8 ms·

Cryptocurrency is akin to ‘Ponzi scheme’

themodelplumber 5y ago
> they have no intrinsic value It's funny how much weight is placed on this word "intrinsic", as if we need to penetrate down to some singular identity layer of a thing to be comfortable assigning it value as a store of anything. Exactly what that layer is supposed to look like is always somehow described with gobs of words that easily map onto other things that people have already valued for millenia. You might as well just ask, "is it popular with some people"? If the answer is yes, it's probably a carrier of human interest to some degree, regardless of whatever snooty value systems may be applied to that, so you can likely buy it low and sell it high with a slightly-educated squint at a moving average chart. (I noticed that people really like to think they are good at assigning value to things, so perhaps this comes down to some core human fear...certainly the typical concern about future outcomes also applies, in which we learn that people have apparently never heard of contingency planning and calculated risk...both of which may be even more useful than intrinsic-whatever subjectivity)
- pixelbath 5y ago
  > they have no intrinsic value Nor do paper dollars (or paper rupees). They're special because a group of people said they were, which isn't that different from cryptocurrency in concept.
  - cyanydeez 5y ago
    except the groups in cryptocurrency are not connected in any central way and have no stake in the value excepr their own shallo2 self interesr.
    - themodelplumber 5y ago
      > are not connected in any central way and have no stake in the value excepr their own shallo2 self interesr "Describe business owners for us" "Describe humans for us"
- trixie_ 5y ago
  The intrinsic value of crypto is that is the first form of electronic cash that isn't a proxy for bank to bank transfers. It's intrinsic value comes from being an excellent form of currency and store of value - easy to store, fast to send, easy to verify, easy to hold personally, difficult to create more of, etc.. Up until Bitcoin there were not digital forms of money that came close. Physical forms of money are hindered by being physical which means transportation and validation are more complicated. It's not easy to find a form of money that has all these properties above, Bitcoin and other crypto currencies do which is WHY they are valuable. That is their intrinsic value - being good at being money.
  - chii 5y ago
    > being good at being money. i would argue that bitcoin isn't good money at the moment, since certainty of value is one property that is very high on the list of requirements, and bitcoin lacks certainty (or stability). It's very good at being a speculative asset - like gold. But not money. Not yet anyway. I'm not saying it can never be good money - that's what people are speculating about!
    - trixie_ 5y ago
      Holding value is also important. Fiat currencies are notoriously bad at holding their value over any long period of time. Bitcoin might not be stable (as a result of not being easily manipulated by the government), but over the long term its value has increased due to scarcity. Many people use both today with Bitcoin debit cards that allow converting to fiat for use with lower level transactions.
tonetheman 5y ago
Clearly they meant to say "Cryptocurrency is a Ponzi scheme."
ctocoder 5y ago
What makes a Ponzi scheme, a scheme is; a guaranteed profit. Crypto profit is not guaranteed at any time, the criteria is not met thus is not a Ponzi scheme.
- spaceisballer 5y ago
  For people who minted the new crypto it is. They sell something worth nothing and can pump and dump.
  - trixie_ 5y ago
    You missed the point where mining is not free.
- dpark 5y ago
  Madoff didn’t “guarantee” profit either but was still running a Ponzi scheme. I am not convinced that cryptocurrency qualifies as a Ponzi scheme (the real distinction is that the person at the top knows they’re selling a fraud) but it’s certainly driven by pure speculation.
- rvz 5y ago
  > at any time. It's really simple. Take for example, Bitcoin: When Bitcoin reaches its next all time high, literally everyone is in (unrealised) profit. However, to get that 'profit' they have to sell it; mostly starts with the few rich speculators at the top of the pyramid accumulating starting to sell and a new fool who buys in late. The next time Bitcoin crashes, the ones at the bottom who bought in late and hold it always lose. Therefore the criteria is met and it is a Ponzi scheme and that is what Bitcoin is really useful for.
  - randomhodler84 5y ago
    Ya know, Amazon stock is the same. Is that a ponzi? Maybe it’s a super ponzi because unlike BTC, Amazon can keep issuing common stock, which pays no dividend. BTC is capped at 21M. Non-dividend stock is shuffling funny tokens between investors who hope it will be worth more in the future. So either lots of things are ponzis or maybe they are not ponzis at all, and the definition doesn’t work.
spaceisballer 5y ago
It’s more of a greater fool scheme or basically a MLM. You need people to buy in to raise the value, then get all these people hyping it etc etc. NFTs seem to have perfected what crypto started, give you FOMO and make you buy overvalued 0s and 1s. I think crypto is deplorable purely on the amount of electricity it consumes. It’s pretty clear it offers a solution to a problem that doesn’t exist, unless that problem all along was give a subset of tech people a way to get rich off fools.
- rvz 5y ago
  How do you ponzi a stablecoin sitting on an environmentally friendly cryptocurrency technology like Stellar? I wouldn’t completely dismiss all cryptocurrencies, unless it was Bitcoin being the only one that exists.
  - randomhodler84 5y ago
    I would completely dismiss all cryptocurrencies except Bitcoin. Environmentally friendly is a trick. If it’s pointless, like all other coins, it’s a waste of energy no matter how efficient it is. Stablecoins are for those that cannot let go of the traditional system. They will all go to zero.
    - rvz 5y ago
      The whole point of Bitcoin is to be a peer-to-peer electronic cash system. Even excusing the fact that it is a wasteful cryptocurrency as demonstrated by the amount of sheer energy it consumes [0], it is a far worse version of VisaNet only handling 7 transactions per second and settlements can take hours. Best part is, its extreme volatile pricing makes it pointless as a 'currency' and completely useless for merchants accepting payments, but perfect as a ponzi scheme. Why do you think not only Stripe has dropped it for payments, but now its somehow 'A store of value' instead of it being an electronic cash system? Therefore 'Bitcoin' (and its blockchain) has failed in each category except for being a Ponzi scheme and is more pointless than the majority of the other blockchains and coins. > Stablecoins are for those that cannot let go of the traditional system. They will all go to zero. I hear that the banks and the payment processors are shaking in their boots over how better Bitcoin is against the 'traditional system' other than for speculation or ponzi schemes. /s [0] https://digiconomist.net/bitcoin-energy-consumption https://digiconomist.net/bitcoin-energy-consumption
harry8 5y ago
A good way of thinking about such arguments to get you some new insight into your own thinking about it is: "How does this argument about BTC[1] apply to gold?" Eg is gold a ponzi scheme? "Dug up, refined, buried again somewhere like fort knox with a very small use other than as a store of value. (eg some electronics). Whether you decide yes it's ponzi or no it's not, then look at what other difference there is or isn't between gold and btc to justify the conclusion if that conclusion differs. Or maybe like me you still haven't reached any conclusion about crypto-currencies beyond noting there are a lot of hucksters out there - just like in any goldrush. [1] yes you can use some other cryptocurrency as your example and some other precious metal or stone such as diamonds or whatever if that is more useful to your thinking.
- Ologn 5y ago
  > Eg is gold a ponzi scheme? "Dug up, refined, buried again somewhere like fort knox with a very small use other than as a store of value. (eg some electronics). Whether you decide yes it's ponzi or no it's not, then look at what other difference there is or isn't between gold and btc to justify the conclusion if that conclusion differs. It is completely different. Gold is useful. For electronics. For filling teeth. For industrial uses. This is why gold is valuable. Gold also has properties that make it a good store of value and good currency. It is durable, portable, uniform, and divisible. That is why people "buried again somewhere like fort knox"..."as a store of value". Any commodity with these properties is treated in the same way (mostly other precious metals). If there is use value and exchange value, gold has both. Bitcoin currently has exchange value but it has no real use value. So they are not the same.
  - Scaevolus 5y ago
    Gold has been valued throughout human history for its beauty, and later as currency. Industrial applications are a very recent concern.
  - randomhodler84 5y ago
    The most important property of Bitcoin is it is digital, and can be transmitted over a communication channel. It requires no physical space. Private keys are easy to encrypt thus prevent access by unauthorized parties. It’s better than gold in every way. Why does anyone want shiny dumb rocks anyway?
anm89 5y ago
Wow this is a really unique take, good job tech crunch. I've never heard anyone make this claim before. Hey did you guys know one time tulips got really over priced too?
black_13 5y ago
Day1 5y ago
1 btc is worth more than a car and people are still calling it a ponzi scheme. I find that very amusing for some reason.
- hypertele-Xii 5y ago
  A lucrative ponzi scheme is still a ponzi scheme. Pity the sucker left holding the bag worth everyone's cars who exited successfully.
  - trixie_ 5y ago
    This can be said for stocks as well, but stocks are not a ponzi scheme. A ponzi scheme is where interest on the investment are funded by other investors in the scheme. Unless you are talking about some interest earning crypto program, maybe THAT is a ponzi scheme. But the crypto you buy and sell on an open exchange is definitely not. Learn what words mean.
    - hypertele-Xii 5y ago
      > A ponzi scheme is where interest on the investment are funded by other investors in the scheme. Where does the "value" of Bitcoin come from? From being able to sell it to new "investors" at higher margin than you originally "invested" into it. The Bitcoin network creates no actual value. Everything is percieved speculation on its (apparent lack of) usefulness. You cannot convert Bitcoin back into the energy that was used to compute it. It's a wealth transfer mechanism from those who don't understand how it works to those who do.
      - trixie_ 5y ago
        The perceived value of the asset has nothing to do with whether something is a ponzi scheme or not. You should read the definition. I'll answer your question anyways of what gives Bitcoin value. It's value comes from being a digital store of value. Before bitcoin there was none. You had a bank account which was a proxy for physical cash. There was no way to hold the cash personally, digitally, and send it anywhere you want. Before Bitcoin the best analog was gold - hard to create more of versus fiat which is incredible easy to dilute which is why you would want to diversify out of it. Gold though is slow to send, hard to verify, etc... Bitcoin basically has the properties of gold in electronic form - hard to create, easy to send, easy to verify, hundreds of thousands of dollars worth can be held securely in your hand. THAT is what makes Bitcoin valuable. Show me an alternative store of value with those properties.
trixie_ 5y ago
Please understand what a Ponzi scheme is. A Ponzi scheme is where the con artist tricks you into thinking you bought an asset when really they just pocketed most of the money, giving you back a little bit and calling an 'investment return' No matter whether you think Bitcoin has real 'value' or not, that has nothing to do with a ponzi scheme. You can buy Bitcoin and hold it yourself without a middle man. It's no different than holding stocks or gold, you can buy/sell the full asset at anytime. There's no middle man preventing you from selling the full asset and take 'interest payments' instead.
- nwah1 5y ago
  It requires continual mining, which means expending electricity. Which shows up as some combination transaction costs or inflation that is continually siphoned off. Which means new money needs to be perpetually flowing into the system simply to secure the ledger. But that is all wasted, so it is actually a negative-sum wealth transfer if we include all the actual useful things we could've done with the energy. If you buy beanie babies or gold, there is no such siphoning.
  - trixie_ 5y ago
    First why did you even reply? We’re taking about what a Ponzi scheme is and energy use has nothing to do with it. I’ll reply to your criticism anyways - There is absolutely energy required to store gold, monitor gold, protect gold, transport gold, mine gold, etc… any financial system requires energy to operate.
fattybob 5y ago
Doesn’t that also apply to most currencies?

> they have no intrinsic value It's funny how much weight is placed on this word "intrinsic", as if we need to penetrate down to some singular identity layer of a thing to be comfortable assigning it value as a store of anything. Exactly what that layer is supposed to look like is always somehow described with gobs of words that easily map onto other things that people have already valued for millenia. You might as well just ask, "is it popular with some people"? If the answer is yes, it's probably a carrier of human interest to some degree, regardless of whatever snooty value systems may be applied to that, so you can likely buy it low and sell it high with a slightly-educated squint at a moving average chart. (I noticed that people really like to think they are good at assigning value to things, so perhaps this comes down to some core human fear...certainly the typical concern about future outcomes also applies, in which we learn that people have apparently never heard of contingency planning and calculated risk...both of which may be even more useful than intrinsic-whatever subjectivity)

pixelbath 5y ago
> they have no intrinsic value Nor do paper dollars (or paper rupees). They're special because a group of people said they were, which isn't that different from cryptocurrency in concept.
- cyanydeez 5y ago
  except the groups in cryptocurrency are not connected in any central way and have no stake in the value excepr their own shallo2 self interesr.
  - themodelplumber 5y ago
    > are not connected in any central way and have no stake in the value excepr their own shallo2 self interesr "Describe business owners for us" "Describe humans for us"
trixie_ 5y ago
The intrinsic value of crypto is that is the first form of electronic cash that isn't a proxy for bank to bank transfers. It's intrinsic value comes from being an excellent form of currency and store of value - easy to store, fast to send, easy to verify, easy to hold personally, difficult to create more of, etc.. Up until Bitcoin there were not digital forms of money that came close. Physical forms of money are hindered by being physical which means transportation and validation are more complicated. It's not easy to find a form of money that has all these properties above, Bitcoin and other crypto currencies do which is WHY they are valuable. That is their intrinsic value - being good at being money.
- chii 5y ago
  > being good at being money. i would argue that bitcoin isn't good money at the moment, since certainty of value is one property that is very high on the list of requirements, and bitcoin lacks certainty (or stability). It's very good at being a speculative asset - like gold. But not money. Not yet anyway. I'm not saying it can never be good money - that's what people are speculating about!
  - trixie_ 5y ago
    Holding value is also important. Fiat currencies are notoriously bad at holding their value over any long period of time. Bitcoin might not be stable (as a result of not being easily manipulated by the government), but over the long term its value has increased due to scarcity. Many people use both today with Bitcoin debit cards that allow converting to fiat for use with lower level transactions.

tonetheman 5y ago

Clearly they meant to say "Cryptocurrency is a Ponzi scheme."

ctocoder 5y ago

What makes a Ponzi scheme, a scheme is; a guaranteed profit. Crypto profit is not guaranteed at any time, the criteria is not met thus is not a Ponzi scheme.

spaceisballer 5y ago
For people who minted the new crypto it is. They sell something worth nothing and can pump and dump.
- trixie_ 5y ago
  You missed the point where mining is not free.
dpark 5y ago
Madoff didn’t “guarantee” profit either but was still running a Ponzi scheme. I am not convinced that cryptocurrency qualifies as a Ponzi scheme (the real distinction is that the person at the top knows they’re selling a fraud) but it’s certainly driven by pure speculation.
rvz 5y ago
> at any time. It's really simple. Take for example, Bitcoin: When Bitcoin reaches its next all time high, literally everyone is in (unrealised) profit. However, to get that 'profit' they have to sell it; mostly starts with the few rich speculators at the top of the pyramid accumulating starting to sell and a new fool who buys in late. The next time Bitcoin crashes, the ones at the bottom who bought in late and hold it always lose. Therefore the criteria is met and it is a Ponzi scheme and that is what Bitcoin is really useful for.
- randomhodler84 5y ago
  Ya know, Amazon stock is the same. Is that a ponzi? Maybe it’s a super ponzi because unlike BTC, Amazon can keep issuing common stock, which pays no dividend. BTC is capped at 21M. Non-dividend stock is shuffling funny tokens between investors who hope it will be worth more in the future. So either lots of things are ponzis or maybe they are not ponzis at all, and the definition doesn’t work.

spaceisballer 5y ago

It’s more of a greater fool scheme or basically a MLM. You need people to buy in to raise the value, then get all these people hyping it etc etc. NFTs seem to have perfected what crypto started, give you FOMO and make you buy overvalued 0s and 1s. I think crypto is deplorable purely on the amount of electricity it consumes. It’s pretty clear it offers a solution to a problem that doesn’t exist, unless that problem all along was give a subset of tech people a way to get rich off fools.

rvz 5y ago
How do you ponzi a stablecoin sitting on an environmentally friendly cryptocurrency technology like Stellar? I wouldn’t completely dismiss all cryptocurrencies, unless it was Bitcoin being the only one that exists.
- randomhodler84 5y ago
  I would completely dismiss all cryptocurrencies except Bitcoin. Environmentally friendly is a trick. If it’s pointless, like all other coins, it’s a waste of energy no matter how efficient it is. Stablecoins are for those that cannot let go of the traditional system. They will all go to zero.
  - rvz 5y ago
    The whole point of Bitcoin is to be a peer-to-peer electronic cash system. Even excusing the fact that it is a wasteful cryptocurrency as demonstrated by the amount of sheer energy it consumes [0], it is a far worse version of VisaNet only handling 7 transactions per second and settlements can take hours. Best part is, its extreme volatile pricing makes it pointless as a 'currency' and completely useless for merchants accepting payments, but perfect as a ponzi scheme. Why do you think not only Stripe has dropped it for payments, but now its somehow 'A store of value' instead of it being an electronic cash system? Therefore 'Bitcoin' (and its blockchain) has failed in each category except for being a Ponzi scheme and is more pointless than the majority of the other blockchains and coins. > Stablecoins are for those that cannot let go of the traditional system. They will all go to zero. I hear that the banks and the payment processors are shaking in their boots over how better Bitcoin is against the 'traditional system' other than for speculation or ponzi schemes. /s [0] https://digiconomist.net/bitcoin-energy-consumption https://digiconomist.net/bitcoin-energy-consumption

harry8 5y ago

A good way of thinking about such arguments to get you some new insight into your own thinking about it is: "How does this argument about BTC[1] apply to gold?" Eg is gold a ponzi scheme? "Dug up, refined, buried again somewhere like fort knox with a very small use other than as a store of value. (eg some electronics). Whether you decide yes it's ponzi or no it's not, then look at what other difference there is or isn't between gold and btc to justify the conclusion if that conclusion differs. Or maybe like me you still haven't reached any conclusion about crypto-currencies beyond noting there are a lot of hucksters out there - just like in any goldrush. [1] yes you can use some other cryptocurrency as your example and some other precious metal or stone such as diamonds or whatever if that is more useful to your thinking.

Ologn 5y ago
> Eg is gold a ponzi scheme? "Dug up, refined, buried again somewhere like fort knox with a very small use other than as a store of value. (eg some electronics). Whether you decide yes it's ponzi or no it's not, then look at what other difference there is or isn't between gold and btc to justify the conclusion if that conclusion differs. It is completely different. Gold is useful. For electronics. For filling teeth. For industrial uses. This is why gold is valuable. Gold also has properties that make it a good store of value and good currency. It is durable, portable, uniform, and divisible. That is why people "buried again somewhere like fort knox"..."as a store of value". Any commodity with these properties is treated in the same way (mostly other precious metals). If there is use value and exchange value, gold has both. Bitcoin currently has exchange value but it has no real use value. So they are not the same.
- Scaevolus 5y ago
  Gold has been valued throughout human history for its beauty, and later as currency. Industrial applications are a very recent concern.
- randomhodler84 5y ago
  The most important property of Bitcoin is it is digital, and can be transmitted over a communication channel. It requires no physical space. Private keys are easy to encrypt thus prevent access by unauthorized parties. It’s better than gold in every way. Why does anyone want shiny dumb rocks anyway?

anm89 5y ago

Wow this is a really unique take, good job tech crunch. I've never heard anyone make this claim before. Hey did you guys know one time tulips got really over priced too?

black_13 5y ago

Day1 5y ago

1 btc is worth more than a car and people are still calling it a ponzi scheme. I find that very amusing for some reason.

hypertele-Xii 5y ago
A lucrative ponzi scheme is still a ponzi scheme. Pity the sucker left holding the bag worth everyone's cars who exited successfully.
- trixie_ 5y ago
  This can be said for stocks as well, but stocks are not a ponzi scheme. A ponzi scheme is where interest on the investment are funded by other investors in the scheme. Unless you are talking about some interest earning crypto program, maybe THAT is a ponzi scheme. But the crypto you buy and sell on an open exchange is definitely not. Learn what words mean.
  - hypertele-Xii 5y ago
    > A ponzi scheme is where interest on the investment are funded by other investors in the scheme. Where does the "value" of Bitcoin come from? From being able to sell it to new "investors" at higher margin than you originally "invested" into it. The Bitcoin network creates no actual value. Everything is percieved speculation on its (apparent lack of) usefulness. You cannot convert Bitcoin back into the energy that was used to compute it. It's a wealth transfer mechanism from those who don't understand how it works to those who do.
    - trixie_ 5y ago
      The perceived value of the asset has nothing to do with whether something is a ponzi scheme or not. You should read the definition. I'll answer your question anyways of what gives Bitcoin value. It's value comes from being a digital store of value. Before bitcoin there was none. You had a bank account which was a proxy for physical cash. There was no way to hold the cash personally, digitally, and send it anywhere you want. Before Bitcoin the best analog was gold - hard to create more of versus fiat which is incredible easy to dilute which is why you would want to diversify out of it. Gold though is slow to send, hard to verify, etc... Bitcoin basically has the properties of gold in electronic form - hard to create, easy to send, easy to verify, hundreds of thousands of dollars worth can be held securely in your hand. THAT is what makes Bitcoin valuable. Show me an alternative store of value with those properties.

trixie_ 5y ago

Please understand what a Ponzi scheme is. A Ponzi scheme is where the con artist tricks you into thinking you bought an asset when really they just pocketed most of the money, giving you back a little bit and calling an 'investment return' No matter whether you think Bitcoin has real 'value' or not, that has nothing to do with a ponzi scheme. You can buy Bitcoin and hold it yourself without a middle man. It's no different than holding stocks or gold, you can buy/sell the full asset at anytime. There's no middle man preventing you from selling the full asset and take 'interest payments' instead.

nwah1 5y ago
It requires continual mining, which means expending electricity. Which shows up as some combination transaction costs or inflation that is continually siphoned off. Which means new money needs to be perpetually flowing into the system simply to secure the ledger. But that is all wasted, so it is actually a negative-sum wealth transfer if we include all the actual useful things we could've done with the energy. If you buy beanie babies or gold, there is no such siphoning.
- trixie_ 5y ago
  First why did you even reply? We’re taking about what a Ponzi scheme is and energy use has nothing to do with it. I’ll reply to your criticism anyways - There is absolutely energy required to store gold, monitor gold, protect gold, transport gold, mine gold, etc… any financial system requires energy to operate.

fattybob 5y ago

Doesn’t that also apply to most currencies?