A lot of people make a lot of bold, incorrect claims about Bitcoin. Maybe they know better but do it for publicity or to throw others off or some other hidden reasons. One of those incorrect claims is that Bitcoin is a Ponzi scheme. Obviously we believe it isn’t, but today we’re going to explain step-by-step why it isn’t so that you can have confidence that when you invest your hard earned time and money into Bitcoin that you aren’t being scammed.
Is Bitcoin A Ponzi Scheme?
While a lot of people that don’t like or understand Bitcoin like to state over confidently that it’s a Ponzi scheme, it’s not. A Ponzi scheme is when a person or group of people commit financial fraud. They are the original investors and they get paid returns that come from the money new investors contribute.
A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors.
SEC
While Ponzi schemes can go on for a long time unnoticed and get quite big, they always eventually collapse after a few years as they’re fundamentally unsustainable. They need a continuous flow of new money from new investors to stay afloat and once those new investors stop coming in, the flow of that new money also stops and the whole thing collapses.
To say Bitcoin is a Ponzi scheme is to fundamentally misunderstand Bitcoin. For starters, over the course of 2009-2010 period when Bitcoin first debuted, it didn’t even have a trading price. It was quite literally worthless. $0. There were no “original investors”. There were also no subsequent investors. Just Satoshi Nakamoto and a bunch of other pioneering Cyberpunks that were having fun building awesome code for free.
It’s simply impossible for something to be a Ponzi scheme if there’s no investors (old or new).
Even now, where many people do invest in Bitcoin, there is never any flow of money that goes from new investors back to existing ones. If Person A owns 1 bitcoin and Person B comes in and buys 100 bitcoin, Person A still only has their 1 bitcoin. They don’t receive any additional bitcoin because of Person B’s purchase (or anyone else’s purchase). That’s just not how Bitcoin works at all!
But to further prove that Bitcoin isn’t a Ponzi scheme, let’s go through a number of common traits of Ponzi schemes and compare them to Bitcoin.
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