Is Bitcoin a Ponzi Scheme?


Is Bitcoin a Ponzi Scheme?

Is Bitcoin a Ponzi Scheme
Is Bitcoin a Ponzi Scheme?

Some critics of Bitcoin are claiming that it is nothing more than a Ponzi scheme. The evidence argues otherwise.

Let’s take a look at what a Ponzi Scheme is, and see if Bitcoin fits the definition.

Wikipedia defines a Ponzi Scheme in this way, “A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.”

Here are some characteristics of a Ponzi Scheme taken from the above definition:

1. Fraudulent investment operation

2. Pays returns to investors from their own money

3. Entices new investors by offering higher returns than other investments

4. Abnormally high or unusually consistent returns

Let’s look at Bitcoin in reference to each of these elements present in any Ponzi Scheme.

1. Fraudulent investment operation – Bitcoin is not fraudulent, as it is open-source code, completely transparent. There is no attempt by Bitcoin to deceive anyone. Additionally, Bitcoin is not an investment operation, it offers and promises absolutely NO RETURN. Bitcoin is merely a digital, peer-to-peer currency. Bitcoin never has, and likely never will offer to pay an “investment return.” It is simply a currency.

Bitcoin does not fit this aspect of a Ponzi Scheme.

2. Pays returns to investors from their own money – There are no returns paid by Bitcoin. Because Bitcoin is not offering to pay investors a return, there is no way that Bitcoin is taking money from current investors and using that money to pay earlier investors. It is simply not happening. Again, Bitcoin is not offering or paying *ANY* returns whatsoever. It is simply a currency.

Bitcoin does not fit this aspect of a Ponzi Scheme.

3. Entices new investors by offering higher returns than other investments – Please see the previous point. Bitcoin is not offering any returns. There is not enticement by Bitcoin to earn any type of investment return whatsoever. There have been no been not attempts to pay above market interest rates to lure in investors. Bitcoin doesn’t pay interest. It does not offer any investment returns.

Bitcoin does not fit this aspect of a Ponzi Scheme.

4. Abnormally high or unusually consistent returns – There are NO returns paid by Bitcoin. None.

Bitcoin does not fit this aspect of a Ponzi Scheme.

Based upon the definition of a Ponzi Scheme, Bitcoin simply is not one. It is not a fraudulent activity set up to deceive and lure in investors. On the contrary, it is highly transparent, and set up to be used in the traditional manner as any other accepted currency.

Bitcoin is merely a currency, a peer-to-peer form of instant payment. It is not backed by gold, but neither are any of the current central bank currencies. The U.S. Dollar is not backed by gold. The Canadian Dollar is not backed by gold. The Japanese Yen is not back by gold. The Bristish Pound is not backed by Gold. All of those currencies are “fiat,” meaning “by decree.” They have no tangible items backing their value whatsoever. Their only value is derived from their acceptance as a currency.

Bitcoin also fits into the category of a “fiat” currency, with some very important differences. One of the primary factors that sets Bitcoin apart from sovereign fiat currencies is its hard limit on the number of Bitcoins that will ever be created: 21 million. The Federal Reserve is creating billions upon billions of new Dollars each month, and there is NO limit on the number it can and will create. This dilutes the value of Dollars that are already in circulation.

Not so with Bitcoins. The appeal of Bitcoin is that it will NOT be continually diluted in value by a central bank which manages the currency for its own best interest and the interest of all its cronies.

This factor presents VERY strong appeal in favor of Bitcoin over other fiat currencies. Which would you prefer, a currency that is being continually diluted in value each and every day, or one that isn’t?