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Here is what a pyramid scheme is: https://en.wikipedia.org/wiki/Pyramid_scheme https://en.wikipedia.org/wiki/Pyramid_scheme Bitcoin is a distributed database t

Here is what a pyramid scheme is: https://en.wikipedia.org/wiki/Pyramid_scheme https://en.wikipedia.org/wiki/Pyramid_scheme Bitcoin is a distributed database that solves the "Two Generals Problem". Please don't spread misinformation on things you do not understand.

ocb 9y ago
Could you clarify why those things are mutually exclusive? And to be clear: I don't know how to feel about Bitcoin and the attention it has received lately.
- olalonde 9y ago
  There's just nothing about the definition of a pyramid scheme that applies to Bitcoin, not even close. There's no organisation, recruiting, directors, membership or promise of payments. It doesn't have to grow forever. It's not illegal. The amount of ignorant Bitcoin comments on HN is just baffling.
  - aaron-lebo 9y ago
    It's a very uncharitable definition, sure. There's no organisation, recruiting, directors, membership or promise of payments. But those definitely exist, just not via any singular organization. There very much is organization and organizations, recruiting, would be directors, unofficial membership in the club of ownership, and lots of promises of payments. When people make that comparison, what they're really saying is Bitcoin is mostly funny money which above all else has enriched early adopters and will probably lose a lot of late adopters lots of money. It's ceased to even be a useful currency. You don't have to squint very hard to see the comparison, even if it isn't flattering or technically the same thing as a pyramid scheme. This is from your link: In a pyramid scheme [Bitcoin], an organization compels individuals who wish to join to make a payment [purchase Bitcoin]. In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit [to the moon]. The directors of the organization (those at the top of the pyramid) also receive a share of these payments. For the directors, the scheme is potentially lucrative—whether or not they do any work, the organization's membership has a strong incentive to continue recruiting and funneling money to the top of the pyramid. Such organizations seldom involve sales of products or services with value. Without creating any goods or services, the only revenue streams for the scheme are recruiting more members or soliciting more money from current members. The behavior of pyramid schemes follows the mathematics concerning exponential growth quite closely. Each level of the pyramid is much larger than the one before it. For a pyramid scheme to make money for everyone who enrolls in it, it would have to expand indefinitely. This is not possible because the population of Earth is finite. When the scheme inevitably runs out of new recruits, lacking other sources of revenue, it collapses. Because in a geometric series, the biggest terms are at the end, most people will be in the lower levels of the pyramid (and indeed the bottom level is always the biggest single layer). In a pyramid scheme, people in the upper layers typically profit while people in the lower layers typically lose money. Since at any given time, most of the members in the scheme are at the bottom, most participants in a pyramid scheme will not make any money. In particular, when the scheme collapses, most members will be in the bottom layers and thus will not have any opportunity to profit from the scheme, yet they will have paid to join the scheme. Therefore, a pyramid scheme is characterized by a few people (including the creators of the scheme) making large amounts of money, while most who join the scheme lose money. For this reason, they are considered scams.[2] Sounds like many cryptocurrencies and Bitcoin is approaching that if it hasn't hit it already.
    - olalonde 9y ago
      > In a pyramid scheme [Bitcoin], an organization compels individuals who wish to join to make a payment [purchase Bitcoin]. In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit [to the moon]. There is no such thing. In that respect, Bitcoin is no different from real estate, stock or gold investors which do tend to sometimes promote their investment of choice. Pyramid scheme has a precise definition which does not fit Bitcoin at all and using it to describe Bitcoin is just misleading and intellectually dishonest. If it was a pyramid scheme, it would be deemed illegal in many, many countries. I agree with one thing however: as with every single investment ever, early adopters, which take on more risk, stand to profit more than late adopters.
      - deleted 9y ago
        [deleted]
      - LV-426 9y ago
        > early adopters, which take on more risk I don't want to get into the debate on the definition of a pyramid scheme, but what was anyone risking by mining bitcoins for essentially nothing in 2009-2010?
        olalonde 9y ago
        Of course, many of the early adopters got very lucky while taking almost no risk. This happens with gold and oil too. However, those that chose to hodl started taking real risks as soon as Bitcoin hit 1$. Bitcoin hodlers today are obviously taking substantial risk as the price could drop massively at any moment.
        watwut 9y ago
        Because pretty much everything must be framed as risk taking these days.
  - mstodd 9y ago
    The Bitcoin product is garbage, just like in a pyramid scheme. People buy in to Bitcoin so they can profit from the people who buy in later and not because there's a valuable product to invest in, just like a pyramid scheme. If Bitcoin was useful in commerce, it wouldn't be useless as it is now.
bandrami 9y ago
Sigh. The only sense in which it "solves" the Two Generals Problem is the sense in which it will, over the course of decades, create a rainbow table for it. None of the work being done is in any way socially useful (a crypto coin based on, say, folding proteins actually produces a social good and so could be equity based). Decentralized proof of a transaction having occurred is in principle valuable, but the token itself is not the store of value. The reason it is accurately described as a pyramid scheme is because holding bitcoin for the purpose of reselling it is exactly like holding a baseball card, or a share in Bernie Madoff's hedge fund: it is based on the premise that someone will come along and pay you more for it than you paid, despite no actual appreciation in any fundamental value.
- olalonde 9y ago
  > Sigh. The only sense in which it "solves" the Two Generals Problem is the sense in which it will, over the course of decades, create a rainbow table for it. None of the work being done is in any way socially useful (a crypto coin based on, say, folding proteins actually produces a social good and so could be equity based). That is by design. Doing useful work would hurt the network's security. > Decentralized proof of a transaction having occurred is in principle valuable, but the token itself is not the store of value. The reason it is accurately described as a pyramid scheme is because holding bitcoin for the purpose of reselling it is exactly like holding a baseball card, or a share in Bernie Madoff's hedge fund: it is based on the premise that someone will come along and pay you more for it than you paid, despite no actual appreciation in any fundamental value. What you described more closely fits the definition of a "bubble", not a "pyramid scheme". I agree that Bitcoin could be qualified as a "bubble" in the way you describe it. That is, similarly to paper money or gold, its price is completely disconnected from its "intrinsic" value.
  - astrodust 9y ago
    > Doing useful work would hurt the network's security. Yeah, no. Any "proof of work" system that meets simple criteria is acceptable: Hard to solve, easy to verify. Hashes are just the easiest to implement, but they're not the only one that could work here. Factoring RSA keys of different lengths would also fit the bill. If the "difficulty" could be arbitrarily adjusted it'd be no different from SHA2 in terms of effort required.
puranjay 9y ago
I'm amazed at how BTC supporters don't even know who invented BTC and the blockchain (Satoshi), yet champion it to no end. If I was to tell you to invest in a company whose founder is 'invisible', yet controls a large chunk of the company's stock, would you do it?
- olalonde 9y ago
  First, I am not asking anyone to invest in Bitcoin, I'm just stating facts. Second, it would depend on whether I believed the stock was currently under valued. Third, Satoshi is likely dead, lost access to his early coins or has little interest in spending them (given he disappeared and hasn't touched them in years).
- miscreanity 9y ago
  Who invented the internal combustion engine? Does it matter?
  - puranjay 9y ago
    Did the inventor of the internal combustion engine limit the number of engines that could be produced, then locked away 20% of those for himself?
    - miscreanity 9y ago
      While valid, that argument focuses on a different issue. It is not the identity that matters for success of a technology. Satoshi specified 1MB block size temporarily, and advocated increasing that limit to accommodate higher volumes of transactions on the network. The current Bitcoin Core developers, for whatever reason, have refused to compromise on any scaling issue - the blame lies with them. As for locking away funds, there are a few things to consider: 1. If any of Satoshi's keys were to be used, intense attention would be attracted. 2. The identity and location of such use would likely be discovered by government intelligence agencies. 3. Even if all of that were to be dumped on the open market, the effect would be temporary with the eventual result bring increased availability of unit supply. It will be effectively impossible to transition away from Bitcoin without an overwhelmingly improved alternative once it is embedded in global systems, even if there's a serious shock. I posit that the actual use of Bitcoin will not be as a transactional currency; it will be a reserve similar to the IMF's SDR. Therefore, only big money will be able to access it - institutions, governments, billionaires... normal people will have to make use of a transactional currency, perhaps Litecoin. In conclusion: we cannot look for what we intend the usage to be; we have to observe that the the market may decide on a different purpose.
astrodust 9y ago
Since it requires everyone to be connected all the time for anything to get done, that's hardly a complete solution. At best it's a hack that partially solves the problem under some very specific circumstances, like having a robust network that allows the nodes to communicate and achieve consensus for each new block on the chain. If part of the network gets cut off from the rest they can't participate, they're instead left with an orphan blockchain that will eventually have to be reconciled, and all their changes will get rolled back. Far from ideal. BitTorrent, by way of example, is resilient even in situations where the network has been split or damaged. If you can connect to a single seed you're good. If you lose that seed, but you can find another, you're still good, you can pick up where your transfer left off. There's no single point of failure: There's multiple trackers, multiple seeds, multiple everything and if any part of this fails, the whole thing can muddle along in a degraded but still functional state. Please don't comment on things you don't understand.
ChiliConKanye 9y ago
Take a little of your own advice. It doesn't solve the Two Generals Problem, which is intractable. It is a solution the Byzantine Generals Problem, of which there are many.

ocb 9y ago

Could you clarify why those things are mutually exclusive? And to be clear: I don't know how to feel about Bitcoin and the attention it has received lately.

olalonde 9y ago
There's just nothing about the definition of a pyramid scheme that applies to Bitcoin, not even close. There's no organisation, recruiting, directors, membership or promise of payments. It doesn't have to grow forever. It's not illegal. The amount of ignorant Bitcoin comments on HN is just baffling.
- aaron-lebo 9y ago
  It's a very uncharitable definition, sure. There's no organisation, recruiting, directors, membership or promise of payments. But those definitely exist, just not via any singular organization. There very much is organization and organizations, recruiting, would be directors, unofficial membership in the club of ownership, and lots of promises of payments. When people make that comparison, what they're really saying is Bitcoin is mostly funny money which above all else has enriched early adopters and will probably lose a lot of late adopters lots of money. It's ceased to even be a useful currency. You don't have to squint very hard to see the comparison, even if it isn't flattering or technically the same thing as a pyramid scheme. This is from your link: In a pyramid scheme [Bitcoin], an organization compels individuals who wish to join to make a payment [purchase Bitcoin]. In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit [to the moon]. The directors of the organization (those at the top of the pyramid) also receive a share of these payments. For the directors, the scheme is potentially lucrative—whether or not they do any work, the organization's membership has a strong incentive to continue recruiting and funneling money to the top of the pyramid. Such organizations seldom involve sales of products or services with value. Without creating any goods or services, the only revenue streams for the scheme are recruiting more members or soliciting more money from current members. The behavior of pyramid schemes follows the mathematics concerning exponential growth quite closely. Each level of the pyramid is much larger than the one before it. For a pyramid scheme to make money for everyone who enrolls in it, it would have to expand indefinitely. This is not possible because the population of Earth is finite. When the scheme inevitably runs out of new recruits, lacking other sources of revenue, it collapses. Because in a geometric series, the biggest terms are at the end, most people will be in the lower levels of the pyramid (and indeed the bottom level is always the biggest single layer). In a pyramid scheme, people in the upper layers typically profit while people in the lower layers typically lose money. Since at any given time, most of the members in the scheme are at the bottom, most participants in a pyramid scheme will not make any money. In particular, when the scheme collapses, most members will be in the bottom layers and thus will not have any opportunity to profit from the scheme, yet they will have paid to join the scheme. Therefore, a pyramid scheme is characterized by a few people (including the creators of the scheme) making large amounts of money, while most who join the scheme lose money. For this reason, they are considered scams.[2] Sounds like many cryptocurrencies and Bitcoin is approaching that if it hasn't hit it already.
  - olalonde 9y ago
    > In a pyramid scheme [Bitcoin], an organization compels individuals who wish to join to make a payment [purchase Bitcoin]. In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit [to the moon]. There is no such thing. In that respect, Bitcoin is no different from real estate, stock or gold investors which do tend to sometimes promote their investment of choice. Pyramid scheme has a precise definition which does not fit Bitcoin at all and using it to describe Bitcoin is just misleading and intellectually dishonest. If it was a pyramid scheme, it would be deemed illegal in many, many countries. I agree with one thing however: as with every single investment ever, early adopters, which take on more risk, stand to profit more than late adopters.
    - deleted 9y ago
      [deleted]
    - LV-426 9y ago
      > early adopters, which take on more risk I don't want to get into the debate on the definition of a pyramid scheme, but what was anyone risking by mining bitcoins for essentially nothing in 2009-2010?
      - olalonde 9y ago
        Of course, many of the early adopters got very lucky while taking almost no risk. This happens with gold and oil too. However, those that chose to hodl started taking real risks as soon as Bitcoin hit 1$. Bitcoin hodlers today are obviously taking substantial risk as the price could drop massively at any moment.
      - watwut 9y ago
        Because pretty much everything must be framed as risk taking these days.
- mstodd 9y ago
  The Bitcoin product is garbage, just like in a pyramid scheme. People buy in to Bitcoin so they can profit from the people who buy in later and not because there's a valuable product to invest in, just like a pyramid scheme. If Bitcoin was useful in commerce, it wouldn't be useless as it is now.

bandrami 9y ago

Sigh. The only sense in which it "solves" the Two Generals Problem is the sense in which it will, over the course of decades, create a rainbow table for it. None of the work being done is in any way socially useful (a crypto coin based on, say, folding proteins actually produces a social good and so could be equity based). Decentralized proof of a transaction having occurred is in principle valuable, but the token itself is not the store of value. The reason it is accurately described as a pyramid scheme is because holding bitcoin for the purpose of reselling it is exactly like holding a baseball card, or a share in Bernie Madoff's hedge fund: it is based on the premise that someone will come along and pay you more for it than you paid, despite no actual appreciation in any fundamental value.

olalonde 9y ago
> Sigh. The only sense in which it "solves" the Two Generals Problem is the sense in which it will, over the course of decades, create a rainbow table for it. None of the work being done is in any way socially useful (a crypto coin based on, say, folding proteins actually produces a social good and so could be equity based). That is by design. Doing useful work would hurt the network's security. > Decentralized proof of a transaction having occurred is in principle valuable, but the token itself is not the store of value. The reason it is accurately described as a pyramid scheme is because holding bitcoin for the purpose of reselling it is exactly like holding a baseball card, or a share in Bernie Madoff's hedge fund: it is based on the premise that someone will come along and pay you more for it than you paid, despite no actual appreciation in any fundamental value. What you described more closely fits the definition of a "bubble", not a "pyramid scheme". I agree that Bitcoin could be qualified as a "bubble" in the way you describe it. That is, similarly to paper money or gold, its price is completely disconnected from its "intrinsic" value.
- astrodust 9y ago
  > Doing useful work would hurt the network's security. Yeah, no. Any "proof of work" system that meets simple criteria is acceptable: Hard to solve, easy to verify. Hashes are just the easiest to implement, but they're not the only one that could work here. Factoring RSA keys of different lengths would also fit the bill. If the "difficulty" could be arbitrarily adjusted it'd be no different from SHA2 in terms of effort required.

puranjay 9y ago

I'm amazed at how BTC supporters don't even know who invented BTC and the blockchain (Satoshi), yet champion it to no end. If I was to tell you to invest in a company whose founder is 'invisible', yet controls a large chunk of the company's stock, would you do it?

olalonde 9y ago
First, I am not asking anyone to invest in Bitcoin, I'm just stating facts. Second, it would depend on whether I believed the stock was currently under valued. Third, Satoshi is likely dead, lost access to his early coins or has little interest in spending them (given he disappeared and hasn't touched them in years).
miscreanity 9y ago
Who invented the internal combustion engine? Does it matter?
- puranjay 9y ago
  Did the inventor of the internal combustion engine limit the number of engines that could be produced, then locked away 20% of those for himself?
  - miscreanity 9y ago
    While valid, that argument focuses on a different issue. It is not the identity that matters for success of a technology. Satoshi specified 1MB block size temporarily, and advocated increasing that limit to accommodate higher volumes of transactions on the network. The current Bitcoin Core developers, for whatever reason, have refused to compromise on any scaling issue - the blame lies with them. As for locking away funds, there are a few things to consider: 1. If any of Satoshi's keys were to be used, intense attention would be attracted. 2. The identity and location of such use would likely be discovered by government intelligence agencies. 3. Even if all of that were to be dumped on the open market, the effect would be temporary with the eventual result bring increased availability of unit supply. It will be effectively impossible to transition away from Bitcoin without an overwhelmingly improved alternative once it is embedded in global systems, even if there's a serious shock. I posit that the actual use of Bitcoin will not be as a transactional currency; it will be a reserve similar to the IMF's SDR. Therefore, only big money will be able to access it - institutions, governments, billionaires... normal people will have to make use of a transactional currency, perhaps Litecoin. In conclusion: we cannot look for what we intend the usage to be; we have to observe that the the market may decide on a different purpose.

astrodust 9y ago

Since it requires everyone to be connected all the time for anything to get done, that's hardly a complete solution. At best it's a hack that partially solves the problem under some very specific circumstances, like having a robust network that allows the nodes to communicate and achieve consensus for each new block on the chain. If part of the network gets cut off from the rest they can't participate, they're instead left with an orphan blockchain that will eventually have to be reconciled, and all their changes will get rolled back. Far from ideal. BitTorrent, by way of example, is resilient even in situations where the network has been split or damaged. If you can connect to a single seed you're good. If you lose that seed, but you can find another, you're still good, you can pick up where your transfer left off. There's no single point of failure: There's multiple trackers, multiple seeds, multiple everything and if any part of this fails, the whole thing can muddle along in a degraded but still functional state. Please don't comment on things you don't understand.

ChiliConKanye 9y ago

Take a little of your own advice. It doesn't solve the Two Generals Problem, which is intractable. It is a solution the Byzantine Generals Problem, of which there are many.