Is Bitcoin a Ponzi scheme?

This is a question that we get a lot. People who have just heard of bitcoin look at the crazy returns it given on investments. Naturally this makes them afraid that it is a Ponzi scheme and they will end up losing all of their money. The short answer to this question is that no, bitcoin is not a Ponzi scheme at all. Once you understand how bitcoin works you’ll understand why it is nothing like a Ponzi scheme.
First a little primer on what a Ponzi scheme is. A Ponzi scheme is also known as a pyramid scam. In a Ponzi scheme people are given a fantastic investment opportunity to invest money and get a lot of profit. The problem is that in a Ponzi scheme there is no real business or investment. Instead it is just a huge scam. It is called a pyramid scam because that is how it grows.
One person tells three people that their money will be doubled if they invest in the scheme. Once more people hear about the opportunity they invest too. The new investment is used to pay back the first ones to pay in to the scheme. Then the people who come in even later pay and their payment is used to pay the ones that came before them.
This way everyone who invests is basically paying for the people who came before them. The person running the Ponzi scheme keeps this running as long as the number of people investing keeps increasing. Once there are enough people the person disappears with all the money, leaving the investors with nothing.
Why Bitcoin isn’t a Ponzi scheme
There are many reasons that bitcoin isn’t a Ponzi scheme, the main one being that it isn’t a pyramid scheme at all. If you buy a bitcoin, you own that bitcoin. Your profits aren’t dependent on anyone else buying bitcoin. You own the bitcoin that you have, and even if the person you bought the bitcoin from runs away it will not affect you. There is no scheme as such. Yes, the people who bought bitcoin first end up getting richer, but that is just because they bought bitcoin when it used to cost a few dollars. Now the bitcoin they bought for a few dollars is worth thousands.
This doesn’t make bitcoin a Ponzi scheme – it makes bitcoin a valuable asset. Think of it like real estate. If you bought real estate in an area before it was inhabited you get it for very cheap. As people start moving in and the area becomes popular the property prices skyrocket and the initial investors become rich. That is what has happened with Bitcoin as well. The people who invested early were smart and it was cheap for them to invest because prices were so low. As more people became interested prices rose and the people who invested early earned handsomely.

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