Is Bitcoin a scam?
No doubt, this question is probably one of the most thought of questions of most people that are new to Bitcoin.
Can we blame them though? With so many big names like the famous billionaire investor Warren Buffett calling Bitcoin a “delusion” and comparing it to the tulip mania of 1637, and economists like Nouriel “Dr. Doom” Roubini calling Bitcoin the “mother of all scams” and other derogatory names.
These big names definitely have a huge influence on the opinions of the masses. But, is Bitcoin really a scam? Let’s try to tackle some of the critics’ criticisms on why they think Bitcoin is a scam.
1. “Bitcoin is a pump and dump scheme”
Due to Bitcoin having very low liquidity compared to most long-existing assets like gold hence the price can be easily manipulated, there are definitely a good number of people out there that are frequently trying to pump up the price of Bitcoin for their own financial gain, but let’s not forget that there are also a good number of people that are actually enthusiastic on Bitcoin and what it can do.
Not because some people are taking advantage of Bitcoin due to its market infancy by pumping and dumping it, it doesn’t make Bitcoin, the asset in itself, a scam. If gold for instance had low liquidity, people would also be able to manipulate the price, but it wouldn’t necessarily make gold a scam.
|Asset||Daily Trading Volume (as of 6 July 2020)|
|Gold||145.5 billion USD(source)|
|Bitcoin||13.1 billion USD(source)|
If we assume that Bitcoin’s liquidity goes higher as each year passes, Bitcoin should get harder and harder to manipulate in terms of price, just like how hard it is to manipulate the price of gold.
As for altcoins though, there are definitely a lot of coin and token scams that immoral opportunists create solely to make money off, through pumping and dumping them. After the cryptocurrency bull run of 2017, a lot of people who bought close to the top and didn’t sell lost a lot of money due to a lot of the existing coins and tokens crashing in value, most dropping around the 90-99% in value in 2018 and early 2019.
We heavily suggest speculators and investors in the cryptocurrency space that they do extensive research as to not get caught up in cryptocurrency scams.
2. “Bitcoin is a Ponzi scheme”
Quite an overused statement that critics throw at Bitcoin. Is it though? Let’s first check the first three definitions that we can find on Google on what a “Ponzi scheme” is:
- “A Ponzi scheme is an investment fraud in which clients are promised a large profit at little to no risk. Companies that engage in a Ponzi scheme focus all of their energy into attracting new clients to make investments.” –Investopedia
- “A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk.” –Investor.gov
- “A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from product sales or other means, and they remain unaware that other investors are the source of funds.” –Wikipedia
Now, let us address these, one by one:
- Bitcoin is not a business, nor an organization, company, etc. Bitcoin is a protocol, not an entity. Bitcoin never, and cannot promise profits to people speculating or investing. While there are some uneducated, ill-informed, or immoral people that tell other people that they can make money by investing their money in Bitcoin without any risk, this still doesn’t make Bitcoin a scam. Note that people can also attempt to pump certain assets like small-cap stocks for their own personal gain, but this doesn’t make that asset a scam.
- – 3. Bitcoin does not pay anyone anything. Simply because, as stated earlier, Bitcoin is a protocol, not an entity. Also, most investors/speculators are completely aware of the risks of holding Bitcoin due to volatility and are quite vocal about this.
3. “But bitcoin crashed in price in 2018”
And it surely did. Bitcoin’s price peaked at around $19,800 in December of 2017, and it bottomed out at around $3,200 in December of 2018. That’s around a whopping 144.3% drop.
While it may have been a really bad time to buy bitcoin in December of 2017, this happens in the markets all the time, even with stocks. If a certain stock skyrocket in price and falls in price after, in most cases, that doesn’t automatically mean that the stock itself is a scam. It mostly means that the stock got just overhyped by the markets, which is what exactly happened with bitcoin.
4. “No one is using Bitcoin”
Drawing a conclusion that Bitcoin won’t work because no one is using it is just like saying that no one is using:
- personal computers in the 1950s
- cars/automobiles in the 1880s
- the world wide web in the 1990s
- smartphones in 2007
Why? Because at those times, these technologies were still in their early stages, hence only a small number of people were actually capable of using them. It took a decent amount of time before these technologies evolved in terms of specifications and ease of use, to finally become ready for mass usage. Today, these technologies are used by the masses as if these technologies didn’t have skeptics at all.
I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse.
You’re crazy if you think this fool contraption you’ve been wasting your time on will ever displace the horse.
Alexander Winton(automobile & diesel engine inventor)’s banker
So, why is Bitcoin not used by the masses yet?
Reason 1: The same reason on other technologies in their early stages: Bitcoin is simply not user-friendly enough yet. While the procedure is easy enough for a decently tech-savvy person, creating a safe and secure non-custodial wallet is simply not that easy of a task for most people yet(especially for the older folks).
Reason 2: Because Bitcoin is still very volatile in terms of price for the masses to feel comfortable in using it as a currency and as a store of value. But then again, volatility should slowly but surely decrease as time goes, assuming market liquidity continues to increase.
Reason 3: Lack of regulations. While there are a small number of countries that banned or are planning on banning Bitcoin one way or another(good luck with that), bitcoin is currently legally-uncertain in most countries and is quite rarely being accepted by merchants.
But, is no one really using Bitcoin?
Actually, if you spent a decent amount of time on the internet or if you’ve done a decent amount of research, you can easily realize that Bitcoin is actually being used, and is slowly but surely being more and more adopted online. Because of this, the “No one is using Bitcoin” statement is simply straight-off false.
While only a minority actually uses Bitcoin to transact, Bitcoin is being used to pay a good number of things mostly online, such as:
- Virtual Private Servers
- Proxies and VPNs
- Mobile load
- Merchandise on some websites
Venezuelans, Zimbabweans, and other demographics that suffered economic crises
For most of us that are currently living in countries with strong and healthy economies like the United States and other first world countries, it might be quite difficult to convince other people the need of a deflationary currency or a scarce store of value simply because strong currencies like the US Dollar is currently working fine, with healthy inflation rates. But for the Venezuelans and other people that faced economic crisis? The need of having a decentralized, cross-border, trustless, and deflationary currency is a no-brainer and requires no explanation whatsoever.
Since 2017, the Venezuelan bolívar has dropped so much in value that in August of 2018, if you had 2.6 million Venezuelan bolívares, you only have enough to buy a single tissue roll. Yes, it’s that bad.
Definitely an industry that most people aren’t aware of, but one of the biggest Bitcoin adopters are the online gaming markets whereas millions of dollars worth of in-game items and in-game gold like RuneScape, CSGO, World of Warcraft, and more than a dozen more games are being bought and sold on the daily through forums and online marketplaces.
One good example is one of the leading online gaming community & marketplace, Sythe.org, whereas the majority of the buyers and sellers of in-game items actually prefers to pay and to be paid through Bitcoin and other cryptocurrencies, rather than US Dollars, due to expensive cross-border bank transfers and due to risks of cash-backs through PayPal. Some buyers and sellers even going as far as giving decent discounts when buyers pay using Bitcoin, Ethereum, or Litecoin, instead of the alternative payment methods that have fees that can be quite big.
Yes, the gaming item market industry may be significantly smaller compared to other industries or markets, but the fact that they actually use bitcoin and cryptocurrencies completely invalidates the “no one uses bitcoin” argument.
5. “Bitcoin is slow and not scalable”
“It(bitcoin) does 5 transactions per second, Visa does 25,000 transactions per second”.
– Nouriel Roubini | Blockchain Summit 2019
As we speak now in 2019, Bitcoin transactions are quite slow, depending on how much people are trying to make bitcoin transactions. But does that automatically mean that Bitcoin will be slow forever?
Saying that Bitcoin will fail just because it’s quite slow right now is simply judging it only in its current state, and not taking into consideration the potential future improvements that could be done and the technologies that could be created to make transacting faster, cheaper, and better in general.
Let’s take some technologies as examples.
Internet speeds in the United States:
Computer hard drive memory capacity(per GB):
What’s evident with these examples is that by time, these technologies improved simply due to the wits and hard work of the people working in these industries. Whether skeptics like it or not, technology will keep moving forward.
With all the facts stated, it’s safe to say that Bitcoin is not a scam. If it’s a good or bad asset to invest or speculate in, that’s the question as it’s hugely debatable; as there are a lot of both bullish and bearish cases that can be made about Bitcoin.
Should you invest in bitcoin?
We’re going to leave this to you. While we are bullish on bitcoin in the long-term, we suggest that you do your own research and make your own conclusions instead.
In the end, an asset in general being a good or bad investment is hugely debatable and hugely subjective. The same reason why person A can think that Amazon stock($AMZN) is a good investment, while person B can think that it’s a bad investment. The same applies to bitcoin (BTC).