For the Umpteenth Time, Bitcoin (BTC) Is Not a Ponzi Scheme

Godfrey  |  Jan 21, 2021

The entire narrative around the legitimacy and underlying functionality of Bitcoin (BTC) keeps getting dug up especially at this time when the coin is surging to new highs. Bitcoin is dual faceted in its operations as its fundamentals can both be complicated to those watching from afar and at the same time, very plain to those who take the time to dig through the Bitcoin network.

For those in the former category, the attempt to tag Bitcoin as a Ponzi scheme is a quick getaway and an excuse for their lack of understanding of the basic tenets of cryptography and monetary engineering. While everyone who tags Bitcoin as a Ponzi always cites the fact that continuous inflow is what makes the value of the coin relevant, a look at some of the basic features of a typical Ponzi scheme is pertinent.

What Is Ponzi and How Does the Critics Compare Bitcoin?

In profiling what Ponzi is and how the critics compare Bitcoin, a look at the definition of a Ponzi Scheme by the United States Securities and Exchange Commission (SEC) will give a clearer depiction. According to the Commission:

“A Ponzi scheme is an invest­ment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraud­sters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.”

In addition to what is highlighted above, the fact that Ponzi schemes have little or no legitimate source of earning, the possibility of the scheme collapsing after a while is imminent. Ponzi schemes have key unique features including the promise of consistent returns, promise of no risk to investment, unregistered and unregulated businesses, and secretiveness with business operations.

For the detractors who tag Bitcoin as Ponzi, it should be constantly brought to the fore that the entire operations of Bitcoin are open source and far from the secretive operations of any known Ponzi schemes. Also, a number of firms that operate Bitcoin-related services are under at least one form of regional or federal regulation as the case may be. Additionally, Bitcoin does not promise consistent and risk-free returns as the underlying value of the asset are determined by the law of demand and supply which can either boost or trim the price of the coin.

The Projection of Value Before Hand

Bitcoin is perhaps one of the most ingenious inventions of our time and the network which heralded the emergence of several other altcoins has had most of its uniqueness reflections of today forecasted way before now by the inventor who goes by the name Satoshi Nakamoto. One of his infamous assertions according to Swan Bitcoin notes that;

“The fact that new coins are produced means the money supply increases by a planned amount, but this does not neces­sarily result in infla­tion. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be defla­tion and early holders of money will see its value increase.”

The latter part of this statement is what is happening today as the ongoing adoption rate of the coin exceeds the supply, thus pushing Bitcoin over and above new all-time highs.

 

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