A system where the early birds made billions of U$ and the newer investors who entered in late 2017 are losing money, a system where more and more people enter the mining competition looking for riches, a system that halves its rewards every so often. Does this sound like a Ponzi scheme?
To some, it may. But, thankfully, there is a very clear definition of what a ponzi scheme is and it’s relatively easy to note which investments are or aren’t pyramid schemes. Only the uninformed and gullible investors fall for this sort of scam and in this article we hope to better inform cryptocurrency investors about the Bitcoin market.
Unbelievable Returns Guaranteed
Ponzi schemes survive off people’s belief that they’ll obtain unimaginable returns from their investments. Life is too short for 1% a year returns! So the first sign of a pyramid scheme is the promise of unreal returns. Corporate bonds are paying X, Treasuries are paying Y and suddenly you’ve got a marvelous investment that’ll pay 10 times more than any blue chip, any dividends, any state or corporate issued titles.
Questions: Did Bitcoin ever promise great returns? Was any kind of financially speculative statement made on Satoshi’s whitepaper? Is there a centralized organization behind Bitcoin, promising people that they’ll be rich if they invest in BTC?
Exponentially More Users Required to Keep the System Moving
Another characteristic of a pyramid scheme (and thus this particular name given to Ponzi’s) is that you need more and more users to keep the system afloat. The early investors get their money out at the expense of the newer investors. Each promoter must recruit at least 10 people and each of these 10 new users will recruit 10 more and on and on exponentially, creating a massive pyramid of investors. The early birds get a % share from everyone who joins, receiving unbelievable financial returns. Tough luck for the last people who join, they are the ones holding the whole pyramid up.
Questions: Does Bitcoin require an exponentially increasing number of users in order to continue operating? Do people who buy Bitcoin need to recruit more Bitcoin investors and are they given incentives to do so?
Fancy Mass Social Events
One big indicator that an investment is a Ponzi is how it is marketed. Really, really good investments are kept hush hush and are normally shared only among top investors in a bank. Maybe you have a few million U$ sitting idle and your bank manager invites you to a petit comité cocktail meeting. Perhaps you’re a large stock holder and your brokerage firm invites you to an exclusive investors meeting. These sorts of opportunities do not usually reach the media and are very discrete events held among small groups.
What about Ponzies? Noisy, colorful and LOUD events organized for 100,000 people, each of which received an “exclusive” invitation to a once in a lifetime opportunity. Each person that walks into these events feels like they’re exclusive, but in reality they are being robbed in plain sight. Massive events with inspirational talks and sales motivation are a trademark of pyramid schemes. Remember: a Ponzi scheme requires massive recruitment efforts. These events usually serve free food and open bar booze and drinks. Everything about it is massive and the opposite of real investment opportunity meetings. They don’t need an exclusive club, they need the maximum number of victims possible.
Questions: Does Bitcoin or any of its developers organize mass events to sell you cryptocurrency? Are Bitcoin Core developers motivational talkers that try to sell you the Eiffel Tower?
Did you answer yes to any of the questions posed above? We sure didn’t! Bitcoin is not a Ponzi scheme. Bitcoin is a revolutionary form of money that is changing the way the world thinks about banks, finance and even governmental level monetary policies. The only thing Bitcoin and Pozi schemes have in common is the fact that early investors made rivers of money. But in the Bitcoin case it was due to the revolutionary and rare nature of this cryptocurrency. Bitcoins are limited to 21 million and they are the future of money. Therefore Bitcoin valuation is not due to pyramid investors joining the program, it is due to classic supply and demand.
tl;dr; Bitcoin is NOT a Ponzi and does not share any characteristic with pyramid schemes except for the fact that it made a lot of people rich and will likely make millions more into millionaires.
Charles Ponzi Photo Credit: Boston Library, 1920