5 ms·

I think Bitcoin is fascinating, even though I believe it won't succeed and is quite possibly a big pyramid scheme.

by tlrobinson 15y ago

swaits 15y ago
How exactly might it be "a big pyramid scheme"?
- tlrobinson 15y ago
  I'm no economist but my layman's understanding is this... Early adopters have a huge incentive to convince more people to use Bitcoin. If Bitcoin is successful the value of Bitcoins is guaranteed to increase because there's a finite number of them. Because of this, naturally people will hoard their Bitcoins rather than spend them. At some point people will realize the price of Bitcoins was driven up by speculation, and it will collapse. I'm not saying Bitcoin was intentionally devised as a pyramid scheme, but that's kind of what it looks like it's turning into.
  - swaits 15y ago
    You might be able to call it a speculative (digital) commodity bubble. And there's a possibility for this "commodity" to one day go "poof!" and disappear (gov't regulation, hackers, system failure, etc.) Only time will tell us those things. But I don't see how you could call it a pyramid scheme. http://en.wikipedia.org/wiki/Pyramid_scheme http://en.wikipedia.org/wiki/Pyramid_scheme
    - T-hawk 15y ago
      Bitcoin does share some aspects with a pyramid scheme. Bitcoin owners have incentive to recruit into the Bitcoin network. Bitcoins aren't really good for anything until merchants willing to accept Bitcoins also join the system. And the gain of the early adopters does come from what the later joiners bring, in the form of their goods and services that they exchange for Bitcoins. I guess where Bitcoin diverges from a pyramid is that there's no chain reaction of recruiting. Once a user spends a Bitcoin, it's done; he doesn't stand to continually gain further from what the Bitcoin recipient continues to do or from anyone else the recipient brings into the system.
      - jfd 15y ago
        Just so be clear... How exactly does this differ from any monetary system out there? A currency is not accepted until a major of people approves it. Government or not, "money" is and will always be something that human kind has invented, it does not contains any real value, it just makes it easier to trade goods.
        antiscam 15y ago
        Bitcoin marketers invariably use formal analogies to suggest that Bitcoin isn't a scam. "The early adopters benefit just like in Google, so there can't be anything wrong with that" or "If Bitcoin is a pyramid scheme, then US dollars are as well." The problem is that these analogies neglect all context and substance. Just because some schemes that benefit early adopters aren't scams doesn't mean that all such schemes aren't scams. Just because not everything called a "currency" isn't dishonest doesn't mean that this one isn't being marketed dishonestly and without regard to the people who will lose money as a result. What's different between Bitcoin and gold? Bitcoin has very limited history, whereas gold has a much deeper history. Gold doesn't face existential security problems; Bitcoin has faced security compromises (such as an integer overflow in the block chain) even in its short history, and these compromises have had to be corrected using out-of-band mechanisms. The Bitcoin market is tiny, subject to market manipulation, and operates through unregulated and probably illegitimate exchanges. Finally, people buy gold without most people who own it spending a good chunk of their time promoting it dishonestly to others.
- VMG 15y ago
  Some people called it a scam, I think it could be a bubble, but a pyramid scheme it most definitely is not: A pyramid scheme is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are a form of fraud. (Wikipedia)
  - tlrobinson 15y ago
    It's not a traditional pyramid scheme, but I see a lot of similarities between that description and the current state of Bitcoin. promising participants payment, services or ideals There's an implicit promise that if Bitcoin gains popularity the value of Bitcoins will increase. primarily for enrolling other people into the scheme or training them to take part If you take part by purchasing Bitcoin there's a huge incentive to get other people involved in Bitcoin. rather than supplying any real investment or sale of products or services to the public There are very few services/products you can actually buy with Bitcoin.
    - corin_ 15y ago
      But you could also compare it to investing in an early-stage startup. If the company you invest in gains popularity the value will increase. If you invest in the company there's an incentive to get other investors involved, as the more people wanting in on the action, the higher the valuation will go. And at time of investment, said company isn't actually generating any revenue, it's all just about future expectations. Hence I would argue that it can be argued that Bitcoin is a bubble (i.e. equivilent to investing in a startup that is sure to fail) but not a pyramid scheme.
    - owenmarshall 15y ago
      OK, let's take those criticisms and re-apply them a bit: -- It's not a traditional pyramid scheme, but I see a lot of similarities between that description and the current state of buying/selling stocks. promising participants payment, services or ideals There's an implicit promise that if a stock gains popularity the value of the stock will increase. primarily for enrolling other people into the scheme or training them to take part If you take part by purchasing stocks there's a huge incentive to get other people involved in the stock market. rather than supplying any real investment or sale of products or services to the public There are very few services/products you can actually buy with a stock certificate. -- Bitcoin is a bubble, but not necessarily a scam.
tokenadult 15y ago
I think Bitcoin is fascinating I do too, for the same reason that the tulip mania in the Dutch Golden Age http://www.businessweek.com/2000/00_17/b3678084.htm http://www.businessweek.com/2000/00_17/b3678084.htm or the South Sea Bubble http://www.investopedia.com/features/crashes/crashes3.asp http://www.investopedia.com/features/crashes/crashes3.asp are still fascinating. I've known about those failed investment strategies since childhood, but I still see fully grown human beings falling for strategies that are no more reasonable.
- VladRussian 15y ago
  >The demand for investments caused IPOs to sprout out of everything, including companies that promised to reclaim sunshine from vegetables and to build floating mansions to extend Britain's landmass. They all sold like mad. looks like supposedly "green" technologies like ethanol from corn are back again 300 years later.
tzs 15y ago
It's more like a pump-and-dump than a pyramid scheme, I think.
- SeoxyS 15y ago
  It's funny, but as a pyramid scheme it kinda sucks. When the pyramid crumbles, everybody's left with a bunch of worthless bitcoins. At least in a ponzie scheme, the people at the top profit. A lot.
  - ojilles 15y ago
    This wouldn't be any different. In the end, by the time it crashes, the winners don't hold any bitcoins (almost by definition)
  - jff 15y ago
    But if you've been mining bitcoins since the beginning, you probably have a lot. Now mining is no longer very profitable because more people are in on it; thus, it makes sense for the early adopters to convert their bitcoins to USD at Mt Gox. They make a load of money from the late adopters, and the late adopters are left with loads of worthless bitcoins (because eventually nobody wants them and you can't sell them). Sounds more like an MLM scheme.
    - Andys 15y ago
      Except they aren't selling much, which is why the USD value keeps going up.
      - haakon 15y ago
        This could be part of the scheme, however. This is a late phase of the scheme in which the early adopters are now fully stocked up on bitcoin, and are now hyping it very successfully. Late adopters want in, but the early adopters are not selling, and the miners aren't generating much anymore. Thus, supply is severely limited and the rate skyrockets, up more than 200,000% at this point. There is no telling what heights it will reach, but it's not over yet. At some point, the early adopters will start dumping, thus completing the scheme and leaving the late adopters with absolutely nothing. I don't believe bitcoin is an evil planned-out scheme like this, but human nature may trigger this bubble effect.

I think Bitcoin is fascinating, even though I believe it won't succeed and is quite possibly a big pyramid scheme.

swaits 15y ago

How exactly might it be "a big pyramid scheme"?

tlrobinson 15y ago
I'm no economist but my layman's understanding is this... Early adopters have a huge incentive to convince more people to use Bitcoin. If Bitcoin is successful the value of Bitcoins is guaranteed to increase because there's a finite number of them. Because of this, naturally people will hoard their Bitcoins rather than spend them. At some point people will realize the price of Bitcoins was driven up by speculation, and it will collapse. I'm not saying Bitcoin was intentionally devised as a pyramid scheme, but that's kind of what it looks like it's turning into.
- swaits 15y ago
  You might be able to call it a speculative (digital) commodity bubble. And there's a possibility for this "commodity" to one day go "poof!" and disappear (gov't regulation, hackers, system failure, etc.) Only time will tell us those things. But I don't see how you could call it a pyramid scheme. http://en.wikipedia.org/wiki/Pyramid_scheme http://en.wikipedia.org/wiki/Pyramid_scheme
  - T-hawk 15y ago
    Bitcoin does share some aspects with a pyramid scheme. Bitcoin owners have incentive to recruit into the Bitcoin network. Bitcoins aren't really good for anything until merchants willing to accept Bitcoins also join the system. And the gain of the early adopters does come from what the later joiners bring, in the form of their goods and services that they exchange for Bitcoins. I guess where Bitcoin diverges from a pyramid is that there's no chain reaction of recruiting. Once a user spends a Bitcoin, it's done; he doesn't stand to continually gain further from what the Bitcoin recipient continues to do or from anyone else the recipient brings into the system.
    - jfd 15y ago
      Just so be clear... How exactly does this differ from any monetary system out there? A currency is not accepted until a major of people approves it. Government or not, "money" is and will always be something that human kind has invented, it does not contains any real value, it just makes it easier to trade goods.
      - antiscam 15y ago
        Bitcoin marketers invariably use formal analogies to suggest that Bitcoin isn't a scam. "The early adopters benefit just like in Google, so there can't be anything wrong with that" or "If Bitcoin is a pyramid scheme, then US dollars are as well." The problem is that these analogies neglect all context and substance. Just because some schemes that benefit early adopters aren't scams doesn't mean that all such schemes aren't scams. Just because not everything called a "currency" isn't dishonest doesn't mean that this one isn't being marketed dishonestly and without regard to the people who will lose money as a result. What's different between Bitcoin and gold? Bitcoin has very limited history, whereas gold has a much deeper history. Gold doesn't face existential security problems; Bitcoin has faced security compromises (such as an integer overflow in the block chain) even in its short history, and these compromises have had to be corrected using out-of-band mechanisms. The Bitcoin market is tiny, subject to market manipulation, and operates through unregulated and probably illegitimate exchanges. Finally, people buy gold without most people who own it spending a good chunk of their time promoting it dishonestly to others.
VMG 15y ago
Some people called it a scam, I think it could be a bubble, but a pyramid scheme it most definitely is not: A pyramid scheme is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are a form of fraud. (Wikipedia)
- tlrobinson 15y ago
  It's not a traditional pyramid scheme, but I see a lot of similarities between that description and the current state of Bitcoin. promising participants payment, services or ideals There's an implicit promise that if Bitcoin gains popularity the value of Bitcoins will increase. primarily for enrolling other people into the scheme or training them to take part If you take part by purchasing Bitcoin there's a huge incentive to get other people involved in Bitcoin. rather than supplying any real investment or sale of products or services to the public There are very few services/products you can actually buy with Bitcoin.
  - corin_ 15y ago
    But you could also compare it to investing in an early-stage startup. If the company you invest in gains popularity the value will increase. If you invest in the company there's an incentive to get other investors involved, as the more people wanting in on the action, the higher the valuation will go. And at time of investment, said company isn't actually generating any revenue, it's all just about future expectations. Hence I would argue that it can be argued that Bitcoin is a bubble (i.e. equivilent to investing in a startup that is sure to fail) but not a pyramid scheme.
  - owenmarshall 15y ago
    OK, let's take those criticisms and re-apply them a bit: -- It's not a traditional pyramid scheme, but I see a lot of similarities between that description and the current state of buying/selling stocks. promising participants payment, services or ideals There's an implicit promise that if a stock gains popularity the value of the stock will increase. primarily for enrolling other people into the scheme or training them to take part If you take part by purchasing stocks there's a huge incentive to get other people involved in the stock market. rather than supplying any real investment or sale of products or services to the public There are very few services/products you can actually buy with a stock certificate. -- Bitcoin is a bubble, but not necessarily a scam.

tokenadult 15y ago

I think Bitcoin is fascinating I do too, for the same reason that the tulip mania in the Dutch Golden Age http://www.businessweek.com/2000/00_17/b3678084.htm http://www.businessweek.com/2000/00_17/b3678084.htm or the South Sea Bubble http://www.investopedia.com/features/crashes/crashes3.asp http://www.investopedia.com/features/crashes/crashes3.asp are still fascinating. I've known about those failed investment strategies since childhood, but I still see fully grown human beings falling for strategies that are no more reasonable.

VladRussian 15y ago
>The demand for investments caused IPOs to sprout out of everything, including companies that promised to reclaim sunshine from vegetables and to build floating mansions to extend Britain's landmass. They all sold like mad. looks like supposedly "green" technologies like ethanol from corn are back again 300 years later.

tzs 15y ago

It's more like a pump-and-dump than a pyramid scheme, I think.

SeoxyS 15y ago
It's funny, but as a pyramid scheme it kinda sucks. When the pyramid crumbles, everybody's left with a bunch of worthless bitcoins. At least in a ponzie scheme, the people at the top profit. A lot.
- ojilles 15y ago
  This wouldn't be any different. In the end, by the time it crashes, the winners don't hold any bitcoins (almost by definition)
- jff 15y ago
  But if you've been mining bitcoins since the beginning, you probably have a lot. Now mining is no longer very profitable because more people are in on it; thus, it makes sense for the early adopters to convert their bitcoins to USD at Mt Gox. They make a load of money from the late adopters, and the late adopters are left with loads of worthless bitcoins (because eventually nobody wants them and you can't sell them). Sounds more like an MLM scheme.
  - Andys 15y ago
    Except they aren't selling much, which is why the USD value keeps going up.
    - haakon 15y ago
      This could be part of the scheme, however. This is a late phase of the scheme in which the early adopters are now fully stocked up on bitcoin, and are now hyping it very successfully. Late adopters want in, but the early adopters are not selling, and the miners aren't generating much anymore. Thus, supply is severely limited and the rate skyrockets, up more than 200,000% at this point. There is no telling what heights it will reach, but it's not over yet. At some point, the early adopters will start dumping, thus completing the scheme and leaving the late adopters with absolutely nothing. I don't believe bitcoin is an evil planned-out scheme like this, but human nature may trigger this bubble effect.