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Bitcoin: Addressing the Ponzi Scheme Characterization

27 points by jmstfv 5y ago

thereddaikon 5y ago
Specifically? Maybe not. If it were a Ponzi scheme I think all of that dark bitcoin supposedly held by "Satoshi" would have been converted to real money a long time ago. But cryptocurrency and derived technologies like NFTs are for the most part scams in the general sense. The type of scam varies but the system is ideal for the unscrupulous to fleece the get rich quick, tech illiterates who think they are smarter than they really are.
- dqpb 5y ago
  The problem (on HN) is that the hype-ignorance runs both directions. Tech-literates see the tech-illiterates getting scammed, and thereby extrapolate that the technology is fundamentally a scam, which is absurd. Data structures, protocols, algorithms, exist at an abstraction layer below that of socio-economic-marketing scams.
usrbinbash 5y ago
By the definition of the word, no its not. But: Since "crypto" holds no intrinsic value, such as the backing of a states wealth, the actual material value of resources like gold, oil or coffee, or the structural value of a company (knowledge, employees, contracts), all its "value" is dependent on what other people are willing to pay for it, and the money these people have pumped into the system. To put this in simplest terms: Every cent someone makes from whatevercoin, has to be put into the system by someone else. A house appreciates in value since living space is a scarce commodity facing growing demand...it's sarcity and thus its appreciation in value is a natural process caused by usefulness and demand. The scarcity of blorkchain "currencies" however, is artificial, and they have no other use than as a token of value for something of actual worth.
- ec109685 5y ago
  It provides a mechanism to transfer balances securely from wallet A to Wallet B and it’s popularity and thus acceptance continues to increase, so it’s unfair to say there is no value inherent to it.
  - usrbinbash 5y ago
    I can securely transfer monetary assets from one bank account to another as well, and be sure that said assets won't lose a lot of their value overnight because of some tweet.
    - ec109685 5y ago
      Now do it between two people in different countries. Not saying it's perfect, but wrong to say there's no value.
      - usrbinbash 5y ago
        That's exactly what people are doing almost everytime they order something online from a company not in their country of residence. And the system used to do most of these transactions (credit cards) works so well, it handles about 1,000,000,000 transactions per day without breaking a sweat. (source: https://www.cardrates.com/advice/number-of-credit-card-transactions-per-day-year/ https://www.cardrates.com/advice/number-of-credit-card-trans...) How many transactions are handled per day by major blorkchain currencies again?
        ec109685 5y ago
        I went through about 4 different modalities to pay for a tutor for son in India. It isn’t all that easy.
- cortic 5y ago
  >To put this in simplest terms: Every cent someone makes from whatevercoin, has to be put into the system by someone else. A house appreciates in value since living space is a scarce commodity facing growing demand...it's sarcity and thus its appreciation in value is a natural process caused by usefulness and demand. You just fell over your own point there. Both houses and bitcoins go up in price if the demand for them goes up or the supply of them goes down... calling demand 'put into the system' when you disapprove changes nothing. Also there are plenty of people who use houses as 'tokens of value' only to flip them when the market is favorable, and there are plenty of people who use crypto as a functional currency when other options are unfavorable to their circumstance.
  - usrbinbash 5y ago
    A house has intrinsic value. People can live in a house, store things there, or rent it out. Its value was not put into the system, it simply exists, period. Even if the market crashes, a house is still useful and can appreciate again. Its market-value is dependent on both demand and usefulness. The second variable doesn't change. Blorkchain "currencies" have no intrinsic value, because they have no other use than as tokens. Their market-value depends entirely on the market, entirely on the money pumped into the system. In a way, blorkchain coins are a bit like overvalued stocks, the difference is, there is not even a company behind it, there is only the market evaluation.
    - cortic 5y ago
      >A house has intrinsic value. People can live in a house, store things there, or rent it out. Its value was not put into the system, it simply exists, period. Even if the market crashes, a house is still useful and can appreciate again. Its market-value is dependent on both demand and usefulness. The second variable doesn't change. Let me answer that by showing you a mirror perspective of your point; Crypto has intrinsic value. People can use Crypto to exchange or store value bypassing dangerous intermediaries and structures of control. Its value was not put into the system, it simply exists, period. even if the housing market crashes, a crypto currency will still be useful and can appreciate. Cryptos market-value is dependent on both demand and usefulness. The second variable doesn't change. Now the point here is that the mirror argument is about as right as yours. You can imagine ways crypto will devalue, i can imagine ways your house will devalue. You can imagine using your devalued house for things that are useful to you, i can imagine using a devalued crypto currency for things that are useful to me.
- mattwilsonn888 5y ago
  "Artificiality" is poorly defined and not clearly linked to being 'bad' in any way. Scarcity in blockchains is not, let's say trivial, since you haven't described how being artificial is a detriment. If the Bitcoin Core developers, the exchanges, and all the largest whales all collaborated to increase the supply of Bitcoin in their interest, they would fail lest they somehow convinced everyone who puts value in the network (many put value in for the reason that the supply will likely never change) that the supply should change. You should do a bit more research on how blockchains work and where there security comes from.
- ausbah 5y ago
  fiat currencies aren't back by government wealth, they're "backed" by people's trust in the future stability of the currency. people trust that the value of the currency will remain relatively constant over shortish time horizons this "value" is also arguably "artifical" bc it is also derived from nebulous concepts like "trust" I personally think deriding something bc it's source of value it's what I like is a fruitless exercise
arcticbull 5y ago
This particular article is exceptionally weak and fails to address substantially all of the criticisms levied by Stolfi (which is what this is really in response to). [1] It spends a lot of the time discussing the SEC's "warning signs" / red flags that something may be a Ponzi scheme which are symptoms and not causes. Just how a traditional Ponzi scheme may manifest within the context of traditional markets like 'issues with paperwork.' Nobody is going to claim that you need to have 'issues with paperwork' to be a Ponzi scheme. Bitcoin is best thought of an a distributed or unbundled take on a Ponzi scheme where instead of having a single centralized authority run the whole show, various parties all collude directly or via incentive structure to achieve the same fundamental results. > Investment Returns: Not Promised They 100% are - by every single shillfluencer account on Twitter, on Reddit, on TikTok and yeah, even here from time to time. I've been NGMI'd here at least several hundred times. > Open Source: The Opposite of Secrecy Everyone agrees the chain is transparent. However, that's the kind of transparency that doesn't matter at all in this context. What makes it a Ponzi scheme isn't that 1BTC=1BTC, it's that you have shady Inspector Gadget themed Bahamian shadow banks printing un-backed ersatz dollars and pushing the price up to create the illusion of gains. You have exchange "outages" as soon as the price starts dropping - but only when it starts dropping. You have spoof orders, wash trading, tape painting - every trick in the book - to make people think they've gained when in reality, they have not. > No Pre-Mine Yeah, all that means is it's not a security under Howey. > Leaderless Growth Yes, it's an old scheme with a fresh coat of paint. > Section Summary: Clearly Not a Ponzi Scheme Agree to disagree. I'm with Stolfi on this one. 1. It is sold as an investment, with some mysticism around how exactly it is appreciating in value. 2. All gains paid out to previous participants come from new participants. 3. Entities (miners, exchanges) are constantly extracting welfare for self-enrichment creating a negative sum coefficient. [1] https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-ponzi.html https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-pon...
- serverholic 5y ago
  So are pokemon cards a ponzi scheme? Stamp collecting? Gold? Paintings?
  - 5y ago
baskethead 5y ago
It’s not a Ponzi scheme at all. What it is is the manifestation of the Greater Fool theory. The only reason you buy it is because of the expectation that some fool greater than yourself will pay an even higher price that you. And if BTC is that, then NFTs are the Greater Fool theory to the second power.
- arcticbull 5y ago
  This is the claim Lynn was responding to, and it make a compelling argument that this is a Ponzi scheme with a fresh coat of paint. [1] [1] https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-ponzi.html https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-pon...
spicyusername 5y ago
It is really amusing, and a little sad, how desperate people are to "prove" to everyone how amazing this technology is. It's definitely totally not related at all to how much money anyone has at stake, and how much people stand to lose when it fails. If you look through the history of amazing scientific breakthroughs, I suspect you'll find that the ones that legitimately changed the world didn't require armies of self-proclaimed experts to explain to everyone what the benefit is and what problems it solves. However, when you look through the history of snake oil, boom-and-bust market crashes, and actual Ponzi schemes, that's exactly what you find. If you want to convince people of cryptocurrencies merit, just go solve some real problems that real people have. The fact that cryptocurrency has been around for so long and no use-case has materialized outside of pump-and-dump get-rich-quick schemes tells you everything you need to know.
- aceazzameen 5y ago
  I'd like to see someone explain the amazing possiblities of crypto currency without them making money off of it.
- boringg 5y ago
  Too many people are in the value chain at this point - chips manufacturers, electricity generators, programmers, VCs [a16z most active], charlatans, influencers, your neighbors. I don't know where it goes from here - its almost too late for it to prove any real world value. Also note that as equity assets tank so do crypto currencies - that strong correlation reflects how the Feds monetary policy has unfortunately inflated crypto. Wouldn't it be ironic if that was how Bitcoin actually did become a reserve currency (it won't because it doesn't behave like one and have underlying value similar to USD).
- randomhodler84 5y ago
  It is precisely this kind of ignorance this article is to disperse. Just because you don’t have the imagination to see why peer to peer, censorship resistant, non-state based electronic money might be useful, doesn’t mean we all feel that way. After all these years and you still don’t get it means you live a sheltered life. In fact, you are going out of your way to shout “scam”, meanwhile most of us just ignore you while building the future.
thr0wawayf00 5y ago
One thing I've never understood about crypto is: once the token has completely penetrated society and become the de facto actual currency, doesn't the growth decay? At that point, what's the value in holding that token vs redirecting liquidity to a new token? A common argument I hear from crypto folks is that government-backed currencies are susceptible to hyperinflation, as if cryptocurrencies aren't. But I don't see how this is the case. Once the growth stops, what is stopping everyone from pulling out?
- Karunamon 5y ago
  They aren't vulnerable in the same way, at least. With nearly every cryptocurrency (with exceptions like Dogecoin), new units of currency enter circulation in a predictable and ultimately, limited way. Vitalik can't conjure a million ethereum out of thin air tomorrow, but any government can spend a ton of money and attempt to cover their costs with newly printed currency. Basically, you're trusting the market to not debase your currency instead of a single issuer.
- kevin_nisbet 5y ago
  > One thing I've never understood about crypto is: once the token has completely penetrated society and become the de facto actual currency, doesn't the growth decay? At that point, what's the value in holding that token vs redirecting liquidity to a new token? I thought that was sort of the point, that crypto wasn't really meant to be an investment class, but more of a stable store of value like a currency. The mix-in at present is it's not a de-facto currency, so the price is highly volatile due to people treating it as an investment, speculating, gambling, etc. And then the conflict to be wary of, or the question always in the back of my mind when looking at the promoters, is there own investments do better when they sell others on the same investment.
- mattwilsonn888 5y ago
  > A common argument I hear from crypto folks is that government-backed currencies are susceptible to hyperinflation, as if cryptocurrencies aren't. Sufficiently large, they are not. What made you think they were? Assuming you have a de facto currency which is non-inflationary, the value in holding it rather than redirecting liquidity to another asset class is that holding it is the least risky option. The reason money was directed in to the non-inflationary asset in the first place was that the de facto currency was actively devaluing itself through inflation. The larger concerns of a currency which cannot inflate are the economic problems which can come along with such stiffness - keyword: "deflationary crash."
sascha_sl 5y ago
The commonality with the Ponzi Scheme is that returns are solely based on others continued investment and that the value collapses if they stop doing this continuously. That we managed to make this happen without a central entity that can run off with the money, with lots of people invested in the middle of the pyramid (the author, presumably) also doing the evalgalizing makes it technically different, but not practically. Collapse is always coming, to various degrees of severity. If not to Bitcoin at one time, then to the planet. And GPU availability.
- PragmaticPulp 5y ago
  > The commonality with the Ponzi Scheme is that returns are solely based on others continued investment and that the value collapses if they stop doing this continuously. And before anyone tries to make a stock market comparison: No, this isn’t the same as stocks. Stocks are, literally, partial ownership of a company. A shareholder owns part of the underlying company, including everything from their bank balances to their brand. Bitcoin would be like subtracting out all of the valuable parts of a company and leaving nothing but the shares behind. You get an entry in a database (the blockchain) and nothinf else. Literally the only thing that gives this database entry any value is the ability to convince someone else to give you money in exchange for it.
  - awb 5y ago
    Except not all stocks are like that. Non-voting right stocks are illegal in some countries but legal in the US. https://en.m.wikipedia.org/wiki/Non-voting_stock https://en.m.wikipedia.org/wiki/Non-voting_stock
  - boringg 5y ago
    So common stocks do not have any claims on the bank balances of a company. I'm not defending crypto but your assertion is not wholly correct. Ostensibly you are the very last in line of creditors to claim any assets if the company goes bankrupt but you will get very little to nothing .. pennies on the dollar if anything. Stocks give you voting rights at the AGM and a claim on future profits through stock appreciation or dividends if the company decides to issue dividends.
vehemenz 5y ago
I don't think anyone calling Bitcoin a Ponzi scheme means it literally. They are just calling it a racket. And sure, the folks at the high level are racketeering, but that's not the majority of Bitcoin users/investors.
- scottiebarnes 5y ago
  I think a lot of haters do, they align the behavioural qualities of a ponzi scheme with Bitcoin by pointing out how the only way a unit of BTC can have value is by selling it forward to another person. Which is indeed a property of any money; if nobody wants it, it cannot have value. However, I'm not sure they've taken the time to think about what the real-time monetization of a newly discovered commodity looks like. It took gold thousands of years to become a global currency, and now we have something similar but with the speed of the internet. With the physical properties of the Bitcoin protocol / blockchain (halving, fixed supply, etc.), it starts to look very obvious as to why people want to front run it, or use it as a store of value. And so the expected behaviour becomes obvious.
- gruez 5y ago
  >I don't think anyone calling Bitcoin a Ponzi scheme means it literally The non-negligible amounts of comparison to bernie madoff or enron suggests otherwise.
SkipperCat 5y ago
Sure, one can say Bitcoin is not a Ponzi scheme because the definition of a Ponzi scheme is flexible. However, it's hard to deny that Bitcoin in not a bubble for the following reasons: 1. Prices are rising because of speculation 2. There is very little non-speculation use of Bitcoin (people are rarely using it for commerce). 3. There is no return on assets from Bitcoin. No yield, no dividend, etc. Bitcoin could go to $1MM per coin, it's possible. But as a 'fiat' currency, it lacks the institutional backing of other currencies such as the USD. Plus, I would be concerned that nations with their own currency (US, China, etc) could smack Bitcoin pretty hard if they wanted. Bitcoin is a really cool project/concept/social-experiment. But I do think there's some structural risks and I can't buy into some of the more evangelistic talk about it.
- gregjor 5y ago
  China has already banned crypto.
  - echopurity 5y ago
- Matticus_Rex 5y ago
  > But as a 'fiat' currency, it lacks the institutional backing of other currencies such as the USD This is not what "fiat" means in monetary econ. USD is a fiat currency (meaning it is backed by government "fiat," which literally means "a formal authorization or proposition; a decree." BTC is currently only currency at all in limited contexts, but it is difficult to classify in the established categories of money and fiduciary media. The bucket it gets closest to fitting into in how it works, given that it is not backed by anything except its own perceived value? Commodity money. That seems off, of course, since most (though not necessarily all) historical commodity moneys have had a clear, usually industrial, value, and commodities have traditionally been only physical (though that seems to be changing). Some economists are suggesting "synthetic commodity money" as a category for this, but we're still in the early days. "But," you might reply, "commodity money has a price floor above zero that 'backs' its value." But while that's historically true (see note), it's not clear that it matters. Cryptos designed to be used as currencies are certainly bubbles through some lenses, but through the same lenses all commodity moneys look like bubbles. An economist friend discussing this with me around ~2013 pointed out "money is just a bubble that doesn't pop." Say a precious metal commodity money trades for $1500/oz, but through a complex model economists estimate that its industrial value would be $100 if it weren't used as a medium of exchange (or speculatively, as a number of commodities like gold are held). A cryptocurrency, on the other hand, is trading for $1500/unit, and its price is estimated to be ~$0 without such use. One has a price floor of $100, and a "bubble" value of $1400/oz, while the other has a price floor of $0, and a "bubble" value of $1500/unit. Does that distinction make a difference? It's not actually clear. It's certainly possible to imagine a cryptocurrency reaching a long-term equilibrium where it is considered valuable because it is a well-established medium of exchange and has reliable purchasing power. Imagine that someone has created this, and it happens to have the best money qualities (durability, portability, etc.) of any currency ever, plus great UX. How would it get there? Well, there would have to be a fairly drawn-out period of speculation where the value fluctuated pretty wildly as the market attempted to find an equilibrium based on future expectations of its value. So cryptocurrencies now are behaving exactly as we'd expect them to behave if they were to one day become "synthetic commodity money." The question is whether any of them can actually find that equilibrium. It may not be possible to bridge that gap, whether because the fundamentals just don't work, or because the fluctuations are too strong to ever create a real equilibrium, or because the US or China finds a way to shut down any crypto that gets close. But stranger things that seemed less intuitively plausible have happened. Note: usually -- there are some historical moneys that don't fit clearly into this paradigm, such as cowrie shells, of which the use in jewelry looks to have been more of a symptom rather than a cause of the value*
NicoJuicy 5y ago
All that text and nothing explains the drop from 20 k to 4,5 k in 2018-2019
- firekvz 5y ago
  What's there to explain? Tether manipulation of 'prices goes up', leads to fomo, leads to cashout of big players, leads to bagholding from retail who has no other option than joining the crypto cult to try to fomo others and move price back up It's pretty obvious
  - saalweachter 5y ago
    Honestly I think the innovation there is that it's a distributed Ponzi. With any normal Ponzi scheme, there is "a guy", a guy at the center of it all cooking the books and redirecting the funds from late investors to early and skimming a healthy bit for himself. One day that guy gets arrested or decides it's time to run and the scheme collapses. Maybe that day comes a year in, maybe twenty, but it's a-coming. With a distributed Ponzi scheme, there is no one guy. If some people get arrested for fraud or take their loot and run off somewhere, other people can step in and keep it all going, pumping and dumping and scamming and scheming. I honestly don't know what it would take to actually make it go away for good.
  - NicoJuicy 5y ago
    Not for everyone
meltedcapacitor 5y ago
Well it is not a ponzi in the sense that there is no organiser and no promise of an underlying profitable enterprise. It has become, functionally, a decentralized pyramid scheme. Let's look at some of the criteria reviewed in the article. - Investment Returns: Not Promised The promise is peer to peer: players convince each other of investment returns and almost all players (that remain) are there because they believe in that promise. Once the last dude who wanted to buy pizza without giving Visa or Mastercard a cut has left the room... - Open Source: The Opposite of Secrecy Yes but that the mechanism of redistribution is (partially) in the open does not invalidate that something is a ponzi or a pyramid scheme. The openness is also partial, Bitcoin is still pseudonymous enough that we know what moves but not always who and why. - No Pre-Mine Early mining with exponential reduction in block reward is functionally equivalent to a pre-mine: the founder(s) have a considerable advantage. A bit more open but then one can also usually do well by buying early on the secondary market an explicitly premined coin that later becomes successful (e.g. ethereum). It's effectively a more elegant way to do a premine with nice deniability (harder to get caught for doing a security offering). - Leaderless Growth Yes it's decentralized. A decentralized pyramid scheme remains a pyramid scheme. It's not an intrinsic property of the tech but of the social happenings around it. (Many altcoins that are other instances of the same code have failed to get traction and become pyramid schemes.)
- wmanley 5y ago
  I don't know why you're being downvoted: You've hit the nail on the head - Bitcoin is a Pyramid scheme, not a Ponzi scheme. I've been seeing comparisons to Ponzi schemes a lot in the last few weeks. AFAICS "Bitcoin as Ponzi scheme" is a useful strawman for pro-bitcoin arguments because it's so easily defeated. Bitcoin as Pyramid scheme is a much stronger argument, with far fewer articles dedicated to it.
- mattwilsonn888 5y ago
  What you're saying is kind of true, but it lacks a fundamental understanding how what makes the Bitcoin network valuable. The first and foremost is security. Security in Bitcoin is a direct function of hashpower: the higher the hashpower, the more expensive a re-organization attack is and the sooner you can 'trust' newly appended blocks. The longer one has to wait to be sure a 51% attack hasn't occurred the less valuable the network is. Secondly is scarcity. Bitcoin has a set number of coins which will exist and one of the strongest promises in the world that it will not change. This gives rational reason to hold on to Bitcoin in favor of 'objects of value' which are inflating or have the possibility of inflating. You can always bring up the fact that traders want to sell higher than they bought and will communicate nefariously if it helps them achieve that goal. That is true for any asset. The misconception in your reading is that Bitcoin only derives value expected future returns, which as I have demonstrated is not true. What can often be confusing to wrap one's head around is that the more Bitcoin is worth in terms of mining cost (dollars currently), the more security it will have; the value goes up with the price, which for many doesn't pass a certain, unsophisticated smell test regarding scams. If it sets off your alarms, refer back to where the value is coming from. You may not believe what gives Bitcoin its value is actually valuable, but, that's, just like, your opinion, man.
sharemywin 5y ago
Just because it's not a ponzi scheme doesn't make it a good investment. I wouldn't hold a large amount of US dollars as an investment either.
skilled 5y ago
I commend the author for such an extensive piece, I am sure it took some time to write and put together. For me, Bitcoin isn't really the problem. If anything, I would be happy if Bitcoin remained the cryptocurrency. And, maybe Ethereum, since I respect Vitalik's work on it and his determination. Problem arises with all the other "shitcoins" and all the stink they bring with them. There is absolutely no valid reason to invest in alternative crypto (coins, NFT, etc,.) because it has no real-world use or direct application for the individual himself.[0] And everything that will follow in the coming 12 months, it will be merely an attempt to validate it. Web3 (the crypto version) is hyped up so much that will inevitably face the music when an avalanche of tribulations come crashing down on it. [0]: The argument that you can use alternative coins to replace expensive banking in poor countries is acceptable, but I don't think that is the point here.
echopurity 5y ago
mohanmcgeek 5y ago
The author seems to think that the detractors are accusing Satoshi of devising a Ponzi scheme and goes on to tell us why that's not the case. This is a strawman because the real Ponzi scheme is being perpetuated by financial whales who know full well that Bitcoin is not a "currency" and are pumping it up only to cash out. The "buy the dip" promoters don't want their net worth going down and push that so that they can sell again at the peak
- mattwilsonn888 5y ago
  A Ponzi scheme is designed internally to reward its creators and early investors. This mechanism is kept a secret for obvious reasons. People who buy an asset to trade it want the price to go up - a not so clever point you've made. People with plans to sell Bitcoin for profit in a fiat currency are no more believers than the skeptics who won't touch blockchains. Your inability to distinguish salesmanship for facts about the network and global economic conditions does not mean they are the same thing. Grifters will use the truth just as they will use a falsehood. All you've done is mistaken everything grifters say as a lie. People with solid opinions on Bitcoin(--anything--) form them on their own, not as an obtuse reaction to noise.
  - arcticbull 5y ago
    > A Ponzi scheme is designed internally to reward its creators and early investors. Rewarding its creators and early investors is a reason to make a Ponzi scheme but it is not a defining characteristic. The characteristic issue is that there is some negative sum coefficient siphoning out value. In this case, it's the miners. It's a fresh coat of paint, distributing the Ponzi-esque roles across numerous people. The promoters and shills are separate from the value extractors are separate from the scheme operators.
    - mattwilsonn888 5y ago
      The miners are not siphoning value, if that were true the network would not require them and there would be one thousand forked repos running off your imaginary system which secures account balances without the economic deterrent.
cmonman 5y ago
It's not a ponzi scheme. It's an mlm, like beachbody or primerica
danlugo92 5y ago
www.endthefud.org
root_axis 5y ago
It's like a Ponzi because the vast majority of people who put money into it only make money because other people dump money into it, unlike a real investment which creates wealth by using capital to fuel productive activity that earns revenue.
- mattwilsonn888 5y ago
  So all investments which do not generate revenue are Ponzis then? What about precious metals - the by far number one use case for that material is sitting in a vault to hedge inflation.
  - root_axis 5y ago
    No, you misunderstand. A business that fails to generate revenue is not a ponzi because the money invested into it is used to grow the business, the investment risk is based on the business fundamentals, unlike cryptocurrencny where the amount of money invested into it has no relationship to its capabilities.
    - mattwilsonn888 5y ago
      With all due respect you misunderstood my own attempt to generalize. By your definition gold or fiat currencies are also Ponzis. > ...unlike cryptocurrencny where the amount of money invested into it has no relationship to its capabilities. The most fundamental thing about Bitcoin is that its price has a direct relationship to network security, which affects how soon you can be confident new blocks will not be out-mined - a clear value. If you don't believe me simply look up a chart comparing Bitcoin hashpower to its price.
- serverholic 5y ago
  That's partly true of the stock market too. We literally educate our kids about the stock market in economics class. We are constantly getting new people to dump money into the stock market. Sure, if a company increases revenue the stock price tends to go up. However, there is no requirement that it does so. It tends to do so because people feel the stock has become more valuable. Same thing with Bitcoin, except things other than revenue cause people to feel like it has more value.
phkahler 5y ago
Tell me how Bitcoin will function once all the mining is done?
- bitcoin_anon 5y ago
  Mining will continue. The rewards will decrease. At some point, the only reward for mining a block will be transaction fees.
royaltheartist 5y ago
Luckily if the monetary worth of Bitcoin fails, it still has intrinsic value for all of its many uses, such as:
- mattwilsonn888 5y ago
  "If we ignore the most valuable thing about Bitcoin its actually useless." Bravo.
tromp 5y ago
> A situation where the founder gave himself virtually no mining advantage over other early adaptors, sure is the “cleanest” approach. The cleanest approach is to give no mining advantage over any adopter, early or late. By fixing the emission rate, for example at one coin per second forever [1]. [1] https://john-tromp.medium.com/a-case-for-using-soft-total-supply-1169a188d153 https://john-tromp.medium.com/a-case-for-using-soft-total-su...
deleted 5y ago
[deleted]
lamontcg 5y ago
Okay. Then it is a decentralized wildcat banking scheme with no FDIC/SIPC protection or any financial controls and auditing around fraud and risk, and the largest market participants think the world is upside down and that those regulations are the problem. It is vulnerable to a systemic banking crisis that causes a bank panic / collapse across the entire system, with no entity large enough to step in and bail it out. Up until now it was probably bailed out after the 2017 collapse by the actions of True Believer billionaires. At some point though as it grows then a billion here or there won't be sufficient to address the liquidity outflows, once you start talking about tens or hundreds of billions to backstop a crash then it'll fail.

27 points by jmstfv 5y ago

Specifically? Maybe not. If it were a Ponzi scheme I think all of that dark bitcoin supposedly held by "Satoshi" would have been converted to real money a long time ago. But cryptocurrency and derived technologies like NFTs are for the most part scams in the general sense. The type of scam varies but the system is ideal for the unscrupulous to fleece the get rich quick, tech illiterates who think they are smarter than they really are.

dqpb 5y ago
The problem (on HN) is that the hype-ignorance runs both directions. Tech-literates see the tech-illiterates getting scammed, and thereby extrapolate that the technology is fundamentally a scam, which is absurd. Data structures, protocols, algorithms, exist at an abstraction layer below that of socio-economic-marketing scams.

usrbinbash 5y ago

By the definition of the word, no its not. But: Since "crypto" holds no intrinsic value, such as the backing of a states wealth, the actual material value of resources like gold, oil or coffee, or the structural value of a company (knowledge, employees, contracts), all its "value" is dependent on what other people are willing to pay for it, and the money these people have pumped into the system. To put this in simplest terms: Every cent someone makes from whatevercoin, has to be put into the system by someone else. A house appreciates in value since living space is a scarce commodity facing growing demand...it's sarcity and thus its appreciation in value is a natural process caused by usefulness and demand. The scarcity of blorkchain "currencies" however, is artificial, and they have no other use than as a token of value for something of actual worth.

ec109685 5y ago
It provides a mechanism to transfer balances securely from wallet A to Wallet B and it’s popularity and thus acceptance continues to increase, so it’s unfair to say there is no value inherent to it.
- usrbinbash 5y ago
  I can securely transfer monetary assets from one bank account to another as well, and be sure that said assets won't lose a lot of their value overnight because of some tweet.
  - ec109685 5y ago
    Now do it between two people in different countries. Not saying it's perfect, but wrong to say there's no value.
    - usrbinbash 5y ago
      That's exactly what people are doing almost everytime they order something online from a company not in their country of residence. And the system used to do most of these transactions (credit cards) works so well, it handles about 1,000,000,000 transactions per day without breaking a sweat. (source: https://www.cardrates.com/advice/number-of-credit-card-transactions-per-day-year/ https://www.cardrates.com/advice/number-of-credit-card-trans...) How many transactions are handled per day by major blorkchain currencies again?
      - ec109685 5y ago
        I went through about 4 different modalities to pay for a tutor for son in India. It isn’t all that easy.
cortic 5y ago
>To put this in simplest terms: Every cent someone makes from whatevercoin, has to be put into the system by someone else. A house appreciates in value since living space is a scarce commodity facing growing demand...it's sarcity and thus its appreciation in value is a natural process caused by usefulness and demand. You just fell over your own point there. Both houses and bitcoins go up in price if the demand for them goes up or the supply of them goes down... calling demand 'put into the system' when you disapprove changes nothing. Also there are plenty of people who use houses as 'tokens of value' only to flip them when the market is favorable, and there are plenty of people who use crypto as a functional currency when other options are unfavorable to their circumstance.
- usrbinbash 5y ago
  A house has intrinsic value. People can live in a house, store things there, or rent it out. Its value was not put into the system, it simply exists, period. Even if the market crashes, a house is still useful and can appreciate again. Its market-value is dependent on both demand and usefulness. The second variable doesn't change. Blorkchain "currencies" have no intrinsic value, because they have no other use than as tokens. Their market-value depends entirely on the market, entirely on the money pumped into the system. In a way, blorkchain coins are a bit like overvalued stocks, the difference is, there is not even a company behind it, there is only the market evaluation.
  - cortic 5y ago
    >A house has intrinsic value. People can live in a house, store things there, or rent it out. Its value was not put into the system, it simply exists, period. Even if the market crashes, a house is still useful and can appreciate again. Its market-value is dependent on both demand and usefulness. The second variable doesn't change. Let me answer that by showing you a mirror perspective of your point; Crypto has intrinsic value. People can use Crypto to exchange or store value bypassing dangerous intermediaries and structures of control. Its value was not put into the system, it simply exists, period. even if the housing market crashes, a crypto currency will still be useful and can appreciate. Cryptos market-value is dependent on both demand and usefulness. The second variable doesn't change. Now the point here is that the mirror argument is about as right as yours. You can imagine ways crypto will devalue, i can imagine ways your house will devalue. You can imagine using your devalued house for things that are useful to you, i can imagine using a devalued crypto currency for things that are useful to me.
mattwilsonn888 5y ago
"Artificiality" is poorly defined and not clearly linked to being 'bad' in any way. Scarcity in blockchains is not, let's say trivial, since you haven't described how being artificial is a detriment. If the Bitcoin Core developers, the exchanges, and all the largest whales all collaborated to increase the supply of Bitcoin in their interest, they would fail lest they somehow convinced everyone who puts value in the network (many put value in for the reason that the supply will likely never change) that the supply should change. You should do a bit more research on how blockchains work and where there security comes from.
ausbah 5y ago
fiat currencies aren't back by government wealth, they're "backed" by people's trust in the future stability of the currency. people trust that the value of the currency will remain relatively constant over shortish time horizons this "value" is also arguably "artifical" bc it is also derived from nebulous concepts like "trust" I personally think deriding something bc it's source of value it's what I like is a fruitless exercise

arcticbull 5y ago

This particular article is exceptionally weak and fails to address substantially all of the criticisms levied by Stolfi (which is what this is really in response to). [1] It spends a lot of the time discussing the SEC's "warning signs" / red flags that something may be a Ponzi scheme which are symptoms and not causes. Just how a traditional Ponzi scheme may manifest within the context of traditional markets like 'issues with paperwork.' Nobody is going to claim that you need to have 'issues with paperwork' to be a Ponzi scheme. Bitcoin is best thought of an a distributed or unbundled take on a Ponzi scheme where instead of having a single centralized authority run the whole show, various parties all collude directly or via incentive structure to achieve the same fundamental results. > Investment Returns: Not Promised They 100% are - by every single shillfluencer account on Twitter, on Reddit, on TikTok and yeah, even here from time to time. I've been NGMI'd here at least several hundred times. > Open Source: The Opposite of Secrecy Everyone agrees the chain is transparent. However, that's the kind of transparency that doesn't matter at all in this context. What makes it a Ponzi scheme isn't that 1BTC=1BTC, it's that you have shady Inspector Gadget themed Bahamian shadow banks printing un-backed ersatz dollars and pushing the price up to create the illusion of gains. You have exchange "outages" as soon as the price starts dropping - but only when it starts dropping. You have spoof orders, wash trading, tape painting - every trick in the book - to make people think they've gained when in reality, they have not. > No Pre-Mine Yeah, all that means is it's not a security under Howey. > Leaderless Growth Yes, it's an old scheme with a fresh coat of paint. > Section Summary: Clearly Not a Ponzi Scheme Agree to disagree. I'm with Stolfi on this one. 1. It is sold as an investment, with some mysticism around how exactly it is appreciating in value. 2. All gains paid out to previous participants come from new participants. 3. Entities (miners, exchanges) are constantly extracting welfare for self-enrichment creating a negative sum coefficient. [1] https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-ponzi.html https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-pon...

serverholic 5y ago
So are pokemon cards a ponzi scheme? Stamp collecting? Gold? Paintings?
- 5y ago

baskethead 5y ago

It’s not a Ponzi scheme at all. What it is is the manifestation of the Greater Fool theory. The only reason you buy it is because of the expectation that some fool greater than yourself will pay an even higher price that you. And if BTC is that, then NFTs are the Greater Fool theory to the second power.

arcticbull 5y ago
This is the claim Lynn was responding to, and it make a compelling argument that this is a Ponzi scheme with a fresh coat of paint. [1] [1] https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-ponzi.html https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-pon...

spicyusername 5y ago

It is really amusing, and a little sad, how desperate people are to "prove" to everyone how amazing this technology is. It's definitely totally not related at all to how much money anyone has at stake, and how much people stand to lose when it fails. If you look through the history of amazing scientific breakthroughs, I suspect you'll find that the ones that legitimately changed the world didn't require armies of self-proclaimed experts to explain to everyone what the benefit is and what problems it solves. However, when you look through the history of snake oil, boom-and-bust market crashes, and actual Ponzi schemes, that's exactly what you find. If you want to convince people of cryptocurrencies merit, just go solve some real problems that real people have. The fact that cryptocurrency has been around for so long and no use-case has materialized outside of pump-and-dump get-rich-quick schemes tells you everything you need to know.

aceazzameen 5y ago
I'd like to see someone explain the amazing possiblities of crypto currency without them making money off of it.
boringg 5y ago
Too many people are in the value chain at this point - chips manufacturers, electricity generators, programmers, VCs [a16z most active], charlatans, influencers, your neighbors. I don't know where it goes from here - its almost too late for it to prove any real world value. Also note that as equity assets tank so do crypto currencies - that strong correlation reflects how the Feds monetary policy has unfortunately inflated crypto. Wouldn't it be ironic if that was how Bitcoin actually did become a reserve currency (it won't because it doesn't behave like one and have underlying value similar to USD).
randomhodler84 5y ago
It is precisely this kind of ignorance this article is to disperse. Just because you don’t have the imagination to see why peer to peer, censorship resistant, non-state based electronic money might be useful, doesn’t mean we all feel that way. After all these years and you still don’t get it means you live a sheltered life. In fact, you are going out of your way to shout “scam”, meanwhile most of us just ignore you while building the future.

thr0wawayf00 5y ago

One thing I've never understood about crypto is: once the token has completely penetrated society and become the de facto actual currency, doesn't the growth decay? At that point, what's the value in holding that token vs redirecting liquidity to a new token? A common argument I hear from crypto folks is that government-backed currencies are susceptible to hyperinflation, as if cryptocurrencies aren't. But I don't see how this is the case. Once the growth stops, what is stopping everyone from pulling out?

Karunamon 5y ago
They aren't vulnerable in the same way, at least. With nearly every cryptocurrency (with exceptions like Dogecoin), new units of currency enter circulation in a predictable and ultimately, limited way. Vitalik can't conjure a million ethereum out of thin air tomorrow, but any government can spend a ton of money and attempt to cover their costs with newly printed currency. Basically, you're trusting the market to not debase your currency instead of a single issuer.
kevin_nisbet 5y ago
> One thing I've never understood about crypto is: once the token has completely penetrated society and become the de facto actual currency, doesn't the growth decay? At that point, what's the value in holding that token vs redirecting liquidity to a new token? I thought that was sort of the point, that crypto wasn't really meant to be an investment class, but more of a stable store of value like a currency. The mix-in at present is it's not a de-facto currency, so the price is highly volatile due to people treating it as an investment, speculating, gambling, etc. And then the conflict to be wary of, or the question always in the back of my mind when looking at the promoters, is there own investments do better when they sell others on the same investment.
mattwilsonn888 5y ago
> A common argument I hear from crypto folks is that government-backed currencies are susceptible to hyperinflation, as if cryptocurrencies aren't. Sufficiently large, they are not. What made you think they were? Assuming you have a de facto currency which is non-inflationary, the value in holding it rather than redirecting liquidity to another asset class is that holding it is the least risky option. The reason money was directed in to the non-inflationary asset in the first place was that the de facto currency was actively devaluing itself through inflation. The larger concerns of a currency which cannot inflate are the economic problems which can come along with such stiffness - keyword: "deflationary crash."

sascha_sl 5y ago

The commonality with the Ponzi Scheme is that returns are solely based on others continued investment and that the value collapses if they stop doing this continuously. That we managed to make this happen without a central entity that can run off with the money, with lots of people invested in the middle of the pyramid (the author, presumably) also doing the evalgalizing makes it technically different, but not practically. Collapse is always coming, to various degrees of severity. If not to Bitcoin at one time, then to the planet. And GPU availability.

PragmaticPulp 5y ago
> The commonality with the Ponzi Scheme is that returns are solely based on others continued investment and that the value collapses if they stop doing this continuously. And before anyone tries to make a stock market comparison: No, this isn’t the same as stocks. Stocks are, literally, partial ownership of a company. A shareholder owns part of the underlying company, including everything from their bank balances to their brand. Bitcoin would be like subtracting out all of the valuable parts of a company and leaving nothing but the shares behind. You get an entry in a database (the blockchain) and nothinf else. Literally the only thing that gives this database entry any value is the ability to convince someone else to give you money in exchange for it.
- awb 5y ago
  Except not all stocks are like that. Non-voting right stocks are illegal in some countries but legal in the US. https://en.m.wikipedia.org/wiki/Non-voting_stock https://en.m.wikipedia.org/wiki/Non-voting_stock
- boringg 5y ago
  So common stocks do not have any claims on the bank balances of a company. I'm not defending crypto but your assertion is not wholly correct. Ostensibly you are the very last in line of creditors to claim any assets if the company goes bankrupt but you will get very little to nothing .. pennies on the dollar if anything. Stocks give you voting rights at the AGM and a claim on future profits through stock appreciation or dividends if the company decides to issue dividends.

vehemenz 5y ago

I don't think anyone calling Bitcoin a Ponzi scheme means it literally. They are just calling it a racket. And sure, the folks at the high level are racketeering, but that's not the majority of Bitcoin users/investors.

scottiebarnes 5y ago
I think a lot of haters do, they align the behavioural qualities of a ponzi scheme with Bitcoin by pointing out how the only way a unit of BTC can have value is by selling it forward to another person. Which is indeed a property of any money; if nobody wants it, it cannot have value. However, I'm not sure they've taken the time to think about what the real-time monetization of a newly discovered commodity looks like. It took gold thousands of years to become a global currency, and now we have something similar but with the speed of the internet. With the physical properties of the Bitcoin protocol / blockchain (halving, fixed supply, etc.), it starts to look very obvious as to why people want to front run it, or use it as a store of value. And so the expected behaviour becomes obvious.
gruez 5y ago
>I don't think anyone calling Bitcoin a Ponzi scheme means it literally The non-negligible amounts of comparison to bernie madoff or enron suggests otherwise.

SkipperCat 5y ago

Sure, one can say Bitcoin is not a Ponzi scheme because the definition of a Ponzi scheme is flexible. However, it's hard to deny that Bitcoin in not a bubble for the following reasons: 1. Prices are rising because of speculation 2. There is very little non-speculation use of Bitcoin (people are rarely using it for commerce). 3. There is no return on assets from Bitcoin. No yield, no dividend, etc. Bitcoin could go to $1MM per coin, it's possible. But as a 'fiat' currency, it lacks the institutional backing of other currencies such as the USD. Plus, I would be concerned that nations with their own currency (US, China, etc) could smack Bitcoin pretty hard if they wanted. Bitcoin is a really cool project/concept/social-experiment. But I do think there's some structural risks and I can't buy into some of the more evangelistic talk about it.

gregjor 5y ago
China has already banned crypto.
- echopurity 5y ago
Matticus_Rex 5y ago
> But as a 'fiat' currency, it lacks the institutional backing of other currencies such as the USD This is not what "fiat" means in monetary econ. USD is a fiat currency (meaning it is backed by government "fiat," which literally means "a formal authorization or proposition; a decree." BTC is currently only currency at all in limited contexts, but it is difficult to classify in the established categories of money and fiduciary media. The bucket it gets closest to fitting into in how it works, given that it is not backed by anything except its own perceived value? Commodity money. That seems off, of course, since most (though not necessarily all) historical commodity moneys have had a clear, usually industrial, value, and commodities have traditionally been only physical (though that seems to be changing). Some economists are suggesting "synthetic commodity money" as a category for this, but we're still in the early days. "But," you might reply, "commodity money has a price floor above zero that 'backs' its value." But while that's historically true (see note), it's not clear that it matters. Cryptos designed to be used as currencies are certainly bubbles through some lenses, but through the same lenses all commodity moneys look like bubbles. An economist friend discussing this with me around ~2013 pointed out "money is just a bubble that doesn't pop." Say a precious metal commodity money trades for $1500/oz, but through a complex model economists estimate that its industrial value would be $100 if it weren't used as a medium of exchange (or speculatively, as a number of commodities like gold are held). A cryptocurrency, on the other hand, is trading for $1500/unit, and its price is estimated to be ~$0 without such use. One has a price floor of $100, and a "bubble" value of $1400/oz, while the other has a price floor of $0, and a "bubble" value of $1500/unit. Does that distinction make a difference? It's not actually clear. It's certainly possible to imagine a cryptocurrency reaching a long-term equilibrium where it is considered valuable because it is a well-established medium of exchange and has reliable purchasing power. Imagine that someone has created this, and it happens to have the best money qualities (durability, portability, etc.) of any currency ever, plus great UX. How would it get there? Well, there would have to be a fairly drawn-out period of speculation where the value fluctuated pretty wildly as the market attempted to find an equilibrium based on future expectations of its value. So cryptocurrencies now are behaving exactly as we'd expect them to behave if they were to one day become "synthetic commodity money." The question is whether any of them can actually find that equilibrium. It may not be possible to bridge that gap, whether because the fundamentals just don't work, or because the fluctuations are too strong to ever create a real equilibrium, or because the US or China finds a way to shut down any crypto that gets close. But stranger things that seemed less intuitively plausible have happened. Note: usually -- there are some historical moneys that don't fit clearly into this paradigm, such as cowrie shells, of which the use in jewelry looks to have been more of a symptom rather than a cause of the value*

NicoJuicy 5y ago

All that text and nothing explains the drop from 20 k to 4,5 k in 2018-2019

firekvz 5y ago
What's there to explain? Tether manipulation of 'prices goes up', leads to fomo, leads to cashout of big players, leads to bagholding from retail who has no other option than joining the crypto cult to try to fomo others and move price back up It's pretty obvious
- saalweachter 5y ago
  Honestly I think the innovation there is that it's a distributed Ponzi. With any normal Ponzi scheme, there is "a guy", a guy at the center of it all cooking the books and redirecting the funds from late investors to early and skimming a healthy bit for himself. One day that guy gets arrested or decides it's time to run and the scheme collapses. Maybe that day comes a year in, maybe twenty, but it's a-coming. With a distributed Ponzi scheme, there is no one guy. If some people get arrested for fraud or take their loot and run off somewhere, other people can step in and keep it all going, pumping and dumping and scamming and scheming. I honestly don't know what it would take to actually make it go away for good.
- NicoJuicy 5y ago
  Not for everyone

meltedcapacitor 5y ago

Well it is not a ponzi in the sense that there is no organiser and no promise of an underlying profitable enterprise. It has become, functionally, a decentralized pyramid scheme. Let's look at some of the criteria reviewed in the article. - Investment Returns: Not Promised The promise is peer to peer: players convince each other of investment returns and almost all players (that remain) are there because they believe in that promise. Once the last dude who wanted to buy pizza without giving Visa or Mastercard a cut has left the room... - Open Source: The Opposite of Secrecy Yes but that the mechanism of redistribution is (partially) in the open does not invalidate that something is a ponzi or a pyramid scheme. The openness is also partial, Bitcoin is still pseudonymous enough that we know what moves but not always who and why. - No Pre-Mine Early mining with exponential reduction in block reward is functionally equivalent to a pre-mine: the founder(s) have a considerable advantage. A bit more open but then one can also usually do well by buying early on the secondary market an explicitly premined coin that later becomes successful (e.g. ethereum). It's effectively a more elegant way to do a premine with nice deniability (harder to get caught for doing a security offering). - Leaderless Growth Yes it's decentralized. A decentralized pyramid scheme remains a pyramid scheme. It's not an intrinsic property of the tech but of the social happenings around it. (Many altcoins that are other instances of the same code have failed to get traction and become pyramid schemes.)

wmanley 5y ago
I don't know why you're being downvoted: You've hit the nail on the head - Bitcoin is a Pyramid scheme, not a Ponzi scheme. I've been seeing comparisons to Ponzi schemes a lot in the last few weeks. AFAICS "Bitcoin as Ponzi scheme" is a useful strawman for pro-bitcoin arguments because it's so easily defeated. Bitcoin as Pyramid scheme is a much stronger argument, with far fewer articles dedicated to it.
mattwilsonn888 5y ago
What you're saying is kind of true, but it lacks a fundamental understanding how what makes the Bitcoin network valuable. The first and foremost is security. Security in Bitcoin is a direct function of hashpower: the higher the hashpower, the more expensive a re-organization attack is and the sooner you can 'trust' newly appended blocks. The longer one has to wait to be sure a 51% attack hasn't occurred the less valuable the network is. Secondly is scarcity. Bitcoin has a set number of coins which will exist and one of the strongest promises in the world that it will not change. This gives rational reason to hold on to Bitcoin in favor of 'objects of value' which are inflating or have the possibility of inflating. You can always bring up the fact that traders want to sell higher than they bought and will communicate nefariously if it helps them achieve that goal. That is true for any asset. The misconception in your reading is that Bitcoin only derives value expected future returns, which as I have demonstrated is not true. What can often be confusing to wrap one's head around is that the more Bitcoin is worth in terms of mining cost (dollars currently), the more security it will have; the value goes up with the price, which for many doesn't pass a certain, unsophisticated smell test regarding scams. If it sets off your alarms, refer back to where the value is coming from. You may not believe what gives Bitcoin its value is actually valuable, but, that's, just like, your opinion, man.

sharemywin 5y ago

Just because it's not a ponzi scheme doesn't make it a good investment. I wouldn't hold a large amount of US dollars as an investment either.

skilled 5y ago

I commend the author for such an extensive piece, I am sure it took some time to write and put together. For me, Bitcoin isn't really the problem. If anything, I would be happy if Bitcoin remained the cryptocurrency. And, maybe Ethereum, since I respect Vitalik's work on it and his determination. Problem arises with all the other "shitcoins" and all the stink they bring with them. There is absolutely no valid reason to invest in alternative crypto (coins, NFT, etc,.) because it has no real-world use or direct application for the individual himself.[0] And everything that will follow in the coming 12 months, it will be merely an attempt to validate it. Web3 (the crypto version) is hyped up so much that will inevitably face the music when an avalanche of tribulations come crashing down on it. [0]: The argument that you can use alternative coins to replace expensive banking in poor countries is acceptable, but I don't think that is the point here.

echopurity 5y ago

mohanmcgeek 5y ago

The author seems to think that the detractors are accusing Satoshi of devising a Ponzi scheme and goes on to tell us why that's not the case. This is a strawman because the real Ponzi scheme is being perpetuated by financial whales who know full well that Bitcoin is not a "currency" and are pumping it up only to cash out. The "buy the dip" promoters don't want their net worth going down and push that so that they can sell again at the peak

mattwilsonn888 5y ago
A Ponzi scheme is designed internally to reward its creators and early investors. This mechanism is kept a secret for obvious reasons. People who buy an asset to trade it want the price to go up - a not so clever point you've made. People with plans to sell Bitcoin for profit in a fiat currency are no more believers than the skeptics who won't touch blockchains. Your inability to distinguish salesmanship for facts about the network and global economic conditions does not mean they are the same thing. Grifters will use the truth just as they will use a falsehood. All you've done is mistaken everything grifters say as a lie. People with solid opinions on Bitcoin(--anything--) form them on their own, not as an obtuse reaction to noise.
- arcticbull 5y ago
  > A Ponzi scheme is designed internally to reward its creators and early investors. Rewarding its creators and early investors is a reason to make a Ponzi scheme but it is not a defining characteristic. The characteristic issue is that there is some negative sum coefficient siphoning out value. In this case, it's the miners. It's a fresh coat of paint, distributing the Ponzi-esque roles across numerous people. The promoters and shills are separate from the value extractors are separate from the scheme operators.
  - mattwilsonn888 5y ago
    The miners are not siphoning value, if that were true the network would not require them and there would be one thousand forked repos running off your imaginary system which secures account balances without the economic deterrent.

cmonman 5y ago

It's not a ponzi scheme. It's an mlm, like beachbody or primerica

danlugo92 5y ago

www.endthefud.org

root_axis 5y ago

It's like a Ponzi because the vast majority of people who put money into it only make money because other people dump money into it, unlike a real investment which creates wealth by using capital to fuel productive activity that earns revenue.

mattwilsonn888 5y ago
So all investments which do not generate revenue are Ponzis then? What about precious metals - the by far number one use case for that material is sitting in a vault to hedge inflation.
- root_axis 5y ago
  No, you misunderstand. A business that fails to generate revenue is not a ponzi because the money invested into it is used to grow the business, the investment risk is based on the business fundamentals, unlike cryptocurrencny where the amount of money invested into it has no relationship to its capabilities.
  - mattwilsonn888 5y ago
    With all due respect you misunderstood my own attempt to generalize. By your definition gold or fiat currencies are also Ponzis. > ...unlike cryptocurrencny where the amount of money invested into it has no relationship to its capabilities. The most fundamental thing about Bitcoin is that its price has a direct relationship to network security, which affects how soon you can be confident new blocks will not be out-mined - a clear value. If you don't believe me simply look up a chart comparing Bitcoin hashpower to its price.
serverholic 5y ago
That's partly true of the stock market too. We literally educate our kids about the stock market in economics class. We are constantly getting new people to dump money into the stock market. Sure, if a company increases revenue the stock price tends to go up. However, there is no requirement that it does so. It tends to do so because people feel the stock has become more valuable. Same thing with Bitcoin, except things other than revenue cause people to feel like it has more value.

phkahler 5y ago

Tell me how Bitcoin will function once all the mining is done?

bitcoin_anon 5y ago
Mining will continue. The rewards will decrease. At some point, the only reward for mining a block will be transaction fees.

royaltheartist 5y ago

Luckily if the monetary worth of Bitcoin fails, it still has intrinsic value for all of its many uses, such as:

mattwilsonn888 5y ago
"If we ignore the most valuable thing about Bitcoin its actually useless." Bravo.

tromp 5y ago

> A situation where the founder gave himself virtually no mining advantage over other early adaptors, sure is the “cleanest” approach. The cleanest approach is to give no mining advantage over any adopter, early or late. By fixing the emission rate, for example at one coin per second forever [1]. [1] https://john-tromp.medium.com/a-case-for-using-soft-total-supply-1169a188d153 https://john-tromp.medium.com/a-case-for-using-soft-total-su...

deleted 5y ago

[deleted]

lamontcg 5y ago

Okay. Then it is a decentralized wildcat banking scheme with no FDIC/SIPC protection or any financial controls and auditing around fraud and risk, and the largest market participants think the world is upside down and that those regulations are the problem. It is vulnerable to a systemic banking crisis that causes a bank panic / collapse across the entire system, with no entity large enough to step in and bail it out. Up until now it was probably bailed out after the 2017 collapse by the actions of True Believer billionaires. At some point though as it grows then a billion here or there won't be sufficient to address the liquidity outflows, once you start talking about tens or hundreds of billions to backstop a crash then it'll fail.