Why Bitcoin is not a pyramid scheme (or ponzi scheme)

Since more big news agencies have been talking about Bitcoin in the past two months, a large group newcomers to Bitcoin have created the misconception that Bitcoin as a system is equivalent to a pyramid scheme.

Apart from the fact that Bitcoins are created by making computers perform hugely sophisticated calculations, which cost real power and material. Every Bitcoin is unique. This means that when a transaction transpires, no Bitcoin has been created. In a pyramid scheme, on the other hand, a buyer receives the same ‘product’ as his seller has once bought, without the seller giving something up. Also, in a pyramid scheme, buyers have to perform action once they’ve bought in, in order to get their money back or make a profit. In the Bitcoin system, one buys a Bitcoin and waits until he wants to buy something with it.

Another big and well thought-out aspect of Bitcoin, is the limit. Twenty-one-million Bitcoins can be mined, not more. As soon a system shows this kind of limitation: It can not be a pyramid scheme.

Pyramid schemes inevitably fail, because they are schemes. Bitcoin’s peer-t0-peer nature makes it so that it can not seize to exist. Bitcoins will always be there, and as soon as people stop buying them, they become so cheap that everybody will buy them again. This kind of fall back insurance is never inherent in a pyramid scheme.

Facebook

Recently, everybody that looked at a Facebook page for Bitcoin, saw a link under ‘related pages’ called ‘ponzi scheme’. This is not Mark’s way of telling us to be careful with Bitcoin, it’s the consequense of people talking about Bitcoin being a Ponzi scheme, bots combining the keywords, people talking about that, and bots again combining the keywords resulting in automatic linking between the subjects. There is no similarity between Bitcoin and pyramid schemes, the keywords are just often used on the same webpage.

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6 comments on “Why Bitcoin is not a pyramid scheme (or ponzi scheme)
  1. Dubious says:

    you cant say that nothing is created and that there’s a limit. How is there a limit on nothing?

    • That proves my point, because I do not say that Bitcoin is not created. Bitcoins are created by mining, which cost real material and power, and they can only be created up to a certain point, when 21 million have been created to be exact.

  2. Pat Pending says:

    The fact there is a fixed amount is nonsense, as they are divisible to umpteen decimal points, so the supply is endless, rather than fixed.

    Ponzi scheme because new “buyers” pay off existing holders with real money. They are convertable back to cash, like any good ponzi scheme.

    At some point when everyone decides to sell at the same time, they will be valueless and the new buyers will loose.

    • There is a limit to the amount of decimal points, however, this doesn’t matter in order to disprove your point. Buyers may pay for Bitcoin, but miners don’t pay existing holders, this is where you don’t get it. You cannot get into a pyramid scheme without paying existing holders, where in Bitcoin you can.
      The claim that when everybody decides to sell at the same time Bitcoin will be valueless is true, just like with everything else in the whole world, so this is a meaningless point. As long as people accept Bitcoin for goods or services, there is value in Bitcoin.

  3. definite ponzi scheme or an invert-able pyramid that topples over at some point after so many inversions, think of an hour glass that can be turned over to keep the sand running, the key point in a pyramid is when too many want out,this scheme says everyone cant get out as the value drop disincentives this but the players have been milking from day one and when the vault is opened at the end of the day its been emptied linden dollars anyone?

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