With the massive volatility of cryptocurrencies in the past few weeks, you may have heard many people throw around words like "Ponzi Scheme" or "Pyramid Scheme." While I personally do not agree with these conclusions, I will do my best to inform you and allow you to make your own judgments.
So what is a Ponzi scheme?
When you break it all down, a Ponzi scheme is nothing more than a scam. Named after the infamous swindler Charles Ponzi, Ponzi schemes are scams that make money simply by redistributing investments in order to grow.
Say you promised two clients, A & B, that you could guarantee a return on 150% if they invested with your revolutionary new stock trading strategy. After they invest, you quickly give them their promised return, making them very happy clients. They go on to tell others about how much they made investing with your strategy, and others eagerly come to you to invest. You then take their money to continue paying clients A & B to keep the good word spreading. Once the newer clients realize that they aren't getting any return on their investment, bad word starts spreading and less potential clients invest, and the entire scheme falls apart, but you walk away with a large sum of money.
So how does this relate to Bitcoin?
While many people are calling Bitcoin a Ponzi scheme because it greatly benefits older investors and needs a continuous flow of new investors in order to sustain itself and keep it from collapse. Some also argue that bitcoin has no actual value, and that the prices are just redistribution of investments. Personally, I think Bitcoin is in a completely different basket, but I hope the article helped!
