“Bitcoin is a Ponzi Scheme.”

P1. A "Ponzi Scheme" is a community, organization, or system characterized by (1) participants who join for a "small" cost and who hope to leave with a "large" profit, and (2) a pool of money which is ultimately insufficient to provide all members with the desired profits, thereby leaving many participants with sizable - and sometimes total - losses.

P2. The Bitcoin community exhibits the characteristics of a Ponzi Scheme.

Therefore:

C3. Bitcoin is a Ponzi Scheme.

Evaluation:

P1. Disagree. This is a loosely accurate example of a Ponzi Scheme, and it bears a superficial resemblance to Bitcoin, but when we clarify some important details, it becomes clear that "a Ponzi Scheme" and "the Bitcoin network" are two very different things. A Ponzi Scheme includes the following features:

  1. A central authority. This authority handles membership and reporting requirements (if any), it collects fees and distributes profits, and it is ultimately the negligent and/or unethical party responsible for the scheme's collapse (see #4 below).
  2. A promise, either verbal or written, from the central authority to each of the members, regarding the expectation of future profits, typically specifying the size and timing of payment(s), or, at a minimum, the calculation methodology of those future payments. In accounting terms, the central authority maintains a liability for each of its members (i.e. a "payable"), and each member maintains a corresponding asset (i.e. a "receivable"). This establishes an on-going financial relationship between the two parties for as long as the asset is held.
  3. A mechanism, vehicle, or methodology whereby the central authority attempts to grow - either in earnest or in deceit - the initial sum of money (collected from fees) to increase such capital to an amount sufficiently large to afford the promised future payouts.
  4. A default. The most (in)famous feature of a Ponzi Scheme is probably the collapse. Eventually (or, possibly, initially), the pool of money is insufficient to honor all liabilities. The scheme may survive "in the red" (i.e. owing more in liabilities than it has in assets) for a long time - using new members' fees to pay existing members' obligations (sometimes described as "robbing Peter to pay Paul") - but eventually, new membership will decline, the remaining funds will be paid to some of the members, and the central authority will go bankrupt with the remaining members each holding a worthless promise.

P2. Disagree. Bitcoin does not fit the original definition or the improved definition of a Ponzi Scheme. There is no central authority, there's no promise to receive funds in the future, and there's no mechanism whereby a "central authority" attempts to grow the money you paid them when you first acquired your Bitcoin.

People may hope to make a profit from buying and selling Bitcoin, but hope is something that exists inside a single person: a promise is something that exists between two people. There are no promises in Bitcoin, and there's no on-going financial relationship. Without this on-going financial relationship, there's no Ponzi Scheme.

While it's true that many Bitcoin users are attempting to "join for a 'small' cost and... leave with a 'large' profit," this is insufficient to establish Bitcoin as a Ponzi Scheme. In fact, every major asset class includes speculators, who, by definition, are hoping to "buy low, sell high." The presence of speculators in a market does not affect the nature or legitimacy of the asset(s) in that market.

Therefore:

C3. Disagree.

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