As I understand the situation over at Bitconnect, they were accepting deposits of Bitcoin and then giving out Bitconnect tokens as a loan. An article I read indicated that the bitconnect token was 40% backed by the bitcoin and gets paid back later with interest. Now the whole thing has collapsed because it's a ponzi scheme.
Do you realize that the banking system does the same thing? You give them cash and and become an unsecured creditor to the bank. They then do whatever they want with your money with only a 3% reserve behind it. The reason the banks work and bitconnect failed is the Federal Deposit Insurance Corporation FDIC that people believe in. When Bitconnect released all their tokens, the price dropped and the depositors lost wealth. When a bank fails, the FDIC swoops in and makes everyone feel OK.
The FDIC actually only has less than a dime for every $100 on deposit so they could easily be overwhelmed by multiple banks failing at once.
Big Idea:
If Bitconnect can fail with a 40% backing, then the banks can also fail with a 3% backing.
Sort: Trending