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A Ponzi scheme (/ˈpɒnzi/; also a Ponzi game)[1] is a form of fraud in which a purported businessman lures investors and pays profits to earlier investors using funds obtained from newer investors.[2] Investors may be lead to believe that the profits are coming from product sales, stock growth, or other means. A Ponzi scheme is able to maintain the illusion of a sustainable business as long as most of the investors do not demand full repayment and are willing to believe in the non-existent assets that they are purported to own, and there continue to be new investors willing to contribute new funds.

So, let’s discuss how Merit is not at all a Ponzi scheme by examining this from a couple angles:

1. Merit is a cryptocurrency that is open-source, and has a defined mining interval (and having interval). It is clear to the world, and mathematically provable, how much Merit will be in existence over time. (100m) (You can find our code-base here)

2. The relevance of the above cannot be understated. There is no “magic MRT” being created by bringing more people to the community. The amount MRT to-be-mined has already been established, and the halving-interval is clearly defined. (In code and publicly-stated.)

3. A Ponzi-Scheme is centered around this notion of never-ending or unsustainable investment returns. In other words, investors are promised returns by some central party (a fraudster.) And those returns come from the new “suckers” who are duped by the scheme.

4. Merit, like most cryptocurrencies, is created through the process of mining. None of your MRT comes directly from anyone else. (Aka, you DO NOT get a % of the MRT that someone else buys. Or some kind of fake dividend based on the growth of the community.) No magic numbers here.

5. Merit prides itself on launching in a decentralized way. We didn’t do an ICO, and the Merit Foundation has sold no Merit. We have done quite the opposite of promise anyone returns of any kind. Instead, we launched working software and have allowed the community to set the price. I hope the above is helpful and useful. But I don’t want to stop there.

   Some people are talking about MLM (multi-level marketing) when they use the Ponzi term. So let’s further expand this notion of a scheme to address that too.

6. With Merit, no one is selling anything to anyone else. In other words, people are only sharing the idea of Merit with friends and family. But this is very different than actually selling them cosmetics, tupperware, or a newfangled vitamin. In the beginning, everyone in the community is mining, and strengthening the community. We are all giving.. not taking.

7. With Merit, invite tokens are limited. This is quite the opposite of the ethos you’ll find in MLM (or, I daresay, any kind of scheme). We did this to incentivize people to be thoughtful stewards of the network. Also, to keep the quality of the network high and to discourage spammy behavior.

8. Proof-of-growth is a lottery system, where folks who share earn multiple “Lottery Tickets” in a block. But this is not a traditional ‘pyramid system’ where only the people on the top can win. We designed our proof-of-growth algorithm to explicitly combat this. We look at things like recent activity of your network, and we reward direct invites more than ’the invites of invites.’

9. Merit’s Ambassador rewards are not just about incentives, but about accessibility to the community. The supermajority of the world doesn’t actually have access to a PC. As far as we are aware, Merit is the only currency in the world that you can mine without a personal computer. And, let’s not forget, growing the Merit community actually benefits everyone using it. Yet, we do not compromise security.

10. To expand on the above, in a scheme (or any kind of fraud), the goal is to trick people with incentives that couldn’t possibly come true. In the end, everyone loses. With Merit, the behavior we are incentivizing actually strengthens the network and adds value. (More hashpower, more users, more demand for the currency.) In other words, even if you do not choose to be a Growth Miner, you will benefit from Growth Mining.

11. Building on accessibility, there is something important here about Wealth Dynamics. We believe that Merit is also more accessibility from a socioeconomic perspective. And much more fair. Bitcoin and the all the other “hash-focused” PoW coins essentially reward millionaires with their own data centers. Proof-of-Stake is, I daresay, worse in this sense. The rich only get richer with these dynamics.

12. Ambassadors only earn part of each block’s rewards. Security miners are still earning Merit too. We think this drives the best of both worlds in terms of incentives.