Ponzi / Pyramid Scheme / Bubble

[TheGodson]

If you have been in the crypto space long enough I am sure you have heard from at least one person claiming that Bitcoin is a Ponzi scheme, Pyramid scheme, or a bubble. Perhaps you have heard all three. A lot of these people don't know what they are talking about and just quoting someone else they've heard. Here are the meanings of the three and why Bitcoin does or doesn't fit the criteria:

Ponzi scheme

What is it?
A Ponzi scheme involves a person or entity that recruits investors without any underlying product/service. The only way those investors are paid out is when new people invest. Nothing of value is added and the creator(s) of the scheme run off with all the money in the end. In a Ponzi scheme, people are promised high return with little to no risk. There is no financial reward to recruit new people other than the fact that they add to the money pool (collective reward). Early buyers may get rewarded and the Ponzi may spread by word of mouth. It is not a pyramid scheme because there is no individual reward for recruiting new members. Also there is a central authority.

Is Bitcoin a Ponzi?
No... no it is not. Bitcoin is decentralized so it cannot be a Ponzi. Bitcoin had a lot of work put into it by Satoshi and many other developers. They had no malicious intent like how a Ponzi does. Also, if Satoshi wanted to come and take all your bitcoins away, he couldn't do it. So no, bitcoin is not a Ponzi.

Example of a Ponzi
Bitconnect



Pyramid Scheme

What is it?
A Pyramid scheme involves a person or entity that acquires new members whose sole purpose is to recruit more members. Members are rewarded based on the number of people they bring into the pyramid. This is similar to multi-level marketing. The difference is multi-level marketing has a product where as pyramid schemes do not. If they do have a product, it is a garbage product and a majority of the money being generated is from getting new members. If people are having to pay up front to "get in the business" then it is probably a pyramid scheme. In a pyramid scheme there is no central authority who controls all the money like in a Ponzi.

Is Bitcoin a Pyramid?
No it is not. It is wrong when people mistake bitcoin for a Ponzi, but it is even worse when people mistake it for a pyramid. When you get more people to invest in bitcoin, you are not personally rewarded. All investors are collectively rewarded because the price goes up, but there is no real strong financial incentive for you to get family members and friends to buy bitcoin.

Example of a Pyramid
People that want to sell you a "starter kit" for selling "starter kits" for any overly priced bullshit product (such as knives, moisturizer creams, DVDs, etc.).



Bubble

What is it?
A bubble is when there is so much hype over a certain thing that investors start evaluating that thing at overly high prices. The increasing price causes people to experience something called "fear of missing out". As a result, people buy and prices are fueled to soaring heights. Eventually reality hits home and a lot of people end up losing money once prices come crashing down.

Is Bitcoin a Bubble?
Maybe. We have yet to see whether bitcoin becomes a huge success or a massive failure. If it fails then it was a bubble. If it succeeds then it wasn't. So far I'm feeling pretty optimistic. There definitely is a lot of hype in the Bitcoin space, but the future will be the ultimate answer for whether that hype is warranted.

Example of a Bubble
The Dotcom Bubble

I don't mind bitcoin skeptics describing bitcoin as a bubble. Sometimes, they can come up with decent arguments for it. What is annoying though, is when people say bitcoin is a Ponzi or pyramid scheme, because that just doesn't make sense. Using pyramid, Ponzi, and bubble interchangeably is not correct. Our words are important in how we use them.

[sky9314]

The explanation is very clear. I have always opposed the use of Bitcoin as a Ponzi scheme, but perhaps it may be a Bubble. Of course, there are Bubbles in any financial products. This is normal, but the bitcoin's Bubble are bigger and people are more worried.

[Vz Ketua]

I totally agree with your opinion. Bitcoin is not like a ponzi or a pyramid. Those who say it has a skeptical mind and there may be an intention to drop the bitcoin.

[ylnar123]

If you have been in the crypto space long enough I am sure you have heard from at least one person claiming that Bitcoin is a Ponzi scheme, Pyramid scheme, or a bubble. Perhaps you have heard all three. A lot of these people don't know what they are talking about and just quoting someone else they've heard. Here are the meanings of the three and why Bitcoin does or doesn't fit the criteria:

Ponzi scheme

What is it?
A Ponzi scheme involves a person or entity that recruits investors without any underlying product/service. The only way those investors are paid out is when new people invest. Nothing of value is added and the creator(s) of the scheme run off with all the money in the end. In a Ponzi scheme, people are promised high return with little to no risk. There is no financial reward to recruit new people other than the fact that they add to the money pool (collective reward). Early buyers may get rewarded and the Ponzi may spread by word of mouth. It is not a pyramid scheme because there is no individual reward for recruiting new members. Also there is a central authority.

Is Bitcoin a Ponzi?
No... no it is not. Bitcoin is decentralized so it cannot be a Ponzi. Bitcoin had a lot of work put into it by Satoshi and many other developers. They had no malicious intent like how a Ponzi does. Also, if Satoshi wanted to come and take all your bitcoins away, he couldn't do it. So no, bitcoin is not a Ponzi.

Example of a Ponzi
Bitconnect



Pyramid Scheme

What is it?
A Pyramid scheme involves a person or entity that acquires new members whose sole purpose is to recruit more members. Members are rewarded based on the number of people they bring into the pyramid. This is similar to multi-level marketing. The difference is multi-level marketing has a product where as pyramid schemes do not. If they do have a product, it is a garbage product and a majority of the money being generated is from getting new members. If people are having to pay up front to "get in the business" then it is probably a pyramid scheme. In a pyramid scheme there is no central authority who controls all the money like in a Ponzi.

Is Bitcoin a Pyramid?
No it is not. It is wrong when people mistake bitcoin for a Ponzi, but it is even worse when people mistake it for a pyramid. When you get more people to invest in bitcoin, you are not personally rewarded. All investors are collectively rewarded because the price goes up, but there is no real strong financial incentive for you to get family members and friends to buy bitcoin.

Example of a Pyramid
People that want to sell you a "starter kit" for selling "starter kits" for any overly priced bullshit product (such as knifes, moisturizer creams, DVDs, etc.).



Bubble

What is it?
A bubble is when there is so much hype over a certain thing that investors start evaluating that thing at overly high prices. The increasing price causes people to experience something called "fear of missing out". As a result, people buy and prices are fueled to soaring heights. Eventually reality hits home and a lot of people end up losing money once prices come crashing down.

Is Bitcoin a Bubble?
Maybe. We have yet to see whether bitcoin becomes a huge success or a massive failure. If it fails then it was a bubble. If it succeeds then it wasn't. So far I'm feeling pretty optimistic. There definitely is a lot of hype in the Bitcoin space, but the future will be the ultimate answer for whether that hype is warranted.

Example of a Bubble
The Dotcom Bubble

I don't mind bitcoin sceptics describing bitcoin as a bubble. Sometimes, they can come up with decent arguments for it. What is annoying though, is when people say bitcoin is a Ponzi or pyramid scheme, because that just doesn't make sense. Using pyramid, Ponzi, and bubble interchangeably is not correct. Our words are important in how we use them.

These are just distractions on out beliefs of what Bitcoin is. Being scam is not the characteristic of a Bitcoin but it is a doing of the people trying to gain something out of nothing from the insuspecious people. So the best way is to have more learnings about Bitcoin and cryptocurrencies.

[robelneo]

The explanation is very clear. I have always opposed the use of Bitcoin as a Ponzi scheme, but perhaps it may be a Bubble. Of course, there are Bubbles in any financial products. This is normal, but the bitcoin's Bubble are bigger and people are more worried.

I agree that it is big and people are worried because the price can crash at one big bad news like we had in the past, this is very much associated with Bitcoin and I believe will continue because the other side of Bitcoin is an investment and every investment has a risk side of it.

[boyjack]

Bitcoin is not ponzi /pyramid scheme, many peoples are worried in Bitcoin now because of the current market condition and price crashed , not that means it was bubble, If you want to invest money you should take risk also,  I think bitcoin have great future and it will be great investment platform.

[FlightyPouch]

I want to share this to our countrymen. Ever since Bitcoin was being popular, our country is not still knowing the hype going on and they were introduced to Bitcoin one time and that is the worst way it is introduced to people since the news is about a guy being scammed using Bitcoin.

This news led other networks to report their own about this crypto currency and it is all a bad thing but what they did not know is that Bitcoin is just a digital currency that is being used for that purpose, as i said to my other posts they are just using Bitcoin as an escape route to run from their crimes.

[Verde_Mantis]

Very nice post, it's a good explanation for all those people who use those terms without even knowing their real meaning, so I hope they're gonna read this before writing the next time.

[Xester]

This is a good explanation to make a distinction between what is a ponzi scheme and what is bitcoin and cryptocurrency. But even though the masses knows what is a pozi scheme they would simply just thought any kind of investment a scam if they will lost their capital. To people who are open minded they will do some research before thinking anything but for people who only thinks of profit they will think everything as a scam if they will not profit and lost their capital in the process.

[Hui8]

I would just say that ponzi schemes are everywhere, leaving behind the BTC I am sure that ICO's are Ponzi's (Not all of them but most of them). Pyramid scheme, there is no question about that as bitcoin is completely open source program and we can invest in it the way we want it. I am sure there had been many pyramid schemes in the bitcoin world but they were made out of the ponzis. You see where I am going with this one? Its like Ponzi's being responsible different stuff like pyramid schemes etc. The bubble, oh my god, bitcoin is bubble since 2010-2012 period and it is still bursting.  

[palle11]

The explanation is very clear. I have always opposed the use of Bitcoin as a Ponzi scheme, but perhaps it may be a Bubble. Of course, there are Bubbles in any financial products. This is normal, but the bitcoin's Bubble are bigger and people are more worried.

On the contrary, I have not read any where that bitcoin is a ponzi because bitcoin is not like marketing networks that you would need to introduce somebody for you to grow and for the product to grow too.

I have however read that it is a bubble and to this, even if it is a bubble; if it burst, it is going to produce something far better from it.

[marjil]

Bubble

What is it?
A bubble is when there is so much hype over a certain thing that investors start evaluating that thing at overly high prices. The increasing price causes people to experience something called "fear of missing out". As a result, people buy and prices are fueled to soaring heights. Eventually reality hits home and a lot of people end up losing money once prices come crashing down.

Is Bitcoin a Bubble?
Maybe. We have yet to see whether bitcoin becomes a huge success or a massive failure. If it fails then it was a bubble. If it succeeds then it wasn't. So far I'm feeling pretty optimistic. There definitely is a lot of hype in the Bitcoin space, but the future will be the ultimate answer for whether that hype is warranted.

Example of a Bubble
The Dotcom Bubble[/center]

There can be more than one bubble in the same asset at different times. So saying that above is not really accurate as to what a bubble is or how it works.

Bitcoin went from $900 to $19,700 through 2017. That's a 2,000% increase. If it drops to $2,000 that would be an 90% drop. If bitcoin were to then rise again over time to $50,000 then according to your definition there will have been no bubble. But, a 90% drop would definitely constitute a bubble. A bubble does not need to wipe out an asset, it just needs to be a point from which prices crash. And 90% would definitely be considered a crash by anyone's standards.

You gave the dotcom as an example of a bubble. Amazon and Facebook were part of that, as were other tech companies which have grown massively since they crashed. But they were in a bubble but still survived.

So you see, you can have bubbles without obliterating the asset, which may then go on to greater heights in their value.

[avikz]

Right you are! But majority of the people using bitcoin doesn't classify it as a ponzi or pyramid scheme. Those who have classified bitcoin or cryptocurrency in general as a pyramid or ponzi, they have either never used it personally or uneducated morons.

I remember, one Indian Member of Parliament, classified bitcoin as ponzi scheme in front of the who parliament. These kind of people don't have any understanding of the technology and they are too ignorant to learn new things. Bitcoin is nowhere related to ponzi or pyramid scheme.

However, if I talk about bubble, then I have a different understanding. Bitcoin can be somewhat linked to bubble. We can't deny the fact that the driving force of bitcoin is somewhat based on the hype it has created. Today people are talking about bitcoin because of that hype. Not everyone is a technological expert, so non technical people are coming into the market because of the hype it has created. Definitely bitcoin is a technological milestone but hype is one of the major driving force of it.

[Kokondao]

Thank you very much for giving us very useful information for all of us, and with your post I think that reading can distinguish everything.

[Razick]

Thank you for these definitions, it's good that people actually know the meaning of the terms they are using. With that being said, I do not think that bitcoin is a bubble, its price did not crash like the dotcom bubble and bitcoin is still going strong and prices are recovering. And even with bitcoin prices being this low, there are still some people who are making a lot of profit from it.

[harbs23]

Now I know that bitcoin is not ponzi scheme and pyramid scheme.
I think the scammer use bitcoin as their alibi because the price is unstable.
Exit plan in short!

[mOgliE]

Hi,

I don't really see bitcoin as a bubble. Because indeed, trends are similar, so it can be worrying, but unlike other crisis, it doesn't rely on anything tangible. So I think we can't really compare the situation. When the price of a tulip was crazy, it was rather easy to state it, because you could make a link between a price (and value) and a "thing".

Though, how would you value bitcoin? Even if prices become crazy, how could you tell when it is "too high"?

[marcuslong]

This is a good explanation to make a distinction between what is a ponzi scheme and what is bitcoin and cryptocurrency. But even though the masses knows what is a pozi scheme they would simply just thought any kind of investment a scam if they will lost their capital. To people who are open minded they will do some research before thinking anything but for people who only thinks of profit they will think everything as a scam if they will not profit and lost their capital in the process.

Its been a long period of time that ponzi has been deceiving people using fiat money investments like purchasing products for selling. But with bitcoin cryptocurrency the impression is different due to its unique asset liability. Despite of all the fake news bitcoin still remain strong currency even though its volatile because of lots of fake news spreading lately and until now it continues to happen, but it won't affect long term investors to hold their bitcoins. They don't even care the bubble price, and they just wait for the price surges to come so that selling is worth profitable.

[felicita]

also most of alstcoins and ICOs are ponzis shems .
There will allways be snowball systems and ponzi shemse in Bitcoin and co. its for niwbies XD



regards

[timerland]

Thanks for the clear explanations of each term.

I hear a lot of people who are bearish on bitcoin say that bitcoin is a pyramid scheme/ponzi scheme. I don't think that they have done an research, and are just blatantly spitting out bullshit from their mouth. A ponzi scheme will only work, if there is a central figure that has control over your money that you invest.

BTC first of all, is not an investment. It's a currency, that can be regarded as an investment. Secondly, BTC is decentralized. So the accusations of BTC being a ponzi is completely baseless. BTC isn't a bubble right now, but was in a bubble imo last year.