Is Bitcoin a Ponzi Scheme?

Bitcoin is a fascinating technology as it has the power to change your perspective on how our society works. Bitcoin lets you question things you would otherwise take for granted. Things such as:

  • Why can’t we send money globally just as easy as sending an email or text message.

  • Why is 1/3rd of the world population still excluded from financial services

  • Why are governments simply allowed to print more money, causing inflation on the money we worked so hard for to gather?

Today we consider it normal that governmental decisions aren’t based on the churches wishes. But 200 years ago, this was the norm. The separation of church and state was an important step towards a more democratic society. We could argue that maybe in a few years (or decades), we will say the same about separation between money and state.

At Start2Bitcoin, it is our mission to find ways to educate and onboard people to Bitcoin. Not to convince you, but to give you the necessary background and information to form your own opinion.

In this blog category of debunking newspaper headlines we will discuss classic headlines that you will often come across when reading the news. One vary often headline that journalists or critics often use is comparing Bitcoin to a Ponzi or Pyramid Scheme.

Before we kick off, let us first define what a Ponzi Scheme is:

“A form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.”

The main difference between Ponzi (or Pyramid) schemes and Bitcoin is that nobody will promise you any returns. If some entity does it should start ringing some bells (lending schemes, cloud mining, trading bots, etc). Changes are big they are probably after your money and you should be very careful before investing. The fact is that Bitcoin doesn't promise you anything, as you are in full control of your money. Even worse, as Bitcoin could be sometimes very volatile, as a user you have to be aware of this. This volatility Bitcoin is a natural effect by the laws of which it is governed, namely the laws of supply and demand just like any other commodity.

Something that almost always stands out with Ponzi or Pyramid schemes is that they focus a lot of attention to finding new members instead of their core business. You will often come across buzzwords such as passive income and a detailed plan of how much you could earn after a certain period of time. After paying a certain subscription fee to enter, most changes are that they will work with a reinvestment plan. Meaning that for every dollar you earn or invest, you will have to reinvest 30% back into the company while only 70% you can withdrawal. This, of course, can vary depending on the company. As in some cases these companies don't have real activities they guarantee enough liquidity in the company to pay off the older members. This will continue for some time as long as sufficient new members keep joining the program. Therefore most of the current members will embassy this program as they are getting returns.

The purpose of Bitcoin isn’t to recruit new participants, but instead to bring financial inclusion to everyone on this planet. On top of that, it gives users full control over their money. When you hold your Private keys (often represented as 12 or 24 words that you will have to write down, aka seed) nobody has access to these Bitcoins other than you.

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