4 ms·

It's not a ponzi scheme by definition, and you don't need to have a copy of the block chain on your harddrive.

by sturmeh 13y ago

davidgerard 13y ago
Not at all! Technically, it's a pump-and-dump.
- dwaltrip 13y ago
  Care to elaborate?
  - bushido 13y ago
    If you are looking for how this works: A classic pump-and-dump(PnD) is when a large amount of an instrument (security/commodity/shares/etc.) are bought by a few entities (people/institutions/early investors/etc). Thus creating a scarcity of the instrument which when executed well will be followed by enough hype, as the common people usually see the "meteoric growth" as proof of a good investment and "a large number" of people believing in its future, rather than the reality of a handful. This creates a situation where a lot of these novice/late investors start buying the security, usually using market orders (i.e. accepting the sellers offered price). Now since a handful of entities own a large number of the instrument and they offer few shares incrementally at higher levels, and keep selling more and more as the hype/momentum/# of small investors increases. Eventually taking it to a point where a large amount(still not the majority) of the instrument is now owned by a large number of small investors hoping to make 10x-1000x like the early investors did. At which point they have a few choices/combination of choices(all : 1) Offer a large amount at a price point where the gen. public will not find it valuable, thus leaving only one direction for prices to go 2) Create a small sell-off by selling large quantities through a market order, thus making smaller investors panic 3) Wait it out to let the news, govts or some other external source to present a good opportunity for people to panic, and do one of the above 4) If they are big enough they can actually create #3 A well executed would further buy back the instrument while it crashes for a round of rinse-and-repeat. There are a lot of examples of pump-and-dumps, a lot of them are legitimate, most are well established and usually don't intend losses for the later investors. The "dump" can just be profit taking, reducing risk, being satisfied with the earning etc. All companies that have raised financing can technically be classified as PnD ex 1(legitimate): (i) 2 individuals + 2 computers + 1 idea (100% share) [$10,000 valuation/opportunity cost.] => (ii) YC give 3-8% of share for $20k [25x to 67x profit on equity given] => ... so on .. ex 2(classic PnD - There are plenty worth mentioning): Crude oil futures rally from mid '08 - to its subsequent crash in early '09. I can write a thesis on this one. It was great fun, good times. ex 3(currently playing out): Bitcoin : This does not undermine the quality of the idea or its execution. Just the fact that a small number of early miners control a large quantity of the instrument. Prices are being driven up by mostly small order-sizes being executed on the sell side (not to be confused with [0]). There is a higher probability that these bitcoin's are being sold by early adopters. It may be a few weeks early to say if it is a classic pump-and-dump. If it is I would expect to see <$250 possibly even <$100 prices in the next 3-12 weeks. The rational for this is too lengthy for this reply, might just be cognitive dissonance on my part. [0] http://en.wikipedia.org/wiki/Sell_side http://en.wikipedia.org/wiki/Sell_side [1] http://raszl.com/blog/bitcoin-benefits-and-risks http://raszl.com/blog/bitcoin-benefits-and-risks
    - dwaltrip 13y ago
      I was more curious about why you thought bitcoin is a PnD, but the other info does provide useful context, thanks. There is some evidence that many miners have sold most of their early stockpiles. The min-1-year bitcoin-days-destroyed chart (sum of [coin amount * coin age in days] for coin groups older than a year [1]) shows this to a degree. The metric is also an underestimation of older stockpile movement, as any transaction (even between one's own addresses) will reset age to 0. But it is still hard to say for sure. One twist about bitcoin is that most early adopters are strongly invested ideologically and/or emotionally, reducing some of the potential dumping power. The next year or two should be rather interesting. I could see some large corrections, but each month that passes gives bitcoin more staying power/legitimacy. So far, each downtrend has only resulted in a later movement to much higher levels. [1] http://blockchain.info/charts/bitcoin-days-destroyed-min-year?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address= http://blockchain.info/charts/bitcoin-days-destroyed-min-yea...

It's not a ponzi scheme by definition, and you don't need to have a copy of the block chain on your harddrive.

by sturmeh 13y ago

It's not a ponzi scheme by definition, and you don't need to have a copy of the block chain on your harddrive.

davidgerard 13y ago

Not at all! Technically, it's a pump-and-dump.

dwaltrip 13y ago
Care to elaborate?
- bushido 13y ago
  If you are looking for how this works: A classic pump-and-dump(PnD) is when a large amount of an instrument (security/commodity/shares/etc.) are bought by a few entities (people/institutions/early investors/etc). Thus creating a scarcity of the instrument which when executed well will be followed by enough hype, as the common people usually see the "meteoric growth" as proof of a good investment and "a large number" of people believing in its future, rather than the reality of a handful. This creates a situation where a lot of these novice/late investors start buying the security, usually using market orders (i.e. accepting the sellers offered price). Now since a handful of entities own a large number of the instrument and they offer few shares incrementally at higher levels, and keep selling more and more as the hype/momentum/# of small investors increases. Eventually taking it to a point where a large amount(still not the majority) of the instrument is now owned by a large number of small investors hoping to make 10x-1000x like the early investors did. At which point they have a few choices/combination of choices(all : 1) Offer a large amount at a price point where the gen. public will not find it valuable, thus leaving only one direction for prices to go 2) Create a small sell-off by selling large quantities through a market order, thus making smaller investors panic 3) Wait it out to let the news, govts or some other external source to present a good opportunity for people to panic, and do one of the above 4) If they are big enough they can actually create #3 A well executed would further buy back the instrument while it crashes for a round of rinse-and-repeat. There are a lot of examples of pump-and-dumps, a lot of them are legitimate, most are well established and usually don't intend losses for the later investors. The "dump" can just be profit taking, reducing risk, being satisfied with the earning etc. All companies that have raised financing can technically be classified as PnD ex 1(legitimate): (i) 2 individuals + 2 computers + 1 idea (100% share) [$10,000 valuation/opportunity cost.] => (ii) YC give 3-8% of share for $20k [25x to 67x profit on equity given] => ... so on .. ex 2(classic PnD - There are plenty worth mentioning): Crude oil futures rally from mid '08 - to its subsequent crash in early '09. I can write a thesis on this one. It was great fun, good times. ex 3(currently playing out): Bitcoin : This does not undermine the quality of the idea or its execution. Just the fact that a small number of early miners control a large quantity of the instrument. Prices are being driven up by mostly small order-sizes being executed on the sell side (not to be confused with [0]). There is a higher probability that these bitcoin's are being sold by early adopters. It may be a few weeks early to say if it is a classic pump-and-dump. If it is I would expect to see <$250 possibly even <$100 prices in the next 3-12 weeks. The rational for this is too lengthy for this reply, might just be cognitive dissonance on my part. [0] http://en.wikipedia.org/wiki/Sell_side http://en.wikipedia.org/wiki/Sell_side [1] http://raszl.com/blog/bitcoin-benefits-and-risks http://raszl.com/blog/bitcoin-benefits-and-risks
  - dwaltrip 13y ago
    I was more curious about why you thought bitcoin is a PnD, but the other info does provide useful context, thanks. There is some evidence that many miners have sold most of their early stockpiles. The min-1-year bitcoin-days-destroyed chart (sum of [coin amount * coin age in days] for coin groups older than a year [1]) shows this to a degree. The metric is also an underestimation of older stockpile movement, as any transaction (even between one's own addresses) will reset age to 0. But it is still hard to say for sure. One twist about bitcoin is that most early adopters are strongly invested ideologically and/or emotionally, reducing some of the potential dumping power. The next year or two should be rather interesting. I could see some large corrections, but each month that passes gives bitcoin more staying power/legitimacy. So far, each downtrend has only resulted in a later movement to much higher levels. [1] http://blockchain.info/charts/bitcoin-days-destroyed-min-year?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address= http://blockchain.info/charts/bitcoin-days-destroyed-min-yea...