Ponzi scheme: A fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator. Many of the under-informed, the under-educated, and the under-control masses have lobbed this parting shot at Bitcoin over the years.
People tend to fear things that they don’t understand, and will hide behind that fear with blind attacks that sound right, but are just as ignorant, if not more so. Bitcoin clearly does not fall into the definition of a “Ponzi scheme” at all, and this has been double-checked by what many have called the world’s largest “Ponzi scheme,” The World Bank.
Kaushik Basu has just completed a “working research paper” for the World Bank, and while mainly going over the history of said scheme from its origins. Basu, in so doing, felt the need to shine a fairly positive light on Bitcoin, and illuminate how it doesn’t fit this paradigm.
“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.” states Kaushik Basu in his research paper commissioned by The World Bank. “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.”
A far better question than “What is Bitcoin?,” that fewer common people have asked than should, is “What is The World Bank?” Bitcoin is a revolutionary digital protocol that supports an online currency of finite units whose value is based solely on market demand. This digital currency’s current market capitalization value is just over $5 Billion as of this writing. “The World Bank” is, according to Wikipedia, “A United Nations international financial institution that provides loans to developing nations for ‘capital programs.’ The World Bank’s official goal is the reduction of poverty.” Really? How’s that working out so far, after seventy years in business?