Bitcoin: A silent game?

Recently, news about Bitcoin has frequently made headlines on hot searches. Bitcoin was born during the 2008 global financial crisis, when a self proclaimed Satoshi Nakamoto published a white paper titled "Bitcoin: A Peer to Peer Electronic Cash System," outlining the basic framework of Bitcoin. In 2009, the genesis block of Bitcoin was mined, marking the official birth of Bitcoin.

1、 Bitcoin: Concept and Development History

In the early days, Bitcoin was just an experimental product in the geek community, with little value. But over time, its decentralization and constant total quantity (21 million pieces) have attracted more and more attention. Trading platforms have emerged one after another, and the price of Bitcoin has begun to rise. At the end of 2017, the price of Bitcoin reached a peak of nearly $20000, triggering a global investment boom.

Essentially, Bitcoin is a virtual cryptocurrency based on blockchain technology, without any physical or asset support. It is not like gold, it has practical metallic value and can be used in industries, jewelry, and other fields; Unlike legal tender, it is not guaranteed by national credit and government coercive power. The value of Bitcoin is entirely based on people's consensus, like a castle in the air.

The so-called process of value discovery is more like a game of artificial hype. Early holders promoted the advantages of Bitcoin through various channels to attract more people to participate. With the continuous influx of new investors and increasing demand, prices are pushed up, forming a cycle of "price increase attracting more investors further price increase". But this cycle lacks a solid economic foundation, and once market confidence is shaken, prices will plummet.

2、 The huge risk of Bitcoin

The price of Bitcoin fluctuates extremely violently. Taking 2021 as an example, the price of Bitcoin skyrocketed from around $30000 at the beginning of the year to over $60000 in April, and then halved to around $30000 in just half a month in May. This roller coaster like market trend causes investors' assets to instantly shrink or appreciate significantly. Ordinary investors find it difficult to grasp the price trend, and even professional investors often make misjudgments. The significant fluctuations in price make it difficult for Bitcoin to become a stable store of value or medium of exchange, which is far from the stability of traditional currencies.

The blockchain technology that Bitcoin relies on is not indestructible. Although the encryption algorithm of blockchain is theoretically secure, there are many security risks in practical applications. For example, the Bitcoin trading platform has suffered multiple hacker attacks, resulting in a large amount of Bitcoin being stolen. In 2014, the world's largest Bitcoin trading platform, Mt Gox announced bankruptcy due to a hacker attack on its platform, resulting in the theft of approximately 850000 bitcoins and a loss of over $460 million based on current prices. In addition, the upgrade and maintenance of blockchain technology also face many challenges, such as hard fork issues, which may lead to the fragmentation of the Bitcoin ecosystem and affect its normal operation.

3、 Analysis of Scams Behind Bitcoin

The Bitcoin investment model has typical Ponzi scheme characteristics. The returns of early investors do not come from the value creation of Bitcoin itself, but from the funds invested by new investors. When the supply of funds from new investors is insufficient, the entire system will collapse. Some Bitcoin pyramid schemes, under the banner of "high returns, low risks," attract investors to buy Bitcoin or participate in so-called "Bitcoin mining projects. They promise to provide investors with high returns, but in reality, they use the money of new investors to pay for the returns of old investors. Once there are not enough new investors to join, the organizers will run away with the funds.

The Bitcoin market is relatively small and easily manipulated by a few large players. Some "whale" investors who hold large amounts of Bitcoin can influence the price of Bitcoin through large-scale buying and selling. They first buy in large quantities at low prices, and then spread positive news through channels such as social media and cryptocurrency forums to attract ordinary investors to follow suit and raise prices. When the price reaches a certain height, they sell their Bitcoin for profit, causing the price to plummet and ordinary investors to lose everything.

Bitcoin is a game created out of thin air, seemingly full of opportunities, but in reality, it carries numerous risks and is plagued by scams. Investors should recognize its essence, stay away from Bitcoin investment, and avoid falling into financial traps. At the same time, governments and regulatory agencies of various countries also need to strengthen cooperation to jointly address the challenges brought by virtual currencies such as Bitcoin and maintain the stability and security of financial markets.