Speculating on the current blockchain bubble is a pyramid scheme

Non-fungible tokens (NFTs), land purchases in the metaverse, and countless digital currencies. They are all manifestations of the enormous hype surrounding the much-discussed blockchain technology. Blockchain technology essentially boils down to a collectively stored decentralized digital database. The successive digital blocks that make up the blockchain refer, among other things, to immutable information encoded within the previous block.

Unauthorized changes to previously created blocks therefore lead to a chain of necessary adjustments. However, these adaptations by definition fail within the collective of so-called nodes where previous legitimate copies are stored and compared against them. Therefore, rogue tweaks are easily detected, ignored, and thus prevented in advance.

The current blockchain bubble has nothing to do with the real economy

The danger of the hype surrounding NFTs, metaverse land purchases, and myriad digital currencies is that the economic value of these blockchain-based technologies currently bears little relation to the real economy. That is, no clear trends can be identified that significantly support the current value development of these technologies. At the moment, there is no economic danger for this. The risk currently lies primarily with the speculators themselves.

However, as long as an increasing number of participants continue to join, this can still lead to increases in value. This means that the current speculative phase can ideally be considered a pyramid scheme. The pyramid-shaped dependency has the consequence that as soon as the growth in the number of participants stays the same or decreases, sooner or later the price will collapse like a house of cards. There are still very few concrete links to the real economy to support current speculative rates.

The current blockchain bubble has similarities to the internet bubble

As a result, there is currently an entire speculative bubble surrounding blockchain technologies. The fear of missing out and the anticipation that blockchain technologies will play a bigger role in the future are increasing the value of today’s products. Personally, I see great parallels with the Internet bubble at the turn of the century. While everyone knew that the Internet would play a bigger role in our lives in the future, few bet on the right horse beforehand.

This was mainly because subsequent successful sectors could hardly be predicted at the time or because they did not even exist at all. The rise of today’s tech giants could hardly be foreseen at the time and social media didn’t even exist yet. In any case, the pioneers of the time, the Internet providers, never lived up to the exorbitant expectations. Finally, the Internet bubble collapsed under the weight of its own overexcited expectations for the future.

NFTs, Metaverse Land Acquisitions, and Digital Currencies Will Drop Hard

I anticipate something similar to happen with the current blockchain bubble. Although it is clear that blockchain will provide a significant technological revolution, it is not yet clear exactly in what form it will manifest itself. However, I dare to say, based on past experience, that it will almost certainly not be today’s pioneers, such as NFTs, land purchases in the metaverse, or countless digital currencies, that will deliver the dreamed-of explosive appreciations of the future.

Are insurers, banks and financial service providers becoming giants?

Personally, I think blockchain technology is more likely to add value primarily to sectors that will soon be able to engage more efficiently with forms of financial services and contract management around the world. Financial services and contract management are ideal for collective decentralized digital databases that contain dynamic data in combination with rights, obligations and policy conditions.

The economies of scale that insurers, banks, and financial service providers can achieve by operating more efficiently around the world can lead to booming business within these service arms. Therefore, the next giants of the blockchain revolution had better look for speculators within these sectors. Otherwise, they will surely lose their money when the current blockchain bubble finally collapses.

After all, it is good to realize that this article does not contain detailed investment advice.

[Fotocredits – Nuthawut © Adobe Stock]

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