Even today, in 2019, comments are posted around the Internet by people who insist on equating Bitcoin with a Ponzi scheme. In this article, easy to understand even for newcomers, we explain how this idea is absolutely wrong and based solely on ignorance.
The Ponzi scheme myth
Just a few days ago people on a forum were calling Bitcoin a Ponzi scheme. Yes, we take it as an insult. We hoped that by now all this nonsense about Bitcoin was a thing of the past, but unfortunately it is not. We are facing the usual problem: ignorance. Then let’s try to debunk it. Let’s start by taking a look at what a Ponzi scheme is. Wikipedia has a good article about it.
What we immediately notice is that the Ponzi scheme has a pyramidal structure. The top character starts selling something to a certain number of people and in turn these people are instructed to sell that “something”, and so on.
In a Ponzi scheme, the leaders, or those who initiated the pyramid, receive huge gains, the latest arrivals lose everything.
Bitcoin is not a pyramid
Now, anyone who has used Bitcoin and is informed about its technology and how it works, knows that Bitcoin has no pyramid structure. Who exchanges his/her bitcoins doesn’t ask those who buy to sell them in turn, let alone ask in return for a fraction of the possible future gains.
It is just a simple exchange. Anyone who has tried to buy it, knows it. You use an exchange or an ATM, you pay in fiat money and then you get bitcoins.
If you want to talk to people about cryptocurrencies, all you need to do is explain the basics of Blockchain technology and why Bitcoin will most likely be the future of money. You don’t ask for money in return. You don’t ask for Bitcoin percentages in return. You don’t have to sell your bitcoins.
Furthermore, Bitcoin can be purchased, unlike any Ponzi scheme, on hundreds of exchanges. Those exchange don’t invite to propagate a pyramid structure, nor to buy Bitcoin in particular. We are talking about the real trading of an innovative asset/technology.
The “Cognitive” Pyramid
It can be said that a pyramidal structure can still be identified: the creator of Bitcoin, Satoshi Nakamoto, was the first and the only one to start the spread of Bitcoin. Subsequently, a very small number of people became interested in it, and as time has passed more and more people have come to know the technology.
But none of these ever asked for interest when people bought bitcoins. There was only a normal exchange rate. The “Bitcoin pyramid” is solely and exclusively advertising, that is, the dissemination of knowledge.
What’s wrong with that? Don’t you advertise a product that you consider valid and cheap? Don’t you disseminate useful information to those you care about? Don’t you discuss about cars more or less valid with friends? If you ever seen the movie Frequency, there’s a scene in which the main character suggest to his friend to buy Yahoo! shares as soon as they will be put on sale for the first time. he didn’t ask money in return, it was just a suggestion. As it is a suggestion when a friend of yours asks for advice about everything. If he/she makes money thanks to your advice, he/she isn’t compelled to give you a share of his/her gains. With Bitcoin it’s the exact same thing. It is simply a technology.
We can safely say that those who speak of Bitcoin as a Ponzi scheme are completely ignorant on the subject. Totally.
Why then people compare Bitcoin to a Ponzi scheme? The truth is that up until a few months ago there were a large number of Bitcoin-based Ponzi schemes. Those Ponzi schemes find a “free lunch” on the ease of transferring money and on the non-traceability (in general) of the transactions when using Bitcoin.
In simple terms, the enthusiasm of easy money pushes to send a certain amount in bitcoin to someone who is unverifiable (many times are promises to give back the double you sent). No intermediary is involved and therefore no evidence can be brought to court. Money (Bitcoin) is sent and day by day the “interests” (which are not interests, but are the bitcoins that are added to the pyramid by the last arrivals) are given. Of course people deceived are warmly invited to make proselytes, who also send their BTC quota upwards. When the bubble bursts, the leaders, as usual, have received many bitcoins, while the last arrived remain without their BTCs and cannot appeal to anyone. Rarely these “interests” reach the initial amount sent, because the scheme “breaks” first, reaching saturation.
However, the blame for the existence of the Ponzi schemes built on the qualities of Bitcoin is certainly not of Bitcoin. So far tens of thousands of Ponzi schemes have been started around the world, based on fiat currencies. Why then nobody blames the dollar or the euro for those Ponzi schemes?
Non-traceability and transaction speed are qualities, not flaws. Bitcoin is better than fiat currencies as a medium that allows more privacy and more speed in transactions, but these are just two of its qualities.
The most important observation is that Ponzi schemes must use means to be carried on, and Bitcoin is only one of these means, as are fiat currencies. But Bitcoin itself is not a Ponzi scheme. Bitcoin is a technology that allows, by guaranteeing a limited number of units because it cannot be duplicated, a well-defined value for “information units”, and thanks to that it can be used as a currency.
The good and the evil of cryptocurrencies
Bitcoin, like any other technology or currency, can be used honestly or dishonestly, for good or for evil. Bitcoin, like any other medium of exchange, is not responsible for its use. Bitcoin is simply the next generation of money.
Dynamite can be used to dig a mountain or for a terrorist attack. The fault is not of the dynamite, and the dynamite is not banished from the market precisely for this reason: it is also useful.
It is the actions of people who are dishonest, not technology, and this literally affects all technologies. Of course there are technologies that lend themselves more to dishonest actions and others less, but Bitcoin is not the demon that so many people, ignorantly, think.