Advertisement
Advertisement
Blockchain
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
A bitcoin ATM is seen at a stand during the Bitcoin Conference 2022 in Miami Beach, Florida in April. Photo: Reuters

Cryptocurrency is ‘biggest Ponzi scheme in human history’, Chinese execs from state-backed blockchain drive say

  • Executives from China’s Blockchain-based Service Network say Web3 games and cryptocurrencies, such as bitcoin and ether, are investment frauds
  • The recent crypto implosion has prompted fresh warnings from state media and authorities in China, where cryptocurrency trading is banned
Blockchain
Executives at China’s Blockchain-based Service Network (BSN), a state-backed initiative aimed at driving the commercial adoption of blockchain technology, likened cryptocurrencies and popular Web3 business models to investment frauds, after a recent market rout inflicted heavy losses on global investors.

BSN’s Shan Zhiguang and He Yifan called cryptocurrencies “the biggest Ponzi scheme in human history”, propped up by communities that are “trying every means to keep the fraud going”, in an article published in state media People’s Daily on Sunday.

Critics of cryptocurrencies have long compared such digital assets with Ponzi schemes, where scammers use money from new investors to pay earlier investors until the fraud can no longer be sustained. However, proponents argue that bitcoin, ether and their like will be useful in the future if they are adopted on a large scale.

Scepticism over the crypto industry has risen recently following a market crash, which coincided with tightening monetary policies in major Western economies that have led to a global sell-off in a range of risky assets.
A bitcoin sign is displayed outside a store where the cryptocurrency is accepted as a payment method in San Salvador, El Salvador. Photo: Reuters
Retail investors who bought cryptocurrencies during the market boom last year have suffered deep losses, while a growing number of crypto lending platforms, hedge funds and issuers of stablecoins – a type of cryptocurrency pegged to a government currency like the US dollar or euro – are now mired in financial distress.
Among cryptocurrencies’ most vocal critics is Microsoft co-founder Bill Gates, who recently said cryptocurrencies and non-fungible tokens (NFTs) are “100 per cent based on greater fool theory”. Billionaire investor Warren Buffett has called bitcoin “rat poison squared”.

Earlier this month, a group of computer scientists from companies and institutions including Harvard University, Microsoft and Google signed a joint letter addressed to US lawmakers, urging them to resist the crypto industry’s lobbying efforts and regulate the “risky, flawed and unproven digital financial instruments”.

In China, where all cryptocurrency-related activities are strictly banned, BSN was launched in 2020 to offer blockchain-based infrastructure for use without involving cryptocurrencies.

One of BSN’s services, BSN-Distributed Digital Certificates, are designed to let businesses mint and manage their own NFTs without relying on cryptocurrencies.
Last month, in its first major international push, BSN announced it would soon offer international customers an open blockchain called BSN Spartan Network that does not involve cryptocurrencies.

BSN executives argued in Sunday’s article that the prices of cryptocurrencies, which have no intrinsic value, rely entirely on two factors: the confidence of existing participants and the number of new entrants – characteristics that render the assets similar to Ponzi schemes.

Shan and He also criticised the so-called X-to-earn model, which is often used by Web3 applications that promise users financial returns derived from owning and trading blockchain-based assets.

Many supporters of Web3 – a loosely defined vision for a decentralised internet built on blockchain and other technologies – say it could free netizens from the control of Big Tech companies.

03:09

US company plans to use bitcoin mining to clean up coal waste

US company plans to use bitcoin mining to clean up coal waste
Examples of Web3 apps include play-to-earn game Axie Infinity, which saw its crypto tokens plunge in value after achieving massive popularity last year, as well as Stepn, a self-described “move-to-earn” mobile game that rewards users with tokens for walking and running with their phones.

BSN executives said the profits earned through such business models hang on “an extremely fragile balance” that can only be maintained if everyone involved believes in them.

The cryptocurrency implosion has also prompted fresh warnings from Chinese state media and authorities.

An article published last week by the Economic Daily, a newspaper directly under the Central Committee of the ruling Chinese Communist Party, called on investors to beware the risk of bitcoin prices “heading to zero”, after an article in May said the collapse of stablecoins TerraUSD and Luna “proves the timely and effective action of our country’s regulators”.

Last week, the Financial Regulatory Bureau of Shenzhen said in a statement that cryptocurrency trading and speculation severely endanger people’s “property security”, breed criminal activities and disrupt financial order. It cautioned investors against participating in illegal financial activities and being scammed.

5