Let’s look at what a Ponzi scheme is: According to the SEC, a Ponzi Scheme is:
an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business.
In order for something to be a Ponzi scheme, we need three things:
- An investment in a business that offers no real product or service
- A founding organization that stands to gain from the investment
- A promise by the organizers of high returns.
Firstly, Bitcoin is not a business. Although often misquoted as such by the media, there is no president of bitcoin, not owner, no directors, and no employees. Bitcoin is a technology and a protocol, like the Internet itself. Since 2010, Bitcoin’s creator Satoshi Nakamoto has been effectively missing and maintenance and improvement of the bitcoin software and protocol has been done by the Bitcoin Core developers. However, this group does not control bitcoin, ultimately any changes made must be accepted by enough miners in order to reach consensus (51% of miners, or more depending on the change), and anyone else could take over development of the bitcoin protocol at any time if able to release a version of the software that ends up being installed by 51% or more of miners.
Secondly, Bitcoin technology includes several inventions and technologies that are being used outside of the Bitcoin world. Bitcoin’s main “product” is the blockchain, which solves the real world problem of distributed consensus in an untrusted system. This system can not only be used for the bitcoin “ledger” to determine who controls which coins, but can be generalized to designate control over any other kind of asset. Many stock exchanges, including the NYSE and Nasdaq are looking into using blockchain technology to track ownership over traditional systems.
Bitcoin’s other technological advancements include: near-real time financial transactions, a one-way transaction system which does not require trust from either party once confirmed, a solution to the double-spend problem, proof-of-work, and the most secure financial system the world has ever seen. Bitcoin itself, has NEVER been hacked. People have lost money through improperly securing their money, trusting their money to third parties who neither had insurance nor secured the money properly, or through social engineering attacks, but none of these exploits occurred within the bitcoin system.
Bitcoin’s founder and early adopters certainly do stand to gain from bitcoin’s success, however to date Satoshi hasn’t spent more than a tiny fraction of his Bitcoin, and could have taken many obvious steps to ensure a profit that he didn’t take. He could have taken a portion of all fees. He could have significantly premined the coins (a technique frequently used in scam coins, in which the creator mines a significant portion of the coins before public release) but released bitcoin very early, after which anyone else could take part in mining. And after 7.5 years still hasn’t made any real effort to take a profit from bitcoin. If this is a Ponzi scheme perpetrated by Satoshi, he’s REALLY bad at it. Other Ponzi scams didn’t involve real inventions.
Ultimately, yes, any holder of bitcoin stands to gain from attracting new people to bitcoin as an investment, currency, or payment method. Owners of any other scarce resource want the same thing, whether it’s gold, silver, GOOG or classic cars. Some of these things have intrinsic value, but in the case of dollars, it’s backed by nothing, and valued at only what someone else will accept for it. Gold has intrinsic uses but it’s value is inflated by people using it as a store of value, and some stocks like GOOG don’t pay dividends yet still have value. Bitcoin however, does have intrinsic value in its invention of and as the primary application of the blockchain.
Satoshi didn’t promote bitcoin as a get rich scheme. His white paper mainly talks about the technology itself, how it works, and it’s intrinsic benefits, but doesn’t mention getting rich. He disappeared three years before bitcoins highest value was reached to date. Bitcoin is still widely considered an “experiment” by some proponents.
No one yet knows what role Bitcoin will play in the future, but Bitcoin is not a Ponzi Scheme.« Back to home