Bitcoin has long received both praise and accusations of being a pyramid scheme. So, I was wondering whether it is a pyramid scheme or not. Googling for answers led me to the Quora post Why is Bitcoin not a pyramid scheme?, the top answer to which was posted by Ellery Davies. He wrote in his answer:

Unlike gold, Bitcoin is a construct of pure math. But exactly like gold and Picasso paintings, its value is driven by pure supply and demand. It is nothing like a pyramid scheme.

He is involved in the cryptocurrency business, so his answer may be biased.

Is Bitcoin a pyramid scheme?


2 Answers 2


For a more credible source Kaushik Basu wrote in a 2014 World Bank working paper on Ponzi schemes:

One of the most recent cases of bubbles occurred in the new ‘Bitcoin’ experiment. Bitcoin is a crypto currency, the main and original attraction of which is the low transactions cost associated with its use. One can buy Bitcoin the way one can buy euros and trade freely with others having euros. Trouble started when people began speculating that the value of Bitcoin would rise, thereby raising the demand for Bitcoin and making the value-rise a self-fulfilling prophesy. In other words, what we witnessed recently in the Bitcoin phenomenon fits the standard definition of a speculative bubble.

Contrary to a widely-held opinion, Bitcoin is not a deliberate Ponzi. And there is little to learn by treating it as such. The main value of Bitcoin may, in retrospect, turn out to be the lessons it offers to central banks on the prospects of electronic currency, and on how to enhance efficiency and cut transactions cost.

Which is not to say there aren't other crypto-currency-shrouded Ponzi schemes, there are, e.g.:

OneCoin’s “blockchain” consisted of little more than a glorified Excel spreadsheet and a fugazi portal that displayed demonstrably fake transactions

Nor is is safe to say that anything related to Bitcoin itself is not a Ponzi scheme, in particular, the SEC found Ponzi fraudsters operating bitcoin-related schemes:

In a recent case, SEC v. Shavers, the organizer of an alleged Ponzi scheme advertised a Bitcoin “investment opportunity” in an online Bitcoin forum. Investors were allegedly promised up to 7% interest per week and that the invested funds would be used for Bitcoin arbitrage activities in order to generate the returns. Instead, invested Bitcoins were allegedly used to pay existing investors and exchanged into U.s. dollars to pay the organizer’s personal expenses.

That kind of fraud can be done with pork-belly futures, by the way, there's nothing crypto-currency specific to it. There is one kind of more technological fraud related to bitcoin:

The complaint, filed 1 December 2015, alleged that the companies offered high-spec mining operations with the power necessary in return for investor funds. However, SEC said that GAW Miners and ZenMiner did not own enough computing power for the mining they promised, and as a result, "most investors paid for a share of computing power that never existed."

That's selling the Brooklyn Bridge in digital form, basically. It turns out there's even an academic survey of Bitcoin-related frauds, quoting from the abstract:

We present the first empirical analysis of Bitcoin-based scams: operations established with fraudulent intent. By amalgamating reports gathered by voluntary vigilantes and tracked in online forums, we identify 192 scams and categorize them into four groups: Ponzi schemes, mining scams, scam wallets and fraudulent exchanges. In 21% of the cases, we also found the associated Bitcoin addresses, which enables us to track payments into and out of the scams. We find that at least $11 million has been contributed to the scams from 13 000 distinct victims. Furthermore, we present evidence that the most successful scams depend on large contributions from a very small number of victims. Finally, we discuss ways in which the scams could be countered.

  • Great answer. +1. The question does explicitly ask about pyramid schemes, where ponzi schemes came up in comments.
    – user11643
    Oct 31, 2017 at 2:08

Bitcoin is very apparently not a pyramid scheme.

Bitcoin is

a worldwide cryptocurrency and digital payment system[8]:3 called the first decentralized digital currency, as the system works without a central repository or single administrator.
Bitcoin Wikipedia

a digital asset[90] designed by its inventor, Satoshi Nakamoto, to work as a currency.[15][91] It is commonly referred to with terms like digital currency,[8]:1 digital cash,[92] virtual currency,2 electronic currency,[18] or cryptocurrency.[93]

A cryptocurrency (of which Bitcoin is a type) is

a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency.1 Cryptocurrencies are classified as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.
Cryptocurrency Wikipedia

A Pyramid Scheme is

a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products or services. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.
Pyramid Scheme Wikipedia

Bitcoin is also not a ponzi scheme.

A Ponzi Scheme is

a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.
Ponzi Scheme Wikipedia

Pyramid scheme and ponzi scheme are very specific terms that do not even come close to describing bitcoin. The simple definitions of each of these things demonstrates this abundantly clearly.

Is bitcoin a sound investment? That's investment advice and not in the purview of this site to answer. Is APPL stock a sound investment? That's investment advice and not in the purview of this site to answer. Is gold a sound investment? That's investment advice and not ... you get the idea.

For further information, read the following on Bitcoin Stack Exchange:

  • You should actually prove that it is not these things, instead of just giving the definition and stating it is not. I would say that it does not meet the definition of Pyramid Scheme because no money is made !directly! from recruiting others. But I am not convinced that it does not fit the given definition of Ponzi Scheme.
    – Jonathon
    Oct 31, 2017 at 10:22
  • 3
    @jonathon Read the definitions again. Bitcoin is decentralized and autonomous. A ponzi scheme requires that a person or firm decides to pay investment promises with investments from others. Buying bitcoin is just like buying any other thing: you have to buy it from someone who's selling it. Likewise, off You hope to profit, you'll have to sell it to someone willing to buy it for more than you paid. You are not entrusting funds to someone promising returns.
    – user11643
    Oct 31, 2017 at 15:09
  • 5
    All of these wiki articles are heavily sourced. Seriously, calling bitcoin a ponzi scheme demonstrates a total misunderstanding of what one or both of them actually are.
    – user11643
    Oct 31, 2017 at 15:16
  • 4
    @Jonathon It sounds like you're thinking of a "pump and dump". en.m.wikipedia.org/wiki/Pump_and_dump But again, bitcoin is autonomous and decentralized. The best you can get here is hype. And that's not illegal. It's not even morally questionable. It's amoral. A result of the market reactions. Happens to stocks all the time.
    – user11643
    Nov 1, 2017 at 3:44
  • 2
    Bitcoin can never be a ponzi scheme because you aren't turning funds over for another to invest for you. You're literally buying something from someone else. Money in will always equal money out over time, unless we stop using money altogether and switch fully to bitcoin.
    – user11643
    Nov 1, 2017 at 3:46

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