A Ponzi scheme, or "ponzi" for short, is a type of investment fraud with these five features: People invest into it because they expect good profits, and that expectation is sustained by such profits being paid to those who choose to cash out.
However, there is no external source of revenue for those payoffs. Instead, the payoffs come entirely from new investment money, while the operators take away a large portion of this money. Investing in bitcoin or any crypto with similar protocol checks all these items.
The investors are all those who have bought or will buy bitcoins; they invest by buying bitcoins, and cash out by selling them. The operators are the miners, who take money out of the scheme when they sell their mined coins to the investors. Features 3, 4, and 5 imply that investing in bitcoin, like "investing" in lottery tickets, is a very negative-sum game. Namely, at any time, the total amount that all investors have taken out is considerably less than what they have put into the scheme; the difference being the amount that the operators have taken cele mai bune site-uri de tranzacționare bitcoin. Thus the investors, as a whole, are always br investind bitcoin dolar the red, and their br investind bitcoin dolar loss only increases with time.
The expected profit from investing in such a scheme is negative. While some investors who cash out may make a profit, that comes at the expense of other investors, who will lose more than their "fair" share of the general loss above. Features 1 and 2 make the scheme a fraud, rather than simply a bad investment or bad "musical chairs" gambling game. As a minimum, the operators should warn investors of the negative-sum character and negative expected profit.
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Apart from the mendacity of those claims, those promoters never point out that such massive uses would not translate into revenue for the investors. The observation that investing in cryptocurrencies is a ponzi scheme is not new or a cheap shot.
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Common Objections That is not the legal definition of ponzi in country X. But if one wants to know whether bitcoin is a good investment, or just an old type of investment fraud with a new coat of paint, the legal definition is irrelevant. One must use a quacks-like-a-duck definition, that describes the mechanism through which fools and money are separated and the reasons why it is a fraud.
That is not the definition of ponzi from source X. Indeed there are many variants of the definition, and they may include other spurious requirements see below. But those requirements were incidental features of almost all ponzis before bitcoin, not essential features.
Bitcoin is a Ponzi
They are not the reason why investing in a ponzi is a very bad idea, nor the reason why ponzis are frauds rather than just bad investments. A definition of "TV" a few decades ago could be "a device that converts electrical signals into an image on a cathode ray tube CRT screen.
It is not a ponzi because it does not guarantee a profit.
A ponzi does not need to do that. Madoff's ponzi did not. A ponzi br investind bitcoin dolar needs to create the expectation of profit in enough people, which it usually does by actually paying such profits to the few who choose to cash out. Its investors will then be its main promoters.
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Ponzis that guarantee a profit will br investind bitcoin dolar only the most ignorant victims, because most people know that such guarantees are impossible in the world of finance; and they will be short-lived, because the cops will come knocking as soon as they see that promise.
A ponzi scheme must be a company. That is not necessary; there have been many ponzi schemes [ NYT1 ] [ UGA1 ] in which the victims "invested" by simply giving money to the operator s. And also many schemes in which the company br investind bitcoin dolar non-existent, such as the Bitcoin Savings and Trust that Tendon Shavers " pirateat40" pretended to have created.
It must have a single operator. Like other spurious requirements, this has been generally true of previous ponzis, but it is not relevant for the mechanism, and is not what makes a ponzi a bad investment.
The operator must lie to investors about the source of profits. Again, while this feature has been present in most previous ponzi schemes, it is neither a necessary nor sufficient requirement for a scheme to have the effect of a ponzi although, depending on the jurisdiction, it may be necessary for the operators to be prosecuted.
Unlike those classical examples, items of the definition and the negative-sum character of crypto investment are obvious to anyone who cares to analyze its money flow. However, the victims of the scheme are unaware of those features because they are obfuscated by a highly complex mechanism and economic arguments that they are not able to understand. While, on the other hand, crypto promoters from Andreessen to Zhao actively spread many lies br investind bitcoin dolar misleading claims about the scheme, through malice or Cum br investind bitcoin dolar fac banii tranzacționând bitcoini pe localbitcoin. Those predictions have no rational basis whatsoever, and, while qualified with "perhapses" an "maybes" and "not investment advice" disclaimers, they are obviously intended to promote investment in the coins.
Ripple Inc. Ethereum promoters claimed that its "smart contracts" will remove the need for lawyers and courts in business br investind bitcoin dolar. Bitcoin BTC promoters falsely claim that the Lightning Network will "soon" turn their crippled payment system into a "Visa killer". And so on. When one tries to debunk any of these claims, the promoters simply switch to another one.
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Even if these rosy claims were to materialize, none of them would result in a source of revenue for people holding bitcoins. The value of those payment services would go partly to the users who use coins for payments, and partly to the miners in the form of transaction fees. But most crypto investors do not understand this point. They, almost "by definition", do not understand what a good investment is -- e. And bitcoin promoters make no attempt to educate them on those points -- quite the opposite.
By that definition, stocks too are ponzis. Stocks have an external source of revenue, namely the br investind bitcoin dolar that the company makes by selling its products and services to customers not investors ; and these profits eventually return to the investors through dividends or cash br investind bitcoin dolar.
In time, those profits are expected to exceed the amount invested, with a significant profit for all investors -- that is, they are expected to be positive-sum games. The market value of stocks reflects these expectations among investors. While some companies fail to achieve this goal, enough of them succeed to make stocks the favorite option of savvy investors.
Companies often fail to distribute profits to investors for several years -- while they are starting up, or because of mistakes or unexpected external events.
The market value of their stock will then depend on the expectations by investors of the company's ability to become profitable again, and of its subsequent profits. A company may also choose, with br investind bitcoin dolar approval of its stockholders, to reinvest its profit into growth. This is good for the investors because each becomes the owner of the same fraction of a bigger pie -- including hopefully bigger profits in the following years.
And this growth generally makes the stock br investind bitcoin dolar valuable. By that definition, real estate too is a ponzi. Like stocks, real estate creates value while it is being owned, namely the sheltering service it provides to those who live in it. That value returns to the investor owner either by him living in the property, or by renting it to others.
Br investind bitcoin dolar that definition, gold too is a ponzi. No, gold clearly fails to satisfy that definition on two counts. First, few if any gold investors have expectations of profits.
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They generally invest in gold as a hedge -- a "store of value" -- that they hope will retain its value in case other assets go sour. When one buys 1 oz of gold, one gets a chip of a br investind bitcoin dolar that one can sell to those consumers, and thus obtain some money that does not come from other investors. Nevertheless, investing in gold at the current price seems unwise, since its price is many times its "natural" price as commodity and so it is more likely to go down than up.
Thus it is questionable, to say the least whether it is a good "store of value". But this problem is not enough to make it a ponzi.
By that definition the USD is a ponzi. No, national currencies too fail to fit the definition, because people do not "invest" in them with the expectation of gain. In fact, governments make their currencies slightly inflationary precisely to discourage hoarding.
It is not a ponzi because bitcoins can be earned and spent, not just bought and sold.
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That makes no difference for the purpose of this discussion. It is not a ponzi because bitcoins have intrinsic value.
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According to this claim, bitcoins are scarce artifacts whose unique properties, like gold's, make them exceptionally good instruments for certain uses, such as payments or store of value.
This objection usually derives from the misconception that a bitcoin is a definite pattern of bits that required a huge amount of energy to produce, and that only a fixed number of them -- 21 million -- can ever be created.
And that these properties make bitcoins or cryptocoin X more valuable than any other cryptocoin, including any fork from it.
But neither of these claims is true. A bitcoin is not a definite pattern of bits; it cannot be printed, played on speakers, or shown on a screen. There is only a br investind bitcoin dolar with entries that assert "there are N bitcoins assigned to address Z" -- and it does not even say which bitcoins.
The miners' massive hashing work does not go into creating the bitcoins, but into stamping the ledger to allegedly secure the record of past transactions. Once a bitcoin is moved, all that work becomes largely irrelevant; the security of that bitcoin -- more precisely, of that transaction -- will br investind bitcoin dolar on the work done by miners after it was accepted.
What is a Ponzi?
Thus a bitcoin is not a definite artifact that somehow "contains" a huge amount of hashing work. That work is not attached to the bitcoins. So much so that each of the million bitcoins that Satoshi created on his laptop is equivalent to, and has the same market price as, the bitcoins created yesterday, each of which supposedly required 13''''''' hash calculations to create.
Back in or so, when the US gov started auctioning the Silk Road bitcoins, some believers thought that those coins would fetch a higher price than "ordinary" ones -- because they would have been blessed as "legal" by the US government, and because of the "historical" value of having been owned by the greatest hero of Crypto Space.
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But that did not happen, precisely because bitcoins lack even the abstract "existence" of a tweet. Contrast that with the properties that make gold a unique metal with high and lasting demand for jewelry and other uses: those properties are physically attached to each bit of the metal, and thus are truly "intrinsic".
In fact, while bitcoins are created in a br investind bitcoin dolar amount only when the miners have expended a large amount of work, the creation of those bitcoins costs nothing. The reward per block is defined by two lines of code in a program. By changing those lines, the reward could be sixty or six million bitcoins per block, with no extra work being required from the miners.
Contrast that with the cost of producing gold, that is defined by geology and not by some line in a program. It is claimed that the code lines that define the block reward cannot be changed because that would be "against the miners' self interest", or would be "rejected by the community".
But neither of these arguments stands up to a critical analysis, that considers the actual reaction of that community to more radical changes that have been imposed on the protocol -- such as BTC's intentional congestion, and Ethereum's breaking of the sacred "code is law" principle.
It follows that bitcoins have no more intrinsic value than coins of any other cryptocurrency, or than the shares of Madoff's ponzi fund. These too were only an entry in a ledger, and where worthless by themselves. Unlike stocks or dollars in Bitcoin trader ufx checking account, none of those br investind bitcoin dolar entries gave their holders legal property rights on anything else; their value being only the right, conceded by the operators, to play the game -- that particular game -- while it lasted.
It is not a ponzi because it has recovered after each crash. Once more, that feature of past ponzis -- their ending with an abrupt, total, and permanent crash -- was a consequence of their particular features, not of the properties that made them fraudulent investments. Schemes that depended on a blatant lie, like Ponzi's or Madoff's, would crash abruptly when that lie was exposed; which usually happened when an excess of withdrawals over new investments made it impossible to honor the former.
Once the truth got revealed, and confirmed by arrest of the operators, there was no further investment, and all investors demanded their money back.
However, as explained above, crypto ponzis sustain their expectation of profitability by technical and economic obfuscation, and claims about an indefinite future, rather than by a single and simple lie that implies constant income.
And this money will be enough to keep the blockchain alive, even if with a lower hashrate. That is why even the most obviously broken cryptocurrencies can survive multiple crashes and years of dropping prices, and only die if and when the price finally reaches zero.