This article is not just for Bitcoin, but all blockchain-based cryptocurrencies.
I think so.
First of all, the basis of a Ponzi scheme must be a “financial product” but not a “currency”. Is bitcoin a currency?
No, you won’t see any commodities priced in Bitcoin.
So what is a Ponzi Scheme? It is a fraudulent investing scam promising high rates of return with little risk to investors:
- A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors.
- Eventually, a Ponzi scheme would bottom out when the flood of new investors dries up and there isn’t enough money to go around. At that point, the scheme unravels.
Bitcoin has met all the major characteristics of Ponzi schemes. Here let’s compare some basic strategies the traditional Ponzi scammers have:
- The “Phantom Riches” Tactic: attracting later investors with high rates of return to lure buyers into the market with ease and quickness of fortune obtaining
- The “Scarcity” Tactic: creating a false sense of urgency by claiming a limited supply of bitcoins.
- The “Credibility” Tactic: this is where Bitcoin shines at its best. The traditional Ponzi scheme requires a crook to brag about how reliable his financial products are, but Bitcoin takes the credibility to a whole new level by “emphasizing the transparency of the entire blockchain network”.
- The “Social Consensus” Tactic: Bitcoin comes with the concept of Web 3.0, calling itself “decentralized” and showing the benefits of those who are in the market earlier to everyone.
- The “Reciprocity” Tactic: what Bitcoin shows is a beautiful blockchain Utopia where everyone is a node and all people are currency issuers, holders, and supervisors.
- In addition, the characteristics of traditional Ponzi scammers are all reflected in Bitcoin: the person who sells this financial product has no license, the value-added logic of financial products that ordinary people cannot understand, the lack of documentation, the difficulty of realizing financial products, etc.
Of course, at present more voices are claiming that Bitcoin is not a Ponzi scheme. These opinions:
- Emphasizes that blockchain is a revolutionary new technology
- Emphasizes that it is not dominated and operated by a specific business entity
- Emphasizes that human intervention is (almost) impossible
However, these opinions are all pointing to Internet technology. Technology is only a means to reach an objective, and what we ultimately see is the fundamental of the matter.
In short, according to Gongsun Long’s “white horse is not a horse” statement, Bitcoin is indeed not a “Ponzi scheme”, but the world’s largest Internet-based blockchain Ponzi scheme. The old Chinese proverb says it all: He who steals a belt buckle pays with his life, he who steals a state gets to be a feudal lord.
After all, this article is in the tax law category, so let’s go back to the tax topic:
- So far the Canadian government has not indicated that Bitcoin is a Ponzi scheme, so if you trade Bitcoin, you should file tax returns as normal.
- if you trade it as an investment, you should report your capital gain or capital loss
- if you are a day trader on cryptocurrencies, you may report your work as business activities.
- When the day comes that Bitcoin is labeled illegal, it’s not good for you because if you lose money, you cannot report the defrauded loss as a capital loss, but if you ever make money in the scam, you will have to pay taxes. For details please refer to the article What money is taxable?
