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Bitcoin Is a Ponzi Scheme
- Ansh1605 5y agoI don't even want to argue with this. Plain stupid.
- jacquesm 5y ago26 days ago on HN, 659 comments: https://news.ycombinator.com/item?id=28781586 https://news.ycombinator.com/item?id=28781586
- ArtTimeInvestor 5y agoThe same article on the front page twice in short time. There seems to be a big number of people who have the urge to declare crypto a scam. I wonder where this urge stems from.
- calcifer 5y agoProbably from the nature of crypto.
- onion2k 5y agoI wonder where this urge stems from. Probably their belief that it's a scam. There's no need to hint at a conspiracy when there's a much simpler explanation.
- ArtTimeInvestor 5y agoPeople believe many things. But they are usually not so emotionally invested in proclaiming a belief. Especially when they are not involved. People who think crypto is a scam could just ignore it. So the strong emotional energy here is interesting.
- onion2k 5y agoEspecially when they are not involved. Literally everyone on Earth is involved because crypto mining is massively bad for the environment. Until Proof of Stake is rolled out, every single person has a legitimate claim that crypto is bad because their great great grandchildren won't have a viable planet to live on. That's not all down to crypto, but it is a significant contributing factor.
- ArtTimeInvestor 5y agoThen why do people not rally against gold? Gold mining uses 10x more resources than Bitcoin mining.
- danaris 5y agoI mean, first off, [citation needed], but... Gold has utility. Some of that utility is solidly practical—it is needed in various kinds of manufacturing. Some of it is purely decorative/emotional, but that is still utility. Bitcoin has no utility beyond "make lots of money for the people who got in early". I've been asking for years now, and I've never seen anyone give a valid use case for Bitcoin (and cryptocurrency in general); the answers are invariably along the lines of "you can use it to make money" (that's not a use case, you can literally do that with bottlecaps if you can convince people they're worth something) or "to take monetary power away from the eeeeevil statist oppressors" which is 1) wishful thinking (for reasons I outlined elsewhere in the comments on this article), and 2) not something that most people actually see as a good thing.
- ArtTimeInvestor 5y agoThen why didn't the state of El Salvador settle on bottle caps as their new currency?
- danaris 5y agoBecause no one convinced them that they had more value.
- lowmagnet 5y agoWell, it's not always a conspiracy when something falls into a bubble or Ponzi mode. There have been a number of scams surrounding btc as well which doesn't help matters.
- potatoman22 5y agoBecause its source of value is very unapparent
- xiphias2 5y agoThey usually come in waves when short interests get high. The Elon Musk correction was crazy time on HN when Elon and Tesla’s main stock owners had to dump the price to acquire lots of Bitcoin cheaper.
- dang 5y agoPlease don't post insinuations like this—there's a site guideline explicitly against it: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html. You needn't look to anything other than the simplest, most obvious explanation for why people post these things: it's a hot, divisive topic. (Posts on hot, divisive topics are usually also bad submissions for HN, but that's another issue.)
- ArtTimeInvestor 5y agothere is no external source of revenue for those payoffs. Josy wants to pay money to Tim. Tim is connected to the lightning network. So Josy also connects to the lightning network. For that, she needs Bitcoin. So she buys Bitcoin. Josy is the external source of revenue.
- kuratkull 5y agoYou have to think how that process started. Tim had to give something to Josy for Josy to have debt. If Tim is only working with bitmoney then no new money entered the scheme. If Tim sold some of his bitmoney to lend to Josy, and then josy bought it back, then no new money entered the scheme.
- ArtTimeInvestor 5y agoTim is a web designer. He made a website for Josy. Now Josy needs to pay him ₿0.01 That is what gives Bitcoin value. That Josy needs it to pay Tim.
- kuratkull 5y agoTim needs to spend real world money to be able to sustain his web development - so he has to sell his bitmoney.
- ArtTimeInvestor 5y agoMaybe. Still this constellation creates demand for Bitcoin. And demand creates value.
- GogoAkira 5y agoSorry man but Charles Ponzi didn't actually invest USD into anything he just paid off earlier lenders with interest and loaned more money from new lenders so that he can pay off earlier lenders and did that repetitively. BTC has intrinsic value just like USD does, it is an investment if the value changes. I didn't see that you know who Ponzi was and what and how he did it.
- mrb 5y agoBy this guy's definition, gold is a Ponzi scheme. 1. People invest into it because they expect good profits, and 2. that expectation is sustained by such profits being paid to those who choose to cash out. However, 3. there is no external source of revenue for those payoffs (gold sitting in a vault, or hanging on jewelry doesn't produce revenue). Instead, 4. the payoffs come entirely from new investment money, while 5. the operators (miners, refiners, etc) take away a large portion of this money. It's really interesting to discuss Bitcoin with critics, because, as in this case, it often exposes that critics don't understand WHY and HOW financial systems work. Obviously gold or precious metals aren't Ponzi schemes, so this guy doesn't understand what makes or doesn't make a Ponzi scheme. If he were to tweak his definition so it no longer applies to gold, it would automatically no longer apply to Bitcoin.
- tata71 5y ago> By this guy's definition, gold is a Ponzi scheme. Right.
- annexrichmond 5y agoTo be fair, he addresses gold towards the end: > By that definition, gold too is a ponzi. No, gold clearly fails to satisfy that definition on two counts. > First, few if any gold investors have expectations of profits. They generally invest in gold as a hedge -- a "store of value" -- that they hope will retain its value in case other assets go sour. > Second, as a commodity, gold HAS a source of revenue besides the investors; namely, the purchases by consumers like jewelers and industry, who take gold out of the market (2/3 of the production) for uses other than re-sale. When one buys 1 oz of gold, one gets a chip of a metal that one can sell to those consumers, and thus obtain some money that does not come from other investors.
- loceng 5y agoThe Bitcoin Maximalist counter argument to this is usually "eventually the price will stabilize and just be a store of value."
- 5y ago
- devlife 5y agoIt was suppose to be a medium of exchange, instead it became an object of speculation.
- itsdsmurrell 5y agoYou're looking for Bitcoin Cash, the Bitcoin that continued being a medium of exchange.
- Hermel 5y agoAnd it might end up being the global reserve currency.
- sparkie 5y agoIt was supposed to solve the problem of trust in third parties. Satoshi made this absolutely clear when he released the software and final version of the whitepaper, and he mentions it twice in the whitepaper. https://satoshi.nakamotoinstitute.org/posts/p2pfoundation/1/#selection-49.418-53.189 https://satoshi.nakamotoinstitute.org/posts/p2pfoundation/1/...
- sytelus 5y agoAll currencies are Ponzi schemes.
- qeternity 5y agoHow in god’s green earth do you arrive at this conclusion. I’m convinced having read the comments here that nobody actually knows what a Ponzi is.
- samwilliams 5y agoPut aside for a moment the name for the 'scheme' and consider the mechanism design differences between USD and Bitcoin: - USD is needed in order to pay taxes on the US, but can be printed arbitrarily by a centralized mint. - Bitcoin has no fundamental demand driver, but does have a truly capped supply. Why is it so obvious that USD is a preferable scheme?
- qeternity 5y agoWhat sort of straw man response is this ? I never said USD is preferable. I said that fiat currencies are not ponzis.
- jusssi 5y agoIn practice, most currencies are inflationary because more money is continuously being made. Which means that early obtainers of money actually lose value holding it, instead of gaining more. So currencies would be the opposite of a Ponzi. On the other hand, the current economy model which relies on continuous growth, might reasonably fit some definitions of a Ponzi.
- xylon 5y agobut almost no-one actually uses bitcoin as a currency
- mountainboy 5y agoto the extent that they involve dishonesty/fraud, yes. Arguably, when monetary supply increases are publicized, then there is no dishonesty, so not a ponzi scheme. They have another component though: legal tender laws that force people to accept them for debts, and capital gains laws on other assets that give them an unfair advantage. So ponzi or not -- probably not what the free market would choose in the absence of such laws.
- mirekrusin 5y agoI thought ponzi scheme has to have malicious element in it, like all things listed on [0] for example. [0] https://www.ponzitracker.com/ https://www.ponzitracker.com/
- mirekrusin 5y agoSo ethereum by his definition is not ponzi, right?
- yokem55 5y agoI don't disagree. The transaction fee burn is pretty much equivalent to a streaming stock buyback. But the service Ethereum is selling is arguably just providing a platform for other people to run their own ponzi games on.
- deleted 5y ago[deleted]
- tinco 5y ago> By that definition, gold too is a ponzi. The explanation for why gold is not a Ponzi holds true for Bitcoin itself too. At the very end, Bitcoin has a (tiny bit of) value as a means to establish the global ledger. Just like with gold that value is just the smallest fraction of its market value. I think if the author would have included gold and stocks in their definition of a Ponzi scheme their argument would actually be sound. Of course they would be branded a lunatic then so they wouldn't. I guess that's where the power of the Ponzi scheme lies. How do you argue against the thundering horde if people making money hand over fist?
- TylerE 5y agoThat is vastly underselling they ultility of gold. The electronics industry alone uses billions of dollars a year of the stuff.
- eloeffler 5y agoNo Bitcoin without gold :)
- tinco 5y agoYet it is valued in the trillions. Likewise, our society uses billions worth of services from financial institutions. Bitcoin and more strongly Ethereum compete for that same utility. Sure they have some utility. The current block reward of Bitcoin is 6, with a market value of 60000 that means every 10 minutes of ledger is valued at 360000 dollars worth of utility, or 52 million per day.
- qeternity 5y agoI really don’t get why people keep calling the stock market a ponzi. Companies (successful companies) generate cash flow in a way that gold and bitcoin do not. Absent any other buyers or new money flowing into equities, those businesses will still have to return capital to shareholders either through dividends or buybacks. So the equity market can still appreciate without any new capital as companies buyback their own stock.
- 5y ago
- plank 5y agoIn the same logic: investing in Van Gogh art is a ponzi scheme. Indeed, “People invest into it because they expect good profits, and that expectation is sustained by such profits being paid to those who choose to cash out. However, there is no external source of revenue for those payoffs. Instead, the payoffs come entirely from new investment money, while the operators take away a large portion of this money.” Yes, the Sotheby’s and Christie’s take away a portion of the money. Any rebuke to this will work for bitcoin as well: yes, there are people who like a. Van Gogh painting, as well as there are people who like to have weird crypto money. Off course, this does not mean that I would recommend buying bitcoin. But I would not recommend anyone investing in Van Gogh either.
- loceng 5y agoWith apples to oranges comparisons often made like you have, I'd urge people to brainstorm the longest list they can of similarities and differences between the two.
- Tepix 5y agoThis is covered in the essay. An art piece is creating value by providing entertainment to those who view it. You can even put it in an exhibition and people will pay you to see it. This does not apply to Bitcoin. However, i slightly disagree with the author because Bitcoin does provide some value: The ability to digitally facilitate transactions (albeit rather slowly, with huge environmental damage and with high fees - clearly if this attribute were to be seen as the major contribution to its value, more advanced coins ought to be more far more valuable).
- mam4 5y agoYou think Bitcoin doesnt not provide some form of entertainement to the milions od crypto enthusiasts ? Personally i think 50% of the interest of peopne invested in cypto, especially early investoes' is because they are nerds who love the appeal of the techbology. For them, crypto is as close as art as van gogh. P.s. thz 50% other is speculation.
- Valakas_ 5y ago
- mountainboy 5y agoThis Ponzi scheme stuff was a tired argument 6 years ago. Ponzi schemes have an element of dishonesty/fraud. Bitcoin does not. Find some new material.
- obilgic 5y agoHonestly index funds and cash from retirement savings is a ponzi scheme as well then
- qeternity 5y agoNo, they aren’t. Speculation does not equal ponzi.
- samwilliams 5y agoI think the reference to retirement funds is in relation to the fact many of them are under collateralized. They need to take new investor's money to pay out old investors. Some more background here: https://www.google.com/amp/s/www.wsj.com/amp/articles/an-ohio-pension-manager-risks-running-out-of-retirement-money-his-answer-take-more-risks-11634356831 https://www.google.com/amp/s/www.wsj.com/amp/articles/an-ohi... The situation is pretty extreme. To be honest, these really _do_ look like Ponzi schemes.
- qeternity 5y agoNo. > Honestly index funds and cash from retirement savings is a ponzi scheme as well then The comment was pretty clear: index funds, and cash. Defined benefit pension funds are absolutely ponzis and should be outlawed. But this is not what OP said.
- Kiro 5y agoThis is so stupid and easily debunked (see previous comment thread: https://news.ycombinator.com/item?id=28781586 https://news.ycombinator.com/item?id=28781586) that I suspect it is a covert PR piece for Bitcoin. It even makes people who hate crypto start defending it. There are many good arguments against Bitcoin but claiming it's a Ponzi scheme by definition is not one of them.
- arcticbull 5y agoIt's absolutely not debunked. That's a value judgement and your take away from a conversation.
- gjs278 5y agoit is debunked [1] check my source [1] you’re a pseudo-intellectual loser who didn’t buy crypto and now you post long winded stories on HN arguing how you made the right move by staying poor
- consp 5y agoMost of the comments under your comment debunk that again. Maybe it is not so clear cut as you make it to be.
- Kiro 5y agoI didn't link to a specific comment, just the thread in general.
- max_ 5y agoThe authors postulates for classifying Bitcoin as a ponzi is a follows. 1. People invest into it because they expect good profits, and 2. That expectation is sustained by such profits being paid to those who choose to cash out. However, 3. There is no external source of revenue for those payoffs. Instead, 4. The payoffs come entirely from new investment money, while the operators take away a large portion of this money. Many other things fit these. Art, Start Ups, Collectable Watches, Non dividend paying stocks, Real estate and many others. But what most people don't understand is that Bitcoin is NOT an investment scheme, you can speculate on its price, But it not designed to be an investment scheme. Bitcoin was meant to be a utility (a peer to peer cash system as Satoshi described), like Oil i.e a platform for anarchist banking. Speculation should be seen only as a by-product use case of bitcoin. Mostly of these angry "Bitcoin is a Scam" blog posts surface when the price skyrockets. From this, I suspect it has more todo with the jealousy of watching people more stupid than you getting rich. Not what Bitcoin actually is. The legacy financial system is rotten beyond repair. We need alternatives that are not run by crooks in good suits.
- Blackstone4 5y agoI believe your statement including real estate, startups, non-dividend stocks in this category is incorrect. They all have the potential to generate cash flow. Maybe not at the time of investment but at some point in the future. I work in investments and I feel like you could broadly place opportunities into two buckets. One which has current or the potential to produce cash flow. Second which produces no cash flow such as currency, crypto, gold, oil…the price of these assets depend on supply and demand. Oil is different since it is consumed where as crypto isn’t.
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- cblconfederate 5y agoThis argument is old and useless now. It is a ponzi if you are ideologically inclined to believe it is a ponzi, and people will keep handwaving around it. Each generation chooses its bubbles. The younger generations have been told in no uncertain terms that they are locked out of investment in real estate and many other instruments that are controlled by the aging generations. So they create their own bubbles and they will keep supporting them because every generation wants to achieve some level of wealth. People keep underestimating the intrinsic value of bitcoin as a store of wealth and a means to devalue the unequal economy. Many things look like ponzi but are not, because they never burst. People putting themselves outside the bitcoin bubble are willinging missing the future.
- richardanaya 5y agoThere's no doubt there's money to be made, but fundamentally bitcoin represents a threat to the existing power's ability to control financial markets. I see so many people hoping that they'l give that power up .. and then we have a nation like China go and ban crypto and EU legislating it like crazy. I'm sure crypto will exist in the future, to me the big question will be how painful will a government make it for you to own crypto.
- arcticbull 5y agoI'm sure glad you didn't work at SEC Enforcement when they finally went after Madoff. > The younger generations have been told in no uncertain terms that they are locked out of investment in real estate and many other instruments that are controlled by the aging generations. Sure, so they should petition for zoning reform not engage in Ponzi schemes. > Many things look like ponzi but are not, because they never burst. That's not really the definition, though. > People putting themselves outside the bitcoin bubble are willinging missing the future. The definition of the "future" isn't "Ponzi scheme that will never burst probably, because real estate is unfair."
- cblconfederate 5y ago> Sure, so they should petition for zoning reform not engage in Ponzi schemes. Demographically, post-boomer generations can never win the vote Voice does not work in this case, so they choose exit I guess they are also sick and tired being told what they "should" do
- sparkie 5y agoThere's giant a flaw in the authors assumptions. > The investors are all those who have bought or will buy bitcoins; they invest by buying bitcoins, and cash out by selling them. Who says I want to 'cash out'? Why would I 'cash out' of the hardest money man has ever conceived for one of the easiest monies man has ever conceived? What the author does not get, is people are buying bitcoin not to 'make fiat gainz', but to protect their savings from debasement. They don't need to convince anyone that they will 'profit'. People only need convincing that their purchasing power will not be decreased due to the policy of the easy money creators. When you adjust your unit of account to satoshis instead of dollars, you only profit if the number of satoshis on your balance sheet increases. This doesn't happen by 'selling bitcoin'. The idea that I would spend bitcoin on depreciating fiat is preposterous.
- allendoerfer 5y agoI am on the author's side. Still in the end, it just comes down to whether you think Bitcoin has any value. You can take any other investment and do the same comparisons: When you buy assets like a house, you are speculating, that someone else will buy it at a higher price or pay rent to you, because they think it has value. All 5 points apply here, too. I would say rent is basically the same instrument as buying a house (for a short period of time), but even if you think of it as something different, as some external source of inherent value: You can rent out Bitcoin as well. When you buy stocks, you are speculating, that someone is going to buy the stocks at a higher price from you. You can base that speculation on the fact, that the company behind it is using your money [1] to buy something from a third person [2], that some fourth person [3] is going to buy back from them. And since they have done it in the past successfully and overall companies are doing that, you call that inherent value. I would call it the same, but in the end, "inherent value" is just a concept created through abstraction. It is turtles all the way down. There is no difference. Some investments are just a bit more complex, but in the end it comes down to whether you think something has value or not. It comes down to whether human nature makes enough people feel the thing you are ultimately betting on has value. There are many businesses, whose value really depends on similiar mechanisms as Bitcoin. E.g. you might think Bitcoin is a scam, but companies like Adidas or Nike are serious established businesses solving problems for humanity and are therefor inherently valuable. Well, those two companies can sell shoes at their prices, not because of the desire of people to go running, but really because of their desire to own a shoe with these brands printed on them. And who is to say that the desire to go running is something better than the desire to own something called "Nike" or "Bitcoin"? I know where I want to base my retirement on, [1] simplification, only true at IPOs, reality adds a layer of abstraction here [2] employees, business partners, a government [3] customers
- marticode 5y agoI would disagree with your analogy: you buy a stock because it gives you a claim to the profits of the underlying company. Even if it became impossible to find a buyer for the stock you own, so long as they pay dividend, you still have something of value. And the company has tangible assets (factories, offices) and intangible (patents, the skills of its employees, brand) that allow it to produce things of general value. Same applies to houses (they provide shelter) or gold (industrial applications or jewelry). Speculative value is only one part of their value. Bitcoin by comparison has no value beyond speculative. You can't build anything with a Bitcoin, and it won't ever give you a revenue stream, or shelter, or make pretty jewelry. It's just a bunch of numbers recorded on some computers. If nobody think those numbers have values then they are as good as some old JPEG ad in your browser cache.
- tappio 5y agoWhy do cryptocurrencies invoke strong emotional response? Why would one care if someone calls bitcoin ponzi? Or why would someone put so much effort into proving that it is one? Does not seem too rational. Maybe someone can explain? My observations may be biased, but the comment section here and on the earlier time the same post was here support my observation? Edit: probably just a biased opinion because because the minority who care are most vocal. It would seem that general public does not really care.
- sparkie 5y agoIt evokes an emotional response in bitcoiners because it is literally the only viable solution to the massive problem of theft via inflation of the money supply. People care about this great injustice which is one of the main sources of inequality. It evokes an emotional response in communists and socialists, because it forever puts a thorn in their ability to just steal people's property and claim it as belonging to everyone.
- lowmagnet 5y agoIt evokes an emotional response in bit-coiners because they have a perceived stake in it.
- fosk 5y agoI believe it is also due to the fact that people are naturally jealous of other people's fortunes, since wealth is generally being perceived as zero-sum, whether it's true or not. So here you have a bunch of people that seem to be getting rich "at the expense" of others, and maybe don't fully understand why, therefore they put up a fight. Very natural tribal behavior identifiable in a variety of different ways in the history of human kind. Also people think of themselves as naturally intelligent (ego), so if something is creating wealth but they don't fully understand why, the instinctive reaction is to dismiss it because the other option is to essentially admit lack of knowledge which hurts their ego, therefore it is again a natural "self preservation" reaction. Also this more naturally creates an emotional response, since ego is a highly emotional subject to begin with. To be against Bitcoin is also a generally safer bet: dismissive opinions are almost always small easy wins in the unpredictability of the future of Bitcoin. But Bitcoin maximalist only have to be right once eventually. We saw this with every major invention, electricity (will kill people!), internet (just a fad!), etc. Now with that said I am not expressing an opinion on the eventual success of Bitcoin, it could very well fail.
- deleted 5y ago[deleted]
- himinlomax 5y agoBitcoin and cryptocurrency has severe flaws that are either well known (insane energy use) or severely overlooked (securing data is hard, securing data that is also cash is insanely hard). But calling it a ponzi scheme is a lazy and unhelpful as calling "fascist" any dictator or authoritarian movement. Anyway, the article argues that it fits the moniker because it has no value besides senseless speculation. It just ignores the one legitimate use it has, and it's one that should be hard to miss because it's right in the name: payments, like coins. That's not to say it's a particularly good tool for that, you can argue all you want about it, but that's what it's for. International reply coupons are of really limited use as well, but they're not a ponzi scheme, the ponzi scheme used them.
- yamrzou 5y agoRelated: The Problem with Calling Bitcoin a “Ponzi Scheme” - https://prestonbyrne.com/2017/12/08/bitcoin_ponzi/ https://prestonbyrne.com/2017/12/08/bitcoin_ponzi/
- pelefire 5y agoI think the article has one fundamental mistake. "The miners' massive hashing work does not go into creating the bitcoins, but into stamping the ledger to (allegedly) secure the record of past transactions." This part is false. Each new mined block brings into existance new bitcoins. So hashing power is not just used to validated the new block on the ledger.
- makach 5y agoIt is not the first time I have seen this article pop up here. It is always interesting to see the opposite stances rush to the frontline to defend their point of view. Regardless; a fool and his money are soon parted
- feketegy 5y agoHere we go again...
- ofrzeta 5y agoI regularly see Youtube ads where cryptocoin people don't even bother to hide their Ponzi scheme that goes like "send 1 xxcoin, get 2 xxcoin back" etc. Surprisingly often I see Elon Musk in those videos (typically Shibu coin) and wonder why he isn't ashamed to take part in something that's obviously fraud.