Five Reasons Why Bitcoin is Not a Ponzi Scheme

By June 4, 2021June 17th, 2021No Comments
Top Five reasons why bitcoin is not a ponzi scheme - WazirX

There have been many arguments about experts believing that Bitcoin is a Ponzi scheme or a pyramid scheme worldwide. When dispersed to the masses, this opinion may have influenced many minds to avoid the crypto sector entirely. This isn’t very pleasant since it holds people from discovering the possibilities and wonders of cryptocurrencies. 

Bitcoin has been a boon to the crypto sector and has brought success for many companies, investors, and artists in different ways. So to justify the notion of it being related to Ponzi schemes, especially when this one-sided argument is being expressed massively worldwide, it is important to also know what lets other people not believe that Bitcoin is a Ponzi scheme.

With so many achievements in Bitcoin already happening, listening to the discussions about Bitcoin being compared to Ponzi schemes may have made many feel they are not being shown all the sides of the argument. If you are one of those people, don’t worry; in this article, we will share with you five reasons why it is wrong to say that Bitcoin is a Ponzi scheme.

First, let us know what Ponzi schemes are. Ponzi schemes are a type of investment fraud in which existing investors are compensated with funds raised from new investors. Fraudsters who plan Ponzi schemes frequently offer to invest your funds and earn high returns with little or no risk. The fraudsters in many Ponzi schemes don’t invest that money. Instead, they utilize it to compensate previous investors, possibly keeping part of the money for themselves.

Now, we will be addressing the points made by those who believe Bitcoin is a Ponzi scheme by also sharing reasons behind those points not making sense. Let’s get into it!

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  1. Bitcoin never promised any investment return

For the first decade of Bitcoin’s introduction, Bitcoin was recognized as a high-volatility specu­la­tion. Bitcoin did not have any quotable price for the initial year and a half, and then it had an extremely volatile price.

Satoshi’s digital writings are still available, and he rarely mentioned financial gain. He primarily wrote about technical issues, such as freedom, current banking industry challenges, and so on. A Ponzi scheme’s promise of abnormally high or consistent investment returns is a classic red flag, yet Satoshi’s original Bitcoin had no such promise. Bitcoin investors have frequently anticipated very high values over time, but the project itself did not mention such predictions from the start.

  1. Bitcoin doesn’t rely on secrecy

The majority of Ponzi schemes are based on secrecy. If investors realized that an investment in Bitcoin that they owned was a Ponzi scheme, they would strive to get their money out as soon as possible. Because of the secrecy, the market would have been unable to price the investment until the secret is revealed correctly.

For instance, investors in Bernie Madoff’s Ponzi scheme believed they had a diverse portfolio of assets. Earlier investor withdrawals were being repaid by new investor inflows rather than money being created from meaningful investments. The investments reported on their statements were false, and it would be highly impossible to verify that they were fake for any of those clients.

Bitcoin, on the other hand, is based on the opposite set of principles. Every line of code is known in Bitcoin as a distributed piece of open-source software that demands majority consent to update, and no central power can change it. One of Bitcoin’s primary focuses is to verify instead of trust.

The entire premise of Bitcoin is that it is immutable and self-verifiable, with no reliance on third parties. Bitcoin can only be moved with the private key associated with a specific address, and no one can stop you from doing so if you use your private key to do it.

Of course, there are some nasty characters in the ecosystem. Third-party exchanges have the potential to be fraudulent or compromised. People can be duped into exposing their private keys or account information through phishing attempts or other frauds. However, these are unrelated to Bitcoin, and users who use Bitcoin must understand how the system works to avoid falling prey to scams in the ecosystem.

  1. Bitcoin had no pre mine 

When it comes to debating against the idea that Bitcoin is a Ponzi scheme, Bitcoin is leagues ahead of most other digital assets with no pre-mine concept. Satoshi demonstrated how to do it by publishing his whitepaper months in advance and then releasing the project as an open-source project on the first day of spendable coin generation, with no pre-mine.

Unlike many other blockchains, Bitcoin was developed organically through a revolving group of major stake­holders and voluntary user donations rather than through a pre-mined or pre-funded pool of capital.

  1. Bitcoin evolved without any central leader

One of the things that makes Bitcoin so fascinating is that it is the only major digital asset that has thrived without a centralized leader. Satoshi established it under a pseudonym, collaborated with others to manage it through the first two years of development on public forums, and then vanished. Therefore, there is no core mastermind benefitting from what is supposed to be a Ponzi scheme.

Other developers then took up the role of continuing to develop and promote Bitcoin. Some developers have been crucial, but none are fundamental to the project’s continuing development or operation. Even after Satoshi, the second group of developers mainly selected different routes.

  1. Bitcoin being unregulated

Bitcoin could have been an unregistered investment in its initial stages, but it now has a home in tax and regulatory frameworks worldwide. Although regulations modify over time, the asset has become popular. It’s so common that Fidelity and other custodians hold it for institutional clients, and J.P. Morgan shares price targets for it.

The only factors on the red flag list of Ponzi schemes that could apply to Bitcoin relate to unregulated investments. But this does not imply that something is a Ponzi scheme; instead, it indicates that a warning sign has been raised, and investors should proceed with caution.

Bitcoin is an excellent investment

After addressing everything against the notion that Bitcoin is a Ponzi scheme, let’s also address the fact that Bitcoin is an excellent investment. Due to its massive market cap of over $1 trillion and many users, Bitcoin is regarded as one of the most efficient cryptocurrencies ever launched

If you are willing to invest in Bitcoin and buy Bitcoin in India, you can go to WazirX, which is a cryptocurrency exchange in India trusted massively by people. In April 2021, WazirX reached a transaction volume of $5.4 billion. The amount was 11x WazirX’s $500 million volume  in December 2020. 

Let’s go through the step by step process of how to buy Bitcoin in India from the WazirX cryptocurrency exchange

  1. Install the WazirX app.
  2. Register and validate your KYC to set up your account. To make your app even safer, make sure you use two-factor authentication.
  3. Add your bank/UPI information to the app. Once your bank details/UPI are registered, you can put money on the exchange.
  4. You can now easily buy Bitcoin on the WazirX cryptocurrency exchange platform.

Further Reading:

What is Bitcoin?

Why do Bitcoins Have Value?

Bitcoins in India: Challenges and Opportunities Ahead

Top Bitcoin Myths That You Should Stop Believing

How to Spot a Cryptocurrency Scam?

Does Bitcoin have a volatile nature? Why?

Blockchain Explained

Top Things to Consider Before Investing in Bitcoin

Participate in the Indian Crypto Movement. Share:

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