Is Bitcoin a Ponzi Scheme According to Charles Ponzi?

Conversations with ChatGPT

In this article, the author discusses the conversation she had with ChatGPT regarding Bitcoin and Ponzi schemes.

This question has been around nearly as long as Bitcoin itself (without the Charles Ponzi qualifier). How could I have a conversation with Charles Ponzi? Perhaps ChatGPT has ingested enough material about the historical figure to do it for me.

I initiated a new conversation with ChatGPT and asked, “Is Bitcoin a Ponzi scheme?” The short answer it gave was no and the model provided some reasons but they are boring. I then responded, “Give me more specific answers designed for a legal services worker to understand.” The responses were much more detailed with little sections:

• Definition: What is a Ponzi Scheme (Legally)
• Bitcoin: Why it is Not a Ponzi Scheme (Legally)
• Common Misunderstandings that Lead to Confusion
• Legal Authorities that have Commented on This

Overall, these were substantially more boring so I responded, “Revise this answer as though it is an interview with Charles Ponzi.” ChatGPT replied, “Certainly, here’s the revised explanation of why Bitcoin is not a Ponzi scheme, framed as a fictional interview with Charles Ponzi himself, in a tone that balances historical irony with legal clarity. This approach keeps it informative but adds character and voice appropriate for legal professionals.” Obviously, that fancy explanation is exactly what I intended.

The first interview was a little dry. It felt like Charles Ponzi copied and pasted the answers from the legal services response, so I responded again, “Revise this response with more questions that reference historical events and more detailed answers from Charles Ponzi using colloquial phrases.” Now, the response felt more like an interview:

“Certainly! Here’s a revised, more colloquial, detailed, and historical version of the interview with Charles Ponzi. I’ve added questions that reference specific events from his own past, with more casual, conversational answers from Ponzi himself.”

Interview with Charles Ponzi: “Is Bitcoin One of My Schemes?”

Interviewer: Mr. Ponzi, you’re a legend in the world of fraud. But some folks today are comparing Bitcoin to your schemes. What do you think about that?

Ponzi: [laughs heartily] Ah, they’ve got it twisted! Let me tell ya, Bitcoin is no Ponzi. If it were, I’d be out there trying to control it, twist the rules, and make a fast buck. But it’s not like that. Bitcoin’s got no operator, no central hand guiding it. It’s like comparing apples to a whole orchard—only one’s got a bunch of folks picking fruit, and the other’s just one guy trying to sell seeds that don’t grow.

Ponzi Scheme 101: The Old School Version

Interviewer: Okay, let’s break this down for the uninitiated. What makes a Ponzi scheme, well, a Ponzi scheme?

Ponzi: Oh, this is easy. You need a central operator—that’s me, baby—running the show. The money flows into the scheme, but it doesn’t go to any real investments. What I do is, I take the new money from investors and pay the old investors to make it look like they’re getting a return. No profits to show. Just a whole lotta smoke and mirrors.

I promised returns that were too good to be true—50% in 45 days? Come on. But the real kicker? I had to keep bringing in more and more people to pay the earlier ones. Without the new blood, it would’ve collapsed on itself. That’s the hallmark of a Ponzi. Just moving money around. Pure fraud.

Remember 1919, when I was riding high? I was selling a dream, but in reality, there was no real investment; just promises.

Bitcoin: Not My Kind of Game

Interviewer: So, let’s talk about Bitcoin. What’s your take? People say it works the same way as your Ponzi scheme. Is it?

Ponzi: [snorts] Bitcoin? No, no. That’s like calling gold a Ponzi just because its price fluctuates. Bitcoin’s an asset—volatile as heck, sure—but it’s not a scheme. Here’s why:

1. No Boss at the Top: There’s no “Ponzi” pulling the strings. No one’s making promises. There’s no central figure collecting money to pay off earlier investors; it’s decentralized. I’d give anything to be able to control something like that. When I was running my operation, I was the one pulling all the strings. Not Bitcoin. It’s the Wild West.
2. No Empty Promises: I used to tell people they’d make big returns quick; no risk, all reward. Bitcoin? That’s a market asset, not an investment contract. People buy it hoping the price will go up, but no one’s promising anything. If they were? That’s where the fraud comes in. I, Charles Ponzi, made the promises. Bitcoin? It doesn’t whisper in your ear about “guaranteed profits.”
3. Full Transparency: When I was running things, no one could see where the money went. Everything was behind closed doors. Bitcoin? Every transaction is recorded on a public ledger; the blockchain. That’s the opposite of what I did. I made sure nobody knew the game was rigged. Bitcoin’s ledger, though, is like an open book for all to see.

Bitcoin’s Legal Treatment: What is the Deal with Regulators?

Interviewer: So, does Bitcoin raise any eyebrows with regulators? Isn’t it kind of risky? We saw back in 1920, you were caught with your pants down when people started asking questions about where their money was really going.

Ponzi: [laughs ruefully] Yeah, that was the beginning of the end for me. But Bitcoin? Look, it’s a whole different ballgame. I was caught because I was breaking all kinds of laws; fraud, mail fraud, securities violations. Bitcoin? It’s not illegal to own it, trade it, or even hold it as an asset. The problem with me was misrepresentation. I wasn’t selling an asset; I was selling a lie.

Now, as for the regulators, CFTC says Bitcoin’s a commodity. That means it’s treated like gold, not some shady “investment product” promising quick returns. The SEC? They’ve gone after folks who were running scams using Bitcoin, but not the Bitcoin itself. Same way they go after people who misappropriate gold or stocks.

In fact, in 2017, when the SEC started regulating initial coin offerings (ICOs), they were mostly concerned about people misusing blockchain tech. Not the tech itself. It’s not Bitcoin that’s the issue, it’s the people who get cute with the law.

Common Confusion: Bitcoin and My Legacy

Interviewer: Some folks today look at Bitcoin’s volatility and think, “Well, this is just like the Ponzi days.” What do you say to that?

Ponzi: [grins] Here’s where they’re wrong. Just ‘cause something’s risky doesn’t mean it’s a scam. People invest in stocks, in real estate, in anything that can go up and down. But risk is different from fraud.

Now, I was promising a fixed return; that was the hook. The people thought they were getting a return, but it was all smoke. Bitcoin? It’s just like buying gold or a tech stock. People take a chance on it, hoping the price goes up. It can crash just as easily, but it’s not a scam.

Final Thoughts: What About the Scams Using Bitcoin?

Interviewer: So, if Bitcoin isn’t a Ponzi, what’s your take on the scams that use Bitcoin? There’s been stuff like BitConnect and PlusToken, right?

Ponzi: [sighs] Oh yeah, those are your real Ponzi schemes right there. People using Bitcoin as a tool to pull off scams. But Bitcoin itself? It’s just a tool. The people who run those schemes? They’re the ones you go after. It’s like blaming a gun for a robbery; it’s the robber you want.

Look, in 1919, I didn’t have all this fancy tech. But if I had, I might’ve used Bitcoin to run my operation. I’d have loved the anonymity and the global reach, but it still would’ve been a scam. Bitcoin is only as good as the people who use it. And if someone promises returns that don’t make sense, they’re running a Ponzi. But not Bitcoin itself.

Interviewer: Final question, Mr. Ponzi, if you had Bitcoin back in the day, what would you do with it?

Ponzi: [laughs wickedly] I’d probably sell the whole dang world on it. Just think of the stories I could spin! But, in all seriousness, if I had Bitcoin, I’d still be the same old Charles. I’d promise 50% returns on it, maybe call it the “Bitcoin Express” or something catchy. But that’s fraud, Bitcoin itself is just the medium.

I’d rather let it be a genuine asset and not get caught up in the mess I made.

To continue engagement, ChatGPT asked, “Would you like a deeper dive into how modern Ponzi schemes use cryptocurrency, or perhaps more historical details about my own downfall?” Of course, I said “yes” and then I hung out with AI Charles Ponzi instead of working.

Modern Ponzi Schemes and Cryptocurrency: The New Twist

Interviewer: You’ve been gone a long time, but Ponzi schemes are still alive and well. Today, they often use cryptocurrency like Bitcoin, Ethereum, and even newer altcoins. How do these schemes work in the crypto world?

Ponzi: [chuckles] Oh, I see the world’s still trying to make the same mistakes, huh? These modern scams use the same old tricks, but with a shiny new toy: cryptocurrency.

Here’s how it typically works:

1. Promise of Guaranteed High Returns: The scammers, much like I did, promise outrageously high returns; sometimes as much as 10–20% per month. They tell you they’ve got a “secret trading algorithm,” or they “have access to exclusive crypto mining opportunities.” The returns seem too good to be true, and they are.
2. Reinvestment to Pay Early Investors: Early investors are paid with the money from newer investors, not actual profits. This is the bread and butter of a Ponzi scheme. The scammers might even use a flashy platform or app to track Bitcoin transactions or show “profits” that aren’t real.

This is where the blockchain can be manipulated. Just like I was using fake documents and phony returns, today’s scammers use fake transaction reports or doctored wallets that make it seem like everyone is making money, even though it’s just new money being shuffled around.

1. No Real Investment Behind the Curtain: Just like I had no real investments in my scheme (no actual goods or services being traded), many of these schemes don’t actually invest in anything meaningful. They might claim to invest in mining rigs, liquidity pools, or tokens, but in reality, they’re just hoarding your money until the house of cards collapses.
2. Exit Scams and “Ponzi Collapse”: Eventually, the operators disappear with the funds. Sometimes they do it in the form of an “exit scam,” where they just shut down the platform, taking everyone’s crypto and running. The victims are left holding worthless tokens or empty promises.

Famous Modern Crypto Ponzi Schemes: BitConnect and PlusToken

Interviewer: Can you give us some real-life examples of crypto-based Ponzi schemes? I know BitConnect and PlusToken were big ones.

Ponzi: Oh, don’t even get me started on BitConnect; that one stinks of Ponzi all over. Here’s how it played out:

1. BitConnect (2016–2018):
   • BitConnect was marketed as an investment platform promising huge returns through Bitcoin lending and trading. The scheme used an in-house token (BCC) that could only be traded on their platform. The promise? 40% returns per month.
   • The way they pulled it off? New investors bought into the platform using Bitcoin, which was then exchanged for BitConnect tokens. Those tokens were then locked in for a period, during which the investors couldn’t withdraw. The platform paid out rewards to early users, creating the illusion that everything was fine, when really, the funds were being recycled.
   • Eventually, they shut down the platform in 2018, and the value of BitConnect’s token plummeted. Investors lost hundreds of millions of dollars.
2. PlusToken (2018–2020):
   • PlusToken is another big crypto Ponzi that raised billions of dollars from users around the globe. The scammers promised high returns from arbitrage trading of cryptocurrencies, mining, and other investments.
   • Like BitConnect, PlusToken ran into trouble when the withdrawals stopped, and users couldn’t get their crypto out. The scam lasted until 2020 when Chinese authorities cracked down on the operators, but not before approximately $2 billion was scammed from investors.
   • It’s worth noting that PlusToken’s founders were so bold, they laundered the stolen funds through multiple channels, including Bitcoin, Ethereum, and other altcoins.

Why Crypto Makes it Easier to Run a Ponzi Scheme

Interviewer: You’ve mentioned that crypto gives these fraudsters a kind of new tool. Why is it easier to run a Ponzi today than in your time?

Ponzi: Oh, let me tell you, crypto’s made it a lot easier for these guys. Back in my day, everything was tied to physical paperwork and we had to get creative with hiding money. Now? These scammers don’t need paper, they just need a web wallet and a good pitch.

Here’s why crypto is so appealing to fraudsters:

1. Anonymity: Bitcoin and other cryptocurrencies allow people to operate anonymously. They don’t have to deal with traditional banks, and they can move funds across borders easily without raising suspicion. The transactions are recorded on a public ledger, but the parties behind the transactions are anonymous or pseudonymous. So, it’s hard to trace the operators unless you have solid investigative tools.
2. Lack of Regulation: When I was around, securities laws were a thing, but today’s crypto space has very loose regulation (in some countries). While places like the U.S. have started cracking down, there’s a lot of regulatory gray area in many countries where these schemes can thrive without much scrutiny.
3. Global Reach: Thanks to the internet and blockchain, you can operate a Ponzi anywhere in the world, and investors can join from anywhere in the world. I could only scam people I met in person or through mail in my time, but today’s scammers can reach millions of people.
4. Lack of Consumer Knowledge: The average person doesn’t really understand crypto. They don’t know the risks or how to protect themselves. I played on people’s ignorance too. When I started out, no one knew what foreign postal reply coupons were. These modern schemes use the same kind of tactic, making the complexity of crypto seem like an opportunity to get rich quickly.

Charles Ponzi’s Downfall: A Lesson for Modern Crypto Scammers

Interviewer: Speaking of your downfall, you were caught when people started asking questions. How do today’s crypto scammers stay ahead of the curve?

Ponzi: Oh, they’ve learned from my mistakes. You see, in my day, the law caught up with me because I couldn’t hide the paper trail. The investors I scammed started getting suspicious and asking questions. The key difference today is that these crypto scammers can keep moving the goalposts.

When I got caught, the authorities seized my records and saw that there was no real investment behind the scenes. But with cryptocurrency, it’s harder to trace, especially if the scammer is using tools like mixers or privacy coins (Monero, Zcash, etc.). Governments are starting to catch up, but it’s still a wild frontier.

The Legal Side: What Should Be Done?

Interviewer: So, what do you think should be done about all these scams?

Ponzi: Honestly? It’s the same thing I’d tell regulators from back in the day. Education and awareness are key. People need to know what they’re getting into when they invest in cryptocurrency. Governments need to regulate platforms to ensure they’re not selling dreams, and there needs to be accountability.

Because at the end of the day, it’s the same old scam. It’s just got a shiny new coat. And the consequences? Just as ugly as they were when I got caught.

Final Thoughts

Interviewer: Thanks for your time, Mr. Ponzi. You may have been a scam artist, but your insights about modern fraud are eye-opening.

Ponzi: [laughs] You know, I might’ve been a crook, but I’m not blind. If I had today’s technology, I’d probably be running the same old game, just in a more slick way. But let me leave you with this: fraud never changes; just the tools.

My use of AI tools in articles is a simplistic input and revised output use; the current state of these tools is far more advanced than this restrictive use. Review NACVA’s Advisory Brief on the use of Artificial Intelligence and Machine Learning here: https://www.nacva.com/advisorybrief.

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Dorothy Haraminac, MBA, MAFF, CFE, PI, provides financial forensics, digital forensics, and blockchain forensics under YBR Consulting Services, LLC, and teaches software engineering and digital forensics at Houston Christian University. Ms. Haraminac is one of the first court-qualified testifying experts on cryptocurrency tracing in the United States and provides pro bono assistance to victims of cryptocurrency investment scams to gather and summarize evidence needed to report to law enforcement, regulators, and other parties. If you or someone you know has been victimized in an investment scam, report it to local, state, and federal law enforcement as well as federal agencies such as the FTC, the FCC, and the IRS.

Ms. Haraminac can be contacted at (346) 400-6554 or by e-mail to admin@ybr.solutions.