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Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

53 points by ghosh 13y ago

api 13y ago
Are all currencies ponzi games? Seems to me that the deciding factor is: what percentage of Bitcoin's transactions are actual transactions for actual goods and services vs. what percentage are transactions related to speculation on Bitcoin itself. That is very hard to measure, especially since at least a double-digit percentage of transactions belong to the illicit economy.
- sodastream 13y ago
  Isn't 80% of world wide used currency all speculation and only 20% used in services and products ? I'm talking about the trillions of derivatives market ..
  - pjc50 13y ago
    That depends on whether you mean "M0" or "M3". Retail payments are now a little over 50% electronic: http://www.paymentscouncil.org.uk/media_centre/press_releases/-/page/1219/ http://www.paymentscouncil.org.uk/media_centre/press_release... , so that's bank money rather than paper/metal currency. Forex trading is huge: http://finance.yahoo.com/news/forex-market-size-traders-advantage-044400707.html http://finance.yahoo.com/news/forex-market-size-traders-adva... : again, held on account rather than actual notes and coins changing hands. That's not even counting derivatives, but derivatives usually net out (for every put option there is a call option) and don't necessarily require settlement. However, there's enough of a real market and taxation demand denominated in the US dollar that it's not going anywhere any time soon. The ECD made enough of a commitment to Euro liquidity that it's not going away any time soon. Bitcoin's market cap is still tiny enough that it could be demolished by a single bored FX trader in an afternoon; but there's no real way to profit from that, as doing so would also demolish the fragile exchanges by which you might cash out.
    - sodastream 13y ago
      Interesting. Thanks.
- dperfect 13y ago
  "at least a double-digit percentage of transactions belong to the illicit economy" Would you mind sharing your source?
- aggronn 13y ago
  100% of transactions in bitcoin could be for legitimate goods and services, and his point would still stand. Its not a currency if all transactions are being translated to other currencies immediately afterwards. If that were the case, it would simply be a means of payment. Bitcoins would be no more an independent currency than the money in your paypal account.
  - dperfect 13y ago
    "all transactions are being translated to other currencies immediately afterwards" Many merchants that accept Bitcoin are currently converting as you say via services like BitPay, but I certainly wouldn't go so far as to say that all transactions are being converted. As for Bitcoin vs Paypal: one basic difference is that money in a Paypal account is denominated in terms of fiat, and as such can be considered fungible with fiat. Bitcoin is not inherently tied to the value of any another currency, so it clearly has a more independent role (not to mention the numerous [1]other advantages). [1] https://blockchain.info/wallet/paypal-vs-bitcoin https://blockchain.info/wallet/paypal-vs-bitcoin
DennisP 13y ago
Pretty much all these objections boil down to "it's new and not many people are using it yet."
abstrct 13y ago
TL;DR: Man spends 5 minutes thinking about Bitcoin on a plane and comes to conclusions which may or may not be correct. Shares them with people because he is super duper important.
- smacktoward 13y ago
  I'll just leave this here for you: http://en.wikipedia.org/wiki/Nouriel_Roubini http://en.wikipedia.org/wiki/Nouriel_Roubini You can agree or disagree with his argument, but snidely dismissing him as someone without expertise who mistakenly thinks he is "super duper important" is silly.
  - joepie91_ 13y ago
    "Expert" or not, the arguments he's making here are not only obviously wrong, but also almost certainly uneducated. Judge what somebody says, not who he is.
    - aroch 13y ago
      None of his observations are wrong, how they are uneducated?
      - joepie91_ 13y ago
        All of them are wrong. See also https://news.ycombinator.com/item?id=7373804 https://news.ycombinator.com/item?id=7373804 EDIT: They are uneducated, in that any cursory research into the concept and history of Bitcoin would make it blatantly obvious that his remarks are wrong. There are two possibilities here; either he is being willfully ignorant, or he simply hasn't done his homework well enough. Given his reputation, I'm betting on the latter. The "uneducated" bit simply derives from him literally not having educated himself on the matter.
    - dubcanada 13y ago
      I agree, you are clearly more intelligent then him! While what you say may or may not be wrong. It's his opinion and regardless of what you think about it. It's hard to call him uneducated.
pkrumins 13y ago
I'm just going to make this statement here on Monday, March 10th, 2014, that Bitcoin is going to fail within the next 2.5 years.
- sigstoat 13y ago
  and how do you determine whether or not bitcoin has failed?
  - pkrumins 13y ago
    It will be worth nothing.
    - alextgordon 13y ago
      Nothing? I'm prepared to buy as many bitcoins as I can @ $1.
      - shawabawa3 13y ago
        Sure, that's because currently they're worth ~$600. I'm a big fan of bitcoin, but even I can see that they could potentially become worthless. However, the odds of that are incredibly small (it would need either a breakthrough in cryptography or a critical bug to be discovered)
    - broolstoryco 13y ago
      good luck with your public statement.
joepie91_ 13y ago
Might as well post my comment here as well... -- It would be great if economists started coming up with genuine criticism regarding Bitcoin, rather than obviously false statements, misunderstandings that have been corrected a million times before, and fallacious reasoning. I mean, virtually everything he said is explicitly listed on https://en.bitcoin.it/wiki/Myths https://en.bitcoin.it/wiki/Myths – that’s how often these things have been brought up and disproven.
- blatherard 13y ago
  I looked at the wiki page and I don't see anything that addresses these points (I'm omitting points that seem to be covered): - Bitcoin is not a unit of account as no price of goods and services is set in Bitcoin unit nor it ever will. - Bitcoin isn’t means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥ - Bitcoin isn’t a store of value as little wealth is in Bitcoin and no assets in it Am I missing something?
  - joepie91_ 13y ago
    Odd. I certainly recall these points being covered there (or somewhere on the wiki, anyway), but the closest I can find now is a passing remark in https://en.bitcoin.it/wiki/Myths#Shopkeepers_can.27t_seriously_set_prices_in_bitcoins_because_of_the_volatile_exchange_rate https://en.bitcoin.it/wiki/Myths#Shopkeepers_can.27t_serious... ... In absence of an accurate description on the wiki, here goes: "- Bitcoin is not a unit of account as no price of goods and services is set in Bitcoin unit nor it ever will." When Bitcoin first started out, virtually everything sold for it was denominated in BTC. Some places still do this, but due to the volatility of Bitcoin right now (which is really just a result of a small market gaining traction, and is unavoidable for a new non-government-backed currency) it is more practical to denominate in USD - either visibly or behind-the-scenes. This was not the case when Bitcoin started out, and will almost certainly not be the case in the future - as the transactional market for Bitcoin continues growing, it will eventually stabilize in terms of value, and things will be widely priced directly in BTC again. See also next answer. "- Bitcoin isn’t means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥" No requirement exists that a means of payment must exceed a certain arbitrary transaction volume, so that argument is invalid right off the bat. Whether it's a common means of payment has nothing to do with whether it's a means of payment at all. BTC are currently commonly exchanged back into other currencies after receipt - and again, the claim is false, it is definitely not "all" - to cope with the aforementioned volatility of a "young currency" BitPay, Coinbase etc. serve as "stabilizers" - they allow for adoption to increase during a volatile period, thereby solving the chicken-egg problem of volatility and adoption; over time volatility will decrease (as it has already been doing) as the adoption grows. TL;DR direct-exchange services such as Coinbase and BitPay are really just temporary coping mechanisms that are absolutely necessary for Bitcoin to grow through its first adoption period. "- Bitcoin isn’t a store of value as little wealth is in Bitcoin and no assets in it" "Young currency" applies, again. And again, whether it is a reliable store of value right now, has nothing to do with whether it's a store of value at all. If I had to summarize the arguments made, these are the big mistakes that are being made: - "It's not a reliable/useful $concept, so it's not a $concept at all." (obviously incorrect; unable to separate opinion and definition) - "Very few people use it, so it's useless" (self-fulfilling prophecy, basically, and classic social adoption issue) - "People don't denominate things in BTC, so BTC is not a currency" (irrelevant, that is not what the definition of "currency" is) - "The news said that it got hacked / is only used by criminals, so surely that is true" (appeal to... not even sure what to call it, authority? biased source?)
josu 13y ago
This compilation of tweets shouldn't be on the front page. Tweets don't belong outside of twitter.
PleaseBeSerious 13y ago
That is why you want to get in early.
dperfect 13y ago
https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F As mentioned in the link, Bitcoin certainly has tremendous value beyond simply making early adopters rich. If you don't believe it, I encourage you to listen to some of Andreas Antonopoulos' arguments about Bitcoin as a network vs Bitcoin as a currency. Bitcoin provides a vast number of benefits as a technology beyond simply being a "currency."
- rm999 13y ago
  He probably made a mistake evoking Ponzi's name (although he never actually called it a Ponzi scheme, which it clearly isn't). But I think when people bring up Ponzi and bitcoins, the idea is closer to a bubble mentality where adopters are buying bitcoins to profit, not to use it as a currency ("bitcoin isn’t means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥"). This, at the moment, is correct from what I can tell - it's much easier to spend cash than bitcoins on legitimate things. People aren't getting bitcoins for, say, the same reason an American going to France will get Euros. There may be theoretical technological benefits to crypto-currencies, but they don't practically exist for most people who want to legitimately spend their money today. The only useful application I've seen so far are the microtip dogecoins on reddit.
  - dperfect 13y ago
    Practical applications of Bitcoin (as a network) are popping up all the time, but it's true that they are still in their infancy. That doesn't mean the value isn't there. If value were judged purely on current implementation or common practice, then most of the startups mentioned on this site would never have the chance to become anything worthwhile. We invest in great ideas that hold promise because sooner or later, those ideas will take flight and become part of our lives. Bitcoin is no different.
grej 13y ago
And in other news, global debt now exceeds $100 Trillion dollars - up 40% over the last 7 years: http://www.bloomberg.com/news/2014-03-09/global-debt-exceeds-100-trillion-as-governments-binge-bis-says.html http://www.bloomberg.com/news/2014-03-09/global-debt-exceeds.... Which is the bigger Ponzi?
- craigyk 13y ago
  the system where you can help pay down the debt by printing money?
  - skywhopper 13y ago
    Debt creates more money, so the existence of such a large amount of debt indicates that printing some more money would be a good idea, and that central banks and governments have failed to print enough money to power the economy at the rate it requires.
- throwaway13qf85 13y ago
  An increase of 40% in 7 years is about 4.9% per year, which isn't so terrible when you consider (i) that this period includes the largest financial crisis for fifty years (ii) inflation.
- skywhopper 13y ago
  Ponzi's not really the right word for either thing. The huge growth of debt is a sign that inflation has been too low for too long in too many places. As long as the ECB and the Fed treat 2% as scary-high inflation, paying back debt becomes far more difficult. To start solving the debt problem, the central banks should start targetting 4-5% inflation for a decade or so, and allow it to go a little above the target, rather than trying desperately to hold it down to less than 2%. This would reduce debt while encouraging investment and economic growth, which would bring down unemployment, which would help pay off debt. It's a virtuous cycle. In contrast, Bitcoin is a deflationary currency. Deflationary regimes favor hoarding, make it impossible to invest, and ultimately benefit only the wealthy. Reasonable levels of inflation on the other hand favor economic growth, investment in real assets, and they favor the productive working class over the idle rich.
aggronn 13y ago
Everything he said is technically true, besides the ponzi scheme jab, which isn't really his main point. Until you pay rent, taxes, and get your paychecks in bitcoin, the bitcoin currency pretty much only exists as a method of payment.
yummyfajitas 13y ago
Roubini isn't laying out the full argument. Bitcoin has low value as a means of exchange currently, but that may change in the future. If speculators are correct that it may go up in the future, it is in their best interest to bid the price up now and collect money in the future. That would make BTC not a speculative bubble, but merely an asset that speculators have properly valued. If you want to argue BTC is or is not a bubble, do it right. Choose a theory of money, e.g. Baumol-Tobin. Then come up with predictions about future transaction costs, the size of the BTC NGDP, and the price level. Finally, use your theory of money to predict the value of BTC. If that disagrees with the current speculative value, you've got a real argument. (For those unfamiliar with the macroeconomics terms I used, I explain it all here: http://www.chrisstucchio.com/blog/2014/demand_for_bitcoins.html http://www.chrisstucchio.com/blog/2014/demand_for_bitcoins.h... )
- craigyk 13y ago
  who cares about your fancy pants arguments when it doesn't even pass the smell test? It has a lot of strikes against it: 1) deflationary 2) slow 3) energy hungry
  - jpadkins 13y ago
    worse is better. Also, has anyone done a energy use per transaction comparison to other payment networks? I'd be surprised if bitcoin was really that bad in comparison to Visa or Paypal if you included all the energy costs that go into security enforcement.
  - dia80 13y ago
    Since bitcoin is very new it is genuinely hard to tell if it will be eventually seen as brilliant innovation that was destined to be successful or get compared to the Dutch tulip bubble etc. You raise valid concerns but there are counter arguments to them all so I don't think such a glib dismissal is warranted. From pg's essay[0] The first time Peter Thiel spoke at YC he drew a Venn diagram that illustrates the situation perfectly. He drew two intersecting circles, one labelled "seems like a bad idea" and the other "is a good idea." The intersection is the sweet spot for startups. [0] http://www.paulgraham.com/swan.html http://www.paulgraham.com/swan.html
bdcravens 13y ago
There are elements that are definitely Ponzi. This weekend I played with altcoin mining. The goal of course to figure out how to turn those coins into money I can spend. Aside from maybe LTC, no one is taking altcoins for payment or exchanging for fiat; you convert to BTC on an exchange like Cryptsy, and then sell the BTC on Coinbase, etc. At present, you can mine with the same hardware you could use for BTC 3 years ago, so it's attractive. Eventually, though, you'll run into the same issue as with Bitcoin: difficulty increases. If you use a Multipool, you get around this by shifting from altcoin to altcoin, based on profitability. (usually a direct product of coins with lower difficulty, which tend to be newer) In general, all alts will increase in difficulty to the point where they're no longer profitable; the only way multipool mining can be profitable over any period of time is new coins coming out. That's pretty much the situation we see today. Eventually it'll collapse, as most Ponzi's do.
- deleted 13y ago
  [deleted]
- joepie91_ 13y ago
  Everything that knows the concept of an "early adopter", has "elements that are definitely Ponzi". That doesn't make it a Ponzi scheme.
  - bdcravens 13y ago
    I'd agree. It's entirely possible to be an early adopter on something that proves to have real value, and reap rewards from taking that risk. Altcoin mining for conversion to Bitcoin, however, has the marks of Ponzi: returns (altcoin:bitcoin exchange rate) that require a steady stream of new investment (new alts, as old alts become unprofitable) that provide little to no value other than providing the return.
sunseb 13y ago
Bitcoin is a scarcity-based currency, it's kind of a deflationary spiral, people save and don't spend their bitcoins. We desperately need a digital currency, it's the future... How could we solve this issue ?
- joepie91_ 13y ago
  I don't see how a deflationary currency is a problem. As far as I can tell, the only ones who benefit from the "money has to be in constant circulation" adage, is those who gain a profit off every transaction made. Money is meant to be a representative token to make trading easier; I fail to see how it makes any sense to "encourage spending" in itself.
  - maxerickson 13y ago
    A really big factor is that people get upset when the number describing their wages goes down. Businesses are also disinclined to lower their prices (this isn't a rule, sure businesses lower prices, it's a description of long term aggregate behavior). Both of those things are things that must happen for an economy to function with a deflationary currency.
    - joepie91_ 13y ago
      > A really big factor is that people get upset when the number describing their wages goes down. I doubt whether that is still the case in a (hypothetical) economy that is largely deflationary. In the current context, sure - but to me that seems largely a result of people being used to inflation, and I doubt that that association lasts if inflation is no longer the standard situation. > Businesses are also disinclined to lower their prices (this isn't a rule, sure businesses lower prices, it's a description of long term aggregate behavior). Can you elaborate on that?
- Crito 13y ago
  Dogecoin is inflationary. You can use that if you wish.
Aqueous 13y ago
at times like this i wish the supporters of bitcoin hadn't wedded themselves so thoroughly to libertarian ideology. they've turned this into a ideological debate when in fact it should just be treated like a cool new technology that could benefit everyone. i say this as someone who thinks bitcoin has the power to change the world but also believes that markets need regulation in order to prevent massive destruction due to volatility. that said roubini is completely wrong about btc, just like krugman, and both need to change their thinking about what constitutes a currency.
- pessimizer 13y ago
  >that said roubini is completely wrong about btc, just like krugman, and both need to change their thinking about what constitutes a currency. Care to explain why, or is this just your self-affirmation mantra?
  - Aqueous 13y ago
    No need to be snarky. BitCoin is clearly already being used as a currency - it is being used in exchange for goods and services as a form of liquidity. This means it is a store of value, it is a medium of exchange, and while it isn't yet a unit of account - as others have said here, this seems to just be a matter of adoption. Of course things aare priced in dollar when the dollar remains the world reserve currency. This idea that a currency needs all features of historical currencies to be considered a currency is ridiculous, and doesn't accommodate a "start-up" currency which is something we've never seen before - at least not globally. At the very least the definition of currency ought to change to something like: "A currency possesses at least 3 out of 5 of these qualities." None of these qualities are permanent, unchanging qualities. That seems to be the other critical mistake economists are making - failing to see the forest for the trees. That comes from an institutional mindset where only governments (or government-connected organizations) can issue currency and so currency has the aura of permanence.
    - joepie91_ 13y ago
      > At the very least the definition of currency ought to change to something like: "A currency possesses at least 3 out of 5 of these qualities. Actually, if you look at the definition of "currency" from various sources, you'll come across stuff like this: "1. Money in any form when in actual use as a medium of exchange, especially circulating paper money." (http://www.thefreedictionary.com/currency http://www.thefreedictionary.com/currency) ... and for "money": "1. A medium that can be exchanged for goods and services and is used as a measure of their values on the market, including among its forms a commodity such as gold, an officially issued coin or note, or a deposit in a checking account or other readily liquefiable account." (http://www.thefreedictionary.com/Money http://www.thefreedictionary.com/Money) The problem doesn't seem to be that the definition is incorrect; the problem seems to be that people assume their own definition based on what they're used to, rather than adhering to something you'd find in a dictionary - commonly the motivation appears to be using "it's not a currency" as a (fallacious) reason to express their dislike of something like Bitcoin.
weatherlight 13y ago
All fiat currencies have the potential to be Ponzi scheme. Our current system is a Ponzi schemewhere you can help pay down the debt by printing money? This shifts wealth up. numbers don't lie. http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Measurement http://en.wikipedia.org/wiki/Income_inequality_in_the_United... http://www.bloomberg.com/news/2014-03-09/global-debt-exceeds-100-trillion-as-governments-binge-bis-says.html http://www.bloomberg.com/news/2014-03-09/global-debt-exceeds...
lcuff 13y ago
Completely unpersuasive. Bitcoin, or some other digital currency, will enable the selling of wisdom (different than information) in a free market as Ted Nelson originally envisioned when he coined the term "Hypertext", which isn't what the current web is, btw.
vijayboyapati 13y ago
- It's false that bitcoin isn't a means of payment. People DO use it as payment. - It's false that it's not a medium of savings. It has reservation demand which is the only reason it has a price. It does not matter that it has "no assets in it", whatever that confused statement means. The dollar also no longer has any asset backing. The medium of savings role exists while people perceive there is value in holding a monetary good in the hope it will appreciate in the future. They perceive it will appreciate because it has comparative advantages to other goods which serve a similar purpose. Bitcoin has many comparative advantages to other monetary goods. In particular, it allows the transfer of value to anyone, anywhere in the world, near instantaneously, with low transaction fees, without the need for a trusted intermediary such as a bank. This has literally never been possible before in the entire history of civilization. - It's true that bitcoin is not currently a unit of account. This mostly has to do with the fact that it's still nascent and needs to increase in liquidity. As it does more and more entrepreneurs who are primarily accepting bitcoin (it will start with the miners) will begin to calculate profit and loss in bitcoin terms - It's true bitcoin is used for so-called criminal activities. But so too is the dollar. In fact, the dollar isn't just used for buying illegal drugs, the dollar is used to funnel gigantic sums of tax payer wealth to well connected bankers when their businesses fail. Which is the bigger crime, Nouriel? - Bitcoin isn't susceptible to hacking - individual bitcoin businesses are susceptible to hacking such as the incredibly incompetent MtGox, which deserved to fail. Blaming Bitcoin for the incompetence of a particular business is like saying the dollar is a failure because Lehman Brothers collapsed. To me that is a much worse "hack" than anything that happened with Gox. - And no, Bitcoin is NOT a ponzi scheme. Bitcoins are a monetary good whose price fluctuates with demand on the market just like any other monetary good, such as gold.
- baudehlo 13y ago
  | It's false that bitcoin isn't a means of payment. People DO use it as payment. But places that accept bitcoin aren't holding on to it. They transfer immediately to local currency (because their suppliers can't be paid in bitcoin). So currently* bitcoin is more a means of money transfer than it is a currency in itself. * This might eventually change if suppliers are willing to accept bitcoin too.
aresant 13y ago
He says "It is btw a Ponzi game and a conduit for criminal/illegal activities" Bitcoin's first "killer app" was clearly silk road which was doing ~$40m/yr (1) and the criminal economy for drugs alone is in excess of $320 billion (2). If you were to model a future where BC's primary use is for criminal/illegal activities I wonder what the value would look like? Of course providing the allowance that the Overstock's / pubs / merchants continue to provide the smokescreen to allow BC's to be socially / regulatory acceptable. (1) http://www.dailydot.com/business/silk-road-monthly-sales-black-market-drugs-study/ http://www.dailydot.com/business/silk-road-monthly-sales-bla... (2) https://www.unodc.org/toc/en/crimes/organized-crime.html https://www.unodc.org/toc/en/crimes/organized-crime.html
carsongross 13y ago
Bitcoin is almost exactly the opposite of a ponzi scheme: http://en.wikipedia.org/wiki/Ponzi_scheme http://en.wikipedia.org/wiki/Ponzi_scheme "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. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent." There is no controlling operator paying out investors and there is no claim that a bit coin is going to generate any sort of profits in the form of interest or capital appreciation. The short term returns have been unusually inconsistent. You can say that bitcoin is in a bubble, you can criticize it as a currency, you can criticize its social goals, you can criticize its technical implementation, but to call it a ponzi scheme is blatantly incorrect. That Roubini, one of the very few mainstream economists to predict the 2008 collapse, is so imprecise with his language gives some indication of the state of todays economics profession.
- splintercell 13y ago
  Any rising investment, if seen in a proper timeframe(with proper rationale) could appear to be a Ponzi scheme. For example between Feb 2009 to Sept 2012 the price of Apple stock went from $100 to $700. Did the profits of Apple go to 7 times in this time? Not really. But if you were to only see Apple's stock in this timeframe, AND don't understand Apple's business model, but merely heard that Apple's stock is rising and you should invest in it, then it would appear that older investors are being paid off at the expense of the newer investors. Noriel Roubini could also very specifically perceive the question about bitcoin as "I heard a lot of my friends are getting rich through bitcoin, should I invest in bitcoin to profit from it?", and then he gives the answer that he gave.
  - andrewla 13y ago
    > Any rising investment, if seen in a proper timeframe(with proper rationale) could appear to be a Ponzi scheme. I know you're not disagreeing with the grandparent post here, fundamentally, but this really irks me. A Ponzi scheme is a particular type of scam that is pretty well defined. > ... it would appear that older investors are being paid off at the expense of the newer investors I guess this is the core of it; the definition uses the passive voice and thus is open to this interpretation. I think it's clear, both historically and looking at examples, that the definition would be more clear as: A Ponzi scheme is a fraudulent investment operation, where the operator pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the operator. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Here I've modified the language slightly (and I've edited the wikipedia page as well, but we'll see if that holds up). In the Apple example, there is no operator, so there's really no chance that it is a Ponzi scheme. Similarly for the Bitcoin case. You can make the argument that Bitcoin (or Apple stock) is a scam of some sort; a "pump and dump" seems the most apt analogue. Calling it a Ponzi scheme seems an invitation to this exact kind of semantic tomfoolery that I'm posting here.
omegaham 13y ago
One problem that I think is salient about Bitcoin is that it's just not that useful. It's supposed to be a currency, but no one's actually using it for currency. They're just gambling on it, hoping to take advantage of other people's mistakes to make their own money. It's a zero-sum game, and it's destructive. People are just playing around with the electronic version of Monopoly money. The driving force behind currencies is a large organization or group of organizations that work to keep it reliable. The dollar is kept stable because the federal government is large, established, and pays in dollars. With more and more people using the dollar, it becomes even more stable, to the point that other countries can use it for transactions. Bitcoin doesn't have that. People don't have any assets tied in with Bitcoin the way that they do with dollars or Euros or yen. And why would they, when it's so volatile that a bank account of Bitcoins will change its value by 50% in a day? Proponents of Bitcoin say that its benefits are that it's decentralized, unregulated, and doesn't have to rely on a government to ensure that it's stable. I actually think that these are bad traits for a currency to have.
- vijayboyapati 13y ago
  The fallacy here is that a monetary good requires some separate use. As a money per se, bitcoin is very useful. As I wrote in this thread, it allows the transfer of value to anyone, anywhere in the world without an intermediary. This has never been possible before, and it certainly impossible with the dollar. There are several markets for which this innovation has profound implications
  - maxerickson 13y ago
    By the numbers, most people need an intermediary to move even a modest amount of bitcoin. They don't have any. You can say there is no dependence on a single intermediary. This is a quibble, but I think it's an important one, for example, a lot of the arguments about using bitcoin in Argentina or whatever ignore the part where Argentinians don't have a whole lot of bitcoin to start using.
- joepie91_ 13y ago
  > It's supposed to be a currency, but no one's actually using it for currency. They're just gambling on it, hoping to take advantage of other people's mistakes to make their own money. It's a zero-sum game, and it's destructive. People are just playing around with the electronic version of Monopoly money. Source for that? I regularly pay for things with BTC, and part of my salary is paid out in BTC. Or are you perhaps mistaking a particular subset of Bitcoin "users" (speculators) for "the entire Bitcoin ecosystem"?
enscr 13y ago
He isn't the first & definitely not the last to say that. Some things are best left for time to decide. When it comes to generation defining concepts, many of the "expert" comments are as accurate as a coin toss. Pick up any major economic event in history & look at what percentage got it right. What does that say?
6thSigma 13y ago
As more companies are building on bitcoin and more merchants begin accepting bitcoin, the network effects increases. The network effects are what makes bitcoins valuable.
NateDad 13y ago
Why do economists think we care that bitcoin isn't a currency or store of value or unit of account or whatever other economics 101 term? We call it a currency because there's no other good name for it. How about instead of telling us everything it isn't, they just tell us what it is? I'm guessing the reason they don't, is because they don't know either.
- NateDad 13y ago
  Oh, and every "economist" (intentionally in quotes) that calls bitcoin a Ponzi scheme should have his credentials revoked... just like a geek who says his iPhone ran out of memory due to all the pictures he took.

53 points by ghosh 13y ago

api 13y ago

Are all currencies ponzi games? Seems to me that the deciding factor is: what percentage of Bitcoin's transactions are actual transactions for actual goods and services vs. what percentage are transactions related to speculation on Bitcoin itself. That is very hard to measure, especially since at least a double-digit percentage of transactions belong to the illicit economy.

sodastream 13y ago
Isn't 80% of world wide used currency all speculation and only 20% used in services and products ? I'm talking about the trillions of derivatives market ..
- pjc50 13y ago
  That depends on whether you mean "M0" or "M3". Retail payments are now a little over 50% electronic: http://www.paymentscouncil.org.uk/media_centre/press_releases/-/page/1219/ http://www.paymentscouncil.org.uk/media_centre/press_release... , so that's bank money rather than paper/metal currency. Forex trading is huge: http://finance.yahoo.com/news/forex-market-size-traders-advantage-044400707.html http://finance.yahoo.com/news/forex-market-size-traders-adva... : again, held on account rather than actual notes and coins changing hands. That's not even counting derivatives, but derivatives usually net out (for every put option there is a call option) and don't necessarily require settlement. However, there's enough of a real market and taxation demand denominated in the US dollar that it's not going anywhere any time soon. The ECD made enough of a commitment to Euro liquidity that it's not going away any time soon. Bitcoin's market cap is still tiny enough that it could be demolished by a single bored FX trader in an afternoon; but there's no real way to profit from that, as doing so would also demolish the fragile exchanges by which you might cash out.
  - sodastream 13y ago
    Interesting. Thanks.
dperfect 13y ago
"at least a double-digit percentage of transactions belong to the illicit economy" Would you mind sharing your source?
aggronn 13y ago
100% of transactions in bitcoin could be for legitimate goods and services, and his point would still stand. Its not a currency if all transactions are being translated to other currencies immediately afterwards. If that were the case, it would simply be a means of payment. Bitcoins would be no more an independent currency than the money in your paypal account.
- dperfect 13y ago
  "all transactions are being translated to other currencies immediately afterwards" Many merchants that accept Bitcoin are currently converting as you say via services like BitPay, but I certainly wouldn't go so far as to say that all transactions are being converted. As for Bitcoin vs Paypal: one basic difference is that money in a Paypal account is denominated in terms of fiat, and as such can be considered fungible with fiat. Bitcoin is not inherently tied to the value of any another currency, so it clearly has a more independent role (not to mention the numerous [1]other advantages). [1] https://blockchain.info/wallet/paypal-vs-bitcoin https://blockchain.info/wallet/paypal-vs-bitcoin

DennisP 13y ago

Pretty much all these objections boil down to "it's new and not many people are using it yet."

abstrct 13y ago

TL;DR: Man spends 5 minutes thinking about Bitcoin on a plane and comes to conclusions which may or may not be correct. Shares them with people because he is super duper important.

smacktoward 13y ago
I'll just leave this here for you: http://en.wikipedia.org/wiki/Nouriel_Roubini http://en.wikipedia.org/wiki/Nouriel_Roubini You can agree or disagree with his argument, but snidely dismissing him as someone without expertise who mistakenly thinks he is "super duper important" is silly.
- joepie91_ 13y ago
  "Expert" or not, the arguments he's making here are not only obviously wrong, but also almost certainly uneducated. Judge what somebody says, not who he is.
  - aroch 13y ago
    None of his observations are wrong, how they are uneducated?
    - joepie91_ 13y ago
      All of them are wrong. See also https://news.ycombinator.com/item?id=7373804 https://news.ycombinator.com/item?id=7373804 EDIT: They are uneducated, in that any cursory research into the concept and history of Bitcoin would make it blatantly obvious that his remarks are wrong. There are two possibilities here; either he is being willfully ignorant, or he simply hasn't done his homework well enough. Given his reputation, I'm betting on the latter. The "uneducated" bit simply derives from him literally not having educated himself on the matter.
  - dubcanada 13y ago
    I agree, you are clearly more intelligent then him! While what you say may or may not be wrong. It's his opinion and regardless of what you think about it. It's hard to call him uneducated.

pkrumins 13y ago

I'm just going to make this statement here on Monday, March 10th, 2014, that Bitcoin is going to fail within the next 2.5 years.

sigstoat 13y ago
and how do you determine whether or not bitcoin has failed?
- pkrumins 13y ago
  It will be worth nothing.
  - alextgordon 13y ago
    Nothing? I'm prepared to buy as many bitcoins as I can @ $1.
    - shawabawa3 13y ago
      Sure, that's because currently they're worth ~$600. I'm a big fan of bitcoin, but even I can see that they could potentially become worthless. However, the odds of that are incredibly small (it would need either a breakthrough in cryptography or a critical bug to be discovered)
  - broolstoryco 13y ago
    good luck with your public statement.

joepie91_ 13y ago

Might as well post my comment here as well... -- It would be great if economists started coming up with genuine criticism regarding Bitcoin, rather than obviously false statements, misunderstandings that have been corrected a million times before, and fallacious reasoning. I mean, virtually everything he said is explicitly listed on https://en.bitcoin.it/wiki/Myths https://en.bitcoin.it/wiki/Myths – that’s how often these things have been brought up and disproven.

blatherard 13y ago
I looked at the wiki page and I don't see anything that addresses these points (I'm omitting points that seem to be covered): - Bitcoin is not a unit of account as no price of goods and services is set in Bitcoin unit nor it ever will. - Bitcoin isn’t means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥ - Bitcoin isn’t a store of value as little wealth is in Bitcoin and no assets in it Am I missing something?
- joepie91_ 13y ago
  Odd. I certainly recall these points being covered there (or somewhere on the wiki, anyway), but the closest I can find now is a passing remark in https://en.bitcoin.it/wiki/Myths#Shopkeepers_can.27t_seriously_set_prices_in_bitcoins_because_of_the_volatile_exchange_rate https://en.bitcoin.it/wiki/Myths#Shopkeepers_can.27t_serious... ... In absence of an accurate description on the wiki, here goes: "- Bitcoin is not a unit of account as no price of goods and services is set in Bitcoin unit nor it ever will." When Bitcoin first started out, virtually everything sold for it was denominated in BTC. Some places still do this, but due to the volatility of Bitcoin right now (which is really just a result of a small market gaining traction, and is unavoidable for a new non-government-backed currency) it is more practical to denominate in USD - either visibly or behind-the-scenes. This was not the case when Bitcoin started out, and will almost certainly not be the case in the future - as the transactional market for Bitcoin continues growing, it will eventually stabilize in terms of value, and things will be widely priced directly in BTC again. See also next answer. "- Bitcoin isn’t means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥" No requirement exists that a means of payment must exceed a certain arbitrary transaction volume, so that argument is invalid right off the bat. Whether it's a common means of payment has nothing to do with whether it's a means of payment at all. BTC are currently commonly exchanged back into other currencies after receipt - and again, the claim is false, it is definitely not "all" - to cope with the aforementioned volatility of a "young currency" BitPay, Coinbase etc. serve as "stabilizers" - they allow for adoption to increase during a volatile period, thereby solving the chicken-egg problem of volatility and adoption; over time volatility will decrease (as it has already been doing) as the adoption grows. TL;DR direct-exchange services such as Coinbase and BitPay are really just temporary coping mechanisms that are absolutely necessary for Bitcoin to grow through its first adoption period. "- Bitcoin isn’t a store of value as little wealth is in Bitcoin and no assets in it" "Young currency" applies, again. And again, whether it is a reliable store of value right now, has nothing to do with whether it's a store of value at all. If I had to summarize the arguments made, these are the big mistakes that are being made: - "It's not a reliable/useful $concept, so it's not a $concept at all." (obviously incorrect; unable to separate opinion and definition) - "Very few people use it, so it's useless" (self-fulfilling prophecy, basically, and classic social adoption issue) - "People don't denominate things in BTC, so BTC is not a currency" (irrelevant, that is not what the definition of "currency" is) - "The news said that it got hacked / is only used by criminals, so surely that is true" (appeal to... not even sure what to call it, authority? biased source?)

josu 13y ago

This compilation of tweets shouldn't be on the front page. Tweets don't belong outside of twitter.

PleaseBeSerious 13y ago

That is why you want to get in early.

dperfect 13y ago

https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F As mentioned in the link, Bitcoin certainly has tremendous value beyond simply making early adopters rich. If you don't believe it, I encourage you to listen to some of Andreas Antonopoulos' arguments about Bitcoin as a network vs Bitcoin as a currency. Bitcoin provides a vast number of benefits as a technology beyond simply being a "currency."

rm999 13y ago
He probably made a mistake evoking Ponzi's name (although he never actually called it a Ponzi scheme, which it clearly isn't). But I think when people bring up Ponzi and bitcoins, the idea is closer to a bubble mentality where adopters are buying bitcoins to profit, not to use it as a currency ("bitcoin isn’t means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥"). This, at the moment, is correct from what I can tell - it's much easier to spend cash than bitcoins on legitimate things. People aren't getting bitcoins for, say, the same reason an American going to France will get Euros. There may be theoretical technological benefits to crypto-currencies, but they don't practically exist for most people who want to legitimately spend their money today. The only useful application I've seen so far are the microtip dogecoins on reddit.
- dperfect 13y ago
  Practical applications of Bitcoin (as a network) are popping up all the time, but it's true that they are still in their infancy. That doesn't mean the value isn't there. If value were judged purely on current implementation or common practice, then most of the startups mentioned on this site would never have the chance to become anything worthwhile. We invest in great ideas that hold promise because sooner or later, those ideas will take flight and become part of our lives. Bitcoin is no different.

grej 13y ago

And in other news, global debt now exceeds $100 Trillion dollars - up 40% over the last 7 years: http://www.bloomberg.com/news/2014-03-09/global-debt-exceeds-100-trillion-as-governments-binge-bis-says.html http://www.bloomberg.com/news/2014-03-09/global-debt-exceeds.... Which is the bigger Ponzi?

craigyk 13y ago
the system where you can help pay down the debt by printing money?
- skywhopper 13y ago
  Debt creates more money, so the existence of such a large amount of debt indicates that printing some more money would be a good idea, and that central banks and governments have failed to print enough money to power the economy at the rate it requires.
throwaway13qf85 13y ago
An increase of 40% in 7 years is about 4.9% per year, which isn't so terrible when you consider (i) that this period includes the largest financial crisis for fifty years (ii) inflation.
skywhopper 13y ago
Ponzi's not really the right word for either thing. The huge growth of debt is a sign that inflation has been too low for too long in too many places. As long as the ECB and the Fed treat 2% as scary-high inflation, paying back debt becomes far more difficult. To start solving the debt problem, the central banks should start targetting 4-5% inflation for a decade or so, and allow it to go a little above the target, rather than trying desperately to hold it down to less than 2%. This would reduce debt while encouraging investment and economic growth, which would bring down unemployment, which would help pay off debt. It's a virtuous cycle. In contrast, Bitcoin is a deflationary currency. Deflationary regimes favor hoarding, make it impossible to invest, and ultimately benefit only the wealthy. Reasonable levels of inflation on the other hand favor economic growth, investment in real assets, and they favor the productive working class over the idle rich.

aggronn 13y ago

Everything he said is technically true, besides the ponzi scheme jab, which isn't really his main point. Until you pay rent, taxes, and get your paychecks in bitcoin, the bitcoin currency pretty much only exists as a method of payment.

yummyfajitas 13y ago

Roubini isn't laying out the full argument. Bitcoin has low value as a means of exchange currently, but that may change in the future. If speculators are correct that it may go up in the future, it is in their best interest to bid the price up now and collect money in the future. That would make BTC not a speculative bubble, but merely an asset that speculators have properly valued. If you want to argue BTC is or is not a bubble, do it right. Choose a theory of money, e.g. Baumol-Tobin. Then come up with predictions about future transaction costs, the size of the BTC NGDP, and the price level. Finally, use your theory of money to predict the value of BTC. If that disagrees with the current speculative value, you've got a real argument. (For those unfamiliar with the macroeconomics terms I used, I explain it all here: http://www.chrisstucchio.com/blog/2014/demand_for_bitcoins.html http://www.chrisstucchio.com/blog/2014/demand_for_bitcoins.h... )

craigyk 13y ago
who cares about your fancy pants arguments when it doesn't even pass the smell test? It has a lot of strikes against it: 1) deflationary 2) slow 3) energy hungry
- jpadkins 13y ago
  worse is better. Also, has anyone done a energy use per transaction comparison to other payment networks? I'd be surprised if bitcoin was really that bad in comparison to Visa or Paypal if you included all the energy costs that go into security enforcement.
- dia80 13y ago
  Since bitcoin is very new it is genuinely hard to tell if it will be eventually seen as brilliant innovation that was destined to be successful or get compared to the Dutch tulip bubble etc. You raise valid concerns but there are counter arguments to them all so I don't think such a glib dismissal is warranted. From pg's essay[0] The first time Peter Thiel spoke at YC he drew a Venn diagram that illustrates the situation perfectly. He drew two intersecting circles, one labelled "seems like a bad idea" and the other "is a good idea." The intersection is the sweet spot for startups. [0] http://www.paulgraham.com/swan.html http://www.paulgraham.com/swan.html

bdcravens 13y ago

There are elements that are definitely Ponzi. This weekend I played with altcoin mining. The goal of course to figure out how to turn those coins into money I can spend. Aside from maybe LTC, no one is taking altcoins for payment or exchanging for fiat; you convert to BTC on an exchange like Cryptsy, and then sell the BTC on Coinbase, etc. At present, you can mine with the same hardware you could use for BTC 3 years ago, so it's attractive. Eventually, though, you'll run into the same issue as with Bitcoin: difficulty increases. If you use a Multipool, you get around this by shifting from altcoin to altcoin, based on profitability. (usually a direct product of coins with lower difficulty, which tend to be newer) In general, all alts will increase in difficulty to the point where they're no longer profitable; the only way multipool mining can be profitable over any period of time is new coins coming out. That's pretty much the situation we see today. Eventually it'll collapse, as most Ponzi's do.

deleted 13y ago
[deleted]
joepie91_ 13y ago
Everything that knows the concept of an "early adopter", has "elements that are definitely Ponzi". That doesn't make it a Ponzi scheme.
- bdcravens 13y ago
  I'd agree. It's entirely possible to be an early adopter on something that proves to have real value, and reap rewards from taking that risk. Altcoin mining for conversion to Bitcoin, however, has the marks of Ponzi: returns (altcoin:bitcoin exchange rate) that require a steady stream of new investment (new alts, as old alts become unprofitable) that provide little to no value other than providing the return.

sunseb 13y ago

Bitcoin is a scarcity-based currency, it's kind of a deflationary spiral, people save and don't spend their bitcoins. We desperately need a digital currency, it's the future... How could we solve this issue ?

joepie91_ 13y ago
I don't see how a deflationary currency is a problem. As far as I can tell, the only ones who benefit from the "money has to be in constant circulation" adage, is those who gain a profit off every transaction made. Money is meant to be a representative token to make trading easier; I fail to see how it makes any sense to "encourage spending" in itself.
- maxerickson 13y ago
  A really big factor is that people get upset when the number describing their wages goes down. Businesses are also disinclined to lower their prices (this isn't a rule, sure businesses lower prices, it's a description of long term aggregate behavior). Both of those things are things that must happen for an economy to function with a deflationary currency.
  - joepie91_ 13y ago
    > A really big factor is that people get upset when the number describing their wages goes down. I doubt whether that is still the case in a (hypothetical) economy that is largely deflationary. In the current context, sure - but to me that seems largely a result of people being used to inflation, and I doubt that that association lasts if inflation is no longer the standard situation. > Businesses are also disinclined to lower their prices (this isn't a rule, sure businesses lower prices, it's a description of long term aggregate behavior). Can you elaborate on that?
Crito 13y ago
Dogecoin is inflationary. You can use that if you wish.

Aqueous 13y ago

at times like this i wish the supporters of bitcoin hadn't wedded themselves so thoroughly to libertarian ideology. they've turned this into a ideological debate when in fact it should just be treated like a cool new technology that could benefit everyone. i say this as someone who thinks bitcoin has the power to change the world but also believes that markets need regulation in order to prevent massive destruction due to volatility. that said roubini is completely wrong about btc, just like krugman, and both need to change their thinking about what constitutes a currency.

pessimizer 13y ago
>that said roubini is completely wrong about btc, just like krugman, and both need to change their thinking about what constitutes a currency. Care to explain why, or is this just your self-affirmation mantra?
- Aqueous 13y ago
  No need to be snarky. BitCoin is clearly already being used as a currency - it is being used in exchange for goods and services as a form of liquidity. This means it is a store of value, it is a medium of exchange, and while it isn't yet a unit of account - as others have said here, this seems to just be a matter of adoption. Of course things aare priced in dollar when the dollar remains the world reserve currency. This idea that a currency needs all features of historical currencies to be considered a currency is ridiculous, and doesn't accommodate a "start-up" currency which is something we've never seen before - at least not globally. At the very least the definition of currency ought to change to something like: "A currency possesses at least 3 out of 5 of these qualities." None of these qualities are permanent, unchanging qualities. That seems to be the other critical mistake economists are making - failing to see the forest for the trees. That comes from an institutional mindset where only governments (or government-connected organizations) can issue currency and so currency has the aura of permanence.
  - joepie91_ 13y ago
    > At the very least the definition of currency ought to change to something like: "A currency possesses at least 3 out of 5 of these qualities. Actually, if you look at the definition of "currency" from various sources, you'll come across stuff like this: "1. Money in any form when in actual use as a medium of exchange, especially circulating paper money." (http://www.thefreedictionary.com/currency http://www.thefreedictionary.com/currency) ... and for "money": "1. A medium that can be exchanged for goods and services and is used as a measure of their values on the market, including among its forms a commodity such as gold, an officially issued coin or note, or a deposit in a checking account or other readily liquefiable account." (http://www.thefreedictionary.com/Money http://www.thefreedictionary.com/Money) The problem doesn't seem to be that the definition is incorrect; the problem seems to be that people assume their own definition based on what they're used to, rather than adhering to something you'd find in a dictionary - commonly the motivation appears to be using "it's not a currency" as a (fallacious) reason to express their dislike of something like Bitcoin.

weatherlight 13y ago

All fiat currencies have the potential to be Ponzi scheme. Our current system is a Ponzi schemewhere you can help pay down the debt by printing money? This shifts wealth up. numbers don't lie. http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Measurement http://en.wikipedia.org/wiki/Income_inequality_in_the_United... http://www.bloomberg.com/news/2014-03-09/global-debt-exceeds-100-trillion-as-governments-binge-bis-says.html http://www.bloomberg.com/news/2014-03-09/global-debt-exceeds...

lcuff 13y ago

Completely unpersuasive. Bitcoin, or some other digital currency, will enable the selling of wisdom (different than information) in a free market as Ted Nelson originally envisioned when he coined the term "Hypertext", which isn't what the current web is, btw.

vijayboyapati 13y ago

- It's false that bitcoin isn't a means of payment. People DO use it as payment. - It's false that it's not a medium of savings. It has reservation demand which is the only reason it has a price. It does not matter that it has "no assets in it", whatever that confused statement means. The dollar also no longer has any asset backing. The medium of savings role exists while people perceive there is value in holding a monetary good in the hope it will appreciate in the future. They perceive it will appreciate because it has comparative advantages to other goods which serve a similar purpose. Bitcoin has many comparative advantages to other monetary goods. In particular, it allows the transfer of value to anyone, anywhere in the world, near instantaneously, with low transaction fees, without the need for a trusted intermediary such as a bank. This has literally never been possible before in the entire history of civilization. - It's true that bitcoin is not currently a unit of account. This mostly has to do with the fact that it's still nascent and needs to increase in liquidity. As it does more and more entrepreneurs who are primarily accepting bitcoin (it will start with the miners) will begin to calculate profit and loss in bitcoin terms - It's true bitcoin is used for so-called criminal activities. But so too is the dollar. In fact, the dollar isn't just used for buying illegal drugs, the dollar is used to funnel gigantic sums of tax payer wealth to well connected bankers when their businesses fail. Which is the bigger crime, Nouriel? - Bitcoin isn't susceptible to hacking - individual bitcoin businesses are susceptible to hacking such as the incredibly incompetent MtGox, which deserved to fail. Blaming Bitcoin for the incompetence of a particular business is like saying the dollar is a failure because Lehman Brothers collapsed. To me that is a much worse "hack" than anything that happened with Gox. - And no, Bitcoin is NOT a ponzi scheme. Bitcoins are a monetary good whose price fluctuates with demand on the market just like any other monetary good, such as gold.

baudehlo 13y ago
| It's false that bitcoin isn't a means of payment. People DO use it as payment. But places that accept bitcoin aren't holding on to it. They transfer immediately to local currency (because their suppliers can't be paid in bitcoin). So currently* bitcoin is more a means of money transfer than it is a currency in itself. * This might eventually change if suppliers are willing to accept bitcoin too.

aresant 13y ago

He says "It is btw a Ponzi game and a conduit for criminal/illegal activities" Bitcoin's first "killer app" was clearly silk road which was doing ~$40m/yr (1) and the criminal economy for drugs alone is in excess of $320 billion (2). If you were to model a future where BC's primary use is for criminal/illegal activities I wonder what the value would look like? Of course providing the allowance that the Overstock's / pubs / merchants continue to provide the smokescreen to allow BC's to be socially / regulatory acceptable. (1) http://www.dailydot.com/business/silk-road-monthly-sales-black-market-drugs-study/ http://www.dailydot.com/business/silk-road-monthly-sales-bla... (2) https://www.unodc.org/toc/en/crimes/organized-crime.html https://www.unodc.org/toc/en/crimes/organized-crime.html

carsongross 13y ago

Bitcoin is almost exactly the opposite of a ponzi scheme: http://en.wikipedia.org/wiki/Ponzi_scheme http://en.wikipedia.org/wiki/Ponzi_scheme "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. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent." There is no controlling operator paying out investors and there is no claim that a bit coin is going to generate any sort of profits in the form of interest or capital appreciation. The short term returns have been unusually inconsistent. You can say that bitcoin is in a bubble, you can criticize it as a currency, you can criticize its social goals, you can criticize its technical implementation, but to call it a ponzi scheme is blatantly incorrect. That Roubini, one of the very few mainstream economists to predict the 2008 collapse, is so imprecise with his language gives some indication of the state of todays economics profession.

splintercell 13y ago
Any rising investment, if seen in a proper timeframe(with proper rationale) could appear to be a Ponzi scheme. For example between Feb 2009 to Sept 2012 the price of Apple stock went from $100 to $700. Did the profits of Apple go to 7 times in this time? Not really. But if you were to only see Apple's stock in this timeframe, AND don't understand Apple's business model, but merely heard that Apple's stock is rising and you should invest in it, then it would appear that older investors are being paid off at the expense of the newer investors. Noriel Roubini could also very specifically perceive the question about bitcoin as "I heard a lot of my friends are getting rich through bitcoin, should I invest in bitcoin to profit from it?", and then he gives the answer that he gave.
- andrewla 13y ago
  > Any rising investment, if seen in a proper timeframe(with proper rationale) could appear to be a Ponzi scheme. I know you're not disagreeing with the grandparent post here, fundamentally, but this really irks me. A Ponzi scheme is a particular type of scam that is pretty well defined. > ... it would appear that older investors are being paid off at the expense of the newer investors I guess this is the core of it; the definition uses the passive voice and thus is open to this interpretation. I think it's clear, both historically and looking at examples, that the definition would be more clear as: A Ponzi scheme is a fraudulent investment operation, where the operator pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the operator. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Here I've modified the language slightly (and I've edited the wikipedia page as well, but we'll see if that holds up). In the Apple example, there is no operator, so there's really no chance that it is a Ponzi scheme. Similarly for the Bitcoin case. You can make the argument that Bitcoin (or Apple stock) is a scam of some sort; a "pump and dump" seems the most apt analogue. Calling it a Ponzi scheme seems an invitation to this exact kind of semantic tomfoolery that I'm posting here.

omegaham 13y ago

One problem that I think is salient about Bitcoin is that it's just not that useful. It's supposed to be a currency, but no one's actually using it for currency. They're just gambling on it, hoping to take advantage of other people's mistakes to make their own money. It's a zero-sum game, and it's destructive. People are just playing around with the electronic version of Monopoly money. The driving force behind currencies is a large organization or group of organizations that work to keep it reliable. The dollar is kept stable because the federal government is large, established, and pays in dollars. With more and more people using the dollar, it becomes even more stable, to the point that other countries can use it for transactions. Bitcoin doesn't have that. People don't have any assets tied in with Bitcoin the way that they do with dollars or Euros or yen. And why would they, when it's so volatile that a bank account of Bitcoins will change its value by 50% in a day? Proponents of Bitcoin say that its benefits are that it's decentralized, unregulated, and doesn't have to rely on a government to ensure that it's stable. I actually think that these are bad traits for a currency to have.

vijayboyapati 13y ago
The fallacy here is that a monetary good requires some separate use. As a money per se, bitcoin is very useful. As I wrote in this thread, it allows the transfer of value to anyone, anywhere in the world without an intermediary. This has never been possible before, and it certainly impossible with the dollar. There are several markets for which this innovation has profound implications
- maxerickson 13y ago
  By the numbers, most people need an intermediary to move even a modest amount of bitcoin. They don't have any. You can say there is no dependence on a single intermediary. This is a quibble, but I think it's an important one, for example, a lot of the arguments about using bitcoin in Argentina or whatever ignore the part where Argentinians don't have a whole lot of bitcoin to start using.
joepie91_ 13y ago
> It's supposed to be a currency, but no one's actually using it for currency. They're just gambling on it, hoping to take advantage of other people's mistakes to make their own money. It's a zero-sum game, and it's destructive. People are just playing around with the electronic version of Monopoly money. Source for that? I regularly pay for things with BTC, and part of my salary is paid out in BTC. Or are you perhaps mistaking a particular subset of Bitcoin "users" (speculators) for "the entire Bitcoin ecosystem"?

enscr 13y ago

He isn't the first & definitely not the last to say that. Some things are best left for time to decide. When it comes to generation defining concepts, many of the "expert" comments are as accurate as a coin toss. Pick up any major economic event in history & look at what percentage got it right. What does that say?

6thSigma 13y ago

As more companies are building on bitcoin and more merchants begin accepting bitcoin, the network effects increases. The network effects are what makes bitcoins valuable.

NateDad 13y ago

Why do economists think we care that bitcoin isn't a currency or store of value or unit of account or whatever other economics 101 term? We call it a currency because there's no other good name for it. How about instead of telling us everything it isn't, they just tell us what it is? I'm guessing the reason they don't, is because they don't know either.

NateDad 13y ago
Oh, and every "economist" (intentionally in quotes) that calls bitcoin a Ponzi scheme should have his credentials revoked... just like a geek who says his iPhone ran out of memory due to all the pictures he took.