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Bitcoin and blockchain systems are nearly all designed to exploit new users and extract capital from greater fools who are too late to the game and didn't read

by 0wing 9y ago

Bitcoin and blockchain systems are nearly all designed to exploit new users and extract capital from greater fools who are too late to the game and didn't read or understand the rules and fine print. Satoshi's Bitcoin and many of the crypto-currencies that have followed create and distribute the supply that effectively creates a decentralized pyramid-ponzi scheme. Semantically, a more accurate term is needed; Bitcoin is a Satoshi scheme, .. or a "Nakamoto Scheme" https://prestonbyrne.com/2017/12/08/bitcoin_ponzi/ https://prestonbyrne.com/2017/12/08/bitcoin_ponzi/ Imagine an economic policy that uses a "limited" amount of pie as "currency". Bitcoin gave half of this pie away to the first few users who arrived in exchange for the least amount of work/effort possible. Any user arriving later will need to waste more hashing power (computational work) in exchange for a smaller sum of newly generation coins for a successfully mined block reward. or the user might be convinced to purchase a previously produced coin from one of the early adopters. Buying a Bitcoin is worse than zero-sum, as money from buyers is exchanged for previously generated coins, the network must increasingly waste computations and energy. Satoshi's economic model creates a system where participation is only beneficial if you can exploit the ignorance of another new user who enters the network after you. Bitcoin effectively relies on psychological manipulation though deceptive marketing claims like "Bitcoin is deflationary" "Bitcoin is rare" "Bitcoin is a store of value" When what actually happens is you either need to enrich someone who generated the coin for far less than you're paying, or waste more electricity and computational work than other early users for significantly less share of the pie. If you understand the computer science behind Bitcoin, you'll realize how ridiculous the false equivalency to gold is. 1. The claim of "rare" doesn't exactly hold true. Consider the 10,000 BTC pizza - how did this happen? This was the direct result of Satoshi's economic policy, granting vast sums of BTC to mint out very quickly very early for a short duration to the very small pool of people who ran the software. Satoshi's algorithm produced BTC in plentiful quantities enabling the 10,000BTC pizza - thus it wasn't rare if you were Satoshi and the dozen other early whales hording as much as possible, until the algorithm begins cutting off the production and limiting later users from producing coins, starving the economy. Now there's a psychological game being played, where public relations and marketing must convince new users to buy in. Because the exchanges are unregulated, they can manipulate the spot price though wash trading and painting the tape [2] (where trades are falsified and you just sell the same item back and forth to your friend for a higher and higher price). The supply was created by running a piece of software. It's not magic. Most of the supply was produced very early on and as much as 30% of all Bitcoins are owned by less than 100 people. Best estimates are that there are about one million holders of Bitcoin; 47 individuals hold about 30 percent, another 900 hold a further 20 percent, the next 10,000 about 25% and another million about 20%, with 5% being lost. So 1/10th of one percent represent about half the holdings of Bitcoin and 1 percent close to 80 percent (http://www.businessinsider.com/927-people-own-half- of-the-bitcoins-2013-12). The concentration of Litecoin ownership is similar (http://litecoin-rich-list.blogspot.com). Most of the big wallets have been in place from early on, so sitting back and watching your capital grow has been a very successful strategy. The distribution of Bitcoin holdings looks much like the distribution of wealth in North Korea and makes the China’s and even the US’ wealth distribution look like that of a workers’ paradise 2. Easy migration to more advanced e-cash services See: https://coinmarketcap.com/currencies/views/all/ https://coinmarketcap.com/currencies/views/all/ 3. Bitcoin network requires ASIC miners, largely centralized in China [3]. Assuming the inveitable surpassing of a more advanced cryptosytem making Bitcoin obsolete, as the market is informed there will be a decline in BTC's spot price and once this falls below the cost of OPEX for miners, the hardware goes offline and the network will cease to function. Maximalists will attempt to offer an emergency fork, in any attempt to save their "investment", just as they have developed the lightening network to create centeralized payment hubs, so "investors" can act as liquidity providors and take fees, instead of miners. 4. Electricty usage is unsustainable, GOTO 3 5. [4] Bitcoin value is make-believe just like money. But even though there is bitcoin-sphere governance, there are no bitcoin-sphere assets. Taxes are not paid in bitcoin. There is no FDIC, only hackers that lift a million here and there. And when nation-states decide its a nuisance, what are the guns of bitcoin? It’s anonymity? From the same government that created PRISM and then used mind-magic* to make everyone forget about PRISM? Please. You may think crypto-currencies that require more power than a small country to run can fly under the radar, but somehow I think not indefinitely. After all, becoming the next big thing would mean its a threat to the American dollar, do you really think the US Gov will shrug and say “shucks bitcoin went from a ponzi-novelty to something that will totally usurp this hegemony we worked so hard to make. Guess we’ll have to call it a day.” (If you think this, sell your Bitcoin and buy an imagination.) The day you can pay tax bills to a government in Bitcoin is probably the day you can rest easy. Until then dear Bitcoin holders, you do have something of value, just like the Louisiana territory has value. But in this 1800’s metaphor, what makes you so sure you’re America? Monopoly money is good to have, while the game is still running. [1] https://bitcoin.stackexchange.com/questions/86/is-it-possible-to-estimate-the-gini-coefficient-for-bitcoins-and-if-the-trend-is https://bitcoin.stackexchange.com/questions/86/is-it-possibl... http://www.businessinsider.com/bitcoin-inequality-2014-1 http://www.businessinsider.com/bitcoin-inequality-2014-1 [2] https://www.youtube.com/watch?v=6r04gfWfRkE https://www.youtube.com/watch?v=6r04gfWfRkE [3] https://qz.com/1055126/photos-china-has-one-of-worlds-largest-bitcoin-mines/ https://qz.com/1055126/photos-china-has-one-of-worlds-larges... [4] https://hackernoon.com/the-guns-of-bitcoin-1f779309a718 https://hackernoon.com/the-guns-of-bitcoin-1f779309a718

pat_space 9y ago
This was eye-opening. Thanks for posting. I will share this with my friends.
beaner 9y ago
You seem to be confused. Bitcoin doesn't require buy-in. It doesn't give any promise of a positive return. Simultaneously, you argue that "easy migration to more advanced e-currencies" is a deficiency, even though they use the same scarcity model. The rest of your post is just ranty conjecture. If you want one thought on why digital currency has value, consider this: Currently, to send money between two people in the US, it takes 3 business days, typically costs some transaction fee, and is limited to the range of the border. It is slow, expensive, and local. But we are in the age of information. We used to have the same restrictions for paper letters. But now I can send an email to anyone in the world in seconds for no effort. It is fast, cheap, and global. Why shouldn't money be the same way? There is no incentive for traditional finance to improve its product, because regulation is so high that it is difficult for new entrants. Complexity and incompatibility is an advantage; it creates lock-in. There is no incentive for governments to improve, because full control of their local systems is exactly what they want. Fast, cheap, global money is in the interest of the people, but not the incumbents. Decentralized scarcity is what enables it. Now that it is here, why would we have 200 non-interoperable, complicated, slow local systems, when we could have one that works everywhere, according to a predictable economic model? Or a variety of economic models, that the world could choose from and watch play out against each other, not based on jurisdiction, but practicality? Like other types of information, money will flow through the path of least resistance. As crypto becomes more accessible, all of the world's money will flow into it, because it will be better. Parts of the world which have never had access to traditional financial services will leapfrog it and go straight to crypto, connecting directly to the rest of the world and taking advantage of the ability for people to be their own bank, instead of waiting for permission to connect to the old system. Anything that is just information can be made digital, and anything that is digital trends towards fast, cheap, and free. Money is an example of something that is just information, like music, movies, and news. All money will flow to digital currency in time because it is money that is built for the information age. We are at the very start of the S-curve.

by 0wing 9y ago

pat_space 9y ago

This was eye-opening. Thanks for posting. I will share this with my friends.

beaner 9y ago

You seem to be confused. Bitcoin doesn't require buy-in. It doesn't give any promise of a positive return. Simultaneously, you argue that "easy migration to more advanced e-currencies" is a deficiency, even though they use the same scarcity model. The rest of your post is just ranty conjecture. If you want one thought on why digital currency has value, consider this: Currently, to send money between two people in the US, it takes 3 business days, typically costs some transaction fee, and is limited to the range of the border. It is slow, expensive, and local. But we are in the age of information. We used to have the same restrictions for paper letters. But now I can send an email to anyone in the world in seconds for no effort. It is fast, cheap, and global. Why shouldn't money be the same way? There is no incentive for traditional finance to improve its product, because regulation is so high that it is difficult for new entrants. Complexity and incompatibility is an advantage; it creates lock-in. There is no incentive for governments to improve, because full control of their local systems is exactly what they want. Fast, cheap, global money is in the interest of the people, but not the incumbents. Decentralized scarcity is what enables it. Now that it is here, why would we have 200 non-interoperable, complicated, slow local systems, when we could have one that works everywhere, according to a predictable economic model? Or a variety of economic models, that the world could choose from and watch play out against each other, not based on jurisdiction, but practicality? Like other types of information, money will flow through the path of least resistance. As crypto becomes more accessible, all of the world's money will flow into it, because it will be better. Parts of the world which have never had access to traditional financial services will leapfrog it and go straight to crypto, connecting directly to the rest of the world and taking advantage of the ability for people to be their own bank, instead of waiting for permission to connect to the old system. Anything that is just information can be made digital, and anything that is digital trends towards fast, cheap, and free. Money is an example of something that is just information, like music, movies, and news. All money will flow to digital currency in time because it is money that is built for the information age. We are at the very start of the S-curve.