China's blockchain boosters slam crypto as Ponzi scheme

Communists reckon Bill Gates and Warren Buffet got it right


Executives at China's Blockchain-based Service Network (BSN) – a state-backed initiative aimed at driving the commercial adoption of blockchain technology – labelled cryptocurrency "the biggest Ponzi scheme in human history" in state-sponsored media on Sunday.

"The author of this article believes that virtual currency is becoming the largest Ponzi scheme in human history, and in order to maintain this scam, the currency circle has tried to put on various cloaks for it," wrote Shan Zhiguang and He Yifan in the People's Daily.

He Yifan is the CEO of startup Red Date Technology – a founding member and architect behind BSN – where he serves as executive director. Co-author Zhiguang Shan is chair of the BSN Development Alliance.

Launched in 2020, BSN provides a Beijing-backed infrastructure for blockchain developers in the Middle Kingdom – sans cryptocurrency, as it is illegal in the country. The framework is intended to be interoperable globally, but has separate international and domestic versions to comply with rules in China.

He and Zhiguang reasoned that cryptocurrency is a Ponzi scheme because it requires a continuous stream of new investors in order to remain stable, with early investors profiting the most.

"However, this state is actually based on an extremely fragile balance," wrote the duo. "Once there is malicious short-selling, no successor, tight funds, or regulatory policy changes that affect the confidence of participants or the determination of latecomers, it will cause this seemingly exquisite cycle to collapse instantaneously and the value will be zero."

The authors also railed against the move-to-earn and play-to-earn models often employed in Web3 applications, likening them to phishing schemes. In these models, participants performing an activity – for example walking – can "earn" blockchain-based assets.

Within the commentary, He and Zhiguang bolstered their anti-crypto comments with similar remarks from Bill Gates, Warren Buffet and Charles Munger. They also quoted Karl Marx and cited Elon Musk's ability to manipulate Dogecoin with a tweet as reasons why the alterna-cash is deeply flawed.

Cryptocurrency is currently going through an unprecedented crash. Investors have even started betting against it with short-trade products.

The decline was triggered in part by the meltdown of TerraUSD's "stablecoin" – a cryptocurrency allegedly tied to the US dollar. Its associated token, Luna, wiped $40 billion off the system when it crashed. With global economic conditions perilous, investors have turned to more conventional instruments for comfort.

"There are many insights into why LUNA and UST collapsed in an instant, but one thing that few people mention is that they combine two Ponzi schemes, cash and equity, and are interrelated," offered He and Zhiguang.

Although the hot take from the BSN execs reflects Beijing's overall disapproval of cryptocurrency, China is not the only Asian country to take such an attitude.

Last week Singapore Monetary Authority (MAS) chief fintech officer Sopnendu Mohanty said the city-state would be "brutal and unrelentingly hard" on dodgy crypto players.

In late May, the country's deputy prime minister Heng Swee Keat told conference attendees retail investors should not buy cryptocurrency.

Thailand has limited the use of cryptocurrency this year by banning it as a means of making payments.

By contrast, El Salvador took a completely different approach by becoming the first country in the world to adopt Bitcoin as legal tender last September – a move that sparked criticism from the World Bank. ®

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