A Ponzi scheme is a disguised form of pyramid scheme.
In the classic pyramid scheme, you get told to pay X money to one person and then convince other people to pay you X money so that they can convince even other people of paying them X money, and so on. It works just fine, until it doesn't because the scheme has run out of gullible people to scam.
But a pyramid scheme is very easy to recognize. The Ponzi scheme is where you basically run a pyramid scheme with an alibi. It can be a legitimate business that really bring in legitimate money; but in addition to that legitimate income there's some book-cooking to bring in an illegitimate part, that grows bigger and bigger as the scheme develop. The historical Ponzi scheme worked like this: disguising some of the money he received from investors as profit from his business, Ponzi convinced more investors to invest in his scheme for the very high returns on investment he was getting, and the more investors he had, the more of their money he cooked to make the return look bigger so as to scam even more investors, and so on. Eventually though some of the investors wanted to get their money back (now that it had been inflated to a pretendly very high amount) and that's when the whole thing crashed: at first it was possible to pay them (and it helped look legit) but as less and less new investors were lured and more and more old investors wanted to walk away with their prize, it became unsustainable and collapsed.
So it worked a bit like a pyramid scheme, in that the thing that sustains it is getting a geometric increase in the number of marks. Once growth slows down, the whole thing implodes.
And that's where cryptocurrency is a Ponzi scheme. People are sold a pretend currency with the promise that its value will only increase as time passes because It Is The Future Of Money and It Will Bring Prosperity To All. But a currency's use is trading, and it's only useful if you can use it to trade. Otherwise it's like buying a collector item, you can't use it you can just feel happy that you own it and perhaps hope to sell it at a profit to another sucker later (this is where NFTs enter the play, by the way). So to use your currency, you have to convince other people to buy in the crypto promise, too. Every crypto pigeon becomes a crypto evangelist.
And all this time, the value of Bitcoin and others keeps climbing. Hurry up and buy! The sooner you get in, the bigger your profits! Bitcoin will only go up uP UP! If it goes down, "hodl" until it goes up again, it always does!
But as the Jacobin article shows, most of the rise in value is artificial, and deliberately caused by speculators. Eventually, the book cooking will no longer suffice and everything will crash.
A Ponzi scheme is a disguised form of pyramid scheme.
In the classic pyramid scheme, you get told to pay X money to one person and then convince other people to pay you X money so that they can convince even other people of paying them X money, and so on. It works just fine, until it doesn't because the scheme has run out of gullible people to scam.
But a pyramid scheme is very easy to recognize. The Ponzi scheme is where you basically run a pyramid scheme with an alibi. It can be a legitimate business that really bring in legitimate money; but in addition to that legitimate income there's some book-cooking to bring in an illegitimate part, that grows bigger and bigger as the scheme develop. The historical Ponzi scheme worked like this: disguising some of the money he received from investors as profit from his business, Ponzi convinced more investors to invest in his scheme for the very high returns on investment he was getting, and the more investors he had, the more of their money he cooked to make the return look bigger so as to scam even more investors, and so on. Eventually though some of the investors wanted to get their money back (now that it had been inflated to a pretendly very high amount) and that's when the whole thing crashed: at first it was possible to pay them (and it helped look legit) but as less and less new investors were lured and more and more old investors wanted to walk away with their prize, it became unsustainable and collapsed.
So it worked a bit like a pyramid scheme, in that the thing that sustains it is getting a geometric increase in the number of marks. Once growth slows down, the whole thing implodes.
And that's where cryptocurrency is a Ponzi scheme. People are sold a pretend currency with the promise that its value will only increase as time passes because It Is The Future Of Money and It Will Bring Prosperity To All. But a currency's use is trading, and it's only useful if you can use it to trade. Otherwise it's like buying a collector item, you can't use it you can just feel happy that you own it and perhaps hope to sell it at a profit to another sucker later (this is where NFTs enter the play, by the way). So to use your currency, you have to convince other people to buy in the crypto promise, too. Every crypto pigeon becomes a crypto evangelist.
And all this time, the value of Bitcoin and others keeps climbing. Hurry up and buy! The sooner you get in, the bigger your profits! Bitcoin will only go up uP UP! If it goes down, "hodl" until it goes up again, it always does!
But as the Jacobin article shows, most of the rise in value is artificial, and deliberately caused by speculators. Eventually, the book cooking will no longer suffice and everything will crash.