Is Bitcoin a Pyramid Scheme?

International Monetary Fund Managing Director Kristinina Georgieva likened bitcoin to a pyramid scheme during a panel discussion on cryptocurrency on Monday. In her remarks, Georgieva pointed out that there are similarities between the crypto market and Ponzi schemes, such as Bitcoin Savings & Trust, which collapsed in 2011. During the event, held at London’s Royal Institute of International Affairs, Georgieva noted that while many people see the blockchain technology behind cryptocurrencies as being revolutionary, the underlying concepts of decentralization and security have been around for decades.

Georgieva went on to explain how the IMF views cryptocurrencies. While she acknowledged that some countries have embraced the use of decentralized currencies, others still view them as speculative instruments. However, she stated that the global financial system needs a way to move beyond central banks, which she described as “too big to fail.”


Bitcoin is a pyramid scheme, economist says

The crypto market has seen wild swings over the past few months, but Bitcoin has remained relatively stable. One reason why Bitcoin hasn’t crashed like most other cryptocurrencies is because of the increasing number of investors who are buying up Bitcoin ahead of the potential launch of Facebook’s Libra coin later this year.

According to data compiled by CoinMarketCap, Bitcoin prices increased by about $1,500 during 2018 alone. And while there’s no telling how high prices could go in 2019, Bitcoin is already up more than 80% this year.

But even though Bitcoin has risen dramatically over the past 12 months, some experts say that investing in cryptocurrency is risky. “I think it’s a pyramid scheme,” LendingTree Chief Economist Tendayi Kapfidzi tells Yahoo Finance. “You only make money based off people who enter after you.”

Kapfidzi points out that the biggest winners in the crypto space tend to be those who jump in early, and that once the price starts to fall, it’s difficult for newcomers to catch up.

And while Kapfidzi admits he’s bullish on Bitcoin, he doesn’t recommend anyone invest in it just yet. “I don’t want to tell people to buy it now, because I’m afraid it’ll crash again,” he explains.

Is Bitcoin a Ponzi scheme?

Bitcoin is often described as a Ponzi scheme because it works like one. But unlike traditional Ponzis, there is no central figurehead. There is no one person or group that takes advantage of others in exchange for money. Instead, anyone can participate in Bitcoin’s network. Anyone can mine the cryptocurrency, use it as payment, store value in digital wallets, buy goods and services, or even invest in startups.

But while Bitcoin does operate like a Ponzi, it doesn’t work like one. A Ponzi requires a hierarchy or people who must be down to generate returns for those who are up. This is why many Ponzi schemes fail. They rely on a small number of people being able to recruit large numbers of people into the system. However, since everyone participates equally, there is no way to build such a hierarchy.

In fact, the entire concept of a Ponzi is antithetical to what makes Bitcoin unique. Unlike traditional Ponzis, Bitcoin isn’t designed to reward early adopters. Rather, it rewards miners who solve complex mathematical problems to validate transactions. Miners aren’t paid for their efforts; rather, the incentive is to provide security for the network.

The result is a self-regulating market where participants are free to choose whether they want to support the network or not. And while some might argue that mining provides a financial benefit to certain individuals, the whole process is based on the idea that we shouldn’t profit off of our fellow human beings.

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