Cryptocurrency has been likened to a Ponzi Scheme by Reserve Bank of India deputy governor Shri Rabi Sankar, who also says that they should be banned.
LONDON, ENGLAND - MAY 30: In this photo illustration, a visual representation of Bitcoin cryptocurrency is pictured on May 30, 2021 in London, England. Bitcoin is a decentralised digital currency, which has been in use since 2009.
ZDNet reports that the official says that the comparison he made is basically due to the nature of crypto as a whole. According to him, they're not too different from a speculative or gambling contract working like a Ponzi scheme, the latter of which he argues is actually "better from a social perspective."
Sankar further went on to say that a ban will be far more effective in protecting people from being scammed, compared to attempts at officially regulating digital assets. He made his claims during a recent address to the Indian Banks Association.
Despite the official's statement, however, India remains the country with the second-highest cryptocurrency adoption rate in the world, according to Fortune. They are only dwarfed by another Asian country, Vietnam, who has been adopting crypto at a far larger scale than anyone else due to remittance payments from migrants (via CNBC TV 18).
India is also home to the one of the world's fastest-growing crypto markets, with an insane 641% surge last year, as per a report by Chainalysis.
Sankar's tough stance on crypto assets is a far cry from recent proclamations made by finance minister Nirmala Sitharaman. While she did announce a hefty 30% tax for NFT and cryptocurrency trading in India, she also announced that the country is looking to launch their very own "digital rupee" to be issued by the Reserve Bank by 2022-2023.
Furthermore, the country's lawmakers have also been deliberating on the creation of an official crypto law, which will finally regulate the trading of digital assets there. The passing of such a law would be almost perfectly timed given there are roughly 15-20 million Indian crypto investors, whose assets have a combined value of over $5 billion.
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So, Is Cryptocurrency Really Like A Ponzi Scheme?
To understand Sankar's comparison, you must first know the basics of a Ponzi scheme first. Here is a video which explains how the fraud works:
Basically, the scheme works by paying existing investors with money taken from newer investors, who will then lose money while the current ones make a killing. While there's no definitive link to Ponzi schemes and cryptocurrencies as a whole, one might understand why Sankar is strongly opposed to them, given the fact that some Ponzi schemes actually use virtual currencies.
In a document published by the US Securities and Exchange Commission (SEC), they make mention of several Ponzi schemes that do use cryptocurrencies like Bitcoin. There seems to be an increasing prevalence for this kind of scheme, which the SEC chalks down to the privacy and security of crypto and blockchain technology.
Whether cryptocurrency really is like a Ponzi scheme or not, though, all potential investors must beware of the pitfalls of it.
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Written by RJ Pierce
