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
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.
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.
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.
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.
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.