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Bitcoins: The Second Biggest Ponzi Scheme in History

267 points by pearjuice 13y ago

oleganza 13y ago
All these arguments apply equally to gold. Also, gold was becoming a money slower because millions of market participants were not one click away from each other to figure out why is this new metal is any good and whether they should make a bet that it will become more and more useful as money. The truth about USD vs Bitcoin is that Bitcoins you can own and USD you cannot. http://blog.oleganza.com/post/67362431718/you-can-own-bitcoin-you-cant-own-your-dollars http://blog.oleganza.com/post/67362431718/you-can-own-bitcoi... When someone "cashes out" into USD he doesn't really want to cash out in a lot of USD as it's a poor store of value by design. It's controlled, monitored, expensive and leaks like crazy. You can cash out into Maserati, but it's also not a good store of value. Therefore we see that more and more investors remaining with BTC are making a huge bet - a bet on universally accepted money. People who want to cash out quickly do so already without bringing price much down.
- GFischer 13y ago
  "You can cash out into Maserati, but it's also not a good store of value" You should see what crazy things bad monetary policies make possible: http://www.bloomberg.com/news/2012-11-08/argentine-protectionism-sees-cars-swapped-for-rice-olives-wine.html http://www.bloomberg.com/news/2012-11-08/argentine-protectio... cached version of an Economist article: http://webcache.googleusercontent.com/search?q=cache:_MKsBtaJZ1AJ:www.eiu.com/index.asp%3Flayout%3Dib3Article%26pubtypeid%3D1112462496%26article_id%3D1490681333+&cd=1&hl=en&ct=clnk&gl=uy http://webcache.googleusercontent.com/search?q=cache:_MKsBta...
- dragonwriter 13y ago
  > When someone "cashes out" into USD he doesn't really want to cash out in a lot of USD as it's a poor store of value by design. No, he really does want to cash out in a lot of USD, because its a very good medium of exchange, by design. They then proceed to use the USD to buy things that either provide immediate utility or provide a good store of value, but that's after "cashing out", which is an act designed to secure something useful in general exchange ("cash").
braum 13y ago
Something hit me while I was reading this article. Anytime you have seen a bitcoin article, usually on HN, but also elsewhere, it almost always shows a US Dollar figure for the amount and never the bitcoin amount. Why, because as this article suggests. Bitcoins are a commodity and not a currency and when we want to try and relate to bitcoins we use what we know which is Dollars. Good luck to all of you techies who read this story and are now trying to convert your bitcoins to dollars today.
- matthewrudy 13y ago
  This isn't just the case with BTC. I live in the UK and generally think in GBP, but if I'm addressing an international audience, I'll usually refer to prices in USD. (note: I agree with the general sentiment of the article, I'm just saying that people refer to USD because its a true global currency)
- a_bonobo 13y ago
  >relate to bitcoins we use what we know which is Dollars. I don't think this says anything about Bitcoins as a currency. When the Euro was introduced in Germany, most restaurants, newspapers, politicians etc. kept on listing the Mark price alongside with the Euro price as a point of reference. After a few years this practice stopped when people got used to estimating the worth in Euros (my parents still translate everything into Mark). I think that if Bitcoins ever become stable (who knows when - maybe once all coins are mined?) people might stop comparing USD to Bitcoins once they're used to the Bitcoin "worth", who knows.
  - icebraining 13y ago
    Same here in Portugal. Many people over ~50 still convert to our old currency whenever we're talking about larger amounts. It's really hard to reset your frame of reference after so many years.
  - melvinmt 13y ago
    Except the EUR/DEM exchange rate has been fixed since 1999, whereas BTC exchange rates change enormously every week.
VLM 13y ago
Betteridge's law of headlines: any headline asking a question, the answer is "no". http://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines http://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines VLM's law of economics commentary: anyone describing something as a Ponzi Scheme has no idea what a Ponzi Scheme is and is just trying to baffle/intimidate the reader. (It might very well be a fraud / scam / ripoff / whatever but it sure as heck isn't a Ponzi Scheme) This is a disease finance is unusually susceptible to. For a good laugh try to ask any joe 6 pack what a junk bond is, and all you'll get is babble about some hollywood actor said they're bad, or some vaguely anti-capitalist blather. You'll never, ever, get to hear what they actually were or how they fit into the context of finance during that era.
- fyolnish 13y ago
  This headline doesn't ask any question.
  - VLM 13y ago
    Yes, and much as that specific "law of headlines" exists, I'm proposing another unrelated "law of headlines" which is also almost universally true.
    - fyolnish 13y ago
      Ah yes, I should have read more carefully.
- pearjuice 13y ago
  You clearly have no idea who Gary North is.
wereHamster 13y ago
He focuses on one usecase of bitcoins, while completely ignoring the other. Yes, bitcoins are being bought with the expectation that their price is going to raise in the future, and this clearly is not sustainable. But they are also being used to transfer money between individuals. There the price fluctuation doesn't matter that much (if the merchant immediately converts into USD). Lately there have been many people saying bad things about bitcoin. I think those are people who had bitcoin on their radar a few months ago but didn't invest. And now they are just grumpy because they missed the opportunity.
- no_wave 13y ago
  So who's buying it in the case that the provider immediately converts it into USD? The people who set the price will be those who are interested in holding bitcoin. People who hold bitcoin instantaneously do not affect the value almost by definition.
CJefferson 13y ago
This is as good a place as any to ask this question. Do we actually know how many large mining groups we need to make up 51% of the processing power of the block chain (hopefully that make sense, from my understanding of bitcoin). There has been a number of changes to the bitcoin protocol, which have been made in a short amount of time and unanimously, from what I can see. That implies to me that bitcoin is in practice much more centralised than we are sometimes lead to believe, and that moving to bitcoin is just switching from one shadowy control group to another. I would be happy to hear evidence that I am vastly overestimating this problem.
- nwh 13y ago
  > Do we actually know how many large mining groups we need to make up 51% of the processing power of the block chain Two. GHash.io and BTCguild make up 27% each, for a total of 54%. https://blockchain.info/pools https://blockchain.info/pools GHash.io had actually been acting maliciously according to some users on Bitcointalk, but the operator claims that was a rogue actor inside that has been dealt with. Double spends against betting sites in particular were involved with this one.
  - salient 13y ago
    We need digital currencies that can only ever be mined efficiently with a CPU, and there need to be many more blocks with lower rewards so that people don't need to join pools if they don't want to. They need to be able to earn "something" (not zero) even with a low-end CPU or when the difficulty gets too great, and close to the point of reaching the maximum number of coins. I think there weren't even 10 percent Bitcoins on the market, and CPU's already became obsolete. Yes, I know about the scrypt-based ones, but unfortunately they can still be mined 10x faster with a GPU, and I don't think that's much more preferable either. It needs to be CPU-only, because most people get as fast CPU's as they can, usually, but they don't really care about the GPU performance, other than needing it to support HD playback, which is a very low standard for a GPU these days. I'm not sure how it can be done, but some of the ones that claim to be CPU-only are using multiple hashing algorithms and ciphers at once, presumably to ensure that the task is too complex for anything less "general purpose" than a CPU (at least until they start making chips with accelerators for each and every one of those hashing algorithms?! Maybe something to prevent that could be built-in). The point is to make mining as decentralized as possible. I realize the danger of botnets, too, but I think the trade-off is worth it. I'd rather have that, than a few groups of people or governments owning a ton of ASIC's, or perhaps a few very expensive quantum computers in the future, that they can use to manipulate the currencies. At least if it's CPU only, everyone can have a say in it, in aggregate, which is really the whole point of decentralization, and empowering the individual in the Internet world.
ashray 13y ago
The analysis in this article is so flawed that it's hard to take it seriously. A more balanced analysis might have helped. Sure, bitcoin has several terrible characteristics that have been exposed over the past few weeks (volatility, tons of speculation, new users don't understand wallet security, etc.) But to insinuate with absolutely zero understanding that the creators of bitcoin did this to get rich is just plain nasty. Maybe they did want to get rich (in dollar terms) but there is nothing obvious on the block chain that proves that they cashed out. The argument seems to be that they can't cash it all out so they are waiting for something. Well, they haven't cashed anything out yet as far as anyone who looks at the block chain can tell. It's already possible to cash out $5-$10MM easily over bitstamp which would represent a fraction of their holdings. Why not do that and make sure your future is taken care of? At least that? Furthermore, for several years it did not look like bitcoins were going anywhere. However, the people behind it continued to work on it, and still continue to do so, but under much new pressure because suddenly they are evil ponzi dealers. Applying old school economics and psychology is great, but I must ask this question. What kind of value appreciation did gold see when people suddenly for no reason decided that it was worth a lot? Following this value appreciation did people not use it as a means of exchange as well as a store of value? Why can't bitcoin be thought of as gold 2.0? We started valuing dollars, pounds, euros, airplanes, cars, oil, and those didn't exist for much of human history. Bitcoin isn't like something we've ever seen before and that includes Ponzi schemes. It may end up crashing and burning and it may end up doing really awesome stuff. I just wish the naysayers would come up with better researched arguments instead of this crazy witch hunt.
- zanny 13y ago
  > Sure, bitcoin has several terrible characteristics that have been exposed over the past few weeks (volatility, tons of speculation, new users don't understand wallet security, etc.) None of these are new, bitcoin has been volatile, has had a large speculative market, and a problem with new users understanding it since 2009.
  - ashray 13y ago
    Thanks for adding that, I am of course personally aware that these discussions have taken place time and again on bitcointalk. I meant to say that these problems have been exposed more by the general press, etc. lately. There are other issues that the recent spike in value/volume have introduced: - bitcoin clients, usage, security are too complex for the average consumer - minimum miners fee is now too high ($0.10) - some miners are cherry picking transactions with higher fees so some transactions are taking longer to confirm - fear that the transaction bottleneck might be hit (imagine if all the internal movements on exchanges were on chain transactions, this would've already happened) - a lot of ill feeling and negativity from tech folks who could've been early adopters but missed the bus. Truth is, it's still early times. Also, services still need to be built, tech folks can always do that! :)
girvo 13y ago
I truly don't get this "BTC is a Ponzi scheme" thing. And "Social Security is a Ponzi Scheme" in the third sentence really doesn't endear me to this writer... I don't buy it. Yeah, Satoshi owns a stack. But if he sold out, the price would drop so hard it'd make your head spin... and I doubt Satoshi would be able to be rid of all of them in time before they bottom out. The market isn't large enough yet to pull that sort of scheme off. Now, Bitcoin still seems like a good idea, with an implementation that seems to have some issues, and rampant speculation is going to stop the better ideas that it could embody from happening for a while. But a "Ponzi scheme"? Done deliberately for that reason? You're telling me that Satoshi knew it'd hit $1k per BTC? Pfft.
- bmelton 13y ago
  I agree that BTC is not, but I thought it was fairly well understood that social security was a mandatory Ponzi scheme. From Wikipedia: "A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation." Social security does exactly that, and its recent failure predictions by the CBO are caused by the population failing to grow at rates that could sustain it. If more people aren't paying into it than those withdrawing from it, and it fails as a result, does that not match the definition of a Ponzi scheme?
  - empthought 13y ago
    Social security is a mandatory insurance program, not a mandatory investment program. Like any other insurance program, the solution to shortfall is to increase premiums or decrease payouts. Since there isn't yet a shortfall that can't be covered by existing funding sources, these solutions have not yet been implemented. Just like a private insurance company.
    - iterative 13y ago
      Social Security is a ponzi scheme. Insurance companies have assets the can fall back on to pay claims, they don't just pay them out of insurance payments as they come in. http://www.forbes.com/sites/richardsalsman/2011/09/27/social-security-is-much-worse-than-a-ponzi-scheme/ http://www.forbes.com/sites/richardsalsman/2011/09/27/social...
gokhan 13y ago
The individual who sells the Ponzi scheme makes money by siphoning off a large share of the money coming in. In other words, he does not make the investment. But Bitcoins are unique. The money was siphoned off from the beginning. Only true if we see Satoshi spending his Bitcoins. We have an online store selling baby products and really want to accept Bitcoins but we can't at the moment since Bitcoin is not widespread and price fluctuates madly. Once everybody got some and price is predictable in the short run, we'll show the finger to the bank, the real one siphoning from our pocket as commissions without actually providing any reasonable service.
- paulgb 13y ago
  Don't services like bitpay absorb the price fluctuations for you and pay out USD?
  - nwh 13y ago
    Yep. There's absolutely no risk for a vendor setting prices like this.
- ashray 13y ago
  Hi, I suggest that you check out bitpay.com They will bill your customers in bitcoin and will transfer out USD to you so that you don't have to worry about the exchange rate at all. You setup your items in USD as well and they handle the price fluctuations. They do daily payouts to 30 countries in several currencies. I've been using them since April and it's amazing! Sincerely, A happy bitpay customer :) Edit: oh and I must add! They used to take 1% commission but have introduced new packages that have 0% commission from $30/month! Also, the daily bank withdrawals are free.
  - gokhan 13y ago
    I'll check out Bitpay, thanks a lot.
  - aestra 13y ago
    Out of curiosity do you have many people who pay in bitcoin?
simbolit 13y ago
I might have read too quickly but from what I get the argument boils down too: too much volatility is bad, so it won't be used as money, so it isn't money. I don't think that is a good argument. There are many examples were currencies are highly volatile yet still function as money. On the oder side, after the 2011 crash, bitcoin hovered around 2-3dollar for months. I don't know if bitcoin will succeed. I don't know if it will be used as everyday money. I know quite a few people who use it to buy drugs or takeout food. I know vast amounts of people who have never heard of it. I don't think you can say anything about bitcoins future as money at the moment. Just that (as I explained in an earlier post) national governments might at some point have an incentive to restrict bitcoin, if it gets so successful it might make their financial policy ineffective. But this point (if it ever comes) is still far in the future.
berberous 13y ago
This article is unfortunately mostly right. Bitcoin's are 95% a ponzi scheme investment, and will at some point crash spectacularly. The question remains, however, whether from the ashes of that crash a useful product can remain, that can still succeed as a currency, or whether the psychological damage will prove to be too much to move past. If it can survive, it may even eventually return to the same high prices, but this time, based on its frequent use as a currency, and not based on rampant speculation. Right now, the truth is that a negligible percentage of Bitcoin users care about its use as a currency (with the biggest exception being silk road type illegal uses). Almost everyone is focused on the price appreciation, and when that finally falters, it will collapse.
- pilker09 13y ago
  Bitcoin is only a Ponzi to those that don't actually understand Ponzis. Which scammer is paying me for my bitcoins out of someone else's promised profits?
  - granfalloon 13y ago
    yeah, it seems like the author (and many of the commenters) are just using ponzi as a synonym for a "pump and dump" or a speculative gold rush
  - berberous 13y ago
    You are correct. I was using the article's language, which I agree is not right. It should be called a bubble, not a ponzi scheme. They are similar in that the price rise is being sustained by many new speculators/investors, and at some point, that will inevitably collapse. I am reminded of the story that Joseph Kennedy predicted the 1920's stock market crash after receiving stock tips from his shoe-shine boy. He realized that if his shoe shiner was also partaking in the rampant speculation, there were probably few fools left to join in.
    - netcan 13y ago
      All money is a bubble, IMO. >> price rise is being sustained by many new speculators/investors, and at some point, that will inevitably collapse It may but I don't think its inevitable. Many speculators/investors are buying bitcoins because they believe bitcoins will be used in the future as an important currency. If that happens, there will be even more demand for bitcoin and the price will be high forever. Its speculative, but it's not nonsensical.
mschuster91 13y ago
The author completely omits the two main advantages of Bitcoin over traditional currencies/banking: 1) it's blazing fast. Ten minutes and someone deep in African desert can wire money to a researcher on one of those scientific outposts. Try to do that with a bank. 2) If done right, Bitcoins are anonymous like cash. In light of the recent NSA scandal, I don't believe a second that the NSA/other governments will reduce their programs. If I wire a thousand dollars to Pakistan, I bet I'll land on some no-fly list, even if the money was support for my family. With Bitcoin, this would not be possible.
- parasubvert 13y ago
  1) With a telephone and a banker, all it takes is 10 minutes to do the same wire transfer. At worst, it would require a fax machine to sign the paperwork. 2) This is wishful thinking. Large currency transfers by law need to be reported by most states, whether Bitcoin or not. A thousand dollars is not large ($10k is typical). Your scenario here is effectively saying it's easier to break the law with bitcoin. All you are doing is putting the legal burden on the exchange.
  - bmelton 13y ago
    I think that casts the action in an unnecessarily negative light. Is BTC considered 'currency' by the US government? Do its transfers necessitate reporting to the government? If I sent a thousand dog biscuits to my home land, does the government need to be involved? Under what law?
    - ceejayoz 13y ago
      > Is BTC considered 'currency' by the US government? Do its transfers necessitate reporting to the government? If I sent a thousand dog biscuits to my home land, does the government need to be involved? Under what law? Almost certainly, under a variety of money laundering laws. You can't just convert cash into diamonds/gold/Bitcoins and thumb your nose at the authorities saying "look, no currency!"
orenbarzilai 13y ago
Not directly related to the article, but recently I have heard few complaints about limitations of converting Bitcoins to us dollars (or any other official currency). If these complaints are true, how come these limitations exists? it affects the true value of the coin and works against logic & advantage that Bitcoins has to offer. Anyone can share some information about the Bitcoin selling limitations?
- ashray 13y ago
  There are limitations because the exchanges are not that liquid. There are no hard limitations as such. People have been converting $2-3MM from bitcoins easily but larger numbers will still be hard to convert at the current price. This conversion limitation however should not affect the average joe.
mtkd 13y ago
Whilst history is punctuated with previous ponzi schemes, it is also punctuated with periods that required a store of wealth outside of a national currency. I shared the author's view when BTC == $30, I'm tempering that now and starting to view it as a maturing alternative wealth store. It may always be extremely volatile. However, now it has achieved a level of confidence, it will likely become another safe harbour in times of local currency disruption.
chris_wot 13y ago
Should I read past "It will never rival Social Security, however"?
paulgb 13y ago
Is this the same Gary North who predicted the collapse of society from the Y2K bug? > North predicted a Y2K catastrophe in print and online,[31] and predicted that a Y2K date-rollover failure of the global Information Technology (IT) infrastructure would precipitate severe disruption and the complete collapse of the international economy, leaving American Christians to restore society following the collapse. http://en.m.wikipedia.org/wiki/Gary_North_(economist)#Y2K_catastrophe_prediction http://en.m.wikipedia.org/wiki/Gary_North_(economist)#Y2K_ca... Edit: looks like he has a long history of claiming the sky is falling: http://www.wired.com/culture/lifestyle/news/1999/01/17193 http://www.wired.com/culture/lifestyle/news/1999/01/17193
- blahbl4hblahtoo 13y ago
  An Austrian economist predicting the end of the world? I'm shocked!
  - rookonaut 13y ago
    Gary North is Austrian?
    - jswinghammer 13y ago
      Yes. Sometimes he's good but definitely not on this topic.
      - rookonaut 13y ago
        This is maybe a stupid question but what does it mean to be Austrian in this context? Is he born in Austria or is this a reference to the Austrian School of Economics?
        iso-8859-1 13y ago
        School of Economics
orenbarzilai 13y ago
"Companies will not sell goods and services based on Bitcoins. Bitcoins have to have stable purchasing power if they are to serve as money, and they will never, ever achieve stable purchasing power." More & more companies announce that they accept Bitcoins on a daily basis, thus it has purchasing power & it creates value to the end consumer.
- nkuttler 13y ago
  He's right though that very few accept bitcoin. Almost all use payment gateways that accept bitcoin but pay currency to the merchant.
  - orenbarzilai 13y ago
    True. But some ppl are paying with Bitcoins & more websites adding this payment option, and recently it became a trend so it brings Bitcoin few steps further to become "real money".
- xgarland 13y ago
  Yeah, it appears to me that the author sole purpose was to discredit the currency more out of bitterness more than actual valid data.
terranstyler 13y ago
I see all these people calling themselves libertarians arguing against BTC but I have yet to see why BTC would fail. I hate this "BTC is not money" argument because the core foundation of liberalism states basically "money is what people voluntarily choose to use as money". So if they are convinced that BTC works (works at least better than some alternative) , why shouldn't they use it as money? Volatility is not an argument. Before "adoption" of USD and gold as money, they most probably were volatile as well...
- joezydeco 13y ago
  This is a fun NPR "Planet Money" podcast where they travel to a libertarian summer festival dedicated to trading goods and services strictly in gold and silver. It's...awkward. http://www.npr.org/blogs/money/2013/07/05/198413086/episode-286-libertarian-summer-camp http://www.npr.org/blogs/money/2013/07/05/198413086/episode-... One of the biggest problems is that the rate is constantly changing just like Bitcoin. And that rate is in US Dollars, the currency they're trying to abandon.
- lake99 13y ago
  There is no consensus among libertarians about BTC. The mistake that Gary North makes here is in assuming there is one. He is entitled to voice his opinions, and he does come across as being prescriptivist. However, as long as he does not contribute to creating laws and regulations against BTC, I'm quite comfortable with anything he has to say about the matter.
pelle 13y ago
Bitcoin is not an investment scheme. It's a payment system. Unfortunately people are looking at it as an investment scheme. Even if it was an investment scheme it hardly fits the definition of a ponzi scheme. In any new investment whether it's a startup or bitcoin the early investors make out better than later investors. That is not the definition of a ponzi scheme.
- jljljl 13y ago
  The problem is that the heavily restricted money supply and inherent deflationary pressure built into the currency make it a poor medium of exchange, since they provide an incentive to hoard Bitcoin rather than spend it. Something that is scarce, restricted in future supply, and of high demand will tend to serve as a magnet for speculation.
  - deleted 13y ago
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  - DennisP 13y ago
    Assuming you have dollars that you spend on things, the easy solution it to keep hoarding your bitcoin stash, but also convert dollars to bitcoins just before spending them. Given easy convertibility, bitcoin's deflationary effect is spread over the whole economy, not just bitcoin. So far, bitcoin's not big enough for that to be noticeable.
- deleted 13y ago
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- bedhead 13y ago
  It is not a payment system - effectively no one accepts it as payment. And no one spends bitcoins anyway. There is no medium of exchange here any more than there is for Bedheadcoin. It's not a ponzi scheme, just an amusing bubble.
blahbl4hblahtoo 13y ago
Austrian economics are so painful. Its amazing to me how impervious to contrary evidence its adherents are... their blind faith in their core beliefs are so unshakable. Every time I read one of them say that money arose from markets I wonder why they don't sponsor a bill that sets up an agency like NOAA that watches for dangerous conditions in this primeval force called "the market" so that people can be warned when "the market" is angry and another virgin needs to be tossed into its going maw in an act of propitiation. Just the idea that markets pre-date states is so ingrained.
- mason240 13y ago
  Are you saying that you don't believe that people can buy, sell, or trade with each other unless government is involved?
  - blahbl4hblahtoo 13y ago
    of course not.
nkuttler 13y ago
Yet again somebody writing about bitcoin who hasn't even read the FAQ, https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F in particular: "In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy. A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency. The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality." Back to the article: > somebody owned a good percentage of the original digits. Ok, this sounds just like bitterness from somebody who didn't buy in early. See also https://en.bitcoin.it/wiki/FAQ#Doesn.27t_Bitcoin_unfairly_benefit_early_adopters.3F https://en.bitcoin.it/wiki/FAQ#Doesn.27t_Bitcoin_unfairly_be...
- ceejayoz 13y ago
  Next up: why Bing is better than Google, from the unbiased folks at http://www.bing.com/ http://www.bing.com/!
pyalot2 13y ago
> In this sense, Bitcoins is not a Ponzi scheme. It is simply a supermoney scheme. Admits that bitcoin is not a ponzi scheme in his own article. > The money was siphoned off from the beginning. Somebody owned a good percentage of the original digits. Implies that most bitcoins are owned by satoshi nakamoto, without substantiating this claim by any number to quantify the impact. The estimated stash of satoshi is about 1 million bitcoins: http://www.theverge.com/2013/5/6/4295028/report-satoshi-nakamoto http://www.theverge.com/2013/5/6/4295028/report-satoshi-naka... . Today 11 million bitcoins are in existence. There will be an eventual cap at 21 million bitcoins, so satoshis stash is somewhere between 9% to 4% of all bitcoins. By comparision the winkelvii own about 1% of all bitcoins. I'm not qualifying the risk this presents, but I think it's important for an accurate critique to provide quantification. > Money develops out of market exchanges. Money is the product of the market process. It arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, Money has continuity of value. This is not intrinsic value. It is historic value. These statements are provided by the author to explain the nature of money. Note that they do not contradict bitcoin, except perhaps in the haphazard and sometimes too fast adoption. However, the statement about the duration of the establishment of a monetary system derives largely from theory that was wholly written before there where computers or the internet. Historical observation cannot be a good guide when circumstances changed radically. > Now let us look at bitcoins. The market value of one bitcoin has gone from about $2 to $1,000 in a year. This is not money. Volatility != Money, I find this a weak argument. Substantial volatility can manifest itself in established currency markets as well. The remainder of the "critisism" of this author basically boils down to "It can't be, because I say so. Perhaps best exemplified by this statement: > In other words, bitcoins cannot possibly fulfill their supposed purpose: to serve as an unregulated currency unit. Author offers scant real critisism beyond the observation that bitcoin is very volatile. Nobody is debating this fact. Nobody is objecting to the assertion that bitcoins, due to their volatility, are a difficult medium to use for exchange. Sadly, author is missing an opportunity to examine what other prospects and drawbacks bitcoins have beyond a simple discussion of the nature "it's so volatile, you're crazy". I don't think it would be possible to kickstart something entirely new, which has a massive potential as a technology, and not go trough phases of substantial volatility (many disruptive tech startups valuation goes trough phases of massive volatility, for instance like the early history of Microsoft). Now it's possible that this dooms bitcoin. However, it could be argued that if bitcoin didn't reward early adopters, and if it didn't had massive potential, which would invite the eventual hypes and busts and massive volatility, then it would linger forver in an obscure niche appreciated in it's abstract beauty by crypto and math geeks alone. I think it's laudable to try, even if you don't succeed. But if you don't try, you're guaranteed to not succeed.
nezumi 13y ago
Some features of the quoted 'Austrian School's theory' seem remarkably close to Bitcoin: it "arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, as new people discover it as a tool of production..." and "becomes widely used as money as a result of innumerable transactions within the economy". It's arguable that the 'unplanned' part is not a necessary feature of a currency. In fact, no fiat currency in circulation today has survived without a significant amount of planning. In contrast, the planning which went into Bitcoin seems to have made it closely fit the theory's description of money. Arguing that its planned nature negates its 'moneyhood' (to coin a phrase... sorry...) seems a little like arguing that an artificial organ won't work due to not having been grown within the host, or that a genetically engineered organism will fail due to not having gone through an evolutionary process.
DennisP 13y ago
All these people talking about Ponzi schemes are ignoring a few things. Bitcoin is a useful technology. It's is in limited supply, as money pretty much has to be. It's not backed by commodities, and can't be, if you want to avoid vulnerability to the sort of government attack that shut down E-gold. When you're starting out with an intrinsic value of zero, and you have limited supply, there's no way for a currency to gain substantial real-world usefulness without a large price increase along the way. People hoping for gain still spend bitcoins, they just replace them right away.
- parasubvert 13y ago
  "It's is in limited supply, as money pretty much has to be." An adjustable and growing money supply is much more the norm.
  - ashray 13y ago
    True, and bitcoin does stick to this norm. The rate of bitcoin production is predictable for the next 100+ years. More can be produced with more effort, it's just not as easy as printing notes. So it is adjustable and it is growing. The price rise is caused by speculation and demand, not because new bitcoins aren't being produced.
    - parasubvert 13y ago
      Bitcoin does not stick to that norm. The supply is completely inelastic. Whereas a money supply typically requires different rates of creation or even destruction to respond to the market demand, partiularly in a time of currency hoarding (such as we are experiencing now in the real global economy). There is also a strong argument for multiple currencies with different supplies of money rather than a single global supply, so there can be mutual adjustment of prices and wages without the social wreckage of a deflationary spiral (such as Southern Europe is currently experiencing because of the Euro).
      - ashray 13y ago
AndersSandvik 13y ago
Lol a history PHD commenting on tech economics.
ck2 13y ago
I am a big skeptic of a lot of things but not Bitcoin. Because even if you take away the bitcoin to dollar conversion, you still have a huge number of people who would be willing to trade bitcoin for goods and services because they have a huge investment in the hardware and power it took to make their bitcoins. I was curious if Bitcoin would become a good solution to the quest for a micropayment system but it has been a victim of its own success and has become too valuable. However if its value dropped but still held some value, it would then return to a valid micropayment system.
- notahacker 13y ago
  > Because even if you take away the bitcoin to dollar conversion, you still have a huge number of people who would be willing to trade bitcoin for goods and services because they have a huge investment in the hardware and power it took to make their bitcoins. Just because people made a huge investment in hardware or power to make Bitcoins doesn't mean anyone else has the remotest bit of interest in accepting Bitcoins for goods and services they provided. The average Zimbabwean worked a lot harder for their Zimbabwean dollars before being forced to switch to other currencies that other people would actually accept. Right now, some people will accept Bitcoins for real goods and services because they believe the chances of currency appreciation in future are greater than the lack of liquidity and threat of price crashes. Since Bitcoin isn't reliably convertible into anything else, people's willingness to accept it depends on it remaining that way in future (here, it's "deflationary" tendencies are actually a big advantage). People need dollars to meet certain financial obligations, whereas they merely want Bitcoins because they seem like an investment. Take away that anticipated growth in value and suddenly the risk to accepting BTC seems like far more of a downside than the transaction costs of conventional currency.
jonsleet 13y ago
No, the whole economic system is the biggest Ponzi scheme.
theboywho 13y ago
What the author seems to miss is that while the features of Bitcoin might seem close to a Ponzi Scheme, Bitcoin was never meant to be a commodity to invest in. Bitcoin is useful and solves a real problem, and even if 1 Bitcoin goes down to $1, there will always be people using it as payment method for its features. Also unlike a Ponzi Scheme, there's no single person that has the power to stop the whole operation. It's more like a drug than a Ponzi Scheme. And Bitcoin just hit the streets.
basyt 13y ago
I think the most important lesson is that traditional economists are just going to have to learn to live with the fact that their theories don't explain bitcoins. or they might just be kicking themselves for not buying coins sooner. lol.
- ceejayoz 13y ago
  Why would Bitcoins be exempt from standard economics? We're not talking about quantum physics where everything starts acting wonky. Claiming Bitcoins won't follow economic theories is like claiming plastic money will work differently than paper money and coins.
julien 13y ago
Going gtom "interesting" to "bullcrap" in 2 sentences: (It will never rival Social Security, however.)
theboywho 13y ago
Important to note: The author of the article, Gary North, is the same guy who predicted a "failure of the global Information Technology (IT) infrastructure and that it would precipitate severe disruption and the complete collapse of the international economy, leaving American Christians to restore society following the collapse." Also, he "favors capital punishment for a range of offenders; these include women who lie about their virginity, blasphemers, nonbelievers, children who curse their parents, male homosexuals, and other people who commit acts deemed capital offenses in the Old Testament. He also favors capital punishment for women who have abortions." Everybody reading his article should take this into account.
- berrypicker 13y ago
  I checked out the comments before reading the article since it had a 'sensational' headline which usually follows up with a crappy article, glad I didn't waste my time. I'm wondering where all the up votes came from though.
  - hendzen 13y ago
    The article itself is not badly written. Keep in mind many people on this forum have a significant financial incentive to ensure that people don't think this way about BTC.
    - nmarley 13y ago
      > ...many people on this forum have a significant financial incentive to ensure that people don't think this way about BTC. How can you make an assertion like that with no facts? Do you know that for sure? Do you have data to back that up?
      - darkstar999 13y ago
        Based on the daily pro-bitcoin articles and comments here, I agree.
      - ceol 13y ago
nivertech 13y ago
Many naive people will be hurt by Bitcoin, yet people who promote it will not be punished.
jordhy 13y ago
Bitcoin is just another social network. It's Facebook for money or the Internet of money. It's not a ponzu scheme. Get over it. I'm sorry you didn't buy when they were cheap. Know the utility of bitcoins is real and they're everywhere.
Aqueous 13y ago
From the BitCoin FAQ (http://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F http://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F): Is Bitcoin a Ponzi scheme? In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy. A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency. The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality.
- mmcnickle 13y ago
  "The first thing to say is this is definitely not pyramid selling, OK" Toni - trying to sell Jeremy on a pyramid scheme -- Peep Show, Season 1, Episode 2; "The Interview"
  - phaemon 13y ago
    That's nice. So, develop some balls and actually say "I think Bitcoin is a pyramid scheme" rather than quoting TV. Or you could learn some maths and determine for yourself why it's not.
puppetmaster3 13y ago
Wow, what a poorly reasoned article.
insertnickname 13y ago
It should be noted that not
Tycho 13y ago
It's really annoying how the term Ponzi scheme is thrown about so carelessly.
ezstar 13y ago
My only counterargument for now; Bitpay https://bitpay.com/bitcoin-exchange-rates https://bitpay.com/bitcoin-exchange-rates I've recent been using bitcoin as money for lots of things. easiest way to cash them out
deleted 13y ago
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oznathan 13y ago
A very emotional article IMO. Volatility is not permanent characteristic of bitcoin. It's like saying that a newborn child will never be able to walk, because now it's only crawling. At a certain point Bitcoin will stabilize. Whether that will be at 0 or 1 million, no one knows. Not the haters nor the fanboys.
- gnaritas 13y ago
  Bitcoin can't stabilize, the economy is not fixed in size and neither can a currency that represents it be and remain stable in value. Every time demand for liquidity spikes due to a growing economy bitcoin will deflate.
emilga 13y ago
What can a bitcoin be used for, other than as a medium of exchange, which also increases demand for the remaining bitcoins? To (unqualified) me, this seems the crucial question. If your money is not propped up by government fiat, it better have some non-monetary uses to succeed in the long run. (And it should not be possible to satisfy that non-monetary use by an arbitrarily small amount of "money".)
steveplace 13y ago
>It will dwarf anything dreamed of by Bernard Madoff. Madoff's fraud was to the tune of >60 billion. Bitcoin's cap is at round 10 billion. So the author expects btc to rise in value by at least 600%
- ceejayoz 13y ago
  It's gone up 1,000% since October, so that's hardly a wild prediction.
aestra 13y ago
I think bitcoin will succeed when there are insured bitcoin banks in which to keep your money. Right now the wallet system is really too confusing for non-technical users and it is risky to keep your money in a fly by night wallet service. Keeping your money in a bank is easy.
talles 13y ago
Calling a 'Ponzi Scheme' it's just too simple or judgmental IMO, but despite the articles flaws, finally someone started questioning "What's backing all that money?". Our real money is created out of thin air, backed by nothing for a long time. There is a lot of fantasy and conspiracy theories behind it, but it is a problem in the end of the day. When the money started to be electronic things got even harder to find out what exactly is backing up that money value. Humongous amount simply floats from bank to bank. While with the existing money is difficult to get to it's primary root of source, with bitcoin this applies pretty much to every penny going around. In theory it's beautiful, but it's an utopia.
SCAQTony 13y ago
F.A. Hayek would adore the concept of competing, globalized, & unregulated currencies (unregulated save for it's own algorithm). And that "Bitcoins, Peercoins, Litecoins and other competing crypto-currencies may be as significant today as the first minted coins of the ancients. If crypto-currencies are bullshit because, as the author puts it: "...He made this money out of digits. He made it out of nothing...."Then all fiat currencies are bullshits. What makes crypto-currency worthwhile is that the algorithm keeps it honest and it encourages saving
mmphosis 13y ago
Money is created as debt out of nothing. The money to pay interest on this debt does not exist. Bitcoin is valuable because it facilitates exchange over the internet. I'm looking forward to the "great winter."
brianmcconnell 13y ago
The biggest argument for not investing in Bitcoin is that anyone who is familiar with technology history can see that it is too early to pick a winner. Bitcoin is better compared to something like TCP/IP. The winner is likely to be something derived from it, probably something that hasn't been invented yet.
- kolev 13y ago
  A better twitter than Twitter, a better facebook than Facebook? In technology, it's not always the better technology that wins. Bitcoin is more than good enough.
kelvin0 13y ago
I thought the biggest Ponzi scheme was the current monetary system, whereby a few organizations can create money out of nothing?
bedhead 13y ago
Bitcoin is the biggest prank of my lifetime. Hats off to Satoshi for figuring out the most remarkable get-rich-quick scheme in the history of the world. Make no mistake, it will one day go down in flames, and 10 years from now people will write stories about bitcoin the same way they do today about how insane Iceland's banking system got, or Pets.com being worth $20 billion or whatever.
EGreg 13y ago
While there is a great deal of insight in the Austrian definition of money, that does not disprove that Bitcoin is, or will be used as, money. After all, the market may price bitcoins high today but even if they drop tomorrow, as long as they stabilize, they can be used as money. Although it is true that whatever is the most liquid asset in the system becomes money, often that asset is liquid because of local law enforcement. Which is the case with fiat currencies. Most money today is credit money. Bitcoin is not credit-money. The "underlying value" of bitcoins is not what's relevant. What's relevant in decentralized situation is the value TO SOMEONE of an asset is what they can trade it for of genuine use to them. So the value of a bitcoin today may be limited to speculating with it. But as more merchants accept bitcoin and the market is saturated and brings diminishing returns, the value of the bitcoin will stabilize. Similar things happened with rapidly growing social networks, like Skype or Facebook. Those are the economics at play here. Initially maybe Facebook was a way to just put up your profile, because not all of your friends were on it. But eventually it became the way to stay in touch and update your friends on what's happening, because enough of your friends used it that it became useful. When enough people trust bitcoin to accept it as money, then it will become money. Until then, the jury is out. But the network effect only grows stronger with the number of users...
macspoofing 13y ago
He's right, sort of, about some things. Bitcoin is absolutely in a speculative bubble right now. People are buying it not to use as currency but to sit on it and watch its value appreciate. That's not good. Lots of people will be hurt when the inevitable crash occurs. The bigger problem is that Bitcoin has intrinsically a deflationary nature. That's not a great property for a currency to have. Currency is meant to be spent. It's not meant to be buried in a backyard so that you can watch its value grow. His points around the development of currencies are bunk. The fact that in the old days it took any currency decades or centuries to take a hold, is purely a function of that time. Bitcoin also does solve some big problems with the current financial system. Specifically today it's pretty friggen hard to move money around because of the insanely strict regulations around transfers. In an era of the internet and all that it enables, there is a huge pent-up demand for something compatible with "the internet way of thinking".
em70 13y ago
Even if Bitcoins may very well crash as some point (even soon), this point is so poorly argued that it was a pain to read.
eof 13y ago
Everything you need to know about this author and article can be summed up by this: > In other words, bitcoins cannot possibly fulfill their supposed purpose: to serve as an unregulated currency unit. Oh that's funny, because for many years they have been doing exactly that with no end in site. Again , I say, the mental dissonance of bitcoin's naysayers is becoming more comedic by the blog post.
scotty79 13y ago
tl;dr: Bitcoin wouldn't be Ponzi Scheme if it could become money. It can't be because its price is too volatile. Therefore bitcoin is Ponzi Scheme. My answer: Volatility is inversely proportional to the wealth that has been exchanged into bitcoin. At the moment individual with few hundred million $ could swing bitcoin market up and down as he pleases. It will be much harder if people stuff trillion dollars or so into bitcoins.
scotty79 13y ago
Bitcoin is not a Ponzi Scheme because those rely on deception. If you'd set up an enterprise and clearly advertised that gains come from money later entrants contribute (as long as new entrants come) it wouldn't be Ponzi Scheme. Ponzi Scheme promises returns to everybody, and lies about where they come from. Bitcoin is as open, transparent and honest as anything can be. Everything from the protocol, through the implementation to the all the transactions themselves are public. No one hides the fact that the gains in bitcoin price come from people wanting to buy bitcoins more and more. No one promises that this will always be the case.
xanth 13y ago
Bitcoin always makes me think of the tulip bubble of 1637[1] where tulips became more expensive than gold, and people purchased them as a speculative commodity. [1]http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania
chris123 13y ago
Someone is going to be eating their hat in a few years (or less).
kolev 13y ago
There's so much envy towards those who made money from Bitcoin, it's not even funny. Many try desperately to manipulate the market. Others greedy by nature live in denial as a self-preservation.
kolev 13y ago
If Bitcoin's market cap is a scheme, what is then Apple's market cap?! USD is the biggest scheme there is, when you think about it. Bitcoin was born out of demand, not as a scheme. The only negative side is the speculators who move the price up and down by tens percent daily, but when more money get into Bitcoin, their job will only get harder.
iterative 13y ago
I have extra kidney to sell if anyone's interested. Payment will only be accepted in Bitcoins.

267 points by pearjuice 13y ago

All these arguments apply equally to gold. Also, gold was becoming a money slower because millions of market participants were not one click away from each other to figure out why is this new metal is any good and whether they should make a bet that it will become more and more useful as money. The truth about USD vs Bitcoin is that Bitcoins you can own and USD you cannot. http://blog.oleganza.com/post/67362431718/you-can-own-bitcoin-you-cant-own-your-dollars http://blog.oleganza.com/post/67362431718/you-can-own-bitcoi... When someone "cashes out" into USD he doesn't really want to cash out in a lot of USD as it's a poor store of value by design. It's controlled, monitored, expensive and leaks like crazy. You can cash out into Maserati, but it's also not a good store of value. Therefore we see that more and more investors remaining with BTC are making a huge bet - a bet on universally accepted money. People who want to cash out quickly do so already without bringing price much down.

GFischer 13y ago
"You can cash out into Maserati, but it's also not a good store of value" You should see what crazy things bad monetary policies make possible: http://www.bloomberg.com/news/2012-11-08/argentine-protectionism-sees-cars-swapped-for-rice-olives-wine.html http://www.bloomberg.com/news/2012-11-08/argentine-protectio... cached version of an Economist article: http://webcache.googleusercontent.com/search?q=cache:_MKsBtaJZ1AJ:www.eiu.com/index.asp%3Flayout%3Dib3Article%26pubtypeid%3D1112462496%26article_id%3D1490681333+&cd=1&hl=en&ct=clnk&gl=uy http://webcache.googleusercontent.com/search?q=cache:_MKsBta...
dragonwriter 13y ago
> When someone "cashes out" into USD he doesn't really want to cash out in a lot of USD as it's a poor store of value by design. No, he really does want to cash out in a lot of USD, because its a very good medium of exchange, by design. They then proceed to use the USD to buy things that either provide immediate utility or provide a good store of value, but that's after "cashing out", which is an act designed to secure something useful in general exchange ("cash").

braum 13y ago

Something hit me while I was reading this article. Anytime you have seen a bitcoin article, usually on HN, but also elsewhere, it almost always shows a US Dollar figure for the amount and never the bitcoin amount. Why, because as this article suggests. Bitcoins are a commodity and not a currency and when we want to try and relate to bitcoins we use what we know which is Dollars. Good luck to all of you techies who read this story and are now trying to convert your bitcoins to dollars today.

matthewrudy 13y ago
This isn't just the case with BTC. I live in the UK and generally think in GBP, but if I'm addressing an international audience, I'll usually refer to prices in USD. (note: I agree with the general sentiment of the article, I'm just saying that people refer to USD because its a true global currency)
a_bonobo 13y ago
>relate to bitcoins we use what we know which is Dollars. I don't think this says anything about Bitcoins as a currency. When the Euro was introduced in Germany, most restaurants, newspapers, politicians etc. kept on listing the Mark price alongside with the Euro price as a point of reference. After a few years this practice stopped when people got used to estimating the worth in Euros (my parents still translate everything into Mark). I think that if Bitcoins ever become stable (who knows when - maybe once all coins are mined?) people might stop comparing USD to Bitcoins once they're used to the Bitcoin "worth", who knows.
- icebraining 13y ago
  Same here in Portugal. Many people over ~50 still convert to our old currency whenever we're talking about larger amounts. It's really hard to reset your frame of reference after so many years.
- melvinmt 13y ago
  Except the EUR/DEM exchange rate has been fixed since 1999, whereas BTC exchange rates change enormously every week.

VLM 13y ago

Betteridge's law of headlines: any headline asking a question, the answer is "no". http://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines http://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines VLM's law of economics commentary: anyone describing something as a Ponzi Scheme has no idea what a Ponzi Scheme is and is just trying to baffle/intimidate the reader. (It might very well be a fraud / scam / ripoff / whatever but it sure as heck isn't a Ponzi Scheme) This is a disease finance is unusually susceptible to. For a good laugh try to ask any joe 6 pack what a junk bond is, and all you'll get is babble about some hollywood actor said they're bad, or some vaguely anti-capitalist blather. You'll never, ever, get to hear what they actually were or how they fit into the context of finance during that era.

fyolnish 13y ago
This headline doesn't ask any question.
- VLM 13y ago
  Yes, and much as that specific "law of headlines" exists, I'm proposing another unrelated "law of headlines" which is also almost universally true.
  - fyolnish 13y ago
    Ah yes, I should have read more carefully.
pearjuice 13y ago
You clearly have no idea who Gary North is.

wereHamster 13y ago

He focuses on one usecase of bitcoins, while completely ignoring the other. Yes, bitcoins are being bought with the expectation that their price is going to raise in the future, and this clearly is not sustainable. But they are also being used to transfer money between individuals. There the price fluctuation doesn't matter that much (if the merchant immediately converts into USD). Lately there have been many people saying bad things about bitcoin. I think those are people who had bitcoin on their radar a few months ago but didn't invest. And now they are just grumpy because they missed the opportunity.

no_wave 13y ago
So who's buying it in the case that the provider immediately converts it into USD? The people who set the price will be those who are interested in holding bitcoin. People who hold bitcoin instantaneously do not affect the value almost by definition.

CJefferson 13y ago

This is as good a place as any to ask this question. Do we actually know how many large mining groups we need to make up 51% of the processing power of the block chain (hopefully that make sense, from my understanding of bitcoin). There has been a number of changes to the bitcoin protocol, which have been made in a short amount of time and unanimously, from what I can see. That implies to me that bitcoin is in practice much more centralised than we are sometimes lead to believe, and that moving to bitcoin is just switching from one shadowy control group to another. I would be happy to hear evidence that I am vastly overestimating this problem.

nwh 13y ago
> Do we actually know how many large mining groups we need to make up 51% of the processing power of the block chain Two. GHash.io and BTCguild make up 27% each, for a total of 54%. https://blockchain.info/pools https://blockchain.info/pools GHash.io had actually been acting maliciously according to some users on Bitcointalk, but the operator claims that was a rogue actor inside that has been dealt with. Double spends against betting sites in particular were involved with this one.
- salient 13y ago
  We need digital currencies that can only ever be mined efficiently with a CPU, and there need to be many more blocks with lower rewards so that people don't need to join pools if they don't want to. They need to be able to earn "something" (not zero) even with a low-end CPU or when the difficulty gets too great, and close to the point of reaching the maximum number of coins. I think there weren't even 10 percent Bitcoins on the market, and CPU's already became obsolete. Yes, I know about the scrypt-based ones, but unfortunately they can still be mined 10x faster with a GPU, and I don't think that's much more preferable either. It needs to be CPU-only, because most people get as fast CPU's as they can, usually, but they don't really care about the GPU performance, other than needing it to support HD playback, which is a very low standard for a GPU these days. I'm not sure how it can be done, but some of the ones that claim to be CPU-only are using multiple hashing algorithms and ciphers at once, presumably to ensure that the task is too complex for anything less "general purpose" than a CPU (at least until they start making chips with accelerators for each and every one of those hashing algorithms?! Maybe something to prevent that could be built-in). The point is to make mining as decentralized as possible. I realize the danger of botnets, too, but I think the trade-off is worth it. I'd rather have that, than a few groups of people or governments owning a ton of ASIC's, or perhaps a few very expensive quantum computers in the future, that they can use to manipulate the currencies. At least if it's CPU only, everyone can have a say in it, in aggregate, which is really the whole point of decentralization, and empowering the individual in the Internet world.

ashray 13y ago

The analysis in this article is so flawed that it's hard to take it seriously. A more balanced analysis might have helped. Sure, bitcoin has several terrible characteristics that have been exposed over the past few weeks (volatility, tons of speculation, new users don't understand wallet security, etc.) But to insinuate with absolutely zero understanding that the creators of bitcoin did this to get rich is just plain nasty. Maybe they did want to get rich (in dollar terms) but there is nothing obvious on the block chain that proves that they cashed out. The argument seems to be that they can't cash it all out so they are waiting for something. Well, they haven't cashed anything out yet as far as anyone who looks at the block chain can tell. It's already possible to cash out $5-$10MM easily over bitstamp which would represent a fraction of their holdings. Why not do that and make sure your future is taken care of? At least that? Furthermore, for several years it did not look like bitcoins were going anywhere. However, the people behind it continued to work on it, and still continue to do so, but under much new pressure because suddenly they are evil ponzi dealers. Applying old school economics and psychology is great, but I must ask this question. What kind of value appreciation did gold see when people suddenly for no reason decided that it was worth a lot? Following this value appreciation did people not use it as a means of exchange as well as a store of value? Why can't bitcoin be thought of as gold 2.0? We started valuing dollars, pounds, euros, airplanes, cars, oil, and those didn't exist for much of human history. Bitcoin isn't like something we've ever seen before and that includes Ponzi schemes. It may end up crashing and burning and it may end up doing really awesome stuff. I just wish the naysayers would come up with better researched arguments instead of this crazy witch hunt.

zanny 13y ago
> Sure, bitcoin has several terrible characteristics that have been exposed over the past few weeks (volatility, tons of speculation, new users don't understand wallet security, etc.) None of these are new, bitcoin has been volatile, has had a large speculative market, and a problem with new users understanding it since 2009.
- ashray 13y ago
  Thanks for adding that, I am of course personally aware that these discussions have taken place time and again on bitcointalk. I meant to say that these problems have been exposed more by the general press, etc. lately. There are other issues that the recent spike in value/volume have introduced: - bitcoin clients, usage, security are too complex for the average consumer - minimum miners fee is now too high ($0.10) - some miners are cherry picking transactions with higher fees so some transactions are taking longer to confirm - fear that the transaction bottleneck might be hit (imagine if all the internal movements on exchanges were on chain transactions, this would've already happened) - a lot of ill feeling and negativity from tech folks who could've been early adopters but missed the bus. Truth is, it's still early times. Also, services still need to be built, tech folks can always do that! :)

girvo 13y ago

I truly don't get this "BTC is a Ponzi scheme" thing. And "Social Security is a Ponzi Scheme" in the third sentence really doesn't endear me to this writer... I don't buy it. Yeah, Satoshi owns a stack. But if he sold out, the price would drop so hard it'd make your head spin... and I doubt Satoshi would be able to be rid of all of them in time before they bottom out. The market isn't large enough yet to pull that sort of scheme off. Now, Bitcoin still seems like a good idea, with an implementation that seems to have some issues, and rampant speculation is going to stop the better ideas that it could embody from happening for a while. But a "Ponzi scheme"? Done deliberately for that reason? You're telling me that Satoshi knew it'd hit $1k per BTC? Pfft.

bmelton 13y ago
I agree that BTC is not, but I thought it was fairly well understood that social security was a mandatory Ponzi scheme. From Wikipedia: "A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation." Social security does exactly that, and its recent failure predictions by the CBO are caused by the population failing to grow at rates that could sustain it. If more people aren't paying into it than those withdrawing from it, and it fails as a result, does that not match the definition of a Ponzi scheme?
- empthought 13y ago
  Social security is a mandatory insurance program, not a mandatory investment program. Like any other insurance program, the solution to shortfall is to increase premiums or decrease payouts. Since there isn't yet a shortfall that can't be covered by existing funding sources, these solutions have not yet been implemented. Just like a private insurance company.
  - iterative 13y ago
    Social Security is a ponzi scheme. Insurance companies have assets the can fall back on to pay claims, they don't just pay them out of insurance payments as they come in. http://www.forbes.com/sites/richardsalsman/2011/09/27/social-security-is-much-worse-than-a-ponzi-scheme/ http://www.forbes.com/sites/richardsalsman/2011/09/27/social...

gokhan 13y ago

The individual who sells the Ponzi scheme makes money by siphoning off a large share of the money coming in. In other words, he does not make the investment. But Bitcoins are unique. The money was siphoned off from the beginning. Only true if we see Satoshi spending his Bitcoins. We have an online store selling baby products and really want to accept Bitcoins but we can't at the moment since Bitcoin is not widespread and price fluctuates madly. Once everybody got some and price is predictable in the short run, we'll show the finger to the bank, the real one siphoning from our pocket as commissions without actually providing any reasonable service.

paulgb 13y ago
Don't services like bitpay absorb the price fluctuations for you and pay out USD?
- nwh 13y ago
  Yep. There's absolutely no risk for a vendor setting prices like this.
ashray 13y ago
Hi, I suggest that you check out bitpay.com They will bill your customers in bitcoin and will transfer out USD to you so that you don't have to worry about the exchange rate at all. You setup your items in USD as well and they handle the price fluctuations. They do daily payouts to 30 countries in several currencies. I've been using them since April and it's amazing! Sincerely, A happy bitpay customer :) Edit: oh and I must add! They used to take 1% commission but have introduced new packages that have 0% commission from $30/month! Also, the daily bank withdrawals are free.
- gokhan 13y ago
  I'll check out Bitpay, thanks a lot.
- aestra 13y ago
  Out of curiosity do you have many people who pay in bitcoin?

simbolit 13y ago

I might have read too quickly but from what I get the argument boils down too: too much volatility is bad, so it won't be used as money, so it isn't money. I don't think that is a good argument. There are many examples were currencies are highly volatile yet still function as money. On the oder side, after the 2011 crash, bitcoin hovered around 2-3dollar for months. I don't know if bitcoin will succeed. I don't know if it will be used as everyday money. I know quite a few people who use it to buy drugs or takeout food. I know vast amounts of people who have never heard of it. I don't think you can say anything about bitcoins future as money at the moment. Just that (as I explained in an earlier post) national governments might at some point have an incentive to restrict bitcoin, if it gets so successful it might make their financial policy ineffective. But this point (if it ever comes) is still far in the future.

berberous 13y ago

This article is unfortunately mostly right. Bitcoin's are 95% a ponzi scheme investment, and will at some point crash spectacularly. The question remains, however, whether from the ashes of that crash a useful product can remain, that can still succeed as a currency, or whether the psychological damage will prove to be too much to move past. If it can survive, it may even eventually return to the same high prices, but this time, based on its frequent use as a currency, and not based on rampant speculation. Right now, the truth is that a negligible percentage of Bitcoin users care about its use as a currency (with the biggest exception being silk road type illegal uses). Almost everyone is focused on the price appreciation, and when that finally falters, it will collapse.

pilker09 13y ago
Bitcoin is only a Ponzi to those that don't actually understand Ponzis. Which scammer is paying me for my bitcoins out of someone else's promised profits?
- granfalloon 13y ago
  yeah, it seems like the author (and many of the commenters) are just using ponzi as a synonym for a "pump and dump" or a speculative gold rush
- berberous 13y ago
  You are correct. I was using the article's language, which I agree is not right. It should be called a bubble, not a ponzi scheme. They are similar in that the price rise is being sustained by many new speculators/investors, and at some point, that will inevitably collapse. I am reminded of the story that Joseph Kennedy predicted the 1920's stock market crash after receiving stock tips from his shoe-shine boy. He realized that if his shoe shiner was also partaking in the rampant speculation, there were probably few fools left to join in.
  - netcan 13y ago
    All money is a bubble, IMO. >> price rise is being sustained by many new speculators/investors, and at some point, that will inevitably collapse It may but I don't think its inevitable. Many speculators/investors are buying bitcoins because they believe bitcoins will be used in the future as an important currency. If that happens, there will be even more demand for bitcoin and the price will be high forever. Its speculative, but it's not nonsensical.

mschuster91 13y ago

The author completely omits the two main advantages of Bitcoin over traditional currencies/banking: 1) it's blazing fast. Ten minutes and someone deep in African desert can wire money to a researcher on one of those scientific outposts. Try to do that with a bank. 2) If done right, Bitcoins are anonymous like cash. In light of the recent NSA scandal, I don't believe a second that the NSA/other governments will reduce their programs. If I wire a thousand dollars to Pakistan, I bet I'll land on some no-fly list, even if the money was support for my family. With Bitcoin, this would not be possible.

parasubvert 13y ago
1) With a telephone and a banker, all it takes is 10 minutes to do the same wire transfer. At worst, it would require a fax machine to sign the paperwork. 2) This is wishful thinking. Large currency transfers by law need to be reported by most states, whether Bitcoin or not. A thousand dollars is not large ($10k is typical). Your scenario here is effectively saying it's easier to break the law with bitcoin. All you are doing is putting the legal burden on the exchange.
- bmelton 13y ago
  I think that casts the action in an unnecessarily negative light. Is BTC considered 'currency' by the US government? Do its transfers necessitate reporting to the government? If I sent a thousand dog biscuits to my home land, does the government need to be involved? Under what law?
  - ceejayoz 13y ago
    > Is BTC considered 'currency' by the US government? Do its transfers necessitate reporting to the government? If I sent a thousand dog biscuits to my home land, does the government need to be involved? Under what law? Almost certainly, under a variety of money laundering laws. You can't just convert cash into diamonds/gold/Bitcoins and thumb your nose at the authorities saying "look, no currency!"

orenbarzilai 13y ago

Not directly related to the article, but recently I have heard few complaints about limitations of converting Bitcoins to us dollars (or any other official currency). If these complaints are true, how come these limitations exists? it affects the true value of the coin and works against logic & advantage that Bitcoins has to offer. Anyone can share some information about the Bitcoin selling limitations?

ashray 13y ago
There are limitations because the exchanges are not that liquid. There are no hard limitations as such. People have been converting $2-3MM from bitcoins easily but larger numbers will still be hard to convert at the current price. This conversion limitation however should not affect the average joe.

mtkd 13y ago

Whilst history is punctuated with previous ponzi schemes, it is also punctuated with periods that required a store of wealth outside of a national currency. I shared the author's view when BTC == $30, I'm tempering that now and starting to view it as a maturing alternative wealth store. It may always be extremely volatile. However, now it has achieved a level of confidence, it will likely become another safe harbour in times of local currency disruption.

chris_wot 13y ago

Should I read past "It will never rival Social Security, however"?

paulgb 13y ago

Is this the same Gary North who predicted the collapse of society from the Y2K bug? > North predicted a Y2K catastrophe in print and online,[31] and predicted that a Y2K date-rollover failure of the global Information Technology (IT) infrastructure would precipitate severe disruption and the complete collapse of the international economy, leaving American Christians to restore society following the collapse. http://en.m.wikipedia.org/wiki/Gary_North_(economist)#Y2K_catastrophe_prediction http://en.m.wikipedia.org/wiki/Gary_North_(economist)#Y2K_ca... Edit: looks like he has a long history of claiming the sky is falling: http://www.wired.com/culture/lifestyle/news/1999/01/17193 http://www.wired.com/culture/lifestyle/news/1999/01/17193

blahbl4hblahtoo 13y ago
An Austrian economist predicting the end of the world? I'm shocked!
- rookonaut 13y ago
  Gary North is Austrian?
  - jswinghammer 13y ago
    Yes. Sometimes he's good but definitely not on this topic.
    - rookonaut 13y ago
      This is maybe a stupid question but what does it mean to be Austrian in this context? Is he born in Austria or is this a reference to the Austrian School of Economics?
      - iso-8859-1 13y ago
        School of Economics

orenbarzilai 13y ago

"Companies will not sell goods and services based on Bitcoins. Bitcoins have to have stable purchasing power if they are to serve as money, and they will never, ever achieve stable purchasing power." More & more companies announce that they accept Bitcoins on a daily basis, thus it has purchasing power & it creates value to the end consumer.

nkuttler 13y ago
He's right though that very few accept bitcoin. Almost all use payment gateways that accept bitcoin but pay currency to the merchant.
- orenbarzilai 13y ago
  True. But some ppl are paying with Bitcoins & more websites adding this payment option, and recently it became a trend so it brings Bitcoin few steps further to become "real money".
xgarland 13y ago
Yeah, it appears to me that the author sole purpose was to discredit the currency more out of bitterness more than actual valid data.

terranstyler 13y ago

I see all these people calling themselves libertarians arguing against BTC but I have yet to see why BTC would fail. I hate this "BTC is not money" argument because the core foundation of liberalism states basically "money is what people voluntarily choose to use as money". So if they are convinced that BTC works (works at least better than some alternative) , why shouldn't they use it as money? Volatility is not an argument. Before "adoption" of USD and gold as money, they most probably were volatile as well...

joezydeco 13y ago
This is a fun NPR "Planet Money" podcast where they travel to a libertarian summer festival dedicated to trading goods and services strictly in gold and silver. It's...awkward. http://www.npr.org/blogs/money/2013/07/05/198413086/episode-286-libertarian-summer-camp http://www.npr.org/blogs/money/2013/07/05/198413086/episode-... One of the biggest problems is that the rate is constantly changing just like Bitcoin. And that rate is in US Dollars, the currency they're trying to abandon.
lake99 13y ago
There is no consensus among libertarians about BTC. The mistake that Gary North makes here is in assuming there is one. He is entitled to voice his opinions, and he does come across as being prescriptivist. However, as long as he does not contribute to creating laws and regulations against BTC, I'm quite comfortable with anything he has to say about the matter.

pelle 13y ago

Bitcoin is not an investment scheme. It's a payment system. Unfortunately people are looking at it as an investment scheme. Even if it was an investment scheme it hardly fits the definition of a ponzi scheme. In any new investment whether it's a startup or bitcoin the early investors make out better than later investors. That is not the definition of a ponzi scheme.

jljljl 13y ago
The problem is that the heavily restricted money supply and inherent deflationary pressure built into the currency make it a poor medium of exchange, since they provide an incentive to hoard Bitcoin rather than spend it. Something that is scarce, restricted in future supply, and of high demand will tend to serve as a magnet for speculation.
- deleted 13y ago
  [deleted]
- DennisP 13y ago
  Assuming you have dollars that you spend on things, the easy solution it to keep hoarding your bitcoin stash, but also convert dollars to bitcoins just before spending them. Given easy convertibility, bitcoin's deflationary effect is spread over the whole economy, not just bitcoin. So far, bitcoin's not big enough for that to be noticeable.
deleted 13y ago
[deleted]
bedhead 13y ago
It is not a payment system - effectively no one accepts it as payment. And no one spends bitcoins anyway. There is no medium of exchange here any more than there is for Bedheadcoin. It's not a ponzi scheme, just an amusing bubble.

blahbl4hblahtoo 13y ago

Austrian economics are so painful. Its amazing to me how impervious to contrary evidence its adherents are... their blind faith in their core beliefs are so unshakable. Every time I read one of them say that money arose from markets I wonder why they don't sponsor a bill that sets up an agency like NOAA that watches for dangerous conditions in this primeval force called "the market" so that people can be warned when "the market" is angry and another virgin needs to be tossed into its going maw in an act of propitiation. Just the idea that markets pre-date states is so ingrained.

mason240 13y ago
Are you saying that you don't believe that people can buy, sell, or trade with each other unless government is involved?
- blahbl4hblahtoo 13y ago
  of course not.

nkuttler 13y ago

Yet again somebody writing about bitcoin who hasn't even read the FAQ, https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F in particular: "In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy. A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency. The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality." Back to the article: > somebody owned a good percentage of the original digits. Ok, this sounds just like bitterness from somebody who didn't buy in early. See also https://en.bitcoin.it/wiki/FAQ#Doesn.27t_Bitcoin_unfairly_benefit_early_adopters.3F https://en.bitcoin.it/wiki/FAQ#Doesn.27t_Bitcoin_unfairly_be...

ceejayoz 13y ago
Next up: why Bing is better than Google, from the unbiased folks at http://www.bing.com/ http://www.bing.com/!

pyalot2 13y ago

> In this sense, Bitcoins is not a Ponzi scheme. It is simply a supermoney scheme. Admits that bitcoin is not a ponzi scheme in his own article. > The money was siphoned off from the beginning. Somebody owned a good percentage of the original digits. Implies that most bitcoins are owned by satoshi nakamoto, without substantiating this claim by any number to quantify the impact. The estimated stash of satoshi is about 1 million bitcoins: http://www.theverge.com/2013/5/6/4295028/report-satoshi-nakamoto http://www.theverge.com/2013/5/6/4295028/report-satoshi-naka... . Today 11 million bitcoins are in existence. There will be an eventual cap at 21 million bitcoins, so satoshis stash is somewhere between 9% to 4% of all bitcoins. By comparision the winkelvii own about 1% of all bitcoins. I'm not qualifying the risk this presents, but I think it's important for an accurate critique to provide quantification. > Money develops out of market exchanges. Money is the product of the market process. It arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, Money has continuity of value. This is not intrinsic value. It is historic value. These statements are provided by the author to explain the nature of money. Note that they do not contradict bitcoin, except perhaps in the haphazard and sometimes too fast adoption. However, the statement about the duration of the establishment of a monetary system derives largely from theory that was wholly written before there where computers or the internet. Historical observation cannot be a good guide when circumstances changed radically. > Now let us look at bitcoins. The market value of one bitcoin has gone from about $2 to $1,000 in a year. This is not money. Volatility != Money, I find this a weak argument. Substantial volatility can manifest itself in established currency markets as well. The remainder of the "critisism" of this author basically boils down to "It can't be, because I say so. Perhaps best exemplified by this statement: > In other words, bitcoins cannot possibly fulfill their supposed purpose: to serve as an unregulated currency unit. Author offers scant real critisism beyond the observation that bitcoin is very volatile. Nobody is debating this fact. Nobody is objecting to the assertion that bitcoins, due to their volatility, are a difficult medium to use for exchange. Sadly, author is missing an opportunity to examine what other prospects and drawbacks bitcoins have beyond a simple discussion of the nature "it's so volatile, you're crazy". I don't think it would be possible to kickstart something entirely new, which has a massive potential as a technology, and not go trough phases of substantial volatility (many disruptive tech startups valuation goes trough phases of massive volatility, for instance like the early history of Microsoft). Now it's possible that this dooms bitcoin. However, it could be argued that if bitcoin didn't reward early adopters, and if it didn't had massive potential, which would invite the eventual hypes and busts and massive volatility, then it would linger forver in an obscure niche appreciated in it's abstract beauty by crypto and math geeks alone. I think it's laudable to try, even if you don't succeed. But if you don't try, you're guaranteed to not succeed.

nezumi 13y ago

Some features of the quoted 'Austrian School's theory' seem remarkably close to Bitcoin: it "arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, as new people discover it as a tool of production..." and "becomes widely used as money as a result of innumerable transactions within the economy". It's arguable that the 'unplanned' part is not a necessary feature of a currency. In fact, no fiat currency in circulation today has survived without a significant amount of planning. In contrast, the planning which went into Bitcoin seems to have made it closely fit the theory's description of money. Arguing that its planned nature negates its 'moneyhood' (to coin a phrase... sorry...) seems a little like arguing that an artificial organ won't work due to not having been grown within the host, or that a genetically engineered organism will fail due to not having gone through an evolutionary process.

DennisP 13y ago

All these people talking about Ponzi schemes are ignoring a few things. Bitcoin is a useful technology. It's is in limited supply, as money pretty much has to be. It's not backed by commodities, and can't be, if you want to avoid vulnerability to the sort of government attack that shut down E-gold. When you're starting out with an intrinsic value of zero, and you have limited supply, there's no way for a currency to gain substantial real-world usefulness without a large price increase along the way. People hoping for gain still spend bitcoins, they just replace them right away.

parasubvert 13y ago
"It's is in limited supply, as money pretty much has to be." An adjustable and growing money supply is much more the norm.
- ashray 13y ago
  True, and bitcoin does stick to this norm. The rate of bitcoin production is predictable for the next 100+ years. More can be produced with more effort, it's just not as easy as printing notes. So it is adjustable and it is growing. The price rise is caused by speculation and demand, not because new bitcoins aren't being produced.
  - parasubvert 13y ago
    Bitcoin does not stick to that norm. The supply is completely inelastic. Whereas a money supply typically requires different rates of creation or even destruction to respond to the market demand, partiularly in a time of currency hoarding (such as we are experiencing now in the real global economy). There is also a strong argument for multiple currencies with different supplies of money rather than a single global supply, so there can be mutual adjustment of prices and wages without the social wreckage of a deflationary spiral (such as Southern Europe is currently experiencing because of the Euro).
    - ashray 13y ago

AndersSandvik 13y ago

Lol a history PHD commenting on tech economics.

ck2 13y ago

I am a big skeptic of a lot of things but not Bitcoin. Because even if you take away the bitcoin to dollar conversion, you still have a huge number of people who would be willing to trade bitcoin for goods and services because they have a huge investment in the hardware and power it took to make their bitcoins. I was curious if Bitcoin would become a good solution to the quest for a micropayment system but it has been a victim of its own success and has become too valuable. However if its value dropped but still held some value, it would then return to a valid micropayment system.

notahacker 13y ago
> Because even if you take away the bitcoin to dollar conversion, you still have a huge number of people who would be willing to trade bitcoin for goods and services because they have a huge investment in the hardware and power it took to make their bitcoins. Just because people made a huge investment in hardware or power to make Bitcoins doesn't mean anyone else has the remotest bit of interest in accepting Bitcoins for goods and services they provided. The average Zimbabwean worked a lot harder for their Zimbabwean dollars before being forced to switch to other currencies that other people would actually accept. Right now, some people will accept Bitcoins for real goods and services because they believe the chances of currency appreciation in future are greater than the lack of liquidity and threat of price crashes. Since Bitcoin isn't reliably convertible into anything else, people's willingness to accept it depends on it remaining that way in future (here, it's "deflationary" tendencies are actually a big advantage). People need dollars to meet certain financial obligations, whereas they merely want Bitcoins because they seem like an investment. Take away that anticipated growth in value and suddenly the risk to accepting BTC seems like far more of a downside than the transaction costs of conventional currency.

jonsleet 13y ago

No, the whole economic system is the biggest Ponzi scheme.

theboywho 13y ago

What the author seems to miss is that while the features of Bitcoin might seem close to a Ponzi Scheme, Bitcoin was never meant to be a commodity to invest in. Bitcoin is useful and solves a real problem, and even if 1 Bitcoin goes down to $1, there will always be people using it as payment method for its features. Also unlike a Ponzi Scheme, there's no single person that has the power to stop the whole operation. It's more like a drug than a Ponzi Scheme. And Bitcoin just hit the streets.

basyt 13y ago

I think the most important lesson is that traditional economists are just going to have to learn to live with the fact that their theories don't explain bitcoins. or they might just be kicking themselves for not buying coins sooner. lol.

ceejayoz 13y ago
Why would Bitcoins be exempt from standard economics? We're not talking about quantum physics where everything starts acting wonky. Claiming Bitcoins won't follow economic theories is like claiming plastic money will work differently than paper money and coins.

julien 13y ago

Going gtom "interesting" to "bullcrap" in 2 sentences: (It will never rival Social Security, however.)

theboywho 13y ago

Important to note: The author of the article, Gary North, is the same guy who predicted a "failure of the global Information Technology (IT) infrastructure and that it would precipitate severe disruption and the complete collapse of the international economy, leaving American Christians to restore society following the collapse." Also, he "favors capital punishment for a range of offenders; these include women who lie about their virginity, blasphemers, nonbelievers, children who curse their parents, male homosexuals, and other people who commit acts deemed capital offenses in the Old Testament. He also favors capital punishment for women who have abortions." Everybody reading his article should take this into account.

berrypicker 13y ago
I checked out the comments before reading the article since it had a 'sensational' headline which usually follows up with a crappy article, glad I didn't waste my time. I'm wondering where all the up votes came from though.
- hendzen 13y ago
  The article itself is not badly written. Keep in mind many people on this forum have a significant financial incentive to ensure that people don't think this way about BTC.
  - nmarley 13y ago
    > ...many people on this forum have a significant financial incentive to ensure that people don't think this way about BTC. How can you make an assertion like that with no facts? Do you know that for sure? Do you have data to back that up?
    - darkstar999 13y ago
      Based on the daily pro-bitcoin articles and comments here, I agree.
    - ceol 13y ago

nivertech 13y ago

Many naive people will be hurt by Bitcoin, yet people who promote it will not be punished.

jordhy 13y ago

Bitcoin is just another social network. It's Facebook for money or the Internet of money. It's not a ponzu scheme. Get over it. I'm sorry you didn't buy when they were cheap. Know the utility of bitcoins is real and they're everywhere.

Aqueous 13y ago

From the BitCoin FAQ (http://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F http://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F): Is Bitcoin a Ponzi scheme? In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy. A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency. The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

mmcnickle 13y ago
"The first thing to say is this is definitely not pyramid selling, OK" Toni - trying to sell Jeremy on a pyramid scheme -- Peep Show, Season 1, Episode 2; "The Interview"
- phaemon 13y ago
  That's nice. So, develop some balls and actually say "I think Bitcoin is a pyramid scheme" rather than quoting TV. Or you could learn some maths and determine for yourself why it's not.

puppetmaster3 13y ago

Wow, what a poorly reasoned article.

insertnickname 13y ago

It should be noted that not

Tycho 13y ago

It's really annoying how the term Ponzi scheme is thrown about so carelessly.

ezstar 13y ago

My only counterargument for now; Bitpay https://bitpay.com/bitcoin-exchange-rates https://bitpay.com/bitcoin-exchange-rates I've recent been using bitcoin as money for lots of things. easiest way to cash them out

deleted 13y ago

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oznathan 13y ago

A very emotional article IMO. Volatility is not permanent characteristic of bitcoin. It's like saying that a newborn child will never be able to walk, because now it's only crawling. At a certain point Bitcoin will stabilize. Whether that will be at 0 or 1 million, no one knows. Not the haters nor the fanboys.

gnaritas 13y ago
Bitcoin can't stabilize, the economy is not fixed in size and neither can a currency that represents it be and remain stable in value. Every time demand for liquidity spikes due to a growing economy bitcoin will deflate.

emilga 13y ago

What can a bitcoin be used for, other than as a medium of exchange, which also increases demand for the remaining bitcoins? To (unqualified) me, this seems the crucial question. If your money is not propped up by government fiat, it better have some non-monetary uses to succeed in the long run. (And it should not be possible to satisfy that non-monetary use by an arbitrarily small amount of "money".)

steveplace 13y ago

>It will dwarf anything dreamed of by Bernard Madoff. Madoff's fraud was to the tune of >60 billion. Bitcoin's cap is at round 10 billion. So the author expects btc to rise in value by at least 600%

ceejayoz 13y ago
It's gone up 1,000% since October, so that's hardly a wild prediction.

aestra 13y ago

I think bitcoin will succeed when there are insured bitcoin banks in which to keep your money. Right now the wallet system is really too confusing for non-technical users and it is risky to keep your money in a fly by night wallet service. Keeping your money in a bank is easy.

talles 13y ago

Calling a 'Ponzi Scheme' it's just too simple or judgmental IMO, but despite the articles flaws, finally someone started questioning "What's backing all that money?". Our real money is created out of thin air, backed by nothing for a long time. There is a lot of fantasy and conspiracy theories behind it, but it is a problem in the end of the day. When the money started to be electronic things got even harder to find out what exactly is backing up that money value. Humongous amount simply floats from bank to bank. While with the existing money is difficult to get to it's primary root of source, with bitcoin this applies pretty much to every penny going around. In theory it's beautiful, but it's an utopia.

SCAQTony 13y ago

F.A. Hayek would adore the concept of competing, globalized, & unregulated currencies (unregulated save for it's own algorithm). And that "Bitcoins, Peercoins, Litecoins and other competing crypto-currencies may be as significant today as the first minted coins of the ancients. If crypto-currencies are bullshit because, as the author puts it: "...He made this money out of digits. He made it out of nothing...."Then all fiat currencies are bullshits. What makes crypto-currency worthwhile is that the algorithm keeps it honest and it encourages saving

mmphosis 13y ago

Money is created as debt out of nothing. The money to pay interest on this debt does not exist. Bitcoin is valuable because it facilitates exchange over the internet. I'm looking forward to the "great winter."

brianmcconnell 13y ago

The biggest argument for not investing in Bitcoin is that anyone who is familiar with technology history can see that it is too early to pick a winner. Bitcoin is better compared to something like TCP/IP. The winner is likely to be something derived from it, probably something that hasn't been invented yet.

kolev 13y ago
A better twitter than Twitter, a better facebook than Facebook? In technology, it's not always the better technology that wins. Bitcoin is more than good enough.

kelvin0 13y ago

I thought the biggest Ponzi scheme was the current monetary system, whereby a few organizations can create money out of nothing?

bedhead 13y ago

Bitcoin is the biggest prank of my lifetime. Hats off to Satoshi for figuring out the most remarkable get-rich-quick scheme in the history of the world. Make no mistake, it will one day go down in flames, and 10 years from now people will write stories about bitcoin the same way they do today about how insane Iceland's banking system got, or Pets.com being worth $20 billion or whatever.

EGreg 13y ago

While there is a great deal of insight in the Austrian definition of money, that does not disprove that Bitcoin is, or will be used as, money. After all, the market may price bitcoins high today but even if they drop tomorrow, as long as they stabilize, they can be used as money. Although it is true that whatever is the most liquid asset in the system becomes money, often that asset is liquid because of local law enforcement. Which is the case with fiat currencies. Most money today is credit money. Bitcoin is not credit-money. The "underlying value" of bitcoins is not what's relevant. What's relevant in decentralized situation is the value TO SOMEONE of an asset is what they can trade it for of genuine use to them. So the value of a bitcoin today may be limited to speculating with it. But as more merchants accept bitcoin and the market is saturated and brings diminishing returns, the value of the bitcoin will stabilize. Similar things happened with rapidly growing social networks, like Skype or Facebook. Those are the economics at play here. Initially maybe Facebook was a way to just put up your profile, because not all of your friends were on it. But eventually it became the way to stay in touch and update your friends on what's happening, because enough of your friends used it that it became useful. When enough people trust bitcoin to accept it as money, then it will become money. Until then, the jury is out. But the network effect only grows stronger with the number of users...

macspoofing 13y ago

He's right, sort of, about some things. Bitcoin is absolutely in a speculative bubble right now. People are buying it not to use as currency but to sit on it and watch its value appreciate. That's not good. Lots of people will be hurt when the inevitable crash occurs. The bigger problem is that Bitcoin has intrinsically a deflationary nature. That's not a great property for a currency to have. Currency is meant to be spent. It's not meant to be buried in a backyard so that you can watch its value grow. His points around the development of currencies are bunk. The fact that in the old days it took any currency decades or centuries to take a hold, is purely a function of that time. Bitcoin also does solve some big problems with the current financial system. Specifically today it's pretty friggen hard to move money around because of the insanely strict regulations around transfers. In an era of the internet and all that it enables, there is a huge pent-up demand for something compatible with "the internet way of thinking".

em70 13y ago

Even if Bitcoins may very well crash as some point (even soon), this point is so poorly argued that it was a pain to read.

eof 13y ago

Everything you need to know about this author and article can be summed up by this: > In other words, bitcoins cannot possibly fulfill their supposed purpose: to serve as an unregulated currency unit. Oh that's funny, because for many years they have been doing exactly that with no end in site. Again , I say, the mental dissonance of bitcoin's naysayers is becoming more comedic by the blog post.

scotty79 13y ago

tl;dr: Bitcoin wouldn't be Ponzi Scheme if it could become money. It can't be because its price is too volatile. Therefore bitcoin is Ponzi Scheme. My answer: Volatility is inversely proportional to the wealth that has been exchanged into bitcoin. At the moment individual with few hundred million $ could swing bitcoin market up and down as he pleases. It will be much harder if people stuff trillion dollars or so into bitcoins.

scotty79 13y ago

Bitcoin is not a Ponzi Scheme because those rely on deception. If you'd set up an enterprise and clearly advertised that gains come from money later entrants contribute (as long as new entrants come) it wouldn't be Ponzi Scheme. Ponzi Scheme promises returns to everybody, and lies about where they come from. Bitcoin is as open, transparent and honest as anything can be. Everything from the protocol, through the implementation to the all the transactions themselves are public. No one hides the fact that the gains in bitcoin price come from people wanting to buy bitcoins more and more. No one promises that this will always be the case.

xanth 13y ago

Bitcoin always makes me think of the tulip bubble of 1637[1] where tulips became more expensive than gold, and people purchased them as a speculative commodity. [1]http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania

chris123 13y ago

Someone is going to be eating their hat in a few years (or less).

kolev 13y ago

There's so much envy towards those who made money from Bitcoin, it's not even funny. Many try desperately to manipulate the market. Others greedy by nature live in denial as a self-preservation.

kolev 13y ago

If Bitcoin's market cap is a scheme, what is then Apple's market cap?! USD is the biggest scheme there is, when you think about it. Bitcoin was born out of demand, not as a scheme. The only negative side is the speculators who move the price up and down by tens percent daily, but when more money get into Bitcoin, their job will only get harder.

iterative 13y ago

I have extra kidney to sell if anyone's interested. Payment will only be accepted in Bitcoins.