Understanding the Ponzi Narrative

[titular]

One of the largest roadblocks I have in defending bitcoin (and cryptocurrency in general) is when people compare it to a Ponzi scheme.

There is plenty of bitcoin FUD that is easy to defend, but when people pull the Ponzi-card, that is when I begin to get agitated. This is because I don't have a sound argument to combat this claim.

For those who are not readily familiar; A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds.

People compare bitcoin to a Ponzi scheme because the price increases when more money flows into the underlying asset.  If I buy for X and sell for X+100 that 100 profit of mine came from another person who bought into the scheme after me. In the eyes of many, this is dangerously close to how Ponzi schemes generate value.

What is the best argument against the Ponzi scheme narrative?

In what ways are Ponzi schemes different from bitcoin?

How do they generate value differently?

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[bitmover]

What is the best argument against the Ponzi scheme narrative?

In what ways are Ponzi schemes different from bitcoin?

How do they generate value differently?

Bitcoin is not a ponzi, because it has some value. Let's see some things that makes bitocin valuable :

- It is limited. It is scarce.

- There are many use cases. For long people seek to create an internet money, a money which ia not controlled by a central authority and cannot be controlled by anyone. Now with bitocin you can send your money the way you want: permitionless,borderless..

- Ponzi schemes are centralized.one group of people control the scheme

Nowadays, you cannot even create bitcoin out of think Air. It costs thousands and thousands of dollars to mine one bitcoin.

[bL4nkcode]

Bitcoin doesn't have any referral/affiliate to attract people, it doesnt promise  anything, and doesnt promise that your money will just increase after you join in, it doesnt have fixed rate/percentage to get profit at a particular time/day/week/months, lastly, Bitcoin doesnt have a CEO, it's not a company.

 If I buy for X and sell for X+100 that 100 profit of mine came from another person who bought into the scheme after me. In the eyes of many, this is dangerously close to how Ponzi schemes generate value.

They should know how trading works, or say barter, where everything starts in the ancient.

[o_e_l_e_o]

A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.

Early investors are not paid profits from recent investors. Any investors can take profits from any other investor by trading at the right time.

The scheme leads victims to believe that profits are coming from legitimate business activity

Satoshi never told anyone that they were going to make a profit at any time, and indeed, many early investors lost money via electricity and hardware costs mining an asset which was worth nothing at the time.

and they remain unaware that other investors are the source of funds.

There is no secrecy at all about what gives Bitcoin value or how the market is pricing it at any given time.

People compare bitcoin to a Ponzi scheme because the price increases when more money flows into the underlying asset.

This is a pointless definition. The value of anything increases when more money flows in to the thing in question. Property, stocks, shares, bitcoin, gold, art, oil, wheat, cows, onions, you name it.

[BlackHatCoiner]

Great, great questions.

What is the best argument against the Ponzi scheme narrative?

The first thing you have to tell them is that the definition of “ponzi scheme” or “pyramid scheme” is very strict. In a ponzi scheme, there's a leadership team that promises high returns and misleads the public with wrongful statements regarding an illegitimate business.

• Is there a leadership team that promised high returns? No, Satoshi or the people who worked to create this innovation didn't promise you anything.
• Have the developers ever lied or misled the public? Nope. Their actions reveal the exact opposite:  The software is open source, anyone's allowed to contribute; it promotes free speech.
• Is there an illegitimate business? If we assume that buying and selling bitcoin is a business, then that depends on how you see things. However, I think that the transparency of bitcoin discloses objectively that there's nothing illegitimate behind it, by default. If you start manipulating the crowd, then that's you who's problematic and illegitimate.

In what ways are Ponzi schemes different from bitcoin?

The reasons I highlighted.

How do they generate value differently?

The conviction that there's something legitimate while there isn't is what deceivingly gives a ponzi scheme, temporarily, market value.

[Upgrade00]

People compare bitcoin to a Ponzi scheme because the price increases when more money flows into the underlying asset.  If I buy for X and sell for X+100 that 100 profit of mine came from another person who bought into the scheme after me. In the eyes of many, this is dangerously close to how Ponzi schemes generate value.

The price increases based on a number of factors and not simply cause new investors buy in. Using that analogy, if you buy at Y price and sell at a loss of $100 what would that situation be?

What is the best argument against the Ponzi scheme narrative?

Bitcoin is not even a scheme at all, it is simply a digital currency with some pretty cool features. No one should get into bitcoin with the sole purpose of profiting, rather they should be interested in the usage.
And all investments grow with more adoption. If you bought facebook stocks in 2012, you were expecting it to get more popular and grow in adoption which will lead to an increase in the asset value. That is how product growth works.

In what ways are Ponzi schemes different from bitcoin?

Ponzi schemes are frauds, bitcoin is not,
Ponzi schemes promise returns on investments, bitcoin does not,
Ponzi schemes do not have actual value, bitcoin has real life utility.

How do they generate value differently?

Bitcoin does not generate value, it has a real life utility and as more people realize that, its market value grows. Ponzis depend entirely on new investors and has no product value.

[Charles-Tim]

Ponzi is a shady business, bitcoin is transparent and not shady in its entirety.

Ponzi will later fail when no more new investors, bitcoin because of this can never fail because new people want to invest, old people want to invest more. If bitcoin price fall, some people are ready to invest again at certain price.

This is a pointless definition. The value of anything increases when more money flows in to the thing in question. Property, stocks, shares, bitcoin, gold, art, oil, wheat, cows, onions, you name it.

Yes as simple as 'if bitcoin is a ponzi', then stocks, commodities, gold etc, even life itself will be ponzis.

Transparency of bitcoin will make only hypocrites call bitcoin a ponzi scheme.

[24Kt]

I don't think we need to compare bitcoin with ponzi projects or ponzi-related platforms. The first difference is that with the ponzi project, there's an individual or group behind the project with ulterior motives to rip off possible customers. In bitcoin, can we say Satoshi, the creator or even the contributors in bitcoin developments are running ponzi scheme? Definitely not. They are not offering any returns or profits, it is your own will if you will get into the bitcoin market. Ponzi projects are created for the sole purpose of screwing their clients by offering too-good-to-be true ROIs, and eventually abandoning their platforms once they pocketed the money.

[Kakmakr]

OP, the biggest "flaw" in their narrative is this ===> Aggressive Marketing.

In any Ponzi Scheme, people joining these schemes are encourage to "market" the scheme to some kind of "network marketing" downline to keep the influx of new capital into the scheme. The people coming in...gets some reward for the people they introduce to the scheme... (Example : Level 1 = 10% / Level 2 = 5% etc...etc..)

Bitcoin has none of this... Anyone can buy bitcoins without ANY kind of reward system linked to it. Nobody are told to market "Bitcoin" to anyone .. you can just buy and hoard or Sell or use it when you want.  

I know Ponzi schemes ..because I have "tested" it multiple times before. Bitcoin is a "Currency" or a "Commodity" ...like Cash is a currency and also a Commodity when you trade with it on Forex.  

[odolvlobo]

Ignorant people think that any scam can be called a "ponzi" because they don't actually know what a ponzi is. So, trying to argue that Bitcoin is not a "ponzi" is mostly useless.

I think the best strategy is to pinpoint the specific reasons for believing that Bitcoin is a scam and then counter those specific reasons.

For example, "Early investors make money from later investors, like in a pyramid scheme." Counter with:

• 1. Early investors can lose money, too.
• 2. Investors in gold and Netflix also make money from later investors and those aren't considered to be scams.

[Nhazwrath]

One of the largest roadblocks I have in defending bitcoin (and cryptocurrency in general) is when people compare it to a Ponzi scheme.

There is plenty of bitcoin FUD that is easy to defend, but when people pull the Ponzi-card, that is when I begin to get agitated. This is because I don't have a sound argument to combat this claim.

For those who are not readily familiar; A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds.

People compare bitcoin to a Ponzi scheme because the price increases when more money flows into the underlying asset.  If I buy for X and sell for X+100 that 100 profit of mine came from another person who bought into the scheme after me. In the eyes of many, this is dangerously close to how Ponzi schemes generate value.

What is the best argument against the Ponzi scheme narrative?

In what ways are Ponzi schemes different from bitcoin?

How do they generate value differently?

you can make the argument that fiat is a ponzi scheme.  or any stock for that matter.  if everyone sold apple untill it was worthless except you.   was it a ponzi?

[aoluain]

One of the largest roadblocks I have in defending bitcoin (and cryptocurrency in general) is when people compare it to a Ponzi scheme.

There is plenty of bitcoin FUD that is easy to defend, but when people pull the Ponzi-card, that is when I begin to get agitated. This is because I don't have a sound argument to combat this claim.

For those who are not readily familiar; A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds.

People compare bitcoin to a Ponzi scheme because the price increases when more money flows into the underlying asset.  If I buy for X and sell for X+100 that 100 profit of mine came from another person who bought into the scheme after me. In the eyes of many, this is dangerously close to how Ponzi schemes generate value.

What is the best argument against the Ponzi scheme narrative?

In what ways are Ponzi schemes different from bitcoin?

What about swapping the example to lets say - Paypal, they dont produce anything physical,
its a digital service . . . ^{Bitcoin being similar as there is nothing physical produced, etc. etc.}

So If I bought paypal stocks 5 years ago and the value rises to todays value when I want to
liquidate my position in a profit, who pays that profit? Bitcoin investing essentially works the
same as traditional stocks and bonds, there is liquidity in the market to fund those who want
to get out. A sound project will have fewer liquidations than buy in.

How do they generate value differently?

A ponzi is solely reliant on new investors so there funds can be used to pay liquidations
interest, when there are no new investors there is no liquidity to pay people who want to
liquidate or early investors interest.

[hatshepsut93]

Ponzi scheme is when someone is taking money of new investors to pay the early investors. In Bitcoin no one is making any investment profit payments, you buy it and later sell it, just like with any other asset. If someone tries to insist that Bitcoin is a Ponzi after this argument, they just want to believe in what they believe, even if it has no basis in reality.

[franky1]

a ponzi is to pay interest to early investors to tempt them to not exit. to tempt them to stay invested.
drip feeding regular interest payments from the new investors funds to keep old investors in.

yet no one is paid interest in bitcoin,

when new person is buying bitcoin. he is buying what an earlier acquirer is selling. this is called trade.
once the trade is done. the seller is out.

its a simple 1 for 1 deal. one investor wants 1btc. another investor is offering 1btc.

people buying a banana buy it from someone who has a banana and wants to sell it. once its sold the first banana holder no longer has a banana.
the person buying the banana is not paying some agent who uses the money to keep early banana holders in and pay them interest to keep holding their banana

people buying a house. buy from a previous house owner. that trade does not earn interest for all of the current house owners before it.

bitcoin is like trading houses. not passing profits to investors that dont sell out.

bitcoins price rise is not due to ponzi interest profits. its due to increase of demand and cost increase of base value in bitcoins production.

[Sled]

People are just likely seeing crypto in general as a scam thing due to many issues about scamming and they are able to compare it to the Ponzi scheme. That was the problem by many and they don't want to change their mindset and that is also because they never see crypto physically and that add's more confusion especially those who have been experiencing scams outside crypto.

I ain't not to curse them like talking bad about crypto but telling them what exactly the story about Bitcoin/crypto might enlighten their understanding.

[GeorgeJohn]

Someone is bringing us back because a ponzi scheme is totally different from other nature of cryptocurrency and especially bitcoin, from my point of view bitcoin never one come contrary as one of the Ponzi things we always emphasising on, a ponzi scheme is those projects that have no Nice or direction in project, or project that is been controlled by the people, which in this categorical elements bitcoin did not fall in any of them.

[Yogee]

...There is plenty of bitcoin FUD that is easy to defend, but when people pull the Ponzi-card, that is when I begin to get agitated. This is because I don't have a sound argument to combat this claim.

One of the very first thing I do when I'm in this situation is asked those people why they think it's a ponzi. Maybe they've encountered some scammers offering double your BTC schemes in the past and that's what they always remember.

one should stop telling stories about unknown people from the internet, who bought xxx bitcoins when they were worth $2 and sold them on $60k each to become billionaires overnight.

This is also why some people I've met claim those returns are too good to be true and associate it with ponzi or pyramid schemes.

[mindrust]

They have a point though. There are many ponzi schemes that use crypto as a cover. Bitconnect was one of the biggest. Who could tell me that a coin named CumRocket is a valid project? I could go on and on and on. The space is simply full of ponzi schemes and legit projects are having a bad time because of those shitcoins.

If a person was arguing with me about this, I would pretty much agree with him except for one condition, not all of them are.

[ultrloa]

People compare bitcoin to a Ponzi scheme because the price increases when more money flows into the underlying asset.  If I buy for X and sell for X+100 that 100 profit of mine came from another person who bought into the scheme after me. In the eyes of many, this is dangerously close to how Ponzi schemes generate value.

What is the best argument against the Ponzi scheme narrative?

In what ways are Ponzi schemes different from bitcoin?

How do they generate value differently?

The best argument you can point out to the people who keep telling it as ponzi scheme is bitcoin is a currency and the value of it will be base on supply and demand this is basic thing to know by the people and I'm sure they learn the supply and demand thing in their economic class.

Compare it to ponzi scheme where the initiator always promise a profit which sometimes newbie cannot resist.

[romero121]

A simple understanding of mine. With 90% of the ponzi schemes it is a must to make people join under us. This means we need to refer people to join and this will make a chain. One in the top order will receive big. This chain keeps going and going. With bitcoin there is nothing as you need to make people part of the network/market. The growth of the network happened without any promotion.

Everyone who is part of the market acquired knowledge and got into it. People spread the word about bitcoin with others out of enthusiasm and not by compulsion. This itself enough to defend against people mentioning bitcoin as a ponzi scheme.