Wikipedia article about Bitcoin has a peculiar statement:
Some criticize Bitcoin for being a Ponzi scheme in that it rewards early adopters through early Bitcoin mining and increasing exchange rates.
I found out about it from Coding in My Sleep:
Ponzi Schemes In Plain English.
I thought that in a day or two the statement will be deleted since
it's usually pointless for wikipedia to list false believes. But
SudoGhost's passionate arrogance prevents it from happening, and now even Mike Hearn is trying to convince him that he is wrong.
Can someone with wikipedia account point to the report made by European Central Bank where on page 27 it lists several arguments why bitcoin is not Ponzi Scheme:
On the one hand, the Bitcoin scheme is a decentralised system where – at least in theory – there
is no central organiser that can undermine the system and disappear with its funds. Bitcoin users
buy and sell the currency among themselves without any kind of intermediation and therefore, it
seems that nobody benefits from the system, apart from those who benefit from the exchange rate
evolution (just as in any other currency trade) or those who are hard-working “miners” and are
therefore rewarded for their contribution to the security and confidence in the system as a whole.
Moreover, the scheme does not promise high returns to anybody. Although some Bitcoin users may
try to profit from exchange rate fluctuations, Bitcoins are not intended to be an investment vehicle,
just a medium of exchange. On the contrary, Gavin Andresen, Lead Developer of the Bitcoin
virtual currency project, does not hesitate to say that “Bitcoin is an experiment. Treat it like you
would treat a promising internet start-up company: maybe it will change the world, but realise that
investing your money or time in new ideas is always risky”. In addition, Bitcoin supporters claim
that it is an open-source system whose code is available to any interested party.
Full quote:
Another recurrent issue is whether Bitcoin works like a Ponzi scheme or not. Users go into the
system by buying Bitcoins against real currencies, but can only leave and retrieve their funds if
other users want to buy their Bitcoins, i.e. if new participants want to join the system. For many
people, this is characteristic of a Ponzi scheme. The US Securities and Exchange Commission
defines a Ponzi scheme in the following terms:
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing
investors from funds contributed by new investors. Ponzi scheme organizers often solicit new
investors by promising to invest funds in opportunities claimed to generate high returns with little
or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised
payments to earlier-stage investors and to use for personal expenses, instead of engaging in any
legitimate investment activity.
On the one hand, the Bitcoin scheme is a decentralised system where – at least in theory – there
is no central organiser that can undermine the system and disappear with its funds. Bitcoin users
buy and sell the currency among themselves without any kind of intermediation and therefore, it
seems that nobody benefits from the system, apart from those who benefit from the exchange rate
evolution (just as in any other currency trade) or those who are hard-working “miners” and are
therefore rewarded for their contribution to the security and confidence in the system as a whole.
Moreover, the scheme does not promise high returns to anybody. Although some Bitcoin users may
try to profit from exchange rate fluctuations, Bitcoins are not intended to be an investment vehicle,
just a medium of exchange. On the contrary, Gavin Andresen, Lead Developer of the Bitcoin
virtual currency project, does not hesitate to say that “Bitcoin is an experiment. Treat it like you
would treat a promising internet start-up company: maybe it will change the world, but realise that
investing your money or time in new ideas is always risky”. In addition, Bitcoin supporters claim
that it is an open-source system whose code is available to any interested party.
However, it is also true that the system demonstrates a clear case of information asymmetry. It is
complex and therefore not easy for all potential users to understand. At the same time, however,
users can easily download the application and start using it even if they do not actually know how
the system works and which risks they are actually taking. This fact, in a context where there is clear
legal uncertainty and lack of close oversight, leads to a high-risk situation. Therefore, although the
current knowledge base does not make it easy to assess whether or not the Bitcoin system actually
works like a pyramid or Ponzi scheme, it can justifiably be stated that Bitcoin is a high-risk system
for its users from a financial perspective, and that it could collapse if people try to get out of the
system and are not able to do so because of its illiquidity. The fact that the founder of Bitcoin uses
a pseudonym – Satoshi Nakamoto – and is surrounded by mystery does nothing to help promote
transparency and credibility in the scheme.
