Speculation 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 huge hype surrounding blockchain technology that has been discussed a lot. Blockchain technology basically boils down to a decentralized digital database that is collectively stored. The successive digital blocks that make up the blockchain refer, among other things, to the immutable information encoded within the previous block.

Unauthorized changes to previously created blocks thus lead to a series of necessary modifications. However, these modifications by definition fail in the set of so-called nodes where the previous legitimate copies to which they are being compared are stored. So it is easy to detect and ignore illegal mods and thus prevent them in advance.

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

The danger of the hype surrounding NFTs, indirect land purchases, and countless digital currencies is that the economic value of these blockchain-based technologies currently has little to do with the real economy. That is, there are no clear trends that significantly support the development of the current value of these technologies. At the moment, there is no economic risk from this. Currently, the risk lies mainly with the speculators themselves.

However, as long as greater numbers of participants continue to join, this can increase the value. This means that the current speculative stage can ideally be considered a pyramid scheme. Hierarchical dependence results in that as soon as the growth in the number of participants remains the same or decreases, sooner or later the price will collapse like a house of cards. There are as yet very few concrete links with the real economy to support the current speculative rates.

The current blockchain bubble has similarities to the internet bubble

As a result, there is currently a whole speculative bubble surrounding blockchain technologies. The fear of getting lost and the expectation that blockchain technologies will play a greater role in the future drive up the value of existing products. Personally, I see great parallels with the Internet bubble at the turn of the century. While everyone knew that the internet would play an even bigger role in our lives in the future, few had already bet on the right horse.

This was mainly due to the difficulty of predicting subsequent successful sectors at the time or because they did not exist at all. The rise of the current tech giants at that time could hardly be expected, and social media did not even exist until now. In any case, the pioneers of that time, the Internet service providers, never lived up to exorbitant expectations themselves. The internet bubble has finally collapsed under the weight of its turbulent expectations for the future.

Metaverse land acquisitions and NFTs will decline sharply

I expect something similar to happen with the current blockchain bubble. Although it is clear that blockchain will provide a major technological revolution, it is not yet clear exactly what form this will appear in. However, I would venture to say based on past experience that it is almost certain that current pioneers such as NFTs, land purchases in the metaverse or myriad cryptocurrencies, would provide the explosive estimations dreamed of by the future.

Are insurance companies, banks and financial service providers growing into giant companies?

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

The economies of scale that insurance companies, banks, and financial service providers can achieve by operating more efficiently around the world may lead to business flourishing within these service branches. Hence, the next giants of the blockchain revolution would have been better off looking 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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