14 ms·

Dissecting Ponzi schemes on Ethereum: identification, analysis, and impact

221 points by moh_maya 9y ago

smokeyj 9y ago
> The possibility of creating "trustworthy" frauds that still make users lose money, but at least are guaranteed to execute "correctly". So.. Gambling. It's like academic clickbait.
empath75 9y ago
I've been sort of amazed at how brazen people are in cryptocurrencies about pyramid schemes. They'll even call themselves ponzi schemes. And how many people will join them, knowing that it's a scam, just assuming they won't be the last suckers in.
- pavel_lishin 9y ago
  People have argued that cryptocurrencies themselves are pyramid schemes - the people who start mining early win out, and the people who join later to speculate on the currency have less and less chances of striking it rich. (Obviously this is based on the view of cryptocurrency as purely speculative, not as an actual currency with which to buy things, but even now, it's still pretty difficult to buy a lot of things with Bitcoins.)
  - joosters 9y ago
    A great explanation of crypto coins (ethereum in particular, and carrying on to its DAO fiasco) is here: https://www.reddit.com/r/Buttcoin/comments/4uzw81/eli18_ethereum/d5ucyca/ https://www.reddit.com/r/Buttcoin/comments/4uzw81/eli18_ethe... - it basically comes down to people trying to persuade you that their shiny new tokens (that they created from nothing) are really worth something.
    - jimmyswimmy 9y ago
      This is not so different from any fiat currency. It's only worth something if you believe it's worth something. For that matter, any valuable thing. But at least you can't print gold. (No I'm not a goldbug) Bitcoin, ethereum, dollars, euro - there isn't anything fundamentally different. Printed money is just that, and the guy who controls the printer can choose to print more and inflate the currency. But we all believe it's worth something... Because we believe it. It's a tautology. Cryptocurrencies are no different.
      - deleted 9y ago
        [deleted]
      - fivestar 9y ago
        Except they are different. Gresham's Law--bad money chases out good. We do have a problem with fiat and who controls the issuance, no argument there. However, "money" or "currency" is also based on history. The dollar has a reasonably good history up until 1971 when Nixon took it off the partial gold standard, the value plummeted. Consider this: Would divers risk their lives to recover paper money from a sunken 1930s era shipwreck? Yet for gold or silver, they will readily do that. I'm not gold bug, but I can understand why--gold and silver have a loooong history as stores of wealth. That's probably more important than any other consideration--how long has the "money" been "money?"
  - clarkmoody 9y ago
    Those people don't understand what a pyramid scheme is. The acquisition of bitcoin by newcomers in no way enriches earlier adopters, as in a classic pyramid scheme. Miners continually invest huge sums in capital equipment with the hope that the price continues to rise. If it does not, they are toast. This is not gambling or a Ponzi; this is just a risk/reward business decision. It's the exact decision that the capitalist makes when she decides to build a new production line at the factory. Buying bitcoin early is like investing early in any new technology: it could be worth nothing, or it could go bananas. Many alt-coins have trickled down to very low prices over time or stopped functioning altogether. There are no sure things in this space, even for the early adopters.
    - deleted 9y ago
      [deleted]
    - matt4077 9y ago
      > The acquisition of bitcoin by newcomers in no way enriches earlier adopters, as in a classic pyramid scheme. Of course it does. Bitcoin used to be at $1, now it's at $1,xxx. What happened in between was a massive influx of newcomers. The difference to, for example, the stock market is in the "underlying value". If I buy some stock and it's price collapsed the next day, I'm still entitled to my share of future profits etc. If the company is sound, I have lost nothing. A ponzi scheme's underlying value is only the future growth of the scheme itself. I'd say the jury is still out for bitcoin et alt: how much of the growth is being fuelled by speculation, and to what extend is that speculation actually speculating on future speculation?
      - splintercell 9y ago
        > The difference to, for example, the stock market is in the "underlying value". If I buy some stock and it's price collapsed the next day, I'm still entitled to my share of future profits etc. If the company is sound, I have lost nothing. Bitcoin is a payment network (Even if the price collapses to really low). Ethereum is a smart contracts platform, so you can still build certain kind of apps on it even if it's price collapses. A ponzi scheme as NO business model (or the business model claimed, isn't a valid one). Using bitcoin I can actually transfer wealth from one part of the world to another, similarly using Ethereum I can create decentralized applications funded by payment (like pay-to-seed bit torrent network).
  - api 9y ago
    Bitcoin is a finite supply store of value like gold. To argue that's a Ponzi scheme reduces down to arguing that the entire economy is a Ponzi scheme. There are some Marxists who argue that. If that's true we have bigger problems.
  - tertius 9y ago
    > the people who start mining early win out, and the people who join later to speculate on the currency have less and less chances of striking it rich. Replace "mining" with investing and currency with stock and tada. That's not a pyramid scheme, that's risk/reward investing 101.
    - joosters 9y ago
      The difference being that companies are meant to be trying to make money and give that to their investors, whereas cryptocoins are nothing but a string of numbers.
      - zenlikethat 9y ago
        I agree having a company trying to produce revenue is arguably more valuable, but keep in mind cryptocurrency isn't _just_ a string of numbers -- what you're buying into is a massive network of machines verifying your transactions and protecting the system from things like double-spends. Sure, Bitcoin has scaling issues, but there is still an insane amount of computing power backing it, and that isn't changing. I'm not 100% sure I see as much value in Ethereum, for sure -- since throwing that much computing power at verifying programs is more dubious to me, as is the switch to proof of stake.
        DennisP 9y ago
        Ethereum does the same thing as Bitcoin. It's just that you can also have scripts on the network that move money around.
        zenlikethat 9y ago
        That's as much a liability as it is an asset -- for instance, https://www.reddit.com/r/ethereum/comments/6eruqb/if_your_exchange_is_related_to/?st=j3gfi7i8&sh=b5673c95 https://www.reddit.com/r/ethereum/comments/6eruqb/if_your_ex... ("QuadrigaCX exchange lost 60000 Ether due to smart contract problems").
  - ajflkjasdf777 9y ago
    "the people who start mining early win out, and the people who join later to speculate on the currency have less and less chances of striking it rich." The people that were born early win out, and the people who are born later have less and less chances of striking it rich. So human societies in general.
    - kpommerenke 9y ago
      Not true: the general trend is that later generations are richer than earlier generations. Just compare yourself to the average person in your country 100 years ago.
      - ajflkjasdf777 9y ago
        "less and less chances of striking it rich." Never said we weren't generally better off. But none of us have a shot at being oil barons, logging millionaires, retail moguls, etc. Striking it rich now generally means achieving a higher level of knowledge and education first, then you can try to make your mark. The previous generation hordes vast sums of wealth from endeavors that required less up front preparation and less capital (which was often provided rather no strings attached by the government, a tap which is being shut off (look at IBM's history of being gifted government funded inventions, among others)).
  - DennisP 9y ago
    > people who start mining early win out, and the people who join later to speculate on the currency have less and less chances of striking it rich If that's all it takes to be a pyramid scheme, then any high-growth stock is a pyramid scheme. I could have struck it rich by buying Apple in 1999, but I don't think it would happen now.
    - fivestar 9y ago
      A stock is part ownership in a corporation. There are laws and rules that govern stock issuance and stock investing. You have proxy voting rights with many stocks. You can go visit the physical corporation which has a "book value" and you can determine worth based off that value plus revenue and earnings minus operational costs and decide whether you want to invest. There have been stock swindles in the past--the 1800s up to the 1920s were full of them. There have been insurance and bond swindles, too. High growth stocks may be bubbles, but are not pyramid schemes.
      - DennisP 9y ago
        Hence my clause "if that's all it takes." My point is that outsized rewards for early investors do not make something a pyramid scheme, which is a specific illegal structure. Neither stocks nor cryptocurrencies are pyramid schemes.
- f055 9y ago
  If you knowingly join a ponzi scheme, it's pretty much like a casino - you go there knowing there's a pretty good chance you will loose your money, and a slim one you will win some. Some people like the rush.
- just_one_time_ 9y ago
  USD and stock market are in the same boat. The ONLY difference is bitcoin has a limited known supply, the others are 100% ponzi.
- conanbatt 9y ago
  This was eye-opening for me. This explains actually the adoption scammy operations that are ponzis have: people are not against participating in a ponzi scheme at all, its just the lottery effect ("i wont be one of the losers").
  - smacktoward 9y ago
    The dumb money is always, always, always 100% certain that it is actually the smart money.
    - fivestar 9y ago
      Look to your left, look to your right. If you can't spot the sucker--it's you!
- richtr 9y ago
  Crytocurrencies like Bitcoin and Ethereum are legitimate stores of value and have been compared to the use of other finite stores of value such as precious metals. The market capitalization of gold currently stands at 7.5 trillion USD. All cryptocurrencies combined currently stand at a market capitalization of 87.6 billion USD (1.14% of the market capitalization of gold). Cryptocurrencies with a finite supply can supplant other finite stores of value and actually provide a number of benefits over existing finite stores of value (instant exchange to sterling currencies, improved transactional ability, traceability and general liquidity). It is likely we are just getting started. Calling any legitimate store of value a Ponzi scheme is missing the point.
  - empath75 9y ago
    i was talking about literal ponzi schemes: Search for ponzi: https://dapps.ethercasts.com/ https://dapps.ethercasts.com/
  - tomp 9y ago
    OP isn't calling cryptocurrencies a Ponzi scheme, but specific contracts (e.g. in Ethereum you could make a "smart contract" that acts as a Ponzi scheme).
  - uberrr 9y ago
    The market cap was $25 billion one month ago [0]. $60 billion in growth in one month. Sound a bit fishy? [0] https://cryptolization.com https://cryptolization.com
  - rhino369 9y ago
    >Bitcoin and Ethereum are legitimate stores of value What does legitimate mean? The only difference between monopoly money and bitcoin is that people right now believe in bitcoin. But that belief could easily falter. The same could be said about gold, but gold a very long history and has somewhat strong demand for use in jewelry. At this point in time, essentially all demand for cyrpto is for speculation purposes. There is some use for illicit markets but it's very minor. I wouldn't call it a ponzi scheme because those are intentional. But the current pricing for cryptos is definitely an embodiment of the Great Fool Theory of investing.
- louprado 9y ago
  The last ICO I attended totally felt like an MLM meeting. Just like in MLM, one does not talk about the pyramid but instead talks about the commodity product/service/asset that enables the pyramid to be built. But everyone knows it's about making money through the pyramid. The commodity is just a distraction to give it some legitimacy.
stefek99 9y ago
Calling ponzi scheme a "ponzi" is pretty epic. This is also very honest: https://medium.com/@cincinnati/the-ponzico-white-paper-8baa98b19b97 https://medium.com/@cincinnati/the-ponzico-white-paper-8baa9...
just_one_time_ 9y ago
God I hate Hacker News so much. For years you guys have been disparaging Bitcoin as a Ponzi. Now, as time goes on and you guys can't ignore it anymore, you just keep shitposting like this. Alot of things can be scams on the internet, why do you guys not focus as much on Craigs List "scams"? I know why, because the majority of you "missed out". You thought you knew what bitcoin was, you didn't and now you think it is too late. well, its not too late.
finnh 9y ago
This satiric white paper is really, really worth the read: https://ponzico.win https://ponzico.win Written by a former cryptocurrency dev who later joined Lyft. Some choice quotes: "Context—and wide margins—are the bedrock of every white paper." "We’re living in a world where developers are Kickstarting Pets.com every week"
- FlailFast 9y ago
  Author of PonzICO white paper here (proof: https://keybase.io/cin https://keybase.io/cin )—thank you! Still optimistic about cryptocurrency but the impending ICOpocalypse does not bode well for anyone in the space...excepting satirists I suppose. ;)
  - finnh 9y ago
    Great to see your reply. I only came across your paper a few weeks ago, through fortuitous circumstances: A very smart but non-engineering friend of mine was asking about cryptocurrencies, and - in trying to explain why i think ethereum's "improvements" over bitcoin are anything but - I directed him to read about The DAO. He promptly rabbit-holed and came up an hour or so later with your gem of a paper. So ... nice work! A sanskrit professor found, understood, and thoroughly enjoyed the paper. And then hipped his programmer friend to it :)
    - delhanty 9y ago
      Straight question: do you have a good link for the main technical differences between ethereum and bitcoin?
      - delhanty 9y ago
        OK - I've read the paper on arXiv - can see that ethereum (for better or worse) has smart contracts layered on top where as bitcoin does. I seem to recall that there was another more fundamental difference at the blockchain level, was wondering whether there was any link for that ...?
ebbv 9y ago
All cryptocurrencies are ponzi schemes. The early adopters get richer because more people come into the market later. Eventually the increasing values due to more interest will have to stop, whether because people lose interest or because everybody's already in the pool. At that time whether the late comers are totally screwed or just don't make a profit like the early adopters depends on what exactly happens. Cryptocurrencies are the baseball cards of a new generation of wealthy libertarians (they have no inherent value like a useful commodity, and they have no backing of a powerful government. They just have value because some people decided they are valuable.) How badly the next financial crisis effects those people will determine how much cryptocurrency values are adjusted.
- _coldfire 9y ago
  dont all early adopters usually win out? except of course for the multitudes that fail.
- ramblerman 9y ago
  > They just have value because some people decided they are valuable This is the basis of any currency. Backing of a powerful government is a mixed blessing.
  - kahnpro 9y ago
    Is it though? All the meaningful currencies in use today, that I can think of at least, are blessed and regulated quite heavily by governments. Maybe this is a bit of a theory vs real world question.
    - ue_ 9y ago
      Bitcoin is a meaningful currency. (If those downvoting would care to explain in what way I'm wrong, it would be appreciated.)
      - rhino369 9y ago
        I'm not downvoting, but I'd imagine they'd argue the amount of goods and services transacted in bitcoin is incredibly small.
fullshark 9y ago
> To this purpose, we count the number of transactions from July 30, 2015 (the date of the origin block in Ethereum) to March 6, 2017 (the date when we extracted the transactions), obtaining a total of 16082269 transactions. Since we counted 17777 transactions related to Ponzi schemes, we have that Ponzi schemes only constitute ∼ 0.05% of the transactions in the Ethereum blockchain.
flavio81 9y ago
So, is this new "Ponzi" going to support Racket, or only plain Scheme?
dharma1 9y ago
I think the vast majority of coins and tokens are near worthless. People invest in them because other people invest in them, in hopes of seeing returns like early investors in Bitcoin and Ethereum did. There will be a correction at some point. But that's not to say that a blockchain with functionality aside from store of value (like Ethereum) couldn't pan out and enable a whole new universe of use cases for trade, company formation and ownership, and contracts in general, on a global, super-fast, completely automatable scale. It could be yuge - but since no-one knows what will happen and it's still early days, the current valuation of Ethereum is also highly speculative. If it works out though - maybe the current valuation of Ethereum will look cheap in retrospective.
- JustAnotherPat 9y ago
  I can see the use of blockchains and networks like ethereum, but it seems like the majority of use cases could run on a private network. I still don't see the appeal of a single public network. Why not a dozen or a hundred? That's why the value or Ether seems so useless to me. There was a backlog of transactions lasting hours yesterday and this is supposedly just the beginning.
  - dharma1 9y ago
    I think the future may well be lots of blockchains talking to each other via something like Polkadot (http://polkadot.io http://polkadot.io). There may also be use cases for private blockchains, and there are startups pursuing those, such as http://chain.com http://chain.com (though I'm not sure why regular databases wouldn't work for most of those use cases), but I think there is also a need for a global decentralised network (or networks) for other use cases - global transactions/contracts, decentralised companies, probably other use cases yet to emerge. Current scaling/latency issues with blockchains - there is ongoing work to solve those via off-chain networks, sharding etc - it's still early days, it will take some time to develop.
  - um_ya 9y ago
    So far, there hasn't been any killer use case for ethereum yet. Everything it does, can be done more efficiently outside of the ethereum network. Some say that its "decentralized" on ethereum though, but this isn't true, because a lot of the inputs to ethereum contracts originate from a centralized source. For instance, if you want to make a smart contract that sends you 100 eth based on the outcome of a basketball game, the centralized source where you get the trigger on who won the game, is the centralized source your contract has to trust. It doesn't really matter whether the contract was executed on the ethereum network, it is still vulnerable to centralization. Whats the difference between that and just making it work on bitcoin by having a service sign a multisig transaction sending you btc if the basketball team wins? The only way something can truly be decentralized, is if all the actions in the smart contract are primitive actions based within the network itself. For instance, if y address receive 1 eth, send x address 2 eth. Neither action requires trust outside the ethereum network.
Cakez0r 9y ago
More specifically, we search the Ethereum blockchain for contracts whose bytecode (which is always stored on the blockchain) is similar to that of some known Ponzi scheme. We use the normalized Levenshtein distance (NLD) as a measure of similarity between two bytecode files. ... This search resulted in further 55 potential new Ponzi schemes, not included in our original collection of 137 contracts. It's so awesome that it's possible to do this and that it actually works!
fudged71 9y ago
Programmatic contracts lead to programmatic due diligence, great idea!
gwern 9y ago
Also check out "The postmodern Ponzi scheme: Empirical analysis of high-yield investment programs", Moore et al 2012 https://pdfs.semanticscholar.org/0aea/69ae7be6f3ff215dc818285b8ae085941acb.pdf https://pdfs.semanticscholar.org/0aea/69ae7be6f3ff215dc81828...
Animats 9y ago
The paper points out that many of the Ponzi contracts on Etherium have exploitable bugs. Some can be induced to compute too much and thus run out of "gas", aborting. Some allow an attacker to change the party who gets the fees. Some can be stalled out with a suitably constructed transaction. Making Etherium contracts a full byte code execution engine was a big mistake. That form is too bug-prone and led to the DAO debacle. It should have been something simpler, such as a decision table.[1] That simple declarative form can handle most useful business logic, but can't loop. It's always decidable and is easy to hand-check. [1] https://en.wikipedia.org/wiki/Decision_table https://en.wikipedia.org/wiki/Decision_table
- mafribe 9y ago
  full byte code execution engine was a big mistake An even better scheme would have been proof-carrying code: a contract should have been a pair (c, p) where c is the program expressing the contract (in a Turing complete language) together with a proof p in a suitable program logic (for total correctness) that proves that c does not do a bad thing (e.g. consume too many resources). It's easy to check that the proof p is valid for c.
  - Animats 9y ago
    Too complex for the purpose.
    - mafribe 9y ago
      Yes and no. The proofs could be auto-generated for decision table based contracts, so a decision table could be a convenient DSL for simple contracts, without preventing more complicated contracts. The average contract writer would never need to see the full language or be exposed to proofs.
- drcode 9y ago
  Well, given that ether has appreciated 10x since the DAO debacle makes it somewhat unconvincing to use that as evidence of a design mistake.
brogrammer3 9y ago
I will take my chances. https://bitcointalk.org/index.php?topic=1944495.0 https://bitcointalk.org/index.php?topic=1944495.0

221 points by moh_maya 9y ago

> The possibility of creating "trustworthy" frauds that still make users lose money, but at least are guaranteed to execute "correctly". So.. Gambling. It's like academic clickbait.

empath75 9y ago

I've been sort of amazed at how brazen people are in cryptocurrencies about pyramid schemes. They'll even call themselves ponzi schemes. And how many people will join them, knowing that it's a scam, just assuming they won't be the last suckers in.

pavel_lishin 9y ago
People have argued that cryptocurrencies themselves are pyramid schemes - the people who start mining early win out, and the people who join later to speculate on the currency have less and less chances of striking it rich. (Obviously this is based on the view of cryptocurrency as purely speculative, not as an actual currency with which to buy things, but even now, it's still pretty difficult to buy a lot of things with Bitcoins.)
- joosters 9y ago
  A great explanation of crypto coins (ethereum in particular, and carrying on to its DAO fiasco) is here: https://www.reddit.com/r/Buttcoin/comments/4uzw81/eli18_ethereum/d5ucyca/ https://www.reddit.com/r/Buttcoin/comments/4uzw81/eli18_ethe... - it basically comes down to people trying to persuade you that their shiny new tokens (that they created from nothing) are really worth something.
  - jimmyswimmy 9y ago
    This is not so different from any fiat currency. It's only worth something if you believe it's worth something. For that matter, any valuable thing. But at least you can't print gold. (No I'm not a goldbug) Bitcoin, ethereum, dollars, euro - there isn't anything fundamentally different. Printed money is just that, and the guy who controls the printer can choose to print more and inflate the currency. But we all believe it's worth something... Because we believe it. It's a tautology. Cryptocurrencies are no different.
    - deleted 9y ago
      [deleted]
    - fivestar 9y ago
      Except they are different. Gresham's Law--bad money chases out good. We do have a problem with fiat and who controls the issuance, no argument there. However, "money" or "currency" is also based on history. The dollar has a reasonably good history up until 1971 when Nixon took it off the partial gold standard, the value plummeted. Consider this: Would divers risk their lives to recover paper money from a sunken 1930s era shipwreck? Yet for gold or silver, they will readily do that. I'm not gold bug, but I can understand why--gold and silver have a loooong history as stores of wealth. That's probably more important than any other consideration--how long has the "money" been "money?"
- clarkmoody 9y ago
  Those people don't understand what a pyramid scheme is. The acquisition of bitcoin by newcomers in no way enriches earlier adopters, as in a classic pyramid scheme. Miners continually invest huge sums in capital equipment with the hope that the price continues to rise. If it does not, they are toast. This is not gambling or a Ponzi; this is just a risk/reward business decision. It's the exact decision that the capitalist makes when she decides to build a new production line at the factory. Buying bitcoin early is like investing early in any new technology: it could be worth nothing, or it could go bananas. Many alt-coins have trickled down to very low prices over time or stopped functioning altogether. There are no sure things in this space, even for the early adopters.
  - deleted 9y ago
    [deleted]
  - matt4077 9y ago
    > The acquisition of bitcoin by newcomers in no way enriches earlier adopters, as in a classic pyramid scheme. Of course it does. Bitcoin used to be at $1, now it's at $1,xxx. What happened in between was a massive influx of newcomers. The difference to, for example, the stock market is in the "underlying value". If I buy some stock and it's price collapsed the next day, I'm still entitled to my share of future profits etc. If the company is sound, I have lost nothing. A ponzi scheme's underlying value is only the future growth of the scheme itself. I'd say the jury is still out for bitcoin et alt: how much of the growth is being fuelled by speculation, and to what extend is that speculation actually speculating on future speculation?
    - splintercell 9y ago
      > The difference to, for example, the stock market is in the "underlying value". If I buy some stock and it's price collapsed the next day, I'm still entitled to my share of future profits etc. If the company is sound, I have lost nothing. Bitcoin is a payment network (Even if the price collapses to really low). Ethereum is a smart contracts platform, so you can still build certain kind of apps on it even if it's price collapses. A ponzi scheme as NO business model (or the business model claimed, isn't a valid one). Using bitcoin I can actually transfer wealth from one part of the world to another, similarly using Ethereum I can create decentralized applications funded by payment (like pay-to-seed bit torrent network).
- api 9y ago
  Bitcoin is a finite supply store of value like gold. To argue that's a Ponzi scheme reduces down to arguing that the entire economy is a Ponzi scheme. There are some Marxists who argue that. If that's true we have bigger problems.
- tertius 9y ago
  > the people who start mining early win out, and the people who join later to speculate on the currency have less and less chances of striking it rich. Replace "mining" with investing and currency with stock and tada. That's not a pyramid scheme, that's risk/reward investing 101.
  - joosters 9y ago
    The difference being that companies are meant to be trying to make money and give that to their investors, whereas cryptocoins are nothing but a string of numbers.
    - zenlikethat 9y ago
      I agree having a company trying to produce revenue is arguably more valuable, but keep in mind cryptocurrency isn't _just_ a string of numbers -- what you're buying into is a massive network of machines verifying your transactions and protecting the system from things like double-spends. Sure, Bitcoin has scaling issues, but there is still an insane amount of computing power backing it, and that isn't changing. I'm not 100% sure I see as much value in Ethereum, for sure -- since throwing that much computing power at verifying programs is more dubious to me, as is the switch to proof of stake.
      - DennisP 9y ago
        Ethereum does the same thing as Bitcoin. It's just that you can also have scripts on the network that move money around.
        zenlikethat 9y ago
        That's as much a liability as it is an asset -- for instance, https://www.reddit.com/r/ethereum/comments/6eruqb/if_your_exchange_is_related_to/?st=j3gfi7i8&sh=b5673c95 https://www.reddit.com/r/ethereum/comments/6eruqb/if_your_ex... ("QuadrigaCX exchange lost 60000 Ether due to smart contract problems").
- ajflkjasdf777 9y ago
  "the people who start mining early win out, and the people who join later to speculate on the currency have less and less chances of striking it rich." The people that were born early win out, and the people who are born later have less and less chances of striking it rich. So human societies in general.
  - kpommerenke 9y ago
    Not true: the general trend is that later generations are richer than earlier generations. Just compare yourself to the average person in your country 100 years ago.
    - ajflkjasdf777 9y ago
      "less and less chances of striking it rich." Never said we weren't generally better off. But none of us have a shot at being oil barons, logging millionaires, retail moguls, etc. Striking it rich now generally means achieving a higher level of knowledge and education first, then you can try to make your mark. The previous generation hordes vast sums of wealth from endeavors that required less up front preparation and less capital (which was often provided rather no strings attached by the government, a tap which is being shut off (look at IBM's history of being gifted government funded inventions, among others)).
- DennisP 9y ago
  > people who start mining early win out, and the people who join later to speculate on the currency have less and less chances of striking it rich If that's all it takes to be a pyramid scheme, then any high-growth stock is a pyramid scheme. I could have struck it rich by buying Apple in 1999, but I don't think it would happen now.
  - fivestar 9y ago
    A stock is part ownership in a corporation. There are laws and rules that govern stock issuance and stock investing. You have proxy voting rights with many stocks. You can go visit the physical corporation which has a "book value" and you can determine worth based off that value plus revenue and earnings minus operational costs and decide whether you want to invest. There have been stock swindles in the past--the 1800s up to the 1920s were full of them. There have been insurance and bond swindles, too. High growth stocks may be bubbles, but are not pyramid schemes.
    - DennisP 9y ago
      Hence my clause "if that's all it takes." My point is that outsized rewards for early investors do not make something a pyramid scheme, which is a specific illegal structure. Neither stocks nor cryptocurrencies are pyramid schemes.
f055 9y ago
If you knowingly join a ponzi scheme, it's pretty much like a casino - you go there knowing there's a pretty good chance you will loose your money, and a slim one you will win some. Some people like the rush.
just_one_time_ 9y ago
USD and stock market are in the same boat. The ONLY difference is bitcoin has a limited known supply, the others are 100% ponzi.
conanbatt 9y ago
This was eye-opening for me. This explains actually the adoption scammy operations that are ponzis have: people are not against participating in a ponzi scheme at all, its just the lottery effect ("i wont be one of the losers").
- smacktoward 9y ago
  The dumb money is always, always, always 100% certain that it is actually the smart money.
  - fivestar 9y ago
    Look to your left, look to your right. If you can't spot the sucker--it's you!
richtr 9y ago
Crytocurrencies like Bitcoin and Ethereum are legitimate stores of value and have been compared to the use of other finite stores of value such as precious metals. The market capitalization of gold currently stands at 7.5 trillion USD. All cryptocurrencies combined currently stand at a market capitalization of 87.6 billion USD (1.14% of the market capitalization of gold). Cryptocurrencies with a finite supply can supplant other finite stores of value and actually provide a number of benefits over existing finite stores of value (instant exchange to sterling currencies, improved transactional ability, traceability and general liquidity). It is likely we are just getting started. Calling any legitimate store of value a Ponzi scheme is missing the point.
- empath75 9y ago
  i was talking about literal ponzi schemes: Search for ponzi: https://dapps.ethercasts.com/ https://dapps.ethercasts.com/
- tomp 9y ago
  OP isn't calling cryptocurrencies a Ponzi scheme, but specific contracts (e.g. in Ethereum you could make a "smart contract" that acts as a Ponzi scheme).
- uberrr 9y ago
  The market cap was $25 billion one month ago [0]. $60 billion in growth in one month. Sound a bit fishy? [0] https://cryptolization.com https://cryptolization.com
- rhino369 9y ago
  >Bitcoin and Ethereum are legitimate stores of value What does legitimate mean? The only difference between monopoly money and bitcoin is that people right now believe in bitcoin. But that belief could easily falter. The same could be said about gold, but gold a very long history and has somewhat strong demand for use in jewelry. At this point in time, essentially all demand for cyrpto is for speculation purposes. There is some use for illicit markets but it's very minor. I wouldn't call it a ponzi scheme because those are intentional. But the current pricing for cryptos is definitely an embodiment of the Great Fool Theory of investing.
louprado 9y ago
The last ICO I attended totally felt like an MLM meeting. Just like in MLM, one does not talk about the pyramid but instead talks about the commodity product/service/asset that enables the pyramid to be built. But everyone knows it's about making money through the pyramid. The commodity is just a distraction to give it some legitimacy.

stefek99 9y ago

Calling ponzi scheme a "ponzi" is pretty epic. This is also very honest: https://medium.com/@cincinnati/the-ponzico-white-paper-8baa98b19b97 https://medium.com/@cincinnati/the-ponzico-white-paper-8baa9...

just_one_time_ 9y ago

God I hate Hacker News so much. For years you guys have been disparaging Bitcoin as a Ponzi. Now, as time goes on and you guys can't ignore it anymore, you just keep shitposting like this. Alot of things can be scams on the internet, why do you guys not focus as much on Craigs List "scams"? I know why, because the majority of you "missed out". You thought you knew what bitcoin was, you didn't and now you think it is too late. well, its not too late.

finnh 9y ago

This satiric white paper is really, really worth the read: https://ponzico.win https://ponzico.win Written by a former cryptocurrency dev who later joined Lyft. Some choice quotes: "Context—and wide margins—are the bedrock of every white paper." "We’re living in a world where developers are Kickstarting Pets.com every week"

FlailFast 9y ago
Author of PonzICO white paper here (proof: https://keybase.io/cin https://keybase.io/cin )—thank you! Still optimistic about cryptocurrency but the impending ICOpocalypse does not bode well for anyone in the space...excepting satirists I suppose. ;)
- finnh 9y ago
  Great to see your reply. I only came across your paper a few weeks ago, through fortuitous circumstances: A very smart but non-engineering friend of mine was asking about cryptocurrencies, and - in trying to explain why i think ethereum's "improvements" over bitcoin are anything but - I directed him to read about The DAO. He promptly rabbit-holed and came up an hour or so later with your gem of a paper. So ... nice work! A sanskrit professor found, understood, and thoroughly enjoyed the paper. And then hipped his programmer friend to it :)
  - delhanty 9y ago
    Straight question: do you have a good link for the main technical differences between ethereum and bitcoin?
    - delhanty 9y ago
      OK - I've read the paper on arXiv - can see that ethereum (for better or worse) has smart contracts layered on top where as bitcoin does. I seem to recall that there was another more fundamental difference at the blockchain level, was wondering whether there was any link for that ...?

ebbv 9y ago

All cryptocurrencies are ponzi schemes. The early adopters get richer because more people come into the market later. Eventually the increasing values due to more interest will have to stop, whether because people lose interest or because everybody's already in the pool. At that time whether the late comers are totally screwed or just don't make a profit like the early adopters depends on what exactly happens. Cryptocurrencies are the baseball cards of a new generation of wealthy libertarians (they have no inherent value like a useful commodity, and they have no backing of a powerful government. They just have value because some people decided they are valuable.) How badly the next financial crisis effects those people will determine how much cryptocurrency values are adjusted.

_coldfire 9y ago
dont all early adopters usually win out? except of course for the multitudes that fail.
ramblerman 9y ago
> They just have value because some people decided they are valuable This is the basis of any currency. Backing of a powerful government is a mixed blessing.
- kahnpro 9y ago
  Is it though? All the meaningful currencies in use today, that I can think of at least, are blessed and regulated quite heavily by governments. Maybe this is a bit of a theory vs real world question.
  - ue_ 9y ago
    Bitcoin is a meaningful currency. (If those downvoting would care to explain in what way I'm wrong, it would be appreciated.)
    - rhino369 9y ago
      I'm not downvoting, but I'd imagine they'd argue the amount of goods and services transacted in bitcoin is incredibly small.

fullshark 9y ago

> To this purpose, we count the number of transactions from July 30, 2015 (the date of the origin block in Ethereum) to March 6, 2017 (the date when we extracted the transactions), obtaining a total of 16082269 transactions. Since we counted 17777 transactions related to Ponzi schemes, we have that Ponzi schemes only constitute ∼ 0.05% of the transactions in the Ethereum blockchain.

flavio81 9y ago

So, is this new "Ponzi" going to support Racket, or only plain Scheme?

dharma1 9y ago

I think the vast majority of coins and tokens are near worthless. People invest in them because other people invest in them, in hopes of seeing returns like early investors in Bitcoin and Ethereum did. There will be a correction at some point. But that's not to say that a blockchain with functionality aside from store of value (like Ethereum) couldn't pan out and enable a whole new universe of use cases for trade, company formation and ownership, and contracts in general, on a global, super-fast, completely automatable scale. It could be yuge - but since no-one knows what will happen and it's still early days, the current valuation of Ethereum is also highly speculative. If it works out though - maybe the current valuation of Ethereum will look cheap in retrospective.

JustAnotherPat 9y ago
I can see the use of blockchains and networks like ethereum, but it seems like the majority of use cases could run on a private network. I still don't see the appeal of a single public network. Why not a dozen or a hundred? That's why the value or Ether seems so useless to me. There was a backlog of transactions lasting hours yesterday and this is supposedly just the beginning.
- dharma1 9y ago
  I think the future may well be lots of blockchains talking to each other via something like Polkadot (http://polkadot.io http://polkadot.io). There may also be use cases for private blockchains, and there are startups pursuing those, such as http://chain.com http://chain.com (though I'm not sure why regular databases wouldn't work for most of those use cases), but I think there is also a need for a global decentralised network (or networks) for other use cases - global transactions/contracts, decentralised companies, probably other use cases yet to emerge. Current scaling/latency issues with blockchains - there is ongoing work to solve those via off-chain networks, sharding etc - it's still early days, it will take some time to develop.
- um_ya 9y ago
  So far, there hasn't been any killer use case for ethereum yet. Everything it does, can be done more efficiently outside of the ethereum network. Some say that its "decentralized" on ethereum though, but this isn't true, because a lot of the inputs to ethereum contracts originate from a centralized source. For instance, if you want to make a smart contract that sends you 100 eth based on the outcome of a basketball game, the centralized source where you get the trigger on who won the game, is the centralized source your contract has to trust. It doesn't really matter whether the contract was executed on the ethereum network, it is still vulnerable to centralization. Whats the difference between that and just making it work on bitcoin by having a service sign a multisig transaction sending you btc if the basketball team wins? The only way something can truly be decentralized, is if all the actions in the smart contract are primitive actions based within the network itself. For instance, if y address receive 1 eth, send x address 2 eth. Neither action requires trust outside the ethereum network.

Cakez0r 9y ago

More specifically, we search the Ethereum blockchain for contracts whose bytecode (which is always stored on the blockchain) is similar to that of some known Ponzi scheme. We use the normalized Levenshtein distance (NLD) as a measure of similarity between two bytecode files. ... This search resulted in further 55 potential new Ponzi schemes, not included in our original collection of 137 contracts. It's so awesome that it's possible to do this and that it actually works!

fudged71 9y ago

Programmatic contracts lead to programmatic due diligence, great idea!

gwern 9y ago

Also check out "The postmodern Ponzi scheme: Empirical analysis of high-yield investment programs", Moore et al 2012 https://pdfs.semanticscholar.org/0aea/69ae7be6f3ff215dc818285b8ae085941acb.pdf https://pdfs.semanticscholar.org/0aea/69ae7be6f3ff215dc81828...

Animats 9y ago

The paper points out that many of the Ponzi contracts on Etherium have exploitable bugs. Some can be induced to compute too much and thus run out of "gas", aborting. Some allow an attacker to change the party who gets the fees. Some can be stalled out with a suitably constructed transaction. Making Etherium contracts a full byte code execution engine was a big mistake. That form is too bug-prone and led to the DAO debacle. It should have been something simpler, such as a decision table.[1] That simple declarative form can handle most useful business logic, but can't loop. It's always decidable and is easy to hand-check. [1] https://en.wikipedia.org/wiki/Decision_table https://en.wikipedia.org/wiki/Decision_table

mafribe 9y ago
full byte code execution engine was a big mistake An even better scheme would have been proof-carrying code: a contract should have been a pair (c, p) where c is the program expressing the contract (in a Turing complete language) together with a proof p in a suitable program logic (for total correctness) that proves that c does not do a bad thing (e.g. consume too many resources). It's easy to check that the proof p is valid for c.
- Animats 9y ago
  Too complex for the purpose.
  - mafribe 9y ago
    Yes and no. The proofs could be auto-generated for decision table based contracts, so a decision table could be a convenient DSL for simple contracts, without preventing more complicated contracts. The average contract writer would never need to see the full language or be exposed to proofs.
drcode 9y ago
Well, given that ether has appreciated 10x since the DAO debacle makes it somewhat unconvincing to use that as evidence of a design mistake.

brogrammer3 9y ago

I will take my chances. https://bitcointalk.org/index.php?topic=1944495.0 https://bitcointalk.org/index.php?topic=1944495.0