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Isn't that the definition of a Ponzi scheme?

by bqmjjx0kac 2y ago

miohtama 2y ago
It's a definition of a pension fund.
- throw310822 2y ago
  Or shares: they have a value as long as someone else is willing to buy them. Or just like any other type of transferrable representation of value, including precious metals.
  - rsynnott 2y ago
    Shares have a value beyond that, though; they are a share in an actual company, which has assets and generates revenue (hopefully; granted if you’re buying shares in some SPAC merger that might one day produce a flying car or something, that’s not a million miles away from bitcoin). There is a price floor. One might reasonably argue that nvidia is not worth $3.4 trillion (its current market cap), say, but it is clearly worth _something_, even valued purely on assets and yield. Bitcoin has no floor; you are entirely dependent on other people buying it from you for more than you bought it for, because they believe that someone will one day buy it from _them_ for more than _they_ bought it for.
    - hsshhshshjk 2y ago
      As long as you have a real share, and are not holding an "entitlement" (e.g. a brokerage firm holding your shares in their street name. In that case, you have the right to the economic benefits of the stock, but not the underlying. To do that your name needs to be on the company's ledger. Anyone can request to directly register their shares and hold them directly with the company's transfer agent.
      - rsynnott 2y ago
        I mean, unless the broker is fraudulent there’s very little practical difference; most people will go with the broker, as it tends to be cheaper. For that matter, most people aren’t investing in individual shares, they’re investing in some sort of mutual fund, so there’s another party that you have to _somewhat_ trust there.
est31 2y ago
Ponzi schemes usually involve promises to get back X times the money after N time. And in terms of actual cash. So whoever runs the Ponzi scheme needs to keep it growing exponentially in order to create exponential payouts. Eventually, it will grow so large that it collapses. With Blockchains, they are more stable, as there is no such guarantee. Many people choose to HODL instead, and this gives the coin some stability. As long as there is less interest in cashing out than people trying to cash in, the value is growing. And as long as the value is growing, people cash out. For a Ponzi scheme with guarantees in terms of currencies not minted by the scheme creator, they are bound to collapse sooner or later. Blockchains could go on forever in theory. However, latter still requires more people to cash in than people to cash out. If there is enough people trying to cash out, maybe larger number of people will panic and cash out as well, leading to an avalanche like race to zero. Both are united by the requirement for a "greater fool", just with Ponzi schemes, this greater fool is exponentially growing while with Blockchains it can grow linearly.
- deleted 2y ago
  [deleted]
- miohtama 2y ago
  Bitcoin could be more compared to a national currency like Argentinian pesos. The value can go to zero as it is no longer accepted (people do not want it), but there is no inherited promise in the first place it goes up forever. All it matters that it will stay more stable than other assets. And we know from economic history that assets tied to nations may disappear overnight, e.g. Cyprus.
  - EVa5I7bHFq9mnYK 2y ago
    Unlike pesos, or dollars, Bitcoins can't be printed for free.
    - oblio 2y ago
      And Bitcoin isn't backed by a country's economic output and their military.
mistercheph 2y ago
Thought experiment: what would happen to the price of gold by 2125 AD if nobody born after the year 2025 believed it had value outside of its industrial applications?
- EVa5I7bHFq9mnYK 2y ago
  See my below comment about 16 Psyche, a 140-miles asteroid made of gold floating out there in the sky. By 2125 AD we'll sure find a way to tow it to our shores.
  - rvnx 2y ago
    More likely we would send a team of robots there that would do the trip both ways automatically. Towing such big asteroid sounds very risky (for the stability of our own planet and of the moon) and expensive, way more than just sending robots.
  - mistercheph 2y ago
    16 psyche is not made of gold and this reply has nothing to do with my question, in fact, my point would still stand if confidence in gold as a scarce store of value disappeared without any change in supply and it went to ~0 (industrial value)
saalweachter 2y ago
Eh, crypto is weirder and worse than a Ponzi scheme in a way that deserves its own moniker. A Ponzi scheme typically involves a small inner circle perpetuating a fraud; even if "everyone knows" it's hinkey, it is ostensibly returning fabulous returns through actual investment/economic activity. Eventually, the insiders stop being able to keep the game going, and go bankrupt, get arrested, flee the country, or some other ignoble end. Crypto has lost its layer of fraud; it used to be "this thing will be the future of money and therefore have value", but for the last five+ years it's all just been "this will be worth more in the future because people will buy it so you should buy it," a naked Ponzi. Meanwhile, it is distributed, even if it is highly centralized at every point from mining pools to exchanges. There's no single person who has to go to jail or disappear with his money to collapse the whole system. It's happened dozens of times, and every time it does a new set of criminals steps up to keep the fraud going. In summary, even if individual enterprises (eg, FTX) are classic Ponzi schemes, crypto as a whole deserves to be the name of its own type of scam.
- wslh 2y ago
  Just thinking out loud, but the problem I see is that even if you define Bitcoin as a scam, it could very well have been created by Satoshi Nakamoto (or the group behind the name) in good faith. The real issue now lies with the responsibility of companies like BlackRock to clearly and transparently identify what they are selling to the public. It is also different than a casino: "Even if crypto investing is considered gambling, there is a factor not present in traditional casino games: the time variable of holding. Holding roulette chips has no effect on their value, while in crypto markets, prices change in time. By holding crypto assets for a longer duration, investors can potentially benefit from market fluctuations and price appreciation, making it a unique aspect compared to classic gambling games." [1]. [1] https://www.coinfabrik.com/blog/the-science-of-crypto-asset-investing-a-ranking-analysis-strategy/ https://www.coinfabrik.com/blog/the-science-of-crypto-asset-...
- southernplaces7 2y ago
  What you say is complete nonsense of the reactionary kind that pervades on this site against crypto, by which at all costs it has to be defined as a scam, against all normal, rational definitions of the word. If for whatever reason, something my go up in price because there's demand for it despite widely available and mostly correct information about its utility or lack of it, that's not a scam. This is the case with bitcoin. It's growth has fueled interest in a bit of gambling by members of the public about possible future growth. There's no central party running it as something it isn't or perpetuating a core lie by hiding some key information about what bitcoin really is. People insisting on buying something despite it having an unstable market value and debatable concrete utility doesn't make that thing fraudulent. A scam requires intent and misdirection, regardless of how you and others who share your view try to redefine the word scam arbitrarily. You might as well also call all forms of speculation a scam by the same ridículous logic.
joshlemer 2y ago
If Bitcoin is a ponzi scheme because of this, then literally every asset which has resale value is a ponzi scheme. When people buy bonds, stocks, commodities, or purchase a car, a house, or even an Xbox, they are taking into account the resale value of that asset. If you supposed that when you're done with your house, it would be worth $0, you would be willing to pay a lot less for it. There's nothing fundamentally different here wrt Bitcoin.
- atq2119 2y ago
  The difference is that Bitcoin only has resale value. The other examples you mentioned generally have some significant additionally value beyond just resale value -- e.g. stocks pay dividends or are expected to at some point, a house is something you can live in or get an income from by renting it out, and so on.
  - npoc 2y ago
    Bitcoin's use is as a store-of-value. That's it's utility. It has the traits of an ideal store of value. Eventually we may use it as money, but that won't happened until it is much closer to it's ultimate value and the value as stabilised enough to use it as a unit of account.
- rsynnott 2y ago
  A house produces value; you can either rent it out, or live in it (thus avoiding paying rent to someone else). Stocks produce value; the companies make money (and generally either pay dividends, buy back stock, which is just a tax dodge approach to paying dividends, or invest in growth, and will thus eventually be in a position to pay more dividends). Bonds produce value; they are literally loans which (hopefully) get paid back. All of this allows a value to be assigned to them; that value may be greater or less depending on market conditions, demand, future value of money, etc (for instance, if your house is in the middle of nowhere and, by the time you’re done with it, needs a new roof and windows and so on, then its market value may actually approach zero). Things like bitcoin are different in that they do not produce value. You can’t value bitcoin based on X years of expected dividends/quasi-dividends or anything; any value is purely speculative. To be clear, there’s speculation involved in buying stocks, too, to an extent (particularly buying _individual_ stocks), but ultimately you have a share of some real thing. That is not the case with bitcoin.
rsynnott 2y ago
Strictly speaking a Ponzi scheme involves a single person or entity doing that, consciously. Bitcoin is… an anarchist self-organising Ponzi scheme? :) It has many of the features of a Ponzi scheme, but largely by accident; there is no _intent_.
- zoechi 2y ago
  Depends on how many coins the creator owns and when he sells. The creater starts with a few bits in a chain that suddenly are worth billions. When he sells be gets a big chunk of that in Dollars and the value of the rest collapses to zero for everyone trying to sell later.
  - rsynnott 2y ago
    Yeah, granted, the creator of bitcoin _might_ be, effectively, operating a very complex Ponzi scheme, but it seems unlikely. Occam’s razor says that they were a sincere person or group with unconventional economic theories. The creators of small memecoins often are doing this, deliberately, of course. Some of them are amazingly open about this, often marketing their memecoins as, essentially, “it’s still early” (ie you, the buyer, get to get in before the scheme collapses; like early Madoff customers, you can be one of the lucky ones!).

Isn't that the definition of a Ponzi scheme?

miohtama 2y ago

It's a definition of a pension fund.

throw310822 2y ago
Or shares: they have a value as long as someone else is willing to buy them. Or just like any other type of transferrable representation of value, including precious metals.
- rsynnott 2y ago
  Shares have a value beyond that, though; they are a share in an actual company, which has assets and generates revenue (hopefully; granted if you’re buying shares in some SPAC merger that might one day produce a flying car or something, that’s not a million miles away from bitcoin). There is a price floor. One might reasonably argue that nvidia is not worth $3.4 trillion (its current market cap), say, but it is clearly worth _something_, even valued purely on assets and yield. Bitcoin has no floor; you are entirely dependent on other people buying it from you for more than you bought it for, because they believe that someone will one day buy it from _them_ for more than _they_ bought it for.
  - hsshhshshjk 2y ago
    As long as you have a real share, and are not holding an "entitlement" (e.g. a brokerage firm holding your shares in their street name. In that case, you have the right to the economic benefits of the stock, but not the underlying. To do that your name needs to be on the company's ledger. Anyone can request to directly register their shares and hold them directly with the company's transfer agent.
    - rsynnott 2y ago
      I mean, unless the broker is fraudulent there’s very little practical difference; most people will go with the broker, as it tends to be cheaper. For that matter, most people aren’t investing in individual shares, they’re investing in some sort of mutual fund, so there’s another party that you have to _somewhat_ trust there.

est31 2y ago

Ponzi schemes usually involve promises to get back X times the money after N time. And in terms of actual cash. So whoever runs the Ponzi scheme needs to keep it growing exponentially in order to create exponential payouts. Eventually, it will grow so large that it collapses. With Blockchains, they are more stable, as there is no such guarantee. Many people choose to HODL instead, and this gives the coin some stability. As long as there is less interest in cashing out than people trying to cash in, the value is growing. And as long as the value is growing, people cash out. For a Ponzi scheme with guarantees in terms of currencies not minted by the scheme creator, they are bound to collapse sooner or later. Blockchains could go on forever in theory. However, latter still requires more people to cash in than people to cash out. If there is enough people trying to cash out, maybe larger number of people will panic and cash out as well, leading to an avalanche like race to zero. Both are united by the requirement for a "greater fool", just with Ponzi schemes, this greater fool is exponentially growing while with Blockchains it can grow linearly.

deleted 2y ago
[deleted]
miohtama 2y ago
Bitcoin could be more compared to a national currency like Argentinian pesos. The value can go to zero as it is no longer accepted (people do not want it), but there is no inherited promise in the first place it goes up forever. All it matters that it will stay more stable than other assets. And we know from economic history that assets tied to nations may disappear overnight, e.g. Cyprus.
- EVa5I7bHFq9mnYK 2y ago
  Unlike pesos, or dollars, Bitcoins can't be printed for free.
  - oblio 2y ago
    And Bitcoin isn't backed by a country's economic output and their military.

mistercheph 2y ago

Thought experiment: what would happen to the price of gold by 2125 AD if nobody born after the year 2025 believed it had value outside of its industrial applications?

EVa5I7bHFq9mnYK 2y ago
See my below comment about 16 Psyche, a 140-miles asteroid made of gold floating out there in the sky. By 2125 AD we'll sure find a way to tow it to our shores.
- rvnx 2y ago
  More likely we would send a team of robots there that would do the trip both ways automatically. Towing such big asteroid sounds very risky (for the stability of our own planet and of the moon) and expensive, way more than just sending robots.
- mistercheph 2y ago
  16 psyche is not made of gold and this reply has nothing to do with my question, in fact, my point would still stand if confidence in gold as a scarce store of value disappeared without any change in supply and it went to ~0 (industrial value)

saalweachter 2y ago

Eh, crypto is weirder and worse than a Ponzi scheme in a way that deserves its own moniker. A Ponzi scheme typically involves a small inner circle perpetuating a fraud; even if "everyone knows" it's hinkey, it is ostensibly returning fabulous returns through actual investment/economic activity. Eventually, the insiders stop being able to keep the game going, and go bankrupt, get arrested, flee the country, or some other ignoble end. Crypto has lost its layer of fraud; it used to be "this thing will be the future of money and therefore have value", but for the last five+ years it's all just been "this will be worth more in the future because people will buy it so you should buy it," a naked Ponzi. Meanwhile, it is distributed, even if it is highly centralized at every point from mining pools to exchanges. There's no single person who has to go to jail or disappear with his money to collapse the whole system. It's happened dozens of times, and every time it does a new set of criminals steps up to keep the fraud going. In summary, even if individual enterprises (eg, FTX) are classic Ponzi schemes, crypto as a whole deserves to be the name of its own type of scam.

wslh 2y ago
Just thinking out loud, but the problem I see is that even if you define Bitcoin as a scam, it could very well have been created by Satoshi Nakamoto (or the group behind the name) in good faith. The real issue now lies with the responsibility of companies like BlackRock to clearly and transparently identify what they are selling to the public. It is also different than a casino: "Even if crypto investing is considered gambling, there is a factor not present in traditional casino games: the time variable of holding. Holding roulette chips has no effect on their value, while in crypto markets, prices change in time. By holding crypto assets for a longer duration, investors can potentially benefit from market fluctuations and price appreciation, making it a unique aspect compared to classic gambling games." [1]. [1] https://www.coinfabrik.com/blog/the-science-of-crypto-asset-investing-a-ranking-analysis-strategy/ https://www.coinfabrik.com/blog/the-science-of-crypto-asset-...
southernplaces7 2y ago
What you say is complete nonsense of the reactionary kind that pervades on this site against crypto, by which at all costs it has to be defined as a scam, against all normal, rational definitions of the word. If for whatever reason, something my go up in price because there's demand for it despite widely available and mostly correct information about its utility or lack of it, that's not a scam. This is the case with bitcoin. It's growth has fueled interest in a bit of gambling by members of the public about possible future growth. There's no central party running it as something it isn't or perpetuating a core lie by hiding some key information about what bitcoin really is. People insisting on buying something despite it having an unstable market value and debatable concrete utility doesn't make that thing fraudulent. A scam requires intent and misdirection, regardless of how you and others who share your view try to redefine the word scam arbitrarily. You might as well also call all forms of speculation a scam by the same ridículous logic.

joshlemer 2y ago

If Bitcoin is a ponzi scheme because of this, then literally every asset which has resale value is a ponzi scheme. When people buy bonds, stocks, commodities, or purchase a car, a house, or even an Xbox, they are taking into account the resale value of that asset. If you supposed that when you're done with your house, it would be worth $0, you would be willing to pay a lot less for it. There's nothing fundamentally different here wrt Bitcoin.

atq2119 2y ago
The difference is that Bitcoin only has resale value. The other examples you mentioned generally have some significant additionally value beyond just resale value -- e.g. stocks pay dividends or are expected to at some point, a house is something you can live in or get an income from by renting it out, and so on.
- npoc 2y ago
  Bitcoin's use is as a store-of-value. That's it's utility. It has the traits of an ideal store of value. Eventually we may use it as money, but that won't happened until it is much closer to it's ultimate value and the value as stabilised enough to use it as a unit of account.
rsynnott 2y ago
A house produces value; you can either rent it out, or live in it (thus avoiding paying rent to someone else). Stocks produce value; the companies make money (and generally either pay dividends, buy back stock, which is just a tax dodge approach to paying dividends, or invest in growth, and will thus eventually be in a position to pay more dividends). Bonds produce value; they are literally loans which (hopefully) get paid back. All of this allows a value to be assigned to them; that value may be greater or less depending on market conditions, demand, future value of money, etc (for instance, if your house is in the middle of nowhere and, by the time you’re done with it, needs a new roof and windows and so on, then its market value may actually approach zero). Things like bitcoin are different in that they do not produce value. You can’t value bitcoin based on X years of expected dividends/quasi-dividends or anything; any value is purely speculative. To be clear, there’s speculation involved in buying stocks, too, to an extent (particularly buying _individual_ stocks), but ultimately you have a share of some real thing. That is not the case with bitcoin.

rsynnott 2y ago

Strictly speaking a Ponzi scheme involves a single person or entity doing that, consciously. Bitcoin is… an anarchist self-organising Ponzi scheme? :) It has many of the features of a Ponzi scheme, but largely by accident; there is no _intent_.

zoechi 2y ago
Depends on how many coins the creator owns and when he sells. The creater starts with a few bits in a chain that suddenly are worth billions. When he sells be gets a big chunk of that in Dollars and the value of the rest collapses to zero for everyone trying to sell later.
- rsynnott 2y ago
  Yeah, granted, the creator of bitcoin _might_ be, effectively, operating a very complex Ponzi scheme, but it seems unlikely. Occam’s razor says that they were a sincere person or group with unconventional economic theories. The creators of small memecoins often are doing this, deliberately, of course. Some of them are amazingly open about this, often marketing their memecoins as, essentially, “it’s still early” (ie you, the buyer, get to get in before the scheme collapses; like early Madoff customers, you can be one of the lucky ones!).