There is a well-known saying in the industry:
If you want whole world people to know that you don’t know anything about Bitcoin, the best way is to use the “tulip bubble” as an analogy, and the other is to say that Bitcoin is a “Ponzi scheme.”
Today, we will talk about why Bitcoin is not a “Ponzi scheme.”
What is a “Ponzi scheme”?
“Ponzi scheme”, as the name suggests, is a scam invented by a person named “Pang”. The protagonist’s name is Charles Ponzi, who was born in Italy and immigrated to the United States in 1903.
In 1919, he designed an “investment plan”. He claims that this “investment plan” can achieve a return of up to 40% within 90 days. Moreover, he also gave evidence of “seeing is believing”: the first batch of “investors” in this “investment plan” did indeed get the promised return within the specified time.
As a result, a large number of Americans began to follow up.
In August 1920, Charles Ponzi went bankrupt. The reason is very simple. This “investment plan” was a scam from the beginning. There was no investment at all. He just used the money invested by the later participants to pay the money invested by the previous participants, creating the illusion of “high return on investment”. Because the promised rate of return is too high, the newly absorbed funds will not be enough to cover the funds that the participants need to redeem in the later period.
Since then, “Ponzi scheme” has become a proper term, which refers to those scams that promise high returns, but actually pay interest and short-term returns to early participants with the money invested by new participants, so as to create the illusion of making money, and then lure more people to participate.
Therefore, we can summarize the three characteristics of the “Ponzi scheme”: having a central figure or organization to operate; promising high returns; using the money invested by new participants to pay interest and short-term returns to early participants.
Why is Bitcoin not a “Ponzi scheme”?
Below, let’s take a look at whether Bitcoin has the three characteristics of a “Ponzi scheme”.
First of all, “there is a central figure or organization to operate”.
We all know that Satoshi Nakamoto invented Bitcoin in 2008 and retired two years later. Since then, Bitcoin has been maintained by a group of top programmers from all over the world, known as “Bitcoin Core Developers”.
In this way, it seems that Bitcoin has a “central organization”, but it is not. The main job of these core developers is to maintain the Bitcoin code and how to improve the Bitcoin system, not to fool ordinary people into buying and investing in Bitcoin.
The second point is “committing high returns.”
In the bitcoin white paper released by Nakamoto in 2008, there was no word “promising high return”, and Nakamoto did not publicly claim that investing in bitcoin could bring huge returns.
Bitcoin itself is open source, so anyone can look at the bitcoin code and contribute to it. All bitcoin transactions are stored in the bitcoin network and can be viewed by anyone in the world.
If there was a “promise of high returns”, there would not be a programmer who exchanged 10,000 bitcoins for 2 pieces of pizza worth $25 in 2010.
The last point, “Use the money invested by new participants to pay interest and short-term returns to early participants.”
Since bitcoin does not have a “central institution” or “promised high returns”, there is no operation of “paying interest and short-term returns to early participants with the money invested by new participants”.
You might say, no? Buying at the price of 10000 USD yesterday and selling at 11000USD today means paying interest and short-term return to early participants with the money invested by new participants (11000 people who bought today) and short-term returns (people who bought 10000 yesterday and sold 11000 today).
As we all know, Bitcoin trading is personal freedom. One is willing to buy and another is willing to sell. There is no compulsory buying and selling behavior, and there is no induction of new participants to participate. Therefore, it can not be called “paying interest and short-term return with the money of new participants to early participants”.
Besides, the price of Bitcoin is not always rising, ut fluctuate violently. No one can guarantee that they will sell to the next investor at a higher price after buying.In the market, the number of Bitcoin speculators who have lost money or even lost their fortunes far exceeds the number of investors who have made profits and achieved financial freedom.
After reading today’s article, if someone tells you “Bitcoin is a Ponzi scheme” in the future, do you know how to respond?
Yes, ask him directly: does bitcoin “have a central figure or institution to operate”, whether it “promises high returns”, and whether it “pays interest and short-term returns to early participants with the money of new participants”?