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Like all cryptocurrencies, Bitcoin is a decentralized platform that enables safe and private online transactions. Due to the absence of financial regulation, many individuals view bitcoin negatively and develop a mistrust of it. Many people also question whether bitcoin is a type of financial pyramid scheme. What is the actual operation of the bitcoin system like, and are there any similarities to a pyramid scheme?
Is BTC a pyramid scheme?
We must first examine the fundamental structure of a pyramid scheme in order to determine whether bitcoin refers to it. The process of action is very straightforward.
The developer of such a pyramid aims to draw in as many potential investors as possible. At the same time, he assures them of earnings and permits the pyramid to grow even higher. In reality, those at the top of the hierarchy benefit from those at the bottom. In other words, the profit increases with rank in the pyramid system. Only if the number of successive investments surpasses the sum of money provided to "certain" people does the existing pyramid make sense.
Finding a traditional financial pyramid scheme today is quite challenging. The organization of such a mechanism is highly challenging due to the global rise in public financial awareness. There are systems, though, that operate on a pyramid scheme's fundamental ideas.
Why are people afraid of bitcoin?
A method that doesn't break the law and ensures bigger sales profits can be developed by more clever businesspeople. The members' general honesty and lack of risk of financial loss form the foundation of a legitimate pyramid scheme.
Is bitcoin a pyramid scheme? Considering the design and workings of this framework, definitely not. The mechanisms involved in the operation of the traditional financial pyramid are not supported by any evidence.
Let's start with mining itself. Given that most tokens are already available on the market, this topic is now incredibly out of date. This makes it unprofitable to continue mining bitcoin. How did it go at first? In fact, the program's initial members had substantially better chances of mining bitcoin. But this was because things were more readily available. In order to have a chance at bitcoin, the miner who entered the system employed the processing capacity of his computer.
However, every user had an equal chance. Later participants rarely mined tokens, but this was because there was a severe shortage of supply. The aforementioned bitcoin mining scheme provides an answer to the query "is bitcoin a pyramid scheme?" Despite certain similarities, the fundamental requirements of a pyramid scheme are not met. Therefore, we can say that when it comes to mining, bitcoin was not and is not a pyramid scheme.
Benefits of bitcoin investment
Although bitcoin interest has been increasing for many years, its peak was only reached in 2017. One token back then was worth tens of thousands of dollars. Due to this enormous value, a growing number of investors are using their real money to purchase cryptocurrencies.
According to several experts, bitcoin is a speculative bubble, hence they advise against making such investments. The real value of cryptocurrencies is decided by demand, which is set by investors and consumers who use bitcoins for online payments since they operate on a decentralized system without any regulatory constraints.
With a limited supply of tokens due to the flood of investors, this increased demand resulted in an increase in token prices. When bitcoin became too "bloated," many "ex-users" started to sell it in large quantities. These were individuals who had previously had a significant number of tokens revoked.
As a result, prices fell significantly. An unstoppable avalanche began. Investors with little experience pulled their money out of the market out of fear of the recession. From thousands of dollars to a few thousand, the price of bitcoin has decreased.
When the real value in the aforementioned circumstance was totally dependent on investor demand, the speculative bubble strategy was successful. What would occur next was decided by people. The largest Bitcoin holders who failed to sell their coins in a timely manner did not profit. Instead, a sudden decline entailed significant losses for them.
The fact that later miners produced fewer coins was only evidence of the coins' limited availability, so bitcoin miners had an equal chance at the start of "its conception," but during the first three years of the program, its participants had really good chances to obtain a very large amount of cryptocurrency.
Regarding the investment component, there are a number of factors that contradict the pyramid thesis. The crisis and the significant decline in the value of bitcoins first and foremost resulted in losses for those who owned the most coins. This directly runs counter to pyramidal concepts. Additionally, bitcoin has never had a hierarchical structure where active users might draw in new members.
Helen Wilson is a professional content writer. Her main spheres of specialization are Marketing, Finance, and Business. She also studies topics about psychology and health and occasionally provides a “pay for my essay” service for students.
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.