Image source: Getty Images
Just because it’s risky, doesn’t make it a scam.
Key points
- Ponzi schemes are scams in which fraudsters use money from new investors to pay rewards to the existing ones, without ever generating any revenue.
- Bitcoin is a high-risk investment, but it has many traits that do not chime with being a Ponzi scheme or a scam.
Ever since people first began to invest in Bitcoin (BTC), skeptics have lined up to label it a Ponzi scheme. The thinking is that Bitcoin doesn’t actually do anything, so the only way its value can go up is if people buy more of it and push the price up. But does that make it a Ponzi scheme? Let’s dive in and find out.
What is a Ponzi scheme?
A Ponzi scheme is an investment scam that uses funds from new investors to pay high rewards to the existing ones. It’s named after Charles Ponzi, who conned a number of investors in the 1920s. Unlike a real investment, the fraudster doesn’t actually invest money or do anything to generate revenue.
Let’s say you were an early entrant into a Ponzi scheme, and put in $500 with a promise of gaining a 20% APY. The scammer would use your $500 to pay the interest on other people’s so-called “investments.” He or she would then need…
