The Swindle of the Century

The tech world has been taken for a ride, but that doesn’t mean there’s nothing to gain from the crypto craze.

September
7, 2018

6 min read

Opinions expressed by Entrepreneur contributors are their own.

The frenzy around Bitcoin is at a fever pitch, and the reasons are obvious. Its value has skyrocketed over the past year, making millionaires out of early adopters. In its wake, thousands of would-be investors and coin creators are getting in on the action.

Related: 6 Cryptocurrencies You Should Know About (and None of Them Are Bitcoin)

A quick primer for the uninitiated: Bitcoin is the most well-known and highly regarded of digital assets known as cryptocurrency. It’s presented as an alternative to traditional paper money, with speculative investors buying and selling fractional amounts of Bitcoins (which, as of this writing, are valued at over $6,000 per coin, way down from last December’s high of $19,783)¬†with hopes that their value will rise. Its blockchain-backed anonymity and rocketing valuations have inspired a mass of imitators, each hoping to be the one that truly breaks through and replaces traditional money.

For such a recent phenomenon, it may surprise some to learn that Bitcoin has existed since January 2009, created by a (possibly fake) Japanese developer named Satoshi Nakamoto. The dubious reality of its creator is appropriate for reasons I’ll get into later. Whether Nakamoto is an actual person, it’s completely true that “his” creation has dictated the conversation about the future of money and investing in the post-2009 crash era.

Possibly the most impressive thing about crypto is how heavily major banks, accounting firms and even consumer corporations have bought into the craze in the near decade since. These big-name endorsements certainly make Bitcoin and other cryptocurrencies seem like a sure bet, but a cursory look beneath the surface reveals a lot of false promises and hype, with a need to dig a little deeper in order to see the real benefit of the crypto craze.

Related: Why You Can’t Afford to Ignore Cryptocurrencies and Blockchain Anymore

The BS of Bitcoin

It’s not only the idea that Bitcoin will replace the existing currency system that’s extremely questionable. The entire idea of investing in cryptocurrency is where the real swindle happens.

Investors, probably more so than any other group of people, are in love with the idea of getting in on the next big thing before it blows up. This isn’t breaking news: It’s how our money’s made. From VC to armchair investors, the idea is to buy in when prices are low and sell when they are high. So, it’s only natural that an unregulated and complex field like crypto attracts a lot of excitement for a certain type of investor, maybe someone who’s not as money-savvy but has caught on to the transformative power of the internet. The online aspect only democratizes it further: When anyone can buy in, anyone can profit.

Which is where things get troubling. At the heart of it, cryptocurrency is a fraud. We’ve all been sold on Bitcoin as the official future currency of the internet, its evangelists painting a picture of a world where our spending is safely anonymized and no longer subject to the whims of international bankers and governments. A number of retailers have bought in as well, meaning Bitcoin can buy you anything from a hotel room to pizza delivery. Sounds great, sure, but at its essence, crypto has proven to be something else entirely.

It’s not a true medium of exchange the way that government bank-backed paper money is. Bitcoin is an asset, and a particularly dangerous one to drop any amount of your investment money into. While it can be exchanged for goods, these transactions amount to barter deals with opportunistic retailers who are likely more eager for the publicity that comes with announcing they’ll accept Bitcoin. You don’t have to take my word for it: No less an authority than JP Morgan CEO Jamie Dimon has identified crypto as a bubble just waiting to bust. When that does happen, good luck paying for your pizza with whatever’s left.

Even outside of the volatility of the currencies themselves, that Wild West atmosphere has proven a fertile ground for scammers. Old fashioned Ponzi schemes have gotten a 21st-century facelift thanks to criminals taking advantage of the Bitcoin craze, collecting funds for Initial Coin Offerings (ICOs) that never materialize. Fittingly for a currency that got its start abetting anonymous drug and weapons deals on dark web trading posts, unscrupulous operators have flocked to Bitcoin as their latest medium for ripping off the uninitiated. Consider yourself warned.

Related: How Digital Wallets and Mobile Payments Are Evolving and What It Means for You

The real benefit

While Bitcoin as an investment is radioactive and not to be touched, it’s not the case that the whole cryptocurrency movement hasn’t…

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