Is BTC A Ponzi Scheme Or Not?

A look at the facts.

We hear Ponzi being thrown around on every other week but what is a Ponzi and why are people talking about it?

Ponzi or rather, Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, is the name of the man who is most know for coming up with the scheme to perform the act of swindling. Ponzi would “promise clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. In reality, Ponzi was paying earlier investors using the investments of later investors.” He wasn’t the originator of the scheme, but became known for it due to the way he conducted it and for the significant costs (an excess of 20million) involved in his operation.

So what is a Ponzi Scheme?

Quick Fact : According to Investopedia,

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.

What is bitcoin ?

Bitcoin was first created in 2009 under the synonym Satoshi Nakamoto. The real identity of it’s creator(s) is not known, however the value of the digital currency speaks for itself. Bitcoin is the first ever decentralised currency, a fact which plays a big part in it’s ever increasing popularity. For generations, the global monetary system has been run and controlled by centralised banks, riddled with corruption, inflation, and most importantly, based entirely on debt. Bitcoin is not controlled by any organisation, bank or third parties. It’s controlled entirely by it’s users, transaction by transaction. Bitcoin allows users to quickly and directly transfer the digital cash to any address around the globe, without the permission of any third party.

Bitcoin doesn’t appear out of thin air, to increase the supply of bitcoin, miners must mine. Someone must do the work and this work incurs costs. Anyone can cryptomine, so as long as they have the proper computing power. When you become a a cryptominer, you join the network and seek to release new blocks which releases the crypto coins as ‘block rewards’, these newly minted bitcoins become yours and you can transact with them as you please. These miners, these people who are investing their resources (time, money and computational power) add more dispersed authority to the decentralized bitcoin system. The more people that do the work, the more stronger the system becomes. Why? Because they have incurred costs and they attribute value to the work that they’ve done.

[ That seems like the way that a corporation works right? It starts with an idea that provides value, attracts capital, then attracts talent and this talent utilizes their brainpower and expertise to further the activities of the firm to increase the value of the firm.]

Here’s the part where the bitcoin system gets even more interesting, bitcoins are released at a fixed but periodically declining rate, leading to a total supply of bitcoins being steady at 21 million.

How does bitcoin mining work?

A miner (anyone with the right computing power) simply mines, they use their computer to solve complex mathematical problems that, when solved, opens a new block that’s added to the blockchain. The reward per block decreases every four years. The mining difficulty can increase and decrease depending on a number of factors.

The harder the mining process becomes the more difficult it becomes to obtain further bitcoins, causing the worth of bitcoins to increase. As more people seek to mine and more resources are invested the more BTC must be worth.

BTC vs Ponzi

In a Ponzi scheme, initial investors get returns from the funds of new investors.

Bitcoin does not give you a guarantee of return on investment

In BTC , there are a set amount of coins that can be traded at will. There is no middle man that is promising you increased returns and then seeking to bring in other investors and promising them bigger returns. Middlemen may be exchanges yet even these should simply facilitate transactions, and shouldn’t act as an investment firm.

The supply of btc is known and capped and has a two sided network.

There are various exchanges that report the value as transactions happen, there is accountability and complete transparency.

The fundamental utility of bitcoin is that it will still be used as a non censorable, stealthy, immutable, fast, secure store of value and payment system.

 

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