5 ms·

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 mode

by 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.
  - tomkarlo 15y ago
    You're making the mistake of thinking of stock as a speculative instrument only. It's a legal claim upon the economic output of an enterprise - the speculative element is secondary to that. Even if no market exists to resell a stock, if the company is operating it still has fundamental value, whereas something like bitcoin has no value if nobody else is willing to trade you something. Given that, I don't think your comparison holds. Yes, a speculative market exists in stocks (and generally, anything else of value.) But the value of a stock is not based purely upon the speculative market that might exist around it - at its root, it has an underlying fundamental value that is not driven by market demand. Similarly, lots of folks speculate in commodities, but at the end of the day, if you can't sell oil or steel, you can use them to produce other things you can sell.
    - westicle 15y ago
      People also speculate in currencies. You can argue that currency is a kind of stock in the "enterprise" of the sovereign printing that currency. But is there a qualitative difference between that and bitcoin?
      - tomkarlo 15y ago
        Currency is not a "kind of stock". It is not a claim of ownership in an asset / entity or a claim on a future cash flow stream. It is in fact the opposite of a claim on the printing operation of the issuer, given that the more currency is printed, the less valuable the currency you hold becomes. If nobody will accept a currency, it does not continue to have value, because its value is based upon what someone is willing to trade you for it.
    - owenmarshall 15y ago
      >But the value of a stock is not based purely upon the speculative market that might exist around it - at its root, it has an underlying fundamental value that is not driven by market demand. Market demand for the instrument, that is, right? :) I don't know -- I see a difference here, but it looks only nominal. If I purchase shares in a privately-held small business that hits tough times, my claim on the output of that company can essentially evaporate -- they won't be paying dividends as no profit exists, I might not be able to sell the stock because no market exists for it, and once the company goes belly-up they pay the bank and lenders before shareholders get anything. I'm sure a difference exists; I'm no serious investor, so it's easy for me to not see it.

by VMG 15y ago

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.
- tomkarlo 15y ago
  You're making the mistake of thinking of stock as a speculative instrument only. It's a legal claim upon the economic output of an enterprise - the speculative element is secondary to that. Even if no market exists to resell a stock, if the company is operating it still has fundamental value, whereas something like bitcoin has no value if nobody else is willing to trade you something. Given that, I don't think your comparison holds. Yes, a speculative market exists in stocks (and generally, anything else of value.) But the value of a stock is not based purely upon the speculative market that might exist around it - at its root, it has an underlying fundamental value that is not driven by market demand. Similarly, lots of folks speculate in commodities, but at the end of the day, if you can't sell oil or steel, you can use them to produce other things you can sell.
  - westicle 15y ago
    People also speculate in currencies. You can argue that currency is a kind of stock in the "enterprise" of the sovereign printing that currency. But is there a qualitative difference between that and bitcoin?
    - tomkarlo 15y ago
      Currency is not a "kind of stock". It is not a claim of ownership in an asset / entity or a claim on a future cash flow stream. It is in fact the opposite of a claim on the printing operation of the issuer, given that the more currency is printed, the less valuable the currency you hold becomes. If nobody will accept a currency, it does not continue to have value, because its value is based upon what someone is willing to trade you for it.
  - owenmarshall 15y ago
    >But the value of a stock is not based purely upon the speculative market that might exist around it - at its root, it has an underlying fundamental value that is not driven by market demand. Market demand for the instrument, that is, right? :) I don't know -- I see a difference here, but it looks only nominal. If I purchase shares in a privately-held small business that hits tough times, my claim on the output of that company can essentially evaporate -- they won't be paying dividends as no profit exists, I might not be able to sell the stock because no market exists for it, and once the company goes belly-up they pay the bank and lenders before shareholders get anything. I'm sure a difference exists; I'm no serious investor, so it's easy for me to not see it.