Is Bitcoin a Ponzi scheme? The Crypto Duel examines pros & cons.

 

Is bitcoin a fraudulent pyramid scheme? This question is explored in the latest Cointelegraph Crypto Duel by Pierre Rochard, an analyst at crypto exchange Kraken, and Jorge Stolfi, a computer science professor at Brazil’s Campinas State University.

Stolfi takes on the role of critic, as the professor has often defined Bitcoin as a Ponzi scheme. His main argument is that the market-leading cryptocurrency does not generate any cash flow. Rather, the Crypto Code money investors receive when selling would come from new investors.

„Every time you invest in Bitcoin, the money you put in goes to a previous investor or miner and is gone,“ as Stolfi explains to that effect.

Digital money that works

Bitcoin advocate Rochard counters that it is online money, via peer-to-peer (P2P) exchanges from user to user, rather than a form of digital money that works like any other form of money and therefore, by definition, should not generate any cash flow at all.

„This is a fundamental property of money, because it is cash (cash). Accordingly, it naturally has no cash flow, but that does not make it a Ponzi scheme,“ says the crypto analyst.

In addition, Rochard points out that Bitcoin has another important difference from fraudulent pyramid schemes, as the cryptocurrency does not guarantee profits, but is widely known as a high-risk financial product.

„Even Bitcoin advocates keep stressing that there is a risk of loss. If we look at the empirical data, this risk has been realised very often,“ as he elaborates in this context.

Stolfi, in turn, finds this unconvincing, because in his opinion, good fraud schemes do not advertise fixed profits, because this would be „a clearly visible distinguishing feature“. The US Securities and Exchange Commission would otherwise have a fairly easy game.

As an example, he cites the machinations of the notorious investment fraudster Bernie Madoff, who defrauded his investors out of 65 billion US dollars: „Madoff didn’t promise anything. […] People invested because he paid off those who wanted to book their profits.“

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