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This article is unfortunately mostly right. Bitcoin's are 95% a ponzi scheme investment, and will at some point crash spectacularly. The question remains, howev

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.
    - bcoates 13y ago
      > All money is a bubble, IMO. Not really -- between the US government and the Federal Reserve banks, there's enough assets and turnover to unwind all the US dollars in existence in a fairly short amount of time, if there was a long-term decline in demand for dollars.
    - berberous 13y ago
      Well, obviously there are supposed reasoned justifications for the rise in prices. That's true of probably all bubbles. Humans are less rational creatures, than rationalizing creatures. We like stories that convince ourselves we are behaving rationally. Robert Schiller, the Yale economist and bubble-proponent, suggests diagnosing bubbles based on a checklist-based approach similiar to the way depression or other medical issues are diagnosed, with the following indicators: - Sharp increases in the price of an asset like real estate or dot-com shares - Great public excitement about said increases - An accompanying media frenzy - Stories of people earning a lot of money, causing envy among people who aren’t - Growing interest in the asset class among the general public - “New era” theories to justify unprecedented price increases - A decline in lending standards Bitcoin fits the above extremely well. I should note that Eugene Fama shared the Nobel prize with Schiller, but does not believe in the idea of bubbles or Schiller's claimed ability to predict them. After all, one might say that Google's stock fits the above criteria just as well, but that's clearly not a bubble. (I think I side with Schiller on this one though, although Fama raises good points.) As I said in my first post, I agree that Bitcoin may eventually succeed as a currency and gain a high value. But it will be a slow process backed by fundamentals. The exponential growth taking place right now is pure bubble speculation. Very few really care about this future as an "important currency." Instead, you have people like me. I invested some money. It's now worth nearly 10x. I want it to keep going up, and I am currently letting it ride. I tell myself stories that it will replace gold; I read blog posts arguing that if it does it will be worth $10,000+ a coin. But at some point, the tide will begin to turn. Negative stories will increase. There will be price drops. And people like me, who pretend to themselves that they have a reasoned investment thesis, will say fuck it, and cash out in hordes. And from the ashes, we will then see what it can do as a currency. But the speculators are here, rapidly increasing, and will eventually, rapidly flee. (Although I hope I'm wrong, because I'm probably going to let my BTC's ride one way or the other...it's just too much fun being on this roller coaster.) Put simply, I think the question is whether the fundamentals have a serious chance at overtaking the speculators before a big bust occurs. The speculators are increasing exponentially. And for all the talk of merchants beginning to use Bitcoin, or a random pizza or bar accepting bitcoins, the fundamentals don't really seem to be there or growing fast enough. I don't know anybody that seriously uses it in that manner, except for the few ardent Bitcoin evangelists. (Although if anyone has any interesting data, please link me!). Black markets and gambling sites seems to be the only real sectors seriously using it as a currency. Disclaimer: I could be wrong, and change my opinion on BTC way too often to be trusted. :)
DennisP 13y ago
It's already collapsed twice after major price increases, first from (iirc) about $30 to $3, then from about $240 to $60. It looks to me like we are having speculative bubbles, but it's on top of a major long-term growth trend. I think most people heavily into bitcoins understand it only has real value if it's spent as currency, and there's been a lot of work on getting merchants involved. The easy way to handle things as an investor is just to keep your investment, but when you want to spend money on something, buy additional bitcoins with your dollars and spend those. This wouldn't be an option if bitcoin were the only currency, but if you've got dollars too then the bitcoin deflation isn't a problem as long as conversion is easy.
- mbillie1 13y ago
  It's pretty hard to call < 5 years a "major long-term growth trend" ...
tsotha 13y ago
>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. Or people will start using it as currency. That's already happening to some degree - it won't take much to tip it over into a viable currency for everyday use. With the games governments are playing with sovereign currencies, I think it's more likely we'll see the collapse of the RMB, euro, or dollar.
bushido 13y ago
I agree 100%; quoting myself from a previous comment on a different post: Bitcoin is revolutionary. THAT is most likely true. Is it doomed to fail? Perhaps it is, but things are not quite as grim. Here is what is likely to happen as a result of bitcoin: 1. The future of banking transaction fees is bleak - The current financial systems will get threatened and adapt. Here bitcoin will succeed. 2. Bitcoin is used as proof of concept and paves the way for a world currency, think euro but global. The two points above are definitely wins. If you have any problems with those playing out, its likely you have the same concerns about bitcoin and just haven't realized it yet. Here is what would likely happen to bitcoin v1, it will fail to become a real currency. Its currently morphing into a speculative store of value. I'd like to say its like tulips, but I'd be wrong, as it is definitely more useful than tulips. On the speculation front it may play out like the tulip mania/bubble, but I hope I'm wrong about that. The reason for it to fail as a currency is the very reason for the spike in interest at the moment. Exchange rates seem to be soaring and may continue to soar which would make people vary of buying some thing worth $1000 USD for 1btc if there is a possibility that deferring a purchase by a couple of days could offer a notion discount of x% from the hope of the value of btc increasing. If you could wait a few days for the purchase and buy the $1000 item for 0.8btc, who wouldn't wait? On the flip-side, if you bought 1btc for $1000 to buy something but the value of btc suffered a temporary squeeze to the effect that 1btc = $800, hence the same item now costs you 1.25btc or 25% premium to what you were willing to pay. Hence who would be willing to pay extra if you were sure the value of btc would rise? This applies to all commercial transactions. In 90%+ of cases people will likely defer spending btc unless the value was at the same level +/- 5% as their purchase price. Bitcoin as a currency/for commerce will leave every consumer in a constant state of buyers remorse and THAT will be the real reason for its failure.

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.
  - bcoates 13y ago
    > All money is a bubble, IMO. Not really -- between the US government and the Federal Reserve banks, there's enough assets and turnover to unwind all the US dollars in existence in a fairly short amount of time, if there was a long-term decline in demand for dollars.
  - berberous 13y ago
    Well, obviously there are supposed reasoned justifications for the rise in prices. That's true of probably all bubbles. Humans are less rational creatures, than rationalizing creatures. We like stories that convince ourselves we are behaving rationally. Robert Schiller, the Yale economist and bubble-proponent, suggests diagnosing bubbles based on a checklist-based approach similiar to the way depression or other medical issues are diagnosed, with the following indicators: - Sharp increases in the price of an asset like real estate or dot-com shares - Great public excitement about said increases - An accompanying media frenzy - Stories of people earning a lot of money, causing envy among people who aren’t - Growing interest in the asset class among the general public - “New era” theories to justify unprecedented price increases - A decline in lending standards Bitcoin fits the above extremely well. I should note that Eugene Fama shared the Nobel prize with Schiller, but does not believe in the idea of bubbles or Schiller's claimed ability to predict them. After all, one might say that Google's stock fits the above criteria just as well, but that's clearly not a bubble. (I think I side with Schiller on this one though, although Fama raises good points.) As I said in my first post, I agree that Bitcoin may eventually succeed as a currency and gain a high value. But it will be a slow process backed by fundamentals. The exponential growth taking place right now is pure bubble speculation. Very few really care about this future as an "important currency." Instead, you have people like me. I invested some money. It's now worth nearly 10x. I want it to keep going up, and I am currently letting it ride. I tell myself stories that it will replace gold; I read blog posts arguing that if it does it will be worth $10,000+ a coin. But at some point, the tide will begin to turn. Negative stories will increase. There will be price drops. And people like me, who pretend to themselves that they have a reasoned investment thesis, will say fuck it, and cash out in hordes. And from the ashes, we will then see what it can do as a currency. But the speculators are here, rapidly increasing, and will eventually, rapidly flee. (Although I hope I'm wrong, because I'm probably going to let my BTC's ride one way or the other...it's just too much fun being on this roller coaster.) Put simply, I think the question is whether the fundamentals have a serious chance at overtaking the speculators before a big bust occurs. The speculators are increasing exponentially. And for all the talk of merchants beginning to use Bitcoin, or a random pizza or bar accepting bitcoins, the fundamentals don't really seem to be there or growing fast enough. I don't know anybody that seriously uses it in that manner, except for the few ardent Bitcoin evangelists. (Although if anyone has any interesting data, please link me!). Black markets and gambling sites seems to be the only real sectors seriously using it as a currency. Disclaimer: I could be wrong, and change my opinion on BTC way too often to be trusted. :)

DennisP 13y ago

It's already collapsed twice after major price increases, first from (iirc) about $30 to $3, then from about $240 to $60. It looks to me like we are having speculative bubbles, but it's on top of a major long-term growth trend. I think most people heavily into bitcoins understand it only has real value if it's spent as currency, and there's been a lot of work on getting merchants involved. The easy way to handle things as an investor is just to keep your investment, but when you want to spend money on something, buy additional bitcoins with your dollars and spend those. This wouldn't be an option if bitcoin were the only currency, but if you've got dollars too then the bitcoin deflation isn't a problem as long as conversion is easy.

mbillie1 13y ago
It's pretty hard to call < 5 years a "major long-term growth trend" ...

tsotha 13y ago

>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. Or people will start using it as currency. That's already happening to some degree - it won't take much to tip it over into a viable currency for everyday use. With the games governments are playing with sovereign currencies, I think it's more likely we'll see the collapse of the RMB, euro, or dollar.

bushido 13y ago

I agree 100%; quoting myself from a previous comment on a different post: Bitcoin is revolutionary. THAT is most likely true. Is it doomed to fail? Perhaps it is, but things are not quite as grim. Here is what is likely to happen as a result of bitcoin: 1. The future of banking transaction fees is bleak - The current financial systems will get threatened and adapt. Here bitcoin will succeed. 2. Bitcoin is used as proof of concept and paves the way for a world currency, think euro but global. The two points above are definitely wins. If you have any problems with those playing out, its likely you have the same concerns about bitcoin and just haven't realized it yet. Here is what would likely happen to bitcoin v1, it will fail to become a real currency. Its currently morphing into a speculative store of value. I'd like to say its like tulips, but I'd be wrong, as it is definitely more useful than tulips. On the speculation front it may play out like the tulip mania/bubble, but I hope I'm wrong about that. The reason for it to fail as a currency is the very reason for the spike in interest at the moment. Exchange rates seem to be soaring and may continue to soar which would make people vary of buying some thing worth $1000 USD for 1btc if there is a possibility that deferring a purchase by a couple of days could offer a notion discount of x% from the hope of the value of btc increasing. If you could wait a few days for the purchase and buy the $1000 item for 0.8btc, who wouldn't wait? On the flip-side, if you bought 1btc for $1000 to buy something but the value of btc suffered a temporary squeeze to the effect that 1btc = $800, hence the same item now costs you 1.25btc or 25% premium to what you were willing to pay. Hence who would be willing to pay extra if you were sure the value of btc would rise? This applies to all commercial transactions. In 90%+ of cases people will likely defer spending btc unless the value was at the same level +/- 5% as their purchase price. Bitcoin as a currency/for commerce will leave every consumer in a constant state of buyers remorse and THAT will be the real reason for its failure.