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Nassim Taleb says Bitcoin is an open Ponzi scheme and a failed currency
- Flatcircle 6y agoFew understand this
- scarmig 6y agoMy take is that it's all a speculative boom, similar to US equities right now but amped up since it's a novel type of asset that people can convince themselves has unique characteristics that lend themselves to a consistent 100% CAGR.
- akimball 6y agoIt certainly does have unique characteristics. The question for speculators is whether those characteristics imply a high future price, and on what time scale. There is ample data to make many principled inferences on these points. The question for adopters is whether those characteristics facilitate their intended application, and this will often be decided independently of market clearing prices, on technical and physical characteristics.
- qnsi 6y agoI x20 my BTC holdings and I agree 100% Bitcoin is pure speculation. Noone uses it to buy things and yeah maybe it makes sense in Venezuela but no chance its going to displace USD. Only way is to ride a hype train. I had BTC from 2012, found it in 2019 after the crash so just waited for the hype to build up again. Sold it at 56k and will probably never buy again
- wsc981 6y ago> Noone uses it to buy things and yeah maybe it makes sense in Venezuela but no chance its going to displace USD. Just this week there was some news that Iran was going to use BTC to work around some US sanctions. I am sure many countries will follow suit in the future, as the only way to really stop Bitcoin is if all countries would ban it's use together and that ain't gonna happen.
- usehackernews 6y agoI’ve used it to buy things. Back in the day, I wanted to support bitcoin so I paid 1 Bitcoin, equivalent of $150 at the time, on a single night at a hotel. I learned my lesson, at today’s price, that one night stay cost me $60,000. And this is why people don’t use it as a currency.
- waihtis 6y agoDefinitely not lindy.
- akimball 6y agoMy understanding is that cryptographic token systems are properly taken to be lindy on priors, just like central bank currencies, universes, or any finite span process absent model and evidence. It is only on model and evidence that the lindy prior is rationally updated. To make the case that it is not lindy, it suffices to advance a model and calibrate it empirically. The likelihood of the proposal will hinge primarily on the evidence for the model.
- waihtis 6y ago> My understanding is that cryptographic token systems are properly taken to be lindy on priors What priors are there for a "currency" such as bitcoin? Genuine interest, not sarcastic tone here btw.
- Animats 6y agoTaleb may just be annoyed that he missed the biggest black swan in the last decade.
- austincheney 6y agoPossibly, but does that make him wrong?
- Jeff_Brown 6y agoWhether it's a failure depends on what you were hoping it would achieve, and how long you're willing to keep watching it before making up your mind. The experiment is still going. Maybe humanity millenia from now will be snuffing out whole stars to mine Bitcoin. I'd consider that a failure, but surely some miner would consider it a success.
- austincheney 6y agoWhether it's a failure depends upon its real value, which is next to 0. Crypto-currencies instead have a high nominal value, which is to say that they are only valued as an exchange for other currencies but otherwise have no utility. As a comparison a warehouse stocked with purchased tangible goods have a real value that can be exchanged for other goods regardless of inflation or currency activity. Crypto does not have that. https://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics) https://en.wikipedia.org/wiki/Real_versus_nominal_value_(eco... Concretely, there are only two utilities to crypto-currency: as a speculative currency investment hoping the value of a given crypto-currency increases disproportionately to a seed currency and as a means of anonymizing currency transactions. Until crypto is used for something other than day trading or illicit purchases most people simply don't care and won't ever care as its effectively worthless in a real sense.
- Jeff_Brown 6y agoIt's got at least one more use case: getting around inflationary problems. It's been a huge boon in Venezuela for that reason.
- okareaman 6y agoIf one person owned all the Bitcoin in the world would they be rich?
- sircastor 6y agoOnly if others want it. This is transferable to any medium. If we do a little thought experiment and say one person owns all the gold in the world, and another owns all the wheat in the world, which one is richer? Well, it depends on which you’re interested in. Adjacently though, if you’re starving you can’t eat the gold.
- okareaman 6y agoAs a kid I enjoyed the myth of Midas with the golden touch. Everything he touched turned to gold, even his food, so he starved to death.
- lostmsu 6y agoNot sure what is your point here. Same question can be applied to US dollars.
- okareaman 6y agoThe govt can print more dollars. There is a finite amount of Bitcoin.
- lostmsu 6y agoYou are not answering the question by repeating this common knowledge.
- managerclass 6y agoThere's many cryptocurrencies that are designed to be infinite. How does that change anything?
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- mojuba 6y agoAm I correct if I say: the amount of money in circulation should match the amount of wealth produced by a given society, and therefore anything that doesn't follow the same principle can't be called currency?
- thatswrong0 6y agoThen the US dollar isn't a currency either..?
- mojuba 6y agoI think it is a currency as long as there's single authority that regulates the amount of dollars in circulation.
- thatswrong0 6y agoMaybe this is completely off base but my line of thinking was based around fractional reserve banking: let's say I have 10 dollars and I put them in the bank. Then let's say the bank lends out 9 out of 10 of the dollars to someone else for a mortgage. The net wealth is the same ($10), but there are now $19 in circulation.
- mojuba 6y agoBut that's just the bank lending your money on your behalf (though without you knowing or approving) - I don't see a problem with that.
- sova 6y agoOh what a splendid question. Currency is simply the means of transfer for wealth but not all wealth needs to nor can be represented by currency. We sometimes talk about the value of clean water or clean air in dollars, but this is not something readily convertible. Likewise, the wealth we inherit via bodies (stomach, intestines, lungs) is not something sell-able or representable by currency [unless we're talking illicit organ sales, but then the benefactor is hardly the person who started with the wealth]. Currency must represent enough wealth to be able to flow (current -> currency) but it's more akin to red blood cells in a body of organs, it serves the organs via its transit. We call this "liquid" when we have wealth represented by cash. I believe the correct answer here is that currency is a (fixed) ratio of actual wealth being generated by a nation-state or planet and therefore the amount of hay grown, the amount of rice harvested, the amount of chips manufactured, the amount of creative output that is captured is measurable, and there is a fixed ratio of that amount that results in "currency." This might be easier to understand with a medieval analogy to a castle, we cannot sell our only castle, but we can use the agricultural surplus to trade. The castle might appear to have some sort of convertible wealth, but not all currency must represent that, because we are not frequently trading castles, but we are frequently trading currency for bread and for sustenance and commodity-goods. I think one would benefit from reading Foucault's "The Order of Things" which explains that trade can only happen when there is a surplus beyond what is locally necessary, and this surplus is what gives rise to currency.
- managerclass 6y agoAsk any criminal on the dark web weather Bitcoin has value or not. Having an asset that no government can take away from you is invaluable.
- spraveenitpro 6y agoHSBC knows this as they love to launder for El-Chapo with Uncle sam dollars.
- Lammy 6y agoThis is exactly what I would want people to believe if I were a government that knew all the cryptography involved was totally broken.
- DeRock 6y agoYour comment may have been accurate 10 years ago when Silk Road existed, but nowadays people have moved on from bitcoin. The easily traceable ledger is a liability.
- ryanlol 6y agoUtter bullshit. Some are trying to move on, but most have not.
- akimball 6y agoYes, but it's the worlds leading openly accessible settlements network.
- klelatti 6y agoI agree with Taleb but what will convince potential buyers that Bitcoin doesn't have some sort of property that makes it a valuable asset: it's abstract nature and mystique seems to me to be tailor made for the hype to continue for a long time.
- stewbrew 6y agoMoney is abstract and mystique. You see value in it because of your expectations that build on past experiences. With bitcoins, people have yet to make experiences.
- klelatti 6y agoIndeed. I wonder if buying Bitcoin is the purest form of technological optimism too: faith that the human species is clever enough to find a use for it.
- dragonwriter 6y ago> I wonder if buying Bitcoin is the purest form of technological optimism too: faith that the human species is clever enough to find a use for it. It can be. Can also be the purest form of cynicism, too: the enduring faith that there is a sufficient perennial reserve of tech optimism that the absence of broad practical application won’t prevent their from being a market of activists willing to purchase at higher and higher prices. I suspect a lot is between those extremes, though.
- klelatti 6y agoAgree 100%. It sort of has something for a lot of different groups which I guess is part of the reason for its success.
- vmception 6y ago-coin and -currency in bitcoin and cryptocurrency are skeumorphs and always has been regardless, the asset inherits peer to peer bearer transferability which overlaps with a currency. and all extensions of the asset inherit this too. don't get distracted by these irrelevant terms, you would fail any standardized test by focusing on the irrelevant details of the question
- cbradford 6y agoYou could replace Bitcoin with USD and say the same thing. Any currency has value because those in power insist on taxes being paid in that currency, otherwise it is just what people believe it to be. Read "When Money Dies", excellent book about how a government can ruin the trust that is the basis of fiat.
- spraveenitpro 6y agoWhat a stupid article.
- paulpauper 6y agoIt is annoying how people use worlds like "bubble" and "ponzi scheme" interchangeably. Bitcoin may be a bubble but it is not a ponzi scheme. Taleb losses credibility for confusing the two.
- pedrobtz 6y agoMaybe it is a decentralised Ponzi scheme
- paulpauper 6y agoa ponzi scheme requires that $ from ealier investors is paid out to later ones. bitcoin pays nothing out.
- sova 6y agoInteresting counterpoint! How would we allay the repartee that buy-in is mining hardware and the payout is coin? It's not exactly cash-to-cash, but cash-to-hardware-to-coin-to-cash where the endpoints are still the same. Or is it arguable worse and more risky than a Ponzi scheme in that regard?
- paulpauper 6y agothat is more analogous to selling mining equipment during the gold rush
- FabHK 6y ago> a ponzi scheme requires that $ from ealier investors is paid out to later ones. (the other way around) A BTC is worth nothing unless you can sell it for something (such as USD). It is the later "investors" who buy BTC for sky high prices that allow earlier "investors" and miners to cash out.
- cbHXBY1D 6y agoBitfinex did this by printing Tethers out of thin air. See this video: https://www.youtube.com/watch?v=k1W_Gyerhug https://www.youtube.com/watch?v=k1W_Gyerhug
- siriuz 6y agoCould be true, I don‘t know.
- smnrchrds 6y agoBitcoin is less like a Ponzi scheme and more like, as one journalist once described it, "math beanie babies".
- deleted 6y ago[deleted]
- Jeff_Brown 6y agoIn that sense they're not much different. Beanie babies formed a speculative bubble too. One might quibble that the phrase "Ponzi scheme" suggests conscious intent to deceive. That's a hard thing to prove, and largely economically immaterial. Putting questions of intent aside, every speculative bubble is a Ponzi scheme: buyers plan to sell for more money, and eventually can't.
- Udik 6y ago> buyers plan to sell for more money, and eventually can't. This also holds for all those shares that don't pay dividends: Alphabet, Amazon, etc.
- Jeff_Brown 6y agoSometimes -- it depends on the investor. Other investors want non-paying stocks today because they will presumably start paying dividends someday. And in a perfectly rational world, the only reason the first kind of investor would have for believing they could sell at a profit would be because they anticipate the second kind of investor's beliefs.
- smnrchrds 6y agoI think you are mixing up Ponzi scheme and pyramid scheme.
- Jeff_Brown 6y agoYou're right, thanks. (For anyone else unaware of the difference, Ponzi schemes are financial fraud and always illegal; pyramid schemes form a more inclusive set.)
- kevinoid 6y agoA discussion of Nassim Taleb's tweet of the same sentiment last week: https://news.ycombinator.com/item?id=26840006 https://news.ycombinator.com/item?id=26840006 (430 comments)
- beforeolives 6y agoNow I have to either agree with Taleb or admit that Bitcoin has some validity and I can't bring myself to do either.
- fossuser 6y agoI think its place isn't as a currency. I written this comment before, but I’ve basically come to believe the argument described in the following is true: https://www.matthuang.com/bitcoin_for_the_open_minded_skeptic https://www.matthuang.com/bitcoin_for_the_open_minded_skepti... Bitcoin isn’t a cash competitor, it’s a gold competitor - and it’s a pretty good one. Part of something like gold is the shared social belief in it as a store of value. Bitcoin has this and there’s enough time and infrastructure behind it at this point that I’d bet it’s likely to keep it. That plus its scarcity guarantee and disconnect from the federal monetary policy of any one country or bank makes me bullish on its future in the long term. I’m also bullish on ethereum, but for different reasons.
- shostack 6y agoHow does shared social belief in it as a store of value differentiate it from fiat currency?
- hurlaway25 6y agoFiat can be arbitrarily devalued to finance whatever schemes the government decides is worth financing. In other words, fiat doesn’t really encourage saving.
- for_shostack 6y agoBecause of its scarcity. It costs 0$ (or so nearly as to not matter) to create 1$. This is not true for stores of value like gold and BTC
- fossuser 6y agoThat part is something they have in common. The differentiation is about monetary policy, BTC's policy is in code via incentives and PoW. It's decentralized and not controlled by a government. The currency is scarce and the maximum amount is predetermined. It's deflationary. I'm not an 'inflation is bad' person. I'm not a hardcore anti-government crypto-anarchist. I think government monetary policy has a place and the QE policy after 2008 clearly worked based on the rapid recovery and loan repayment. I think when you have growth you need more currency to support that growth and newly created wealth. Some inflation in monetary policy is desirable and creates incentives you want (investment) vs. hoarding cash. I am not an economics expert and people are often way too confident in this kind of stuff when they shouldn't be. The reason BTC is more like gold than like fiat currency is because of the things in that article, but a quick summary: - It's hard to actually trade with for goods (nobody is bringing little gold flakes into the 7/11 for a chocolate bar). - It's scarce and takes a lot of energy to 'mine'. The supply of gold on earth is limited by nature. The supply of BTC is limited by code and math. - People use it as a place to store value beyond its inherent value. Gold is shiny and has some utility as a metal, but its market value is mostly entirely unrelated to that. - In some ways BTC is better than gold as a value store. It's easier to store and easier to transport.
- gremlinsinc 6y agoHe's not wrong... I'd compare it more though to original gold and silver as currency in the middle ages and earlier.... It's a new technology just like original currency was centuries ago. I think it has the potential to end poverty if tied to a single identity and account with built in taxes and a cap (prevent billionaires) and ads/rewards for internet content producers (built in patreon and crowd funding)... But bitcoin and even ethereum aren't this... Eth has more potential and possibilities, Cardano is even better, but I think anything that might help poverty and equality and post scarcity is 20 years off... Might not even technically use blockchain but some other mechanism for decentralization of currency.
- aogaili 6y agoAnd he is right. It is very obvious. Failed currency? Yes, that was the envisioned utility and it failed to deliver that for many reasons. Ponzi scheme? it is obvious, current holders make money when someone else buy it at a higher price. Anyone says otherwise, need to counter those two facts or else we could assume he/she hyping it for profit or following blinded ideology/hype. It also fintech porn, that many on forums like HN masturbate on mentally while day-dreaming about the prospect of anarchist decentralized self-governing societies.. Truth often ugly, I'm ready to be downvoted ^^.
- lowkey 6y agoBitcoin is the opposite of a Ponzi scheme. A Ponzi scheme relies on fraudulent accounting to work. The earlier investor is paid a 'return' from funds that come from the principal of later investors. The distinction between a Ponzi scheme and an honest investment pool is that the latter maintains clear and honest accounting of investor funds and ensures that each investor's principal and gains are accurately accounted for. With Bitcoin, the transaction ledger is public and immutable, making it impossible to conduct a Ponzi scheme on the Bitcoin network itself. If everything is verifiable it becomes much harder to run scams.
- aogaili 6y agoI get your point. Perhaps not a Ponzi scheme in the traditional sense. In the Ponzi scheme you described, the value of the currency is stable but the account is hidden. In Bitcoin, we have the opposite. The "Ponzi scheme" is enabled on bitcoin not by hiding the bank account, but manipulation of the value of the currency itself. In both cases, the n holder is benefiting from the n+1 holder by convincing them to pay more for what the sell as a profitable investment, and each transaction value should be greater than the one before it for it to work. So it is a form of a Ponzi scheme, not the traditional one you described. Sure, I have a transparent ledger, but what exactly do those numbers account for? I tell you, it is a great, wonderful investment, easy way to make money, it is the future, just pay me x amount more than what I paid. The issue here is that bitcoin is not appreciating due to advancements, growth or the extra value it providers to society, in fact as it stands it has negative impact. No, it is appreciating only due to social hype in the intersubjective social reality. It is a scam.