The creature with bloodthirst does not have a -1/-1 counter on it.
Steps
Activate Cauldron of Souls by tapping it, giving the creature with bloodthirst persist until end of turn.
Activate Altar of Dementia by sacrificing the creature with bloodthirst.
When the creature dies, its persist ability and Dross Scorpion trigger.
Resolve the persist trigger, returning the creature from your graveyard to the battlefield, which enters the battlefield with at least one +1/+1 counter on it due to its bloodthirst ability.
Resolve the Dross Scorpion trigger, untapping Cauldron of Souls.
Resolve the Altar of Dementia ability, causing target player to mill cards equal to the sacrificed creature's power.