I admit that I have never been able to understand cryptocurrency. The idea that one can create value by wasting electricity and/or solving mathematical problems that no one cares about escapes me. Even an NFT is at least a sort of a thing, which one gets in exchange for one’s money, though I find it hard to believe that a bunch of pixels, always really in someone else’s possession, can be worth millions of dollars.
But here’s a newer scam that I think I do understand a bit more. I once had a case involving a Ponzi scheme where, thanks to our ability to get to a windfall to the fraudster (he won the lottery and made the mistake of letting them put his grinning face on the front page of the papers) we were able to get some money back for the folks he defrauded. Like the scheme I’m about to discuss, the deal he offered was too good to be true, but if you got in early…
So here’s the latest twist on the Ponzi scheme: the “move to earn” game. Participants are being paid to walk. Not to any particular place, nor to any particular person, nor for any particular reason other than personal health, perhaps. No one gets anything of value in exchange for the cryptocurrency in which the walkers are paid:
The typical move-to-earn game works similarly to Axie Infinity: A new user buys into the game with an initial investment, which can range from under \(100 to \)3,000. In return, the user gets an NFT —a digital shoe in Stepn’s case—that grants them the ability to start making money. When they exercise, the user is able to earn some of the company’s signature token (in Stepn, that’s GST, for Green Satoshi Tokens) but only for a set amount of time per day (say, 10 minutes).
Players can cash out, but the game provides an incentive not to do so: They can often earn more money per day if they reinvest the money back into the system, for example, by paying to upgrade their NFT shoes or buying more of them—again, these shoes are not real—which allows them to earn for more minutes every day. The NFT shoes then become investments in and of themselves, able to be sold (or even leased) to the highest bidder. Stepn makes money from all this activity by pocketing a tax on in-app activities, including NFT trading and minting rentals.
The full article to which I’ve linked gets into the weeds, but the bottom line is that nothing of value is created within the process. The only money that comes in is paid by the walkers in the form of entrance fees and the other fees discussed in the quote above. It is then paid back in return for walking, with the fraudsters taking a cut. It doesn’t take much thought to realize that it can only work if new people keep coming in to increase the supply of money to be paid to those who came before.
The fraudsters insist that it’s not a Ponzi scheme and that they are taking steps to prevent the inevitable, but it seems pretty clear that at most they will delay the inevitable. The particular scheme on which the linked article focuses is already showing signs of collapse. Apparently there are a number of these “move to earn” sites out there. In the Ponzi scheme case in which I was involved, to which I alluded above, the fraudster ended up in jail after we put him through involuntary bankruptcy. It would seem that the DOJ should be taking a good hard look at these scammers, but I suppose when you’re working on prosecuting traitors for sedition, simple fraud may have to take a back seat.
Just as an addendum, there is apparently fraud on both sides. Some folks have found a way to make the game think that they’ve walked, when they’re actually just sitting back collecting their cryptocurrency.
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