahead of he was arrested by Federal prosecutors. Pretending to be trading in securities, applying his “unique” tactic of selecting winning bets, Madoff promised his investors a steady return on their investments. Investors did acquire a steady return for a surprisingly extended quantity of time. However, the returns have been not earned. They have been fictitious. Older investors have been paid off from the investments made by newer investors. As it is apparent, this arrangement would continue only till new investors develop at a substantial price to cover for the rising income expenditure. The genius in Madoff was his capability to manufacture counterfeit returns all via the recession in the 1990s, the 1998 monetary crisis and the September 2001 attacks. The 2008 monetary crisis was having said that, as well sharp for Madoff to “manage”. Older investors pulled out, new ones dried up and banks stopped lending. Eventually the scheme unraveled revealing losses amounting to USD 65 Billion.
So what hyperlinks Madoff and cryptocurrencies?
Cryptocurrencies are primarily digital currencies that are not issued by any central authority and rely on the customers of the currency for their validation. The validation is recorded on the Blockchain which is there for everybody to see. Since the currency is decentralized, there is no geopolitics involved. Since the transactions are publicly obtainable, implementing counterfeit transactions is really tricky. Since the whole program is encrypted applying cryptographic protocols, the transactions are safe. Most importantly, they are very easily convertible into USD at the moment. Most “serious” cryptocurrencies, like Bitcoin, are restricted in quantity safeguarding against inflation. Cryptocurrencies have been the darling of fin-tech observers due to the fact 2013 and we are presently in the midst of a cryptocurrency bubble with costs of just about every type of cryptocurrency shooting via the roof.
One such cryptocurrency taking birth in 2013 was Dogecoin featuring the unassuming face of a Japanese Shiba Inu dog which was a viral meme in the exact same year. Developed by two computer software engineers as a entertaining experiment, Dogecoin reached a marketplace capitalization of 85 Bn USD in the initially week of May 2021. That is about as massive as India’s e-commerce marketplace. And what is the marketplace capitalization founded on? Nothing more than a couple of barks.
On 3 accounts, the speedy development in cryptocurrency is comparable to a ponzi scheme. People invest into these mainly because they anticipate fantastic returns. There is no identified supply of producing income on the investment. The fantastic returns that early investors earn are on account of the new investors who anticipate additional development. While cryptocurrency is touted as the future of banking and decentralized finance (DeFi), none of that has materialized however and even if it does, holders of crypto currency would not be in a position to produce any revenue from these investments. Bitcoin apologists having said that make claims about the inherent worth of cryptocurrencies via the quantity of work it requires to mine a bitcoin. While contesting that claim is an whole post in itself, let’s look how Dogecoin fares vis-à-vis other cryptocurrencies.
Dogecoin is a currency, considerable quantities of which are held by a tiny quantity of wallets. The top rated 10-11 wallets hold close to 50% of Dogecoin. That tends to make it a significantly risky and volatile marketplace. Even inside the currently hugely risky cryptocurrency small business. The whim of one holder one fine day could bring the worth of Dogecoin back to the ground. In addition, the issuance of Dogecoin is not restricted like Bitcoin which is capped at 21 Million coins. You just can theoretically mine as quite a few Dogecoins as you could like, producing the extremely foundational purpose for bitcoin’s demand absent in the case of Dogecoin. Dogecoin also has extremely tiny mining pools which make it even more vulnerable to fraud. Large and nicely spread-out mining pools make it not possible for scamsters to try producing fraudulent entries to the chain of blocks getting verified simultaneously across the globe. Some critics also claim Dogecoin is mutable. Immutability is one of the founding principles of cryptocurrencies which tends to make the Blockchain safe from arbitrary alterations. Immutability presents stability to a coin due to the fact guidelines are set and are not changeable. Dogecoin, if immutable, is vulnerable to wild fluctuations if a majority decides to alter the nature of the coin.
The dog on Dogecoin was a joke. Unless big economies choose to adopt cryptocurrencies in a huge way into mainstream fiscal and/or monetary policies, the joke will continue to play on in the wallets of the millions of the investors seeking for a speedy return. While the early investors feed on the newer ones, it could not be unreasonable to anticipate an “another big lie” revelation in the future.
(Subhash Jangala is Joint Director (OSD), Publicity Division, Directorate General of Administration and Taxpayer Services, CBDT. The views expressed are the author’s personal, and do not represent these of the Government of India or TheSpuzz Online.)
The ideas/suggestions about cryptocurrencies in this story are by the respective commentator. TheSpuzz Online does not bear any duty for their guidance. Please seek the advice of your monetary advisor ahead of dealing/investing in cryptocurrencies.