Crypto believers reject the accusation by citing the relative transparency of the currencies’ methods and the absence of deception. Detractors say the lack of underlying assets or government backing qualifies crypto for the Ponzi duck test. That is, if it walks, swims, and quacks like a duck, it’s probably a duck.
As someone happiest with plain vanilla index funds, I’m the wrong person to settle the crypto question. But as Ponzi’s biographer, I’m certain that understanding the nature of Ponzi schemes and the man himself is essential to comprehending the recent comparisons. It’s also useful for anyone considering a dive into the crypto pool to “buy on the dip” in prices.
By definition, a Ponzi scheme is a fraud in which money from one group of people is secretly used to pay promised returns to another group of people. Think of it this way: You “invest” $1,000 in exchange for my guarantee to double your money in weeks. What you don’t know is that I don’t have a legitimate business with products or services. Instead, I intend to lure more investors (a.k.a. suckers) and use their money to pay you. Eventually, the scheme collapses when I take the money and run, or when withdrawals outpace the influx of new money.
The scheme’s namesake…
