Why Bitcoin is not a Ponzi scheme and not a pyramid

Preston Byrne, a lawyer specializing in transactions with virtual currencies, published an article, which proposes to consider the crypto currency as a new scheme that combines the typical features of the Ponzi scheme and pyramids, but they do not have the vulnerable aspects of these schemes. He also sees the possibility of regulating crypto-currency. That's what his argument is.

Ponzi, the pyramids

At the core of the Ponzi scheme is the central element, as an example, actually Ponzi or Sergei Mavrodi. He attracts new members, money, organizes payments. When the claims of payments are greater than the funds invested, the scheme falls apart. This happens inevitably, sooner or later, since infinite expansion is impossible. In the pyramids, each victim should become the leader of a cell and buy something from those who came earlier and sell those who came later. If a really existing product is bought and sold, then it is legal, if just a license to sell licenses to the next victims, then it is illegal and also, sooner or later, collapses.

HODL Religion

In Bitcoin, there are no intermediary people between those who came earlier and those who came later. The technology itself replaces them. But the reason why people come to the crypto currency is the same – they believe that the money invested in crypto currency will grow many times, almost effortlessly. That is, it is widely believed that anybody can "earn" Bitcoin.

Nakamoto's scheme lacks a fundamental center, this is its advantage. You can not arrest anyone and bring to justice. But also, as in the pyramid, another enthusiast praises Bitcoin and attracts more and more investors.

In attracting new participants, companies and individual charismatic evangelists take part, powerful marketing techniques are used that will not leave ordinary people indifferent.

Around Bitcoin has formed a whole religion HODL, the essence of which is to keep coins as long as possible, not selling them "regardless of temptation, until all the unbelievers do not surrender."


In Ponzi schemes and pyramids, it is practiced to transfer money to a participant in the scheme at a percentage, this is a bargain. This allows you to identify the financial flow and bring to justice the scheme participants, and not just for the creation of the scheme. And also, if it was possible to detain the pyramid builders, then it is possible to determine whether the scheme was fraudulent and even count on some compensation for damage.

There is no collateral in the Nakamoto scheme, there are crypto-exchanges that pass the financial flow through themselves, "simply serving" user requests for the purchase and sale of what is bought and sold only for these purposes – purchases and sales. That is Bitcoin.

Hence the inability to clearly define what Bitcoin is and the distribution of technically illiterate definitions of what Bitcoin's value is. Among the most common – "the network itself is valuable!". Fans of Bitcoin pour oil on the fire, stirring up excitement with the help of big names and names of companies involved in crypto-currency traffic.

Preston Byrne cites as an illustration Adam Adam Singer's tweet Google Analytics consultant and founder of Future Buzz:

"People keep talking about it … This is a new dollar! No, this is real digital gold! No, it's a technological product / network … It's a pumping sign … "

As a result, Bitcoin's capitalization has surpassed the market capitalization of Visa, although its productivity is many times inferior to it. But in Bitcoin operate on markets, and not certain financial flows, so it is difficult to prove that a particular anonymous transaction on the exchange is part of a criminal conspiracy.

Thanks to Blockchain technology, activities on the Bitcoin network exclude individual responsibility, transactions are concluded between users, but Blockchain-consensus synchronizes the management of the whole system.

But this mass in aggregate makes Bitcoin a huge consumer of energy – the consumption of the network is comparable to the energy consumption of Morocco, Byrne cites Vox information.

The creators, initiators, developers of Bitcoin can view crypto currency as an easy way to billions of dollars, although such schemes in the traditional economy could lead them to prison. In this case, the Crypto-currency, if one does not forget that they took in advance most of the coins by pre-minting, are a safe alternative for them.

The author asks what to do when we see that the crypto currency bubble begins to burst and the authorities will switch to "medieval" methods of putting things in order – harassment without statute of limitations, police raids, meeting with crypto-enthusiasts in the style of Marcel Wallace (the character of the film "Pulp Fiction" .

Network Distribution BTC

Byrne proposes to regulate the Bitcoin network in accordance with the rules of the New York Business Rules Code specified in the Chain Distributor Schemes section. In it, in particular, it is said that it is forbidden for a person or organization and their agents to be involved in network distribution schemes.

Network distribution or distribution is a sales scheme in which a willing person buys a license to sell this right (for example, a license) to potential participants.

Turnover tokens could be considered as a trading scheme, where the buyer buys a crypto-coin, counting on the fact that its price is determined primarily by the number of network participants. That is, tokens are needed, first of all, to exchange for fiat money, and not in order to buy goods or services.

Why would regulators consider Bitcoin from this point of view? Because this corresponds to the main task of regulators – the functions of protecting investors. And such interpretation of the crypto currency would allow them to conduct appropriate regulation.

Author: Evgenij Novožilov, Analyst Freedman Club Crypto News

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