The Bitcoin Pyramid Scheme

Step1. Buy 10 bitcoin for R10,000 from a Bitcoin Exchange.

Step2. Sell 9 bitcoin to 9 “friends” for lets say R9,900 (R1,100 each)

Step3. They each sell 0.5btc to “another friend” for R700 each

1 person now has 1btc at a net cost of R100 per 1btc.

9 people now have 0.5btc at a net cost R800 per 1btc.

9 people now have 0.5btc at a net cost of R1,400 per 1btc.

So where is the bitcoin pyramid scheme profit model you ask? It’s not there, cause it doesn’t exist. Only 21 million bitcoins will ever be produced. There is no cost to “join” bitcoin and there is no need or expectation to introduce anyone to bitcoin.

Bitcoin itself is almost the exact opposite of a pyramid scheme from a mathematical perspective. Because bitcoins are algorithmically made scarce, no exponential benefit is or can be derived by introducing new users to the use of it or even simply “buying and holding/investing” in it.

There is a quantitative benefit in having additional interest or demand, but this is in no way exponential. This is also in no way different from Amazon producing and marketing the Kindle, which in itself is useless but its value lies in its ability to provide third party content cheaper and faster to consume.

The more people they can introduce and convert, the more profit can be realised by publishers.

Simply put, bitcoin pyramid scheme conspiracy theorists would have you believe that bitcoin is a giant ponzi scheme, but by that rationale the whole world is a ponzi scheme and we all live in the Matrix.

Bitcoin can however be abused like any other commodity and fraudsters are always on the lookout for unsuspecting individuals that they can dupe into fake investments.

Do your homework, know who you are dealing with, and if your are not a sophisticated investor -DO NOT INVEST WHAT YOU ARE NOT PREPARED TO LOSE.

The value of Bitcoin is still highly volatile and therefore has opportunities for great gains as well as losses.

Seek professional advice if you’re thinking of making a major investment in Bitcoin. That said, my opinion is that everyone should have some bitcoin.

Lastly, if bitcoin was a pyramid scheme, I am sure that the authors of the 2012 Virtual Currency Report by the European Central Bank would have picked up on this – see the full report, specifically section 3.

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