Is Bitcoin a Ponzi scheme (scam) ?

The 45th President of the United States, Donald Trump, said in a live telephone interview with FOX TV that Bitcoin is a scam (scam). The former President Trump did not specifically say what kind of scam. However, there is a very common saying that has been heard many years ago that Bitcoin is a "Ponzi scheme" (Ponzi scheme). So, is Bitcoin really a Ponzi scheme? 

We need to find out what is a Ponzi scheme first.

What is ponzi scheme ?

The so-called Ponzi scheme, as the name suggests, is a fraudulent technique invented by a person with the surname "Pang". In fact, the man named "Pang" is a foreigner. Specifically, he is an Italian. More precisely, it is an American who was born in Italy and later immigrated to the United States. His full name is Charles Ponzi. This Pounds was born in 1882 and died in 1949. Pounds immigrated to the United States in 1903, pursuing his American dream, the dream of getting rich, and the dream of getting rich. He got stuck all the way until he was 37 years old, and he realized that he still made money quickly through finance. So in 1919, he invented the financial technique later known as the "Ponzi scheme". Through the business of so-called stamp card arbitrage, he promised a quarterly yield of 40% and attracted 30,000 investors in seven months. Invested 15 million U.S. dollars. Early investors have received generous returns. For a while, Ponzi was called by the Americans as the three great Italians with Columbus (the discoverer of the American continent) and Marconi (the inventor of radio).

After 2000, Bernard Madoff (1938-2021), the former chairman of the Nasdaq Stock Exchange, succeeded in the form of a fund with promised fixed income (annualized 8-12%) for up to eight years. Defrauded the top wealthy class of more than 60 billion US dollars. Madoff's method is also a Ponzi scheme, but unlike Ponzi, Madoff does not deceive the poor's money, but rather deceives the rich's money. It can be said that the blue is better than the blue. Time flies again in 2018. There is a digital currency wallet called Plustoken, which claims to use the so-called smart dog to quantify the arbitrage of bricks, promise investors high returns, and attract investors to invest in cryptocurrencies such as Bitcoin and Ethereum. The amount of fraud is as high as tens of billions. Although the trading medium has been upgraded from the US dollar to Bitcoin and Ethereum, and the fictitious investment story has been upgraded from stamp card arbitrage to smart dog moving bricks, the Ponzi scheme has not changed.

So what exactly is a Ponzi scheme? If we go through some vague information, we will see some plausible summaries, such as high return on investment, dismantling the eastern wall to supplement the western wall, opaque investment situation, counter-cyclical stable returns, investors forming a pyramid structure, and so on. But these summaries do not help you identify whether a technique is Ponzi. High investment returns are indeed real in certain specific targets and certain periods, such as angel investments in innovative companies. The funding method of demolishing the east wall to supplement the west wall is often not seen by ordinary people, and you cannot make judgments based on this. The problem of opaque investment situation is very common, and the information gap exists. Otherwise, why would investors have to hand over their funds to professional investors to take care of it? It is precisely because of information asymmetry and professional knowledge asymmetry that professional investors can easily fabricate words to trick investors into believing that investment is real, effective, and reliable. Counter-cyclical stable income is more professional. Bank deposits, currency funds, and some financial management are also not affected by the cycle, and ordinary investors cannot tell. As for the pyramid structure, it is just a method for the development and promotion of Ponzi schemes, just as advertising is not the business itself, but can only be an aid to the business. Pyramid promotion is not the core of the Ponzi scheme, but only its marketing method.

The core element of a Ponzi scheme should be to have a capital pool. The replenishment of this capital pool is mainly or entirely based on the investment principal of new investors, and the rate of loss of this capital pool increases with the expansion of the number of investors. Because it promises that every investor can enjoy a rigid, never-loss, compound interest rate of return. This promised rate of return can be high or low. The focus is on credibility. It sounds self-evident. For example, Madoff's promised annualized rate of return is reasonable. This is why he can win the trust of so many smart and rich people. As for whether product promotion is advertising or pyramid marketing, that is not the key element of a Ponzi scheme. When the rate of loss of the fund pool is greater than the rate of replenishment, the fund pool will face the danger of collapse. When the funds were exhausted, the fund pool could not keep its promise to honor investors, and it collapsed.

Many actual business activities also have the shadow of this Ponzi scheme, such as financial-driven business forms such as P2P, shared bicycles or long-term rental apartments. If you can find new cash flow supplements before the crash, or a new round of investment , Or bank loans, or more new customers, then you can temporarily renew your life. But sometimes the funds found may be a bigger thunder, that is, drinking poison to quench thirst.

Having said that, let's look back at Bitcoin. Is Bitcoin a Ponzi scheme? Obviously not. First, Bitcoin does not have a pool of funds. On the contrary, Bitcoin wiped out the pool of funds. The most important invention of Bitcoin is the point-to-point value transfer. It does not need to pass through any trusted intermediary, so there is naturally no intermediate capital pool for transfer, which completely eliminates the middle party playing Ponzi schemes through the capital pool. Possibility. Second, Bitcoin has never promised investment income. In fact, not only does Bitcoin have no promise of any rate of return, but Bitcoin has no rate of return at all. It is only because you use US dollars to benchmark Bitcoin off-chain that you have a subjective concept of the so-called rate of return. On the Bitcoin chain, there are only Bitcoins, and a Bitcoin is a Bitcoin. It will neither increase nor decrease. As for the dollar price of Bitcoin, it is a matter of U.S. dollars, not Bitcoin. If you buy Bitcoin with US dollars, it is also at your own risk and at your own risk, and you are fully responsible for yourself.

The above two points are enough to judge that Bitcoin is not a Ponzi scheme. Ponzi's most important capital pool element and the method of demolishing the east wall to supplement the west wall do not exist in Bitcoin. Moreover, all transfer records of Bitcoin are open, transparent and verifiable on the blockchain. From the source code to the ledger, they are all public, at a glance, and there is no secret. Bitcoin itself is not actually a Ponzi scheme on the same level. Bitcoin is at the same level as the US dollar. Ponzi schemes can be carried out using U.S. dollars or Bitcoin, but this does not mean that U.S. dollars or Bitcoin are Ponzi schemes themselves. Just like a person using a fruit knife to commit an attack, it cannot be said that the fruit knife is the perpetrator. He didn't use a fruit knife to attack, he could also use a hammer, or use a gun.

The former President Trump said that Bitcoin is another currency competing with US dollar.