On whose mill is crypto pouring water?
Or how the economy works.

How the world economy or the economy of any country works can be shown with a simple example. The picture below shows a simplified workflow.

Yes, a sophisticated reader with five higher educations will exclaim that everything is much more complicated and will be right. But still, any task can be divided into simple components and shown very simply.

For this indignant reader, we want to note that this image displays only part of the general question to visualize what is the subject of this article, and is described in the title. So, let’s focus on this task and read the article to the end, let me tell you the whole thing.

Then there is the financial system, which is much more complex than in the figure below, but for simplicity, we will reduce it to several banks that feed on the economy pool and distribute the money among businesses.

Depending on several reasons, one or another bank or sector of the economy receives more or less funding, but the essence of their work does not change.
The next level is business. The device of any business can be imagined as a cascade of mills. Each business creates many new mills, filling them with the financial flow and motivating them to create a new level of the next mills in the supply chain. You can easily imagine the whole seemingly complex scheme using the example of a conventional global automaker.

He creates cars, but in doing so, he creates a huge cascade of windmills, each of which creates parts for these cars. From the production of various parts to the creation of plastic for car interiors, rubber for wheels, and metal smelting for the production of parts.

In the end, each of these mills is staffed by people who receive a salary and through the tax system return financial flows to the state and refill the pool. The cycle is closed. And there is always some part of people who are not employed in the economy.

These are various people from pensioners and temporarily incapacitated people to people who have lost their jobs and are forced to change their profession to get a job in the sector of the economy that is now more actively filled with financial flows.
Further, crypto appears in the global financial system as an alternative source of distribution of financial flows. The peculiarity of this source consists of two things. First, it distributes money only among a narrow circle of companies.

In the example of the car manufacturer’s mills, we see that these conditional “mills” belong to different sectors of the economy. In crypto, everything is focused only on the technology industry and those who are related to it.
So, it was at the beginning of the emergence of the crypto industry, but then human nature intervened. The already narrow circle of companies involved in the crypto industry distributed financial flows among a narrow circle of companies and, accordingly, people began to generate fake projects.

That is projects that do not create anything at all. Let’s explain with an example. If you are creating an electronic product such as a game. You need programmers, designers, financiers, and so on. You need dozens, hundreds, and sometimes thousands of employees who will create the game, maintain its infrastructure, pay for computers for staff, and order servers for the game to work in various countries of the world.

And then fake projects appear on the world stage of greed and the absence of all sorts of restrictions. What is a fake project? This is a project that does not create anything. This is a project that creates a ‘Bridge for a Layer 2 protocol on a blockchain designed for a future closed-loop ecosystem in a heterogeneous distributed computing environment and generating passive income.’ Sounds convincing, right?

But this project doesn’t actually create anything. He doesn’t need thousands of programmers or designers; he doesn’t need infrastructure.

A clarification is needed here. Some of the 'fake projects' named in this article are not such in the opinion of their creators. Moreover, they probably created them with the best of intentions, the so-called "mill cryptography" performs, among other things, the useful function of exchanging cryptocurrencies outside the central crypto exchanges, which is impossible for a new project to access. But two points need to be clarified here.

The first is that the good intentions of such projects are subsequently used for the banal withdrawal of money from the economy by fraudsters, regardless of the intentions of the creators of such projects. We can compare this situation with the sale of opium in pharmacies a few decades ago. Opium producers were unhappy with its ban after it turned out to be harmful to humans.

And the second. Such projects, without realizing it, contribute to the fact that it is impossible for new projects to get on the stock exchange. The developers and creators of such projects put pressure on the exchanges (perhaps) and force them to publish such projects. Exchanges are beginning to consider such projects more carefully, which increases the time for publication. The creators of projects (both real and fake) in response to the actions of the exchanges begin to increase the number of requests for the publication of projects, creating a huge flow of projects that loads the exchanges and increases the publication time. The circle is closed.

This project does not create a cascade of mills. It can be imagined as a wide pipe through which money flows into the pockets of individuals. Dozens of people or hundreds of people. The thoughtful and incredulous reader might say that it doesn’t matter in the long run, as those hundreds of people who received money from this wide turbulent flow will also spend the money and put it back into the economy. And here, despite the deepest respect for our reader, we will be forced to disagree with him.

Firstly, this money received through a fake project may not return to the economy for years, since the legality of their receipt remains a big question.

Secondly, the recipient of these funds can be thought of as the new car manufacturer described above. But, unfortunately, this ‘new manufacturer’ does not know how and does not want to produce cars and will never create a new chain of mills.

There are, unfortunately, only two models of behavior for this person. He will spend the funds received only on himself, and if he decides to create something, then only a second fake project of an even wider pipe for withdrawing money. That’s All. He does not know how to do anything else, and, frankly speaking, he does not want to. Why complicate your own life, we all strive to minimize costs and maximize comfort. Well, almost everything.

Penultimate point. What is the harm of these fake projects for the economy, you ask? From everything described above, it is still not entirely clear. The harm for the economy and each of us is that the water level, described in the first paragraph, is falling.

Governments are forced to fill the financial pool with water, which leads to inflation and falling income levels. First of all, for those who do not work, but also for those who are employed, the level of income also falls, they just do not feel it right away.

A wide pipe of fake projects, which consists of tens of thousands of smaller pipes, drains the water of the financial pool without turning hundreds of thousands and millions of gears of various mills and without giving work and wages to tens of millions of people.

This process will also begin to be felt by other companies, including the most successful and seemingly unshakable. A drop in consumer demand will lead to a drop in their income, and they will be forced to start changing as well.
The last point. I hope that will be able to add the whole mosaic to a single thing. I want to return to the point where we described the division of financial flows into two pipes, one leading to the banking system, and the second leading to crypto. It will be fair to mention one more point. We argued that crypto is a wide pipe without a cascade of mills. But it would be more correct to say that it creates a few mills. The mills of fake news and the mill of war.

After all, it is fake news with advertising of fake crypto projects that allows to deceive users and withdraw money from really working projects. It is the incitement of the war and the sanctions associated with it that leads to a decrease in the financial flow to banks and an increase in the direction of crypto.

Is it possible to correct this situation without the collapse of the global economy and a multi-year recession?

Yes, we can.

APRIL, 05 / 2023
Text author: Ihar Kul

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