Foreword: Bitcoin's market value has now exceeded 100 billion US dollars, but the outside world is still arguing about this digital currency. Some people think that digital currencies, including Bitcoin, are Ponzi schemes. Is it a Ponzi scheme? Different people have different views on this issue. This article is from decentralize.today. The author Miguel Cuneta analyzes that Bitcoin and Ponzi schemes are completely different things. The original text was translated by the Blue Fox Note community "iGreenMind".

What is a "Ponzi scheme"?

This is explained on Investopedia:

"The Ponzi scheme is a deceptive investment scam that promises high rates of return and low risk to investors. The Ponzi scheme brings returns to old investors by attracting new investors. This is similar to a pyramid scheme. Both of them use the funds of new investors to pay for early supporters. For Ponzi schemes and pyramid schemes, there is not enough funds to solve these problems in the end."

To let the world know that you are completely ignorant of Bitcoin technology, the best ways are: one is to use the tulip bubble as a metaphor, and the other is to say that Bitcoin is a Ponzi scheme. A person likes to say this, mostly because he has no ability to do some basic research before making an assertion about something he doesn't understand.

When you understand the technology behind Bitcoin and why it was invented, you may find that Bitcoin is not a Ponzi scheme at all. Okay, let's do a decomposition. Some people say that a Ponzi scheme is a deceptive investment scam that promises a high rate of return and low risk for investors.

The Bitcoin white paper originally published by Satoshi Nakamoto is about eight pages long and quite technical, but it is not particularly difficult to digest. It doesn't mention anything about the return on Bitcoin "investment", it doesn't even mention the price of Bitcoin.

It simply solved one of the oldest problems in computer science, the Byzantine Generals problem, thus establishing its value in this process. Bitcoin's value proposition has never been profit-driven, and holding Bitcoin in the first few years was considered “legitimate”.

Bitcoin is definitely not a secret, it is one of the most open technologies in the world. It is open source, anyone can view the code, anyone can contribute to the code, anyone can automatically run the software and participate in the network. The history of all Bitcoin transactions is visible to anyone in the world.

This is a paradigm shift in the financial system in human history, which is completely opposite to fraudulent investment scams. Most of these scams carry vague promises, such as high returns, and capital inflows and outflows are basically opaque, and capital transactions are kept in a secret account book.

From this perspective, Ponzi schemes are also similar to pyramid schemes. After all, both of them bring returns to old investors by harvesting new investors.

Making money is not the goal, and making money will never be the goal

Bitcoin does not generate returns, but the price and scarcity of Bitcoin lead to a direct correlation with people's needs, which are not imposed on others. The biggest supporter of Bitcoin will not ask you how much money you have, and then confuse you to invest more Bitcoin. New users who join the Bitcoin network will not use new funds to provide funds for old users. It can be said unceremoniously that most people who promote Bitcoin as a Ponzi scheme are too lazy to study and understand the true value of Bitcoin.

In a typical pyramid scheme, the founder is the richest. The more people join, the more they will earn, because all the money goes to the top. They are the first "investors" in this pyramid scheme, and then attract other people to invest and put these funds into their pockets. This is the only way for them to make money, and so is the Ponzi scheme.

The situation with Bitcoin is just the opposite. Many investors who entered in the early stage do not enjoy a 500-fold return on their investment now. I know many people who bought thousands of bitcoins and spent them on things like pizza, mining equipment, gambling, and video games. Let me talk about my own experience. In 2014, I lost dozens of bitcoins on betting sites. In addition, when I gave a lecture at the university, I also gave a lot of Bitcoin to others. Looking at it now, it is estimated that the lost and sent bitcoins can also bring 50 to 60 times the income.

Over the years, very few people actually hold Bitcoin. Due to the skyrocketing price of Bitcoin, some of them are now very wealthy, but their net assets are not presented in the form of legal tender, but in the form of convenient accounting statistics. They use the number of bitcoins they hold to measure their net worth, not their legal currency value.

They did not exchange bitcoins for fiat currency to get rich, maybe some people will sell a small part to improve their lives. However, this is not what we ordinary people understand to cash out by exchanging Bitcoin into legal currency, but rather using Bitcoin as a medium of transaction to exchange for what we want. They will use Bitcoin to pay for a new house, car, or just use Bitcoin to invest. For those who want to own Bitcoin, they will never be forced or deceived. In fact, they will look for people who are willing to pay with Bitcoin. Believe me, most people don't want to give up their Bitcoin easily. In the trading market, consumers will give priority to using cheap currencies and preserving high-quality currencies, and Bitcoin is far superior to any currency in the world today.

In a Ponzi scheme, the oldest investor will someday cash out all the money. In this way, new entrants will bear huge risks, and even be in the wrong. For Bitcoin, the new investors are those who want to get rich overnight, and they are actually the weakest party (which is what we often call "leeks"). They will sell when the price shows signs of a slight decline. Bitcoin.

As a result, the number of people who really hold bitcoins is also decreasing, or they are completely gone. At that time, we will understand this technology and discover that Bitcoin, as an advanced value store, is an unrestricted, censorship, and secure transmission protocol. For those of us who firmly believe in Bitcoin, it will eventually be profitable. At that time, we will be happy to use Bitcoin as a medium of exchange in exchange for what we want, or we can use Bitcoin to invest in some valuable projects, or even to help others. Making money is not the goal, and making money will never be the goal.

Recently, an early Bitcoin holder donated 79 Bitcoins to Andreas Antonopoulos, valued at approximately $1 million (based on the Bitcoin quotes at the time the article was published) ). Andreas is also one of the Bitcoin supporters. Recently, he told people that although he entered the Bitcoin world in 2012, preaching around the world also made him spend a lot of the Bitcoin he held earlier, so he was not able to Enjoy the huge dividend brought by the surge in currency prices in 2017.

But the donor said that if he hadn't listened to Andreas's preaching, he would not have started holding Bitcoin. The reason why this donor donated $1 million worth of Bitcoin to Andreas was mainly out of gratitude.

There are actually many such examples around. The most recent one is the Pineapple Fund-a fund with 5,057 bitcoins, which wants to use the proceeds of these bitcoins to repay the world. It is said that this fund will donate bitcoins worth more than 90 million US dollars to charities and organizations that need funding.

For us, Bitcoin is the ultimate game. We cashed out from the old system only because we had no choice but to face the system we were using. For Ponzi schemes and pyramid schemes, eventually, if there is not enough funds for turnover, these scams will collapse.

Since its launch, Bitcoin has grown by 500%

You may have seen the above picture in some places. Through this picture, you can better understand all the currencies in the world, including Bitcoin. Globally, more capital will flow to Bitcoin. Among them, the countries that use coins and banknotes have 7.6 trillion U.S. dollars in circulation, the gold market is 7.7 trillion U.S. dollars, the stock market is 74 trillion U.S. dollars, and the global broad money supply is 90 trillion U.S. dollars.

These examples are presented to illustrate that the maximum upside of Bitcoin is approximately US$180 trillion, excluding the US$217 trillion real estate market and the US$544 trillion derivatives market. The maximum circulation of bitcoin is 21 million bitcoins, which means that the unit price of bitcoin is approximately US$8.5 million. Will this happen? Probably not. Will Bitcoin have a huge impact on these markets? In fact, it has already begun to affect these markets (the opinion that the unit price of Bitcoin reaches more than 1 million US dollars is questionable, because the digital token market of the entire blockchain is developing very vigorously, and there are many possibilities in the future).

Today's Bitcoin, called a "Ponzi scheme" by "experts", is worth up to 200 billion U.S. dollars, and it is just a drop in the global business ocean. Some so-called economic experts call Bitcoin a "Ponzi scheme" or "bubble", just as some experts say that "the Internet is a worthless idea", they are just ignorant and short-sighted. Our job is not to try to convince them and argue with them, but to maintain the value of Bitcoin, invest time, and contribute to the future development of the Bitcoin network.

Bitcoin opened Pandora's box of innovation. In just 8 years, it created a market of 500 billion U.S. dollars and created huge value on a global scale. This value is not because of the entry of new investors, but because thousands of startups and enterprises have created tens of thousands of jobs, providing value for users, infrastructure, hardware, software, and applications.

The true value of Bitcoin is not reflected in the skyrocketing currency price, and its value proposition lies in the effect after another. Bitcoin will not disintegrate, because people who truly understand the value of Bitcoin will never choose to cash it out. We don't want cash, we want Bitcoin. Why should we exchange a finite, scarce, and valuable asset for unlimited printing paper?

Bitcoin is not a bubble, but a needle that pierces the bubble. For us and thousands of other people, we are not waiting for an export, Bitcoin is an export.