Is Cryptocurrency a Ponzi Scheme?

People tend to respond to change in one of two ways. They either embrace it and focus on the possibilities, or they rail against it and proclaim that the sky is falling. Calling cryptocurrency a Ponzi scheme is just another way to mask what’s really going on.

The advent of cryptocurrency is providing a bonanza for chicken littles the world over. It seems like every day a new voice takes to the media to proclaim the death of crypto. Why are they so agitated, you ask? Because the financial elites see their influence (and wealth) under threat from crypto. After all, if the unwashed masses are provided a fair shake at a financial future, then who will remain to service their serfdom?


Let’s face it, crypto has already demonstrated that it can disrupt the financial world. But this is the kind of disruption that has to potential to level the financial playing field in unprecedented ways. So, the financial experts are in overdrive. One of their favourite ways of lashing out is by calling cryptocurrency a Ponzi scheme.


A Ponzi scheme, in case you’re wondering, is defined as, “a fraudulent investing scam which generates high returns with little risk for earlier investors with money taken from later investors”.

It gets its name from its originator, Charles Ponzi, and is built on investments not registered with the SEC (Securities and Exchange Commission.) One of the most infamous examples of a Ponzi Scheme is the Bernie Madoff scam that occurred a few years ago.

Does Bitcoin fit the bill?

Now that we have a better idea of what a Ponzi scheme is, do Bitcoin and other successful cryptocurrencies fit the definition?

The creator of Bitcoin, the most successful and famous cryptocurrency, never made any promises about investment returns, high or otherwise. If anything, the volatility alone would negate the claim of low risk.

  1. In terms of high returns, crypto is very market-dependent and not guaranteed in any way. A longer-term investment of no less than 4 years is required to see any consistent gains. Not so, the average Ponzi scheme, which promises quick profits.
  2. Ponzi scheme investments are not registered with the SEC. Bitcoin (and other cryptos) is considered a commodity and subject to taxes and KYC/AML guidelines. In fact, many global banks, asset managers, and commodity exchanges deal in bitcoin.
  3. Ponzi schemes depend upon secrecy to succeed. Clients are not permitted to view any official paperwork. Bitcoin, on the other hand, is completely transparent. It can be monitored by anyone, no matter where they’re located. Transactions are entered into a ledger and carefully tracked.
  4. Cashing it out of a Ponzi scheme is difficult at best and impossible more often. The exact opposite is true of Bitcoins. It can be transferred and converted into fiat almost instantaneously through cryptocurrency exchanges worldwide.
  5. Ponzi schemes depend upon “secretive and complex” strategies. They are meant to confuse their victims so they are discouraged from asking too many questions. Bitcoin operates in direct contrast to this. It is open-source and depends upon majority consensus to enact any changes.

One of the major proponents of Bitcoin as a Ponzi Scheme trope is economist Paul Krugman. But then again, he also claimed that the internet would have about as much impact as the fax machine. Not exactly an oracle known for his impeccable accuracy.

The reality is, as much as some individuals rail against cryptocurrency, it’s slowly but surely gaining ground. As more and more people get on the crypto train, mainstream acceptance is almost a given, and like the internet, it will radically change our lives.

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