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By 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 prof
by mrb 5y ago
By 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."
- soco 5y agoAnd then it will be not a Ponzi scheme anymore. But until then...
- mrb 5y ago"few if any gold investors have expectations of profits" Talk to any gold investors and they will tell you the opposite: they generally expect to at least beat inflation, ie. making profits in real (not nominal) dollars. "by consumers like jewelers and industry" Purchasers and manufacturers of gold jewelry buy or build with this material primarily because it's valuable, not because of its physical properties. If they cared about physical properties above value, they would use many of the other metals that have similar or better properties at a better price. That leaves industrial use of gold, which accounts for only 10% of global gold production. It could therefore be argued, from this blog post perspective, that 90% of gold is part of the "Ponzi scheme", or that 90% of gold's value relies on a "Ponzi scheme" completely disconnected from gold's industrial use.