First things first, I will outline what makes a scheme a Ponzi scheme.
Named after Charles Ponzi, a notorious con man who became known in the 1920s, offering investors a great return on their investment (up to 100% over 90 days) by investing into international reply coupons (IRCs). These coupons held the value of the cost of international postage in the country they were purchased, but could be redeemed for enough stamps to cover the cost of postage they were redeemed in. The money was to be made by purchasing IRCs in countries with low postage rates and redeeming them in the US for profit, the net profit from these transactions could yield in excess of 400%.
Unfortunately the idea never took off as Ponzi found he was unable to redeem them in the states. Undeterred, Ponzi proposed this business opportunity to his friends in Boston. Business soon took off and Ponzi soon started to hire agents to process orders for clients and to find more potential clients, offering great commission for every dollar they made him. Of cause Ponzi had never made a penny, his business was technically non-existent, the only money it made was through investors, early investors would be paid off their debt through later investors and late investors paid off by later investors, or even by early investors.
This is how a Ponzi scheme works, you lure investors in with a great return, and pay them back with their own money, or money from other investors. In the end you simply cannot pay investors back because your company has not earnt a single penny, from the word go a Ponzi scheme loses money.
By the peak of his career Ponzi was raking in over $250,000 a day, by the time he was caught out he was in excess of $7 million in debt. His investors lost over $20 million ($225 million in 2011) the scheme also caused 5 banks to collapse.
So, the big question. Is Bitcoin a Ponzi scheme?
We will start with two different coins, Bitcoin and Ponzicoin.
Bitcoin is a decentralized currency with a cap of 21 Million coins, each coin can only be generated through pure computing power, which is used to process transactions and rewards new Bitcoin every 10 minutes.
Ponzicoin is a centralized currency to which coins can be generated at will, it has no cap, but to generate more coins you must purchase from the the Ponzi Reserve. For every 100,000 Ponzicoins that are sold the price to purchase coins goes up by 5%. Coins can be traded freely, but there is a set 2.9% fee per transaction. It's also owned by Paypal.
Neither coin has any inherent value, the value of Bitcoin comes from trade and exchanges based on what users are willing to pay, in theory the more widely used the currency, the higher the price will be.
The value of Ponzicoin comes from the current price at the Ponzi Reserve. The value can only rise and the integrity of the currency relies on a continued flow of purchases to driv...
Article continued on
CDKey-Hut's press section
