[FAQ] Is BitCoin a Ponzi or pyramid scheme? (Newbie-Friendly)

[Anmol_Verma]

Bitcoin is not a ponzi or pyramind scheme
I think bitcoin is the future of money

[1715494865]

1715494865

[1715494865]

1715494865

[Preen]

I highlighted a couple parallel perspectives to help the newbies visualize the dynamics of how bitcoin miners create and distribute the currency first (like the central banks do with fiat), and how a forever increasing price value of the distributed currency is required to keep the system from collapsing into deflation (in bitcoin's case, collapsing into "unprofitably for miners" who leave the system because they cannot turn a profit).

A Ponzi scheme is a type of confidence scam where people who get a hold of the debt based currency first or were early bitcoin adopters who bought it cheap, earn unusually high returns on their investment because they are actually being paid from later investors.   If investors try and withdraw their original investment from the Ponzi operator cash out of their bitcoin and get back into the fiat realm, or in the case of debt based currency, go bankrupt (don't pay the debt money back), the scheme the bitcoin price (asset prices in the debt fiat parallel)collapses because no actual profits exist (for the bitcoin miners)and there is not enough money to return the deposited amounts purchase/maintain/power their mining equipment in the bitcoin parallel, or keep asset prices supported in the debt money example.  

Similarly, a pyramid scheme is a type of confidence scam where people who "enroll" by paying a certain amount of money are made to believe they can make a large return on their investment by recruiting other people and receiving some portion of their enrollment fee.  The scheme collapses because it requires exponential growth, so it quickly runs out of new people to enroll.  The person starting the pyramid scam, who didn't have to pay an enrollment feetoday's higher bitcoin prices (or in the debt money example got to borrow it into existence at 0% and charge the next guy actual interest), makes money off of all their referrals the price appreciation of bitcoin (an aggregate increase in total debt in the debt money parallel) ; while the people at the bottom parts of the pyramid (late adopters, or those with low credit scores paying the highest rates of interest in the debt currency parallel), who cannot find anyone new to refer(cannot find an investment for borrowed funds with a rate of return higher than they borrowed it at in the debt money parallel), are left with no return on their investment compared to the earlier bitcoin adopters (or those who got to borrow debt money at 0% in the debt currency parallel).

BitCoin has no person several individuals "at the top" who collects money paid for bitcoinssell the vast majority of all newly mined bitcoins on the open market (hopefully at a profit like the profits the central bankers lock in immediately by charging you a higher interest rate than the low one they borrowed it for).  These, bitcoins are bought and sold on public exchanges amongst members of the general public.

BitCoin works just like cash(which is debt based currency).  

Sorry if I paraphrased a bit, but the "parallel concept in reference to a phenomenon" is not a simple method of explanation.  But in this case, since increasing demand for most things affects its price upwards, then there are always those who are able to capitalize first when the price is low.  In our cases, the capitalists are early bitcoin adopters getting cheap BTC and central bankers getting debt currency loans at 0%.

Commodity distribution often comes with varying pricing patterns often associated with ponzi dynamics especially in the growth phase its life cycle.  This is why bitcoin has been loosely referred to as a ponzi, and why people say "you can't taper a ponzi scheme"(why the central bank can't raise interest rates without triggering thousands of bankruptcies), etc..
 
ELI5 - Nowadays, the term: "Ponzi" is used loosely, almost as slang to describe certain extreme supply/demand/pricing conditions (where the growth phase is viewed more romantically than any decline phase) that we associate with simple chain letters, pyramid schemes, and how Bernie made off with your money.  All systems are dynamic, and endless growth is impossible, which is why a system that cannot withstand a contraction phase is simply referred to as a ponzi nowadays.  Bitcoin is surviving its de-growth phase, therefore, it is not a ponzi. It will be interesting to see if our debt currency system can survive a de-growth phase (rising central bank interest rates) without the world running to bitcoin, because gold is cumbersome. Thanks for bearing with my lack of grammatical perfection.

Interesting paraphrasing here, I largely agree with what you're saying..

I started separate reply going into what people define ponzi to be because that itself is part of the answer to the thread.

I found that as you said, markets are dynamic and the ponzi scheme in its traditional form is not very dynamic at all. It is almost the simplest form possible.

But lets not forget that what happened to Madoff is what's happening to alot of countries.

Debt being repaid by refinancing and issuing new debt is essentially what even the United States are doing by raising their debt ceiling.

[KyleSpades]

Guys, just an idea - there has been a lot of talk about the halving coming in July. You could include a bit of info and nerve calmer into the main post to better instruct newcomers. What do you say?

[benjidaimio]

Hi! I'm a newbie. I'm not sure this thread is a right place to ask, but could somebody please provide me with a link to a good long-range bitcoin price forecast? I saw a lot of them on the web, but numbers are always so different. I'd like to see something more or less veracious. Thanks!

[bones261]

Hi! I'm a newbie. I'm not sure this thread is a right place to ask, but could somebody please provide me with a link to a good long-range bitcoin price forecast? I saw a lot of them on the web, but numbers are always so different. I'd like to see something more or less veracious. Thanks!

The Bitcoin market is volatile still. There is really no way to accurately predict  long term where the price will be. The OP stated it best.

In addition, bitcoins are a very new and unproven type of money.  Because their value depends on how widely they are accepted, they are susceptible to the same types of economic bubbles as any other commodity that is surging in popularity. The Bitcoin software is still in beta, and bitcoins should be considered "high-risk" from a financial perspective.  You should not invest money into bitcoins or BitCoin-related technologies unless you can afford to lose it!  Even firm believers in BitCoin tend to think it will take a while for the value of bitcoins to stabilise, and no one knows at what value that stabilisation might occur.  Trade and transact safely!

[OneUnderBridge]

First, I am really new here but I signed up a long time ago and gave up. I came back at the urging of my partner because we argue when we talk about bitcoin. Is there an introduction thread here where I introduce myself like on other forums?

My question is that maybe bitcoin does not meet the requirements of a Ponzi or a Pyramid but might it meet the definition of some other scheme that could be considered illegal? Could I get into trouble for playing with bitcoin? I am in the USA.

[cakravothy]

bitcoin not bussnies not return not ponzy
bitcoin only digital curency same with paypal perfectmoney solidtruspay and more

[bones261]

First, I am really new here but I signed up a long time ago and gave up. I came back at the urging of my partner because we argue when we talk about bitcoin. Is there an introduction thread here where I introduce myself like on other forums?

My question is that maybe bitcoin does not meet the requirements of a Ponzi or a Pyramid but might it meet the definition of some other scheme that could be considered illegal? Could I get into trouble for playing with bitcoin? I am in the USA.

Bitcoin is legal in the USA. However, the community is fraught with a bunch of schemers and scammers. If you decide to get involved with Bitcoin and other altcoins, just know there is a lot of underhanded and downright criminal stuff going on.  The same can be said when you take the internet as a whole into consideration...

[avikz]

Bitcoin is not a ponzi neither a pyramid scheme. It is a currency and should be used as a currency only. Even through some people like me, likes to think bitcoin as an investment, but it is actually not.

But investing in bitcoin can fetch you a very high return, which any traditional investment can't fetch. So use it as a currency or as an investment, profit will always be yours. Only thing is that, you need to know how to safeguard your bitcoin from the hackers.

[TraderETH]

In my opinion bitcoin is not ponzi or pyramid scheme and if bitcoin is it, bitcoin will not survive until right now because there are not system ponzi or pyramid scheme that can be survive until more than two years.

[Jltan]

bitcoin not bussnies not return not ponzy
bitcoin only digital curency same with paypal perfectmoney solidtruspay and more

Quite agree with you. There was once a skeptical programmer who went into a frenzy buying butcoin once he downloaded and analyzed the open source. He further predicted bitcoin will rise to 50,000 usd in 50 years.
*bitcoin was a mere $30 at that point of time. LOL.

[renbucs]

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money, or the money paid by subsequent investors, instead of from profit earned by the individuals running the business. Ponzi schemes are designed to collapse at the expense of the last investors when there is not enough new participants.
Bitcoin is a free software project with no central authority. Consequently, no one is in a position to make fraudulent representations about investment returns. Like other major currencies such as gold, United States dollar, euro, yen, etc. there is no guaranteed purchasing power and the exchange rate floats freely. This leads to volatility where owners of bitcoins can unpredictably make or lose money. Beyond speculation, Bitcoin is also a payment system with useful and competitive attributes that are being used by thousands of users and businesses.

[AGD]

OP, is there a reason, why you are writing Bitcoin 'BitCoin'?

[krishnaverma]

Q:  Is BitCoin a Ponzi or pyramid scheme?

A:  No.  Like any other currency, BitCoin is designed to be used as money, not as an investment.

A Ponzi scheme is a type of confidence scam where people who think they are earning unusually high returns on an investment are actually being paid from their own money and that of later investors.   If investors try and withdraw their original investment from the Ponzi operator, the scheme collapses because no actual profits exist and there is not enough money to return the deposited amounts.  Alternatively the Ponzi operator may simply leave and take the investors' money with them.

Similarly, a pyramid scheme is a type of confidence scam where people who "enroll" by paying a certain amount of money are made to believe they can make a large return on their investment by recruiting other people and receiving some portion of their enrollment fee.  The scheme collapses because it requires exponential growth, so it quickly runs out of new people to enroll.  The person starting the pyramid scam, who didn't have to pay an enrollment fee, makes money off of all their referrals; while the people at the bottom parts of the pyramid, who cannot find anyone new to refer, are left with no return.

You explained everything in detail and I think this post will clear the doubts of a lot of people. I will share this on my Facebook wall so that my friends who had been doubting on bitcoins can get better idea of bitcoins. We should encourage these type of posts on bitcointalk forum as the forum gets visitors from Google search as well.