Why Bitcoin is not a Ponzi Scheme?

Ever since I have gotten aware of the system we are in, my desire to accumulate Bitcoin has increased more and more. Just a day before writing this article, the Canadian government froze the bank accounts of anti-mandate protestors. The Federal Reserve bank won’t raise interest rates even after inflation hits a 40 year high.

I have also been reading various articles on why Bitcoin can fail and is a Ponzi scheme. I respect other authors and their views. They have written based on their knowledge of the subject. But I have spent enough time learning about Bitcoin and everything surrounding it.

What is a Ponzi Scheme?

A Ponzi scheme promises return to the investors with the funds from early investors.

Stocks are not Ponzi as companies return profits to shareholders,

Fiat currencies like USD are used to buy goods and services and for global trade,

Commodities like Gold, Silver are real and are used in industrial appliances and as Jewellery.

So these cannot be Ponzi schemes by the definition.

Now, why Bitcoin is not a Ponzi Scheme?

Bitcoin was created by Satoshi Nakamoto and there hasn’t been a word about him since 2011. In the short history of Bitcoin, people traded 10,000 bitcoins for a couple of pizzas. Bitcoin had also been used on Silk Road, a dark web drug marketplace. Bitcoin has never been thought of as a get-quick rich scheme in its early days as only a few people were aware of it. Bitcoin trading wasn’t a thing until 2017.

Now let’s say Bitcoin didn’t exist and a private company has created Bitcoin or similar technology and called it a global payment network and charge everyone for using their network. Now this company would earn profits, get listed in the stock market and people would value the company and its technology based on the earnings of the company. Their share price would also have been speculated based on the adoption.

But in the case of Bitcoin, it is an advanced payment network with its own unit of account. The price of Bitcoin has nothing to do with the technology behind it. People who want to transact globally will buy Bitcoin and send it to someone regardless of the price without any middlemen. This is the real utility of Bitcoin.

Speculators will speculate the price of something like a stock or technology irrespective of its utility based on various factors that need no explanation. This is just because they want to cash something out of this trend.

So if you relate the technology with the price, Bitcoin seems like a Ponzi but a decentralized unit of value that is permissionless and censorship resistant cannot become a global currency all of a sudden.

Final thoughts

Bitcoin is not Ponzi at least based on my understanding and knowledge I have, because:

I am not buying Bitcoin to sell it at a higher price.

If Bitcoin succeeds, Bitcoin will become a unit of account and everything will be priced in Bitcoin. This can happen if the few people who call themselves government or central banks continue doing the things they are doing.

If Bitcoin fails, a few people who believed in freedom of speech and decentralization go wrong, and may God save the world.

Also read: Is it the Right Time to Buy Bitcoin?

I also write articles related to Bitcoin and crypto on the leading cryptocurrency website and news portal, TheCryptoInsight.



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Akshay Kumar

Akshay Kumar

I write articles about Bitcoin, stocks and my experiences