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You can criticize crypto currency’s for a lot but I still have never seen a good argument for it being a ponzi scheme. Can someone further this argument to one

by bogota 5y ago

You can criticize crypto currency’s for a lot but I still have never seen a good argument for it being a ponzi scheme. Can someone further this argument to one that wouldn't cover every investment asset?

lapetitejort 5y ago
Dividends and voting rights, off the top of my head. That's not universal to every stock, but fairly common.
- tim333 5y ago
  What about art? Also no divs and voting rights and similar economics but seldom called a ponzi scheme.
Theodores 5y ago
Abductive reasoning: https://en.wikipedia.org/wiki/Duck_test https://en.wikipedia.org/wiki/Duck_test So you have the non-existent assets, bag holding, difficulty getting out and the promise of above average returns. If I put my money into my saving account then I can get out at a clearly stated time, there is no expectation apart from very little interest and I am reasonably sure that the government will bail out the bank if the bank fails. In between there are a spectrum of investment options, property is a good investment asset and you actually have a property made from things like bricks and glass as the 'store of wealth'. Yes it might be difficult to get out if there is a property crash. But it is not a ponzi scheme even if it has some characteristics of one.
- celticninja 5y ago
  But you can get out of bitcoin at any time by selling it so it fails that test.
  - andrewaylett 5y ago
    But selling Bitcoin is _exactly_ an older investor being paid out by a newer investor. IMO it's Bitcoin in combination with Tether that's the actual Ponzi. Unfortunately unlikely to unwind until and unless people start needing to redeem Tether rather than selling it on.
    - 35fbe7d3d5b9 5y ago
      > IMO it's Bitcoin in combination with Tether that's the actual Ponzi. Bingo. The problem is, the big players have no interest in unwinding the scheme. As long as exchanges can wash trade USDT:BTC to drive the inflow of retail investment, things keep going. What'll be interesting is if BTC continues to fall. I think the low $30k is a support level; if it crashes below that, I bet we're going to see more outflow from undercapitalized exchanges and things will adjust hard.
      - inter_netuser 5y ago
        undercapitalized exchanges? you think they are running on fractional reserve?
        celticninja 5y ago
        That is pretty much the accusation against tether. Most exchanges use it, so rather than the exchanges being knowingly undercapitalized, they are by virtue of using tether. Which is supposed to be 1=1 backed with the $. Which it isnt, and it is not clear how backed it actually is.
        inter_netuser 5y ago
        They are under regular audit by NY AG. Do you not think they'd be jail by now for fraud? They don't disclose details, yes. but neither does your bank, really. Finance tends to be tight-lipped.
        celticninja 5y ago
- eingaeKaiy8ujie 5y ago
  There are no promises of returns.
notahacker 5y ago
If no speculators want to pay you for your stock, you'd have a stake in a stream of future profits or asset sales that company made simply from hanging onto it. If no speculators are interested in your bonds, the issuer is obliged to pay you coupon payments until it matures simply because you hang onto it. If nobody speculated on your property, there's a lot you can do with the land whilst hanging onto it. Even a dubious investment propped up by a lot of marketing hype like gold can make shiny things. With Bitcoin, you have a cryptographic string. You can't make anything with it, it's not interesting to look at, it doesn't pay dividends or coupons and you almost certainly don't have any debt denominated in it. The only reason to hold it is the hope someone else will buy it from you for a greater price in future, and the only reason to believe they might want to do that is a claim that it's a "store of value" based entirely on the profits earlier holders made selling it to new ones. It may not literally be a Ponzi scheme, but the dynamics are the same.
- vekker 5y ago
  This discussion has no value if you were the only one participating. Facebook has no value if there are no "friends" to interact with. My point is, the same kind of network effects that make social media valuable, are also inherent to cryptocurrencies like BTC. Metcalfe's law applies. Just like fiat currencies, actually. So yes, new entrants are obviously important to achieve an increase in value (and therefore, price). But does that necessarily make it a Ponzi scheme? I don't think so, because a Ponzi is fraud, a scam, by definition. It needs to be done with the malicious intent of stealing the money of new entrants. That's not the case here. Of course new entrants might be convinced by speculators seeking profit to buy in when BTC is actually highly overvalued, but, the same applies to any other investment really (look at what's happening to TSLA).
  - notahacker 5y ago
    It's not the "same kind of network effects" though. It'd be the same kind of network effects if the only reason people had Facebook (or telecoms) accounts is because they thought someone else might buy their account off them for more money. And if a social network came along with that value proposition - "sure, it doesn't actually do anything but the fact I sold some to this other sucker at a higher price than I bought it proves it's a store of value" - nobody would hesitate to call it a pyramid scheme.

by bogota 5y ago

lapetitejort 5y ago

Dividends and voting rights, off the top of my head. That's not universal to every stock, but fairly common.

tim333 5y ago
What about art? Also no divs and voting rights and similar economics but seldom called a ponzi scheme.

Theodores 5y ago

Abductive reasoning: https://en.wikipedia.org/wiki/Duck_test https://en.wikipedia.org/wiki/Duck_test So you have the non-existent assets, bag holding, difficulty getting out and the promise of above average returns. If I put my money into my saving account then I can get out at a clearly stated time, there is no expectation apart from very little interest and I am reasonably sure that the government will bail out the bank if the bank fails. In between there are a spectrum of investment options, property is a good investment asset and you actually have a property made from things like bricks and glass as the 'store of wealth'. Yes it might be difficult to get out if there is a property crash. But it is not a ponzi scheme even if it has some characteristics of one.

celticninja 5y ago
But you can get out of bitcoin at any time by selling it so it fails that test.
- andrewaylett 5y ago
  But selling Bitcoin is _exactly_ an older investor being paid out by a newer investor. IMO it's Bitcoin in combination with Tether that's the actual Ponzi. Unfortunately unlikely to unwind until and unless people start needing to redeem Tether rather than selling it on.
  - 35fbe7d3d5b9 5y ago
    > IMO it's Bitcoin in combination with Tether that's the actual Ponzi. Bingo. The problem is, the big players have no interest in unwinding the scheme. As long as exchanges can wash trade USDT:BTC to drive the inflow of retail investment, things keep going. What'll be interesting is if BTC continues to fall. I think the low $30k is a support level; if it crashes below that, I bet we're going to see more outflow from undercapitalized exchanges and things will adjust hard.
    - inter_netuser 5y ago
      undercapitalized exchanges? you think they are running on fractional reserve?
      - celticninja 5y ago
        That is pretty much the accusation against tether. Most exchanges use it, so rather than the exchanges being knowingly undercapitalized, they are by virtue of using tether. Which is supposed to be 1=1 backed with the $. Which it isnt, and it is not clear how backed it actually is.
        inter_netuser 5y ago
        They are under regular audit by NY AG. Do you not think they'd be jail by now for fraud? They don't disclose details, yes. but neither does your bank, really. Finance tends to be tight-lipped.
        celticninja 5y ago
eingaeKaiy8ujie 5y ago
There are no promises of returns.

notahacker 5y ago

If no speculators want to pay you for your stock, you'd have a stake in a stream of future profits or asset sales that company made simply from hanging onto it. If no speculators are interested in your bonds, the issuer is obliged to pay you coupon payments until it matures simply because you hang onto it. If nobody speculated on your property, there's a lot you can do with the land whilst hanging onto it. Even a dubious investment propped up by a lot of marketing hype like gold can make shiny things. With Bitcoin, you have a cryptographic string. You can't make anything with it, it's not interesting to look at, it doesn't pay dividends or coupons and you almost certainly don't have any debt denominated in it. The only reason to hold it is the hope someone else will buy it from you for a greater price in future, and the only reason to believe they might want to do that is a claim that it's a "store of value" based entirely on the profits earlier holders made selling it to new ones. It may not literally be a Ponzi scheme, but the dynamics are the same.

vekker 5y ago
This discussion has no value if you were the only one participating. Facebook has no value if there are no "friends" to interact with. My point is, the same kind of network effects that make social media valuable, are also inherent to cryptocurrencies like BTC. Metcalfe's law applies. Just like fiat currencies, actually. So yes, new entrants are obviously important to achieve an increase in value (and therefore, price). But does that necessarily make it a Ponzi scheme? I don't think so, because a Ponzi is fraud, a scam, by definition. It needs to be done with the malicious intent of stealing the money of new entrants. That's not the case here. Of course new entrants might be convinced by speculators seeking profit to buy in when BTC is actually highly overvalued, but, the same applies to any other investment really (look at what's happening to TSLA).
- notahacker 5y ago
  It's not the "same kind of network effects" though. It'd be the same kind of network effects if the only reason people had Facebook (or telecoms) accounts is because they thought someone else might buy their account off them for more money. And if a social network came along with that value proposition - "sure, it doesn't actually do anything but the fact I sold some to this other sucker at a higher price than I bought it proves it's a store of value" - nobody would hesitate to call it a pyramid scheme.