Many newbies ask me all the time whether or not Bitcoin is just one big Ponzi scheme.
The short answer is No.
Bitcoin is the legit asset class with a bright future because it solves a major global economic problem that affects billions of people. I truly believe Bitcoin is a good investment and helps investors to safeguard their savings against inflation.
Let’s dive right in as to why Bitcoin is a legit investment and NOT a Ponzi scheme.
What is a Ponzi Scheme?
A Ponzi scheme is an investment scam that generates returns for earlier investors by taking new money from later investors.
The fraudster convinces initial investors to invest funds while also recruiting new investors in the process.
The con-artist begins repaying earlier investors using the funds of newer investors without showing any proof of investment activity or how investments returns were generated.
Bernie Madoff became infamous when he pulled off one of the biggest Ponzi schemes in history.
Why Bitcoin is NOT a Ponzi Scheme
Bitcoin is blockchain technology that revolutionized the 21st century finance. It’s not a Ponzi scheme because there are no investors or money being deposited from early backers. Ponzi schemes fail once new investors dry up and there is not enough money coming in to pay the earlier investors.
Bitcoin’s value comes from scarcity built into the code via the Bitcoin Halving cycle and a fixed amount of coins ever to be created: 21 million.
The only way to generate new Bitcoin is through mining and Satoshi Nakamoto made sure that no single person or entity could gain an unfair advantage within the Bitcoin protocol network.
Here are several more key reasons why Bitcoin is NOT a Ponzi scheme:
- Bitcoin doesn’t have a CEO
- Bitcoin doesn’t rely on interest payment or returns for early investors
- Bitcoin doesn’t promise positive or negative investment returns
- Bitcoin doesn’t have earnings
Ponzi schemes succeed due to human greed and lack of transparency as to how investment returns are being made. Bitcoin is an extremely transparent blockchain technology that follows open-source code and a fixed set of rules/regulations like clockwork.
What about Other Cryptocurrencies? Are They Safe Too?
Bitcoin is the first and oldest cryptocurrency that varies different from many of the newer altcoin copycats. Do your research on any crypto project because some newer coins behave like a Ponzi scheme and could wipe out your savings.
The Squid Game scam operates just like a Ponzi scheme because new investors kept driving up the price yet no one was able to sell their coins.