While addressing the Indian Banking Association on Monday, February 14, Reserve Bank of India (RBI) Deputy Governor T. rabbi sankar said that cryptocurrencies are similar to ponzi schemes or even worse and banning them is the most sensible option for india.
“we have also seen that cryptocurrencies cannot be defined as currency, asset or commodity; they have no underlying cash flows; they have no intrinsic value; they are similar to ponzi schemes and can be even worse,” he said in a speech .
Reading: Why bitcoin is worse than a ponzi
but are cryptocurrencies really ponzi schemes? let’s listen to the experts
what are ponzi schemes?
A ponzi scheme is a fraudulent investment scam that promises high rates of return with little risk to investors. The term owes its origin to a con artist named Charles Ponzi, who made a name for himself in the 1920s. However, the earliest recorded examples of this type of investment scam date back to the mid- to late-19th century to Adele Spitzeder in Germany and Sarah howe in the united states.
A ponzi scheme is an investment fraud in which clients are promised a large return with little or no risk. Companies that get involved in a ponzi scheme focus all of their energy on attracting new clients to make investments. These are generally multi-level marketing schemes, in which money from new investors is used to pay “profits” to previous investors. this continues until new investors continue to join.
multilevel marketing itself is not illegal in india because a product is being sold. But direct marketing companies cannot promote pyramid schemes or money circulation schemes.
Are cryptocurrencies like ponzi schemes?
Some experts agree that there are cryptocurrencies that function as ponzi schemes. “When it comes to crypto products, there are a lot of products with projects trying to function as ponzi schemes. It is spread all over the world, but it is much more popular in countries like Malaysia and Indonesia. cryptocurrencies are used as a form of payment because it is easier and by using them they can open up the entire ponzi scheme to everyone instead of being restricted to a specific country or region,” says sathvik vishwanath, co-founder and CEO. unocoin, a crypto exchange.
Cryptocurrencies are, in fact, worse than ponzi schemes, says gaurav mehta, founder of catax, an online crypto tax and audit platform. “it is a more complicated asset than a ponzi scheme, and it is worse as it not only encourages evangelism but also undermines nation states by interfering with the monetary system. when the tulip mania passed, people at least kept tulips to smell; when bitcoin passes, they (investors) will be left with nothing, “he said.
others disagree. A ponzi scheme promises high returns with minimal risk, while crypto trading is quite volatile due to market conditions, regulatory challenges, and other factors, giving investors the opportunity to earn high returns but face a high risk.
“Bundling crypto assets with ponzi schemes is totally unfair. Multi-level marketing schemes and chit-fund schemes that promise huge profits would qualify as ponzi schemes,” says sharat chandra, vice president of research and strategy, earthid, a global company . decentralized autonomous identity management platform.
As cryptocurrencies fight for legitimacy, bad players make the task more difficult, especially as cryptocurrency buzz has moved beyond payments (legal tender) use cases to aspects such as tokenization of assets, metaverse, games and web 3.0.