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

by swaits 15y ago

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.

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

by swaits 15y ago

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

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.