Critics call Bitcoin a Ponzi Scheme.
A simple Google search defines Ponzi Scheme as “a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. ‘a classic Ponzi scheme built on treachery and lies’”.
Bitcoin is not a Ponzi Scheme for two main reasons.
1. Bitcoin is An Existing Enterprise. If you break down this definition of Ponzi Scheme, you will see the words “nonexistent enterprise.” Unlike a Ponzi Scheme where nothing exists, Bitcoin exists.
Bitcoin is like a bank in that it is a digital payment system and store of value. Except, Bitcoin is better than banks in that Bitcoin allows you to hold your own money and transfer it directly to a peer without an intermediary. Middlemen like Banks charge you fees for the use of your own money, and Governments devalue your money.
Additionally Bitcoin allows YOU to TAKE OWNERSHIP in the system. You are putting your money in the success of the system while you keep your own money. Banks can go bankrupt if they make bad investments and people make a run on the bank. The FDIC only insures up to a certain amount in your bank. As long as you protect your Bitcoin there is no run on Bitcoin. One benefit to banks is that Bitcoin is not currently insured by the FDIC. I would be remiss without pointing out that risk.
Bitcoin goes up in institutional value as more users utilize the Bitcoin system. That is the same for banks and stocks. Except, with Bitcoin you are a user AND a shareholder at the same time.
Bitcoin is more efficient at handling transactions than banks (quicker settlement and lower fees) and allows your money to increase in value. It is a deflationary global payment and storage of value system. It exists!
2. Bitcoin is built on trust not lies and deception. Bitcoin is built on an open source algorithm by some of the brightest minds in banking, programming, and cryptography industries. Although we don’t know who Satoshi Nakamoto is, we do know his followers that improved Bitcoin, like Hal Finney, are very bright people.
The code is open source and transparent. The LEDGER is immutable. This means that once a transaction is completed it can not be changed on the ledger.
Bitcoin prevents human frailty of cooking the books or defrauding investors. Bitcoin prevents lies and deception. It is not based on lies and deception.
Thus, Bitcoin is NOT a Ponzi Scheme.
