Is Bitcoin A Ponzi Scheme?

By Rushali Shome

Any new class that emerges becomes subject to general confusion and often suspicion, and Bitcoin has been no different. Even though it has been around for a little over ten years now, many people are still not quite sure what Bitcoin is, how it works and why people trade it like they do. As a consequence of not understanding what Bitcoin truly is, many often assume the worst when it comes to Bitcoin. Is Bitcoin a Ponzi scheme? This is the question in the mind of far too many people and today we will finally put it to rest.

Many notable investors in the world, including rich list toppers Warren Buffet and Bill Gates are incredulous about the potential of Bitcoin.

Often, they argue that Bitcoin constitutes a bogus investment. Yet, none of these people call Bitcoin a Ponzi scheme. Calling it so would be a rather serious allegation deserving of a thorough analysis.

You May Also Read: Top 5 Bitcoin Critics and Where Do They Stand Today?

What Is A Ponzi Scheme?

A Ponzi scheme is named after Charles Ponzi, who convinced a large number of people to invest in postage stamps by promising an unrealistically high rate of return on the investment. A Ponzi scheme is primarily characterized by the lure of an extremely high rate of return, sustained by adding new investors into the system.

In a Ponzi scheme, the old investors are paid from the money the new investors put in, and the system collapses when new investors stop coming in, or when the founder decides to amass whatever money has come his/her way and abandon the programme altogether.

Is Bitcoin a Ponzi Scheme?

In the recent times, the number of cryptocurrency scams have definitely increased, taking us by surprise. Even so, there is absolutely no reason to even imagine that Bitcoin is a Ponzi scheme.

Bitcoin, since its price moves so much, can possibly give you extremely high returns on your investment (like it happened in December 2017) but the reverse is equally, if not more, likely to happen.

Yet, it never makes any unrealistic promises to its investors, and in fact, does not even have a centralized entity in charge of it to make such claims.

You May Also Read: Bitcoin Price History: An Overview

The founder of Bitcoin, the anonymous Satoshi Nakamoto, has no way to gain out of the buying and selling of this decentralized peer-to-peer cryptocurrency. Neither are the Bitcoin investors paid back by exploiting new investors.

The Bitcoin price operates according to the movement of market forces and returns are dependent on how Bitcoin prices operate at a given time. Therefore, Bitcoin is definitely not a Ponzi scheme.

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Rushali Shome

Rushali Shome is a history undergraduate with a keen interest in puns, politics and beyond. When not typing away furiously in the “Notes” section of her phone, she can be found trying to catch the eye of servers at restaurants or weddings for a second helping.

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