Is Bitcoin a Ponzi Scheme?

Ponzi Scheme

noun

a form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones.

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Is Bitcoin a ponzi scheme? With prices skyrocketing from $1,000 to almost $20,000 in a span of twelve months, and no assets backing the coin, it’s understandable why many seem to think it is.

In 2017 alone, Coinbase grew by over 8 million users, and if you asked those who joined why they did, it’s likely because they noticed that bitcoin was growing at a crazy fast rate, had heard reports that it could eventually get to $100,000, and wanted to get in on it while it’s still early. They seemingly entered the market in a panic, with the fear that everyone else would become millionaires the following week and they would miss out.

It’s absolutely true that when people buy bitcoin, the value of existing investors’ holdings rises.

Few bought in because of their excitement over the idea of a decentralized and pseudo-anonymous payment network. In fact, when they began transacting with it, whether they were sending it to a friend or transferring it from one exchange to another, they likely became frustrated with its slow transaction speed and high fees.

So if Bitcoin grows 20x in price as new investors flood the market, falls around 60% in the following three months, and is not even a convenient transactional tool, what gives it its value?

Its main point of value is that it’s the main currency of the crypto world -- people buy other alt coins and tokens with their bitcoin and ether. And when (or if) the lightning network is implemented, transactions will be cheaper and quicker. But with the extremely low supply contributing to the massive price rises, would people even want to spend their bitcoin? Or is it more likely that they’ll hoard it?

With all of this in mind -- low supply, high demand, difficulty to transact, and a lack of an asset backing it -- it’s certainly possible that bitcoin is nothing more than a ponzi scheme the whales are winning and the rest of us will lose. Either that, or it’s a store of value like gold -- and we just need to accept that it is the asset.

So is bitcoin a ponzi scheme? That’s for you to decide.