Ponzi / Pyramid Scheme / Bubble

[KingScorpio]

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.

you cant avoid pyramid schemes in cryptoeconomics they are not an exception but common, for example, ethereum -> pyramid system
tether -> pyramid system
etc. get used to it.

[Saaby06]

Thanks for the explanation on these terms, I had my aunty the other day try to tell me that Bitcoin is a pyramid scheme.

[KingScorpio]

Thanks for the explanation in these terms, I had my aunty the other day tell me that Bitcoin is a pyramid scheme.

all currencies are pyramid schemes even if you would consider a metal/matter based currency like gold silver, bronze copper coins, or maybe uranium coins etc or for an extreme cases like Plutonium (jes that could also be used as coin matter to buy really expensive thinks where gold is garbage).

they also are pyramid schemes, the respective mining companies and the top shareholders + ceo's become the most powerful (top of pyramid) people then.

the question is which pyramid do you support, trust and which not.

[hakertajniak]

Thank you for your very good explanation about ponzi scheme.
This should be read by the peoples who assume that bitcoin is a ponzi scheme. totally different from bitcoin.

[Roaid]

When it comes to bubbles, the biggest bubble should be fiat currency. The issuance of currencies such as the United States dollar and the euro is more restrained and still better. If you can find China's M2 data, it will definitely surprise you. To some extent, this is why Bitcoin is popular in China and explains why the Chinese government closed the Bitcoin exchanges.

[RocketShipJumper]

Thanks for this! I'm sort of new to trading so this helped a bunch!

[ETHtotheMOON1]

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.

thank you for this post, you made it very clear. Totally agree with you, it's ridiculous to call bitcoin any of those, as it's clearly not the case. But if those people want calling bitcoin names, their problem

[Pan Troglodytes]

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.

Well it was intended to be so but it failed to deliver value as currency last year, when transaction fees shot to the sky. I only hope that it will recover and with LN introduced it will fulfill its purpose. Because I believe that only then it can have the utility high enough to sustain its price going up. Thus, it will not be a bubble ready to burst, but rather it will be adopted and used widely and its high price will be sustained long term.

[Blakscorpion]

I'm not sure there is a big differences with ponzi and piramid scheme.
Both of them earn their rewards thanks to the newcomers.

Enlight me if I'm wrong but I think it's the same thing.

[TheGodson]

It has been a year since I made this post, but I thought that it deserved a bump given the recent activity in the Bitcoin space.

[pixie85]

It has been a year since I made this post, but I thought that it deserved a bump given the recent activity in the Bitcoin space.

It's a nice thread that will help people understand the definitions.

I'm not sure there is a big differences with ponzi and piramid scheme.
Both of them earn their rewards thanks to the newcomers.

Enlight me if I'm wrong but I think it's the same thing.

Ponzi scheme is an American thing. In Europe we don't use this name and instead use pyramid scheme and mlm to describe this. Ponzi scheme was repeated by another proud American Madoff who did the same thing. There were no levels in his system just him on top stealing from everyone and lying to everyone.

[rodel caling]

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.

That's is truly right mate, people they use bitcoin or digital currency for extortion to get quick huge money, and regarding for bitcoin bubbles is a normal because of high volatility fluctuations.
I advise to all bitcoin ethusiasm learn well before investing in any kind of investment to avoid victim of ponzi schemes.

[traderethereum]

So when there are people who think bitcoin is a Ponzi, pyramid scheme or bubble, we don't have to argue with them because we cannot make them realize the truth.
I am sure that they will find out by themselves in one day and they will understand that what their saying is not right.
I don't think bitcoin is a Ponzi or anything else.
I considered bitcoin as a way to make money on the internet, and it's not a scam like the other investment program.
Besides that, for me, bitcoin is like a currency as the others say the same as me.

[uneng]

Bitcoin is a "product", it exists and has an usage, and as you said, pyramid schemes don't involve any products, it's just a group of people sharing money to bring more people to share money too. That is a good proof bitcoin isn't a pyramid scheme.
The bubble part is more complex: when there are so many speculators investing I can understand bitcoin price is overdone and it can be seen as a bubble.

[Broly46]

We need Ponzi, just accept it. It is our job to deal with Ponzi, and don't blame anyone else to owe you a life.

[Steadfast20]

Well explained as a high ranked user gave you a huge amount of merit. I believe that Bitcoin is not a ponzi scheme or a pyramid scheme. I think there is no evidences that it is a pyramid or ponzi. Maybe they are saying that because the scammers are using it for ponzi scheme and pyramid scheme. Those who thinks Bitcoin as scam are those newbies who doesn't know everything about it.

[waynechong1995]

If you are talking pure BTC, its a wide topic when big players are holding so much value from crypto. BTC could easily become a bubble when the price slumps heavily to loses and some small amount of people gained. Pyramid scheme is more like a structured way of scam each others, but market does the same too, price manipulation are common when an authority (whales or project owner) have advantage of supply or channels. Its all about playing smart and get a piece of cake these days if you are an investor. My mindset is everybody is looking at money and it does being reflect on people and market.

[kamBlanV]

ponzi, pyramid scheme, and the bubble is not a BTC technology concept, the term is only used by irresponsible people, they are stupid, and damage the good name of BTC and the crypto world.

the term will affect the beginner, and then it will affect the crypto market.

[Crypto Girl]

We need Ponzi, just accept it. It is our job to deal with Ponzi, and don't blame anyone else to owe you a life.

Wait, what? If you think you need it then go ahead and deal with it, perhaps you don't know what you're talking.
While we know very well that bitcoin isn't those mentioned in OP though the bubble thing is quite agreeable since it's volatile and whales can control the market which they can pump and dump it anytime yet we should know how to take profit then. Just go with the flow instead.

[kaya11]

Yet if it still believed to be a bubble then how come those gentlemen in suits continuously support and mingle with this big bubble that they are saying? Is it just the mere reason was it gives them money, or is it they want something new, and to really change how the financial market is at the moment. I believe in BTC and blockchain, who cares about the folks saying it is bubble, let them be.