Why Bitcoin Is Not a Ponzi Scheme
All the proof Bitcoin critics choose to ignore
As a newly minted Top Writer on Medium in the Bitcoin topic, it makes sense for me to write my next article about Bitcoin.
So, let’s cover a controversial topic within Bitcoin and cryptocurrency circles.
Bitcoin is a Ponzi scheme.
This is what many outsiders—and even crypto insiders—are saying about the revolutionary digital currency.
But is Bitcoin really a Ponzi scheme?
Before we answer that question, let’s first look at what a Ponzi scheme is.
Characteristics of a Ponzi Scheme
All Ponzi schemes have these primary characteristics:
- Unregistered Investment Scheme
- Excessively Consistent Returns
- Complicated and Secretive Strategy
- Low or No Risk Involved
- Guaranteed High Return
- Hesitation for Paperwork
- Unlicensed Seller or Schemer
- Difficulty Cashing Out Investments and Returns
In a Ponzi scheme, there is the promise of high returns. Which excites investors to invest. Later on, when profits keep stacking up, investors run into a roadblock, whereby the schemer makes it difficult to pull their money out.
And if Bitcoin is a Ponzi scheme, then all cryptocurrencies are a Ponzi scheme.
Because these cryptocurrencies are founded on the same principles of blockchain technology to orchestrate the transfer of funds.
But I don’t believe Bitcoin is a Ponzi scheme and here’s why.
Why Bitcoin Is Not a Ponzi Scheme
When you buy Bitcoin, you’re trading a fiat currency or sometimes swapping another cryptocurrency for bitcoins.
These bitcoins get stored in a secure crypto wallet. Either at a centralized exchange like Coinbase or Binance, or in a non-custodial wallet where you have complete access and control as long as you have the private keys.
The amount of bitcoins you have stored in your wallet will always be the same amount of bitcoins, unless you sell your bitcoins or buy more Bitcoin later. It doesn’t matter if the market price of Bitcoin goes up or down, although you may gain or lose the value on your bitcoins. The number of bitcoins is a static amount that doesn’t fluctuate without direct intervention.
Having immediate access to your bitcoins is the number one reason Bitcoin is not a Ponzi scheme. And the best part is you can trade in your bitcoins for a fiat currency on every single crypto exchange whenever you want. This alone removes the fear and difficulty cashing out investments and returns.
The second reason Bitcoin is not a Ponzi scheme is a tougher one to tackle. Most naysayers like to point out that existing Bitcoin investors are trying to recruit other friends and family to invest in Bitcoin.
However, I’ve never in my life, in all the years of investing in Bitcoin or any other cryptocurrency, recruited or told my friends and family they should invest their money in digital currencies. It’s something I like to do for personal enjoyment and financial gains.
Yes, I write about Bitcoin and cryptocurrencies extensively, but that’s simply to educate other people who are already searching for more information about the digital currencies and their blockchain technology.
But even if a Bitcoin holder is promoting the cryptocurrency to their family and friends or on social media, it doesn’t make it a Ponzi scheme.
People tell their friends and family all the time about the things they like, what they bought at the department store, or show them off their latest buys on social media. Heck, I remember telling and showing off my new iPhone 13 Pro Max the day it arrived in the mail to my wife’s family.
We’re just social creatures that love validation. It’s in our nature.
Further Proof Bitcoin Is Not a Ponzi Scheme
Let’s look at the other Ponzi scheme characteristics and compared them to Bitcoin investments.
Unregistered Investment Scheme
Is Bitcoin an unregistered investment?
Technically, in most countries, yes.
But that’s changing. Rapidly.
With its dramatic rise in popularity, many countries are setting regulations around Bitcoin and cryptocurrency.
In the United States, as one example, states control what can and cannot happen at crypto exchanges, and federal law requires these crypto exchanges to collect KYC (Know Your Customer) information from each person who signs up for their services.
Many exchanges have insurance and/or backup funds to secure the fiat currency deposits and cryptocurrencies traded on their platforms.
As well, Brazil is paving the way for Bitcoin to become legal tender.
Excessively Consistent Returns
For anyone that’s been trading crypto awhile, they’ll attest to the fact that Bitcoin and crypto don’t consistently return money on the investment.
In fact, in December 2021, the crypto marketplace crashed. Twice.
Unless those traders took their returns and deposited their profits into their bank account, they experienced significant losses.
And over the last several years, Bitcoin has been extremely volatile. With ups and downs, where some traders realized profits and others took a loss.
When you trade Bitcoin, there is no guarantee of a return. Because the market is so unpredictable.
Complicated and Secretive Strategy
With Bitcoin and most cryptocurrencies, there’s no hidden or secretive strategy going on behind the scenes.
In fact, Satoshi Nakamoto—the creator of Bitcoin—published his famous white paper about Bitcoin before he released the source code and the first version of the Bitcoin blockchain to the public.
The original source code and each version thereafter is open-source, available for anyone to review and audit. And trust me, audits are performed regularly on the Bitcoin source code, with thousands of expert programmers and security professionals trying to find a weakness in the code.
For your peace of mind, there’s no built-in mechanism where your bitcoins are being secretly siphoned off and sent to an account. It just doesn’t happen and never will.
Low or No Risk Involved
With Bitcoin, there’s only low risk if you invest a small amount.
For larger amounts, you are always at risk of losing your entire investment. Because if you’re an inexperienced trader and buy Bitcoin at a high market price, then suddenly the market crashes, you could lose most of your money.
Guaranteed High Return
No one is promising Bitcoin will net you a high return on your investment.
Yes, there are tons of people standing on their soapboxes, shouting to the high heavens that Bitcoin will reach $100,000 USD or more. But you shouldn’t take their financial advice as the ultimate way the market will behave.
All markets with tradeable assets react to outside and in-market influences.
That’s why no seasoned expert can 100% guarantee Bitcoin investment will return a substantial return.
Hesitation for Paperwork
With Bitcoin, there’s no paperwork. No paper trail.
So the naysayers may try to fault Bitcoin as a Ponzi scheme on this point.
But wait. Bitcoin has something better.
The blockchain.
Bitcoin’s blockchain is a public registry of all transactions. A digital ledger living on the Internet.
A global network of nodes validates these transactions. And the nodes span across hundreds of countries, so even if a dozen nodes go down or offline, the network will not suffer.
And anyone—including you—can download the Bitcoin software and setup a node on their home computer.
If you don’t feel like downloading the software, which I don’t blame you, that’s fine. Anyone can go online and verify the incoming and completed Bitcoin transactions.
Because every transaction is public.
Unlicensed Seller or Schemer
Technically, Bitcoin is not licensed.
But as mentioned above, many countries have regulations in place. With new laws taking effect each year.
In 2021, the first Exchange Traded Fund (ETF) debuted on Wall Street. ProShares Bitcoin Strategy ETF was the first of its kind, approved by the US Securities and Exchange Commission (SEC). This milestone gave further credence to Bitcoin.
Tell me one Ponzi scheme that received SEC approval. I’ll be waiting.
Closing Remarks
Now that we’ve made our way through the list of characteristics most commonly seen in real world Ponzi schemes, I can say this with confidence.
Bitcoin is not a Ponzi scheme.
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