The World Bank has compared cryptocurrencies to “Ponzi schemes,” a cautionary comparison that further raises questions about the legitimacy of digital currencies such as Bitcoin.
“In terms of using Bitcoin or some of the cryptocurrencies, we are also looking at it, but I’m told the vast majority of cryptocurrencies are basically Ponzi schemes,” Bloomberg quoted the World Bank Group President Jim Yong Kim as saying this on Wednesday, February 8, at an event in Washington.
“It’s still not really clear how it’s going to work.”
The development lender is “looking really carefully” at blockchain technology, a platform that uses so-called distributed ledgers to allow digital assets to be traded securely. There’s hope the technology could be used in developing countries to “follow the money more effectively” and reduce corruption, Kim said.
The value of cryptocurrencies soared in 2017 before slumping, with Bitcoin losing nearly two-thirds of its value since mid-December.
While cryptocurrency technology has the potential to reshape global finance, concerns have been raised about its volatility and the potential for money laundering or other crimes.
- BIS Chief Slams Bitcoin As Ponzi Scheme and Threat to Central Banks
The head of the Bank for International Settlements (BIS) has blasted bitcoin as “a combination of a bubble, a Ponzi scheme” and, due to the energy consumption required for mining it, an “environmental disaster”
Calling for more regulation in a speech on Tuesday, Agustin Carstens, general manager of the BIS, warned that cryptocurrencies could become “parasites” on the financial system and argued that they must be held to the same standards as other banking and payment services, Reuters reports.
Forbes further cites Carstens as saying that cryptocurrencies should not be allowed to undermine trust in central banks. He argued that the consequences of debasing this trust have historically been detrimental, referencing the 19th century production of currencies by private banks as a cause of financial turmoil that subsequently brought about the creation of the Federal Reserve System.
“The tried, trusted and resilient modern way to provide confidence in public money is the independent central bank,” Carstens stated, while lauding the protections banks afford consumers and investors.
Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
While Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.
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