The valuation of a cryptocurrency is based on the assessments of people who value it, and depends on the fragile rules of supply and demand, there is no gold reserve corresponding to it, there are no giant commercial investments that protect it, and there are no international regulatory bodies that guarantee the rights of investors.
On May 22, 2010, American-style hunger prompted Laszlo Hanich to buy two pizza pies. Since at that time he had no money in his pocket, after some efforts he convinced those involved to pay for pizza with bitcoin digital cryptocurrency and transferred 10 thousand bitcoins to their account instead of dollars.
Only 9 months later, the value of each bitcoin became equivalent to an American dollar, and Laszlo found out that he had paid $10,000 for two pizzas. Every day he compared bitcoin with dollars, making sure that what he bought was the most expensive pizza in history.
This was the first cryptocurrency trading operation. Until this date, the bitcoin digital currency was anonymous, a small number of people knew about it, and institutions refuse to use it in financial transactions. She then encourages individuals and companies to implement them and trade them in an attempt to make money and increase profits, betting on the growth of their shares and optimism about the prospects of cryptocurrencies in general.
While bitcoin was widely distributed and attracted the attention of investors and experts, software engineers Billy Marcus and Jackson Palmer frowned because of people's fascination with it, wondering: how can a sane person spend their savings on investing in a digital currency that has no real value!؟ After some thought, they decided to launch a parody digital currency in order to raise people's awareness and weaken the public's desire to invest in bitcoin.
They took the snout of a sarcastic and then popular dog as the logo of their virtual cryptocurrency and named it "Dogecoin". The Dogecoin currency, which was launched as an informational joke, was quickly taken seriously by people, and they began investing in it until its value gradually increased due to the growing demand for it, especially after the tweets of American billionaire Elon Musk, the owner of Tesla, who supported and supported this currency.
Glauber Contesotto, an American of Brazilian descent, was an enterprising music producer who worked from a room in his house, earning some money. One day he decided to invest everything he owned in the Dogecoin currency. In just two months, the value of the mentioned currency increased by 400%, and he became a millionaire overnight.
The young musician was delighted with his newfound wealth and began to tell his audience about his success in investing in the Dogecoin currency. He started posting videos on social media telling people how digital currencies made him a millionaire at record speed, prompting his followers to follow his example and invest in this currency so they could become like him.
In the business world, businessmen invest in existing companies after monitoring products, reviewing strategic business plans, budgets, studying economic feasibility, assessing existing opportunities and inherent risks, or they invest in promising startups with revolutionary and modern economic projects that have a clear vision and goals, have a strong business model and guaranteed profit in the long run, but at the level of digital currencies, everything is different. There are no clear scientific rules here.
The valuation of a cryptocurrency is based on the assessments of people who value it, and depends on the fragile rules of supply and demand, there is no gold reserve corresponding to it, there are no giant commercial investments that protect it, and there are no international regulatory bodies that guarantee the rights of investors.
Therefore, Bill Gates, the founder of Microsoft, came to the conclusion that cryptocurrencies are fictitious currencies, stating: "The value of companies is estimated based on how successful they are in producing wonderful and useful products, while the value of cryptocurrencies is estimated based on arbitrary personal decisions."
John Reed Stark, former chairman and founder of the Securities and Exchange Commission Office, believes that digital cryptocurrencies rely on advertising to encourage people to buy, whether through social media, television ads, billboards or direct speech of beneficiaries, while real stocks such as "Apple" and "Microsoft" and others do not use the mentioned methods and do not appeal to investors, but resort to advertising in one case to promote their products, and not to sell their shares.
But if uncertainty dominates the cryptocurrency scene, why are people willing to invest in it
There are common behaviors among cryptocurrency traders. Let's start with the fact that some people invest in a new digital currency, making a quick profit. Then they start talking about the importance of investing in cryptocurrencies in front of their relatives, friends and acquaintances, sometimes in good faith to benefit their society, and sometimes often in order to get people to buy a new currency. Thus, the price of the digital currency increases even more, their profit increases.
People are innately afraid that opportunities will pass in front of them and they won't win some of them, and they are afraid that others will become rich as a result of trading digital currencies without them, so they rush to buy without caring about the consequences or losses, and their goal is to keep up with those who were before them to share the pie of wealth with them.
This behavior is repeated by people without sermons from their ancestors, but they have been victims of fraud and financial fraud for centuries. In 1920, Charles Ponzi convinced people to invest in his business with a guaranteed profit of 50% in just 45 days. Ponzi was not a brilliant trader, and his business did not bring in millions, it was a fraudulent fake. Ponzi refused to explain to investors the way of doing his business and its size, citing the secrecy of his trade to ensure his profit, but in fact he manipulated people's money by paying income to old investors from funds deposited by new investors, instead of paying them out of profits, and so on, without real investment or tangible assets that guarantee investments, even partially.
Despite the arrest of Charles Ponzi, then his release after the end of his sentence and the fact that he spent the last years of his life in extreme poverty, his fraudulent method became widely known, and his method became known as the "Ponzi scheme"; this scheme is accepted by many in all countries of the world, and at many levels, perhaps, the most notable was a major fraud in 2008 committed by Bernard Madoff, an American banker and non-executive chairman of the Nasdaq stock market. The losses caused by Madoff were estimated at about $60 billion.
With the development of technologies and complex blockchain technologies that have contributed to the boom of virtual currencies and the control of social networks over everyday life, in the light of global economic inflation and the chaos of trading in financial markets, especially digital currencies, the risks of people becoming victims of financial fraud and fraud are increasing.
Although cryptocurrencies can make people rich when their value rises in a rapid and unexpected way, they are so fragile that they can dramatically lose their value and at a record speed that traders cannot fix. Perhaps the cryptocurrency market is a new and fashionable form of the famous "Ponzi scheme"!.
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