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Bitcoin: the Opposite of a Ponzi Scheme


Bitcoin is one of the most transparent financial systems ever devised. Every transaction is recorded in the public blockchain, the common digital ledger that's shared over the Internet. Anyone can look up any transaction on the blockchain, even months or years after they took place.

Also, in a Ponzi scheme, investors are promised regularly paid high returns. There are no such guarantees with Bitcoin. Anyone who buys Bitcoin takes a risk as they would with any other investment, be it stocks, bonds, or commodities.

And if you buy Bitcoin, your money is not used to pay off existing Bitcoin owners. You can buy Bitcoin and spend it, hold it, or sell it any time. There's no backroom pipeline connecting investors' accounts as there is in a Ponzi scheme.

Finally, Ponzi schemes that collapse do not resurrect themselves. Once it's over, it's over. That's what happened in the Madoff case.

Back in 2014, Bitcoin's critics viewed the failure of Mt. Gox and the steep drop in the price of Bitcoin as the demise of a Ponzi scheme. If that were true, Bitcoin would have ceased to exist in 2014.

But nearly 18 months later, Bitcoin is still here and gaining traction every day. After hitting a low of $177.28 in January, the Bitcoin price is up 62% to about $287. That's not how Ponzi schemes work.

Meanwhile, venture capitalists have invested $397 million in Bitcoin-based startups so far in 2015, already exceeding 2014's full-year total of $361.5 million. Again, spent Ponzi schemes don't attract accelerating interest from sophisticated investors like venture capitalists.

But don't expect critics to stop calling Bitcoin a Ponzi scheme.
Henry Banayat

Henry Banayat

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