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Comment by clarkmoody | Hacker News Reader

Those people don't understand what a pyramid scheme is.

The acquisition of bitcoin by newcomers in no way enriches earlier adopters, as in a classic pyramid scheme. Miners continually invest huge sums in capital equipment with the hope that the price continues to rise. If it does not, they are toast. This is not gambling or a Ponzi; this is just a risk/reward business decision. It's the exact decision that the capitalist makes when she decides to build a new production line at the factory.

Buying bitcoin early is like investing early in any new technology: it could be worth nothing, or it could go bananas. Many alt-coins have trickled down to very low prices over time or stopped functioning altogether. There are no sure things in this space, even for the early adopters.

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> The acquisition of bitcoin by newcomers in no way enriches earlier adopters, as in a classic pyramid scheme.

Of course it does. Bitcoin used to be at $1, now it's at $1,xxx. What happened in between was a massive influx of newcomers.

The difference to, for example, the stock market is in the "underlying value". If I buy some stock and it's price collapsed the next day, I'm still entitled to my share of future profits etc. If the company is sound, I have lost nothing.

A ponzi scheme's underlying value is only the future growth of the scheme itself.

I'd say the jury is still out for bitcoin et alt: how much of the growth is being fuelled by speculation, and to what extend is that speculation actually speculating on future speculation?

> The difference to, for example, the stock market is in the "underlying value". If I buy some stock and it's price collapsed the next day, I'm still entitled to my share of future profits etc. If the company is sound, I have lost nothing.

Bitcoin is a payment network (Even if the price collapses to really low).

Ethereum is a smart contracts platform, so you can still build certain kind of apps on it even if it's price collapses.

A ponzi scheme as NO business model (or the business model claimed, isn't a valid one).

Using bitcoin I can actually transfer wealth from one part of the world to another, similarly using Ethereum I can create decentralized applications funded by payment (like pay-to-seed bit torrent network).

On the surface Bitcoin is a payment network, that isn't all there is though. If Bitcoin or the other cryptocurrencies didn't at least have some value or perceived value to its users, then they wouldn't gain adoption. This usefulness doesn't negate that it has a Ponzi scheme structure to it. In a traditional Ponzi scheme, the value is the big returns you're getting - being fed by the next investor in line to be scammed. That only works when the Ponzi artist targets people with substantial amounts of money - however Bitcoin now enables that for very small transactions, globally. That Bitcoin has value outside of the Ponzi aspect, doesn't negate that it's a Ponzi structure.

I think it does. A ponzi has one issuer, and it's worthless. Bitcoin is speculation and it's a brand, and a plattform whitch is usefull.

A Ponzi scheme is only worthless and useless once it ends because the issuer decides to run off with a chunk of money; that likely should easily equate to people selling off their Bitcoin to eager investors who see this stock-market like system that if they get in 'early' on - or at a low enough price - they can make money selling back out.

That Bitcoin is speculation, a brand, and useful in some ways - that is why it can be sustained ... because the network of speculators/investors is global, and people with $100 or people with $10s of millions that want to gamble can join in on.

The 'single issuer' could also be considered the Bitcoin blockchain itself.

Years ago I met someone who sold off $20MM+ of Bitcoin, bought real estate for rentals, then bought more Bitcoin when low to rinse and repeat. How many people are doing this which keeps Bitcoin going, while slowly increasing the price? It could easily be 50%+ of money, of course everyone with Bitcoin is incentivized to increase adoption - so their Bitcoin doesn't become worthless, and so in fact it becomes worth 100x.

None of what you say negates the fact that it is a Ponzi. Plenty of Madoff's customers did the same things--they were "lucky" in the sense that they weren't at the last layer of the Ponzi. Someone will be. There was research done about Ponzi schemes and I don't remember all the details except that none get past 11 levels because it would require more people to invest than exist on the planet.

I wasn't trying to negate it being a Ponzi. :)

The 11 level limit intersecting with time will dictate how much time Bitcoin folks have to gain mass adoption..

Ponzi systems end. A speculative asset might drop hard, but then it stabilises. There is simply no reason to stop using or holding BTC when the price increase stops.

I think the points stated in my above comment could cover why it may look like a speculative asset.

> Bitcoin used to be at $1, now it's at $1,xxx.

It's now at $2,4xx.

Wow.. The biggest game of JENGA in history!

The US dollar will collapse one day too.

Which is evidence of nothing.

It's evidence of the price of Bitcoin.

Conversation going on at http://avc.com/2017/06/icos-and-vcs/ today ...

> Of course it does.

Let's assume the newcomer is a miner, spending money to acquire the newly-created bitcoins from block coinbase transactions. That new money is created through inflation, which makes all existing bitcoin less-scarce. The miner must pay electricity costs, probably in terms of fiat currency, so there is continual sell pressure from coin inflation.

That doesn't sound like it enriches earlier adopters. Rather, mining hurts the value of earlier coins through the two mechanisms of inflation and continual selling pressure.

If the newcomer purchases bitcoin on an exchange, then it may cause upward pressure on the price (it depends on market conditions / liquidity). If the newcomers are purchasing bitcoin at a slower rate than the miners produce & sell, then there may be a decreasing price.

And finally, those with lots of coins cannot simply dump them on exchanges and expect not to drive down the price.

There is no direct mechanism whereby newcomers to bitcoin enrich existing holders. Instead, all value is derived from market forces of supply & demand on the exchanges. Bitcoin is no more a Ponzi / pyramid than Google stock.

> Of course it does. Bitcoin used to be at $1, now it's at $1,xxx.

And you can bet those who bought at $1 sold all they had at $10 ("wow, it's like 10 times what I invested, this is insane, this probably won't go any further!"), those who bought at $10 sold everything at best at $100, those who bought at $100 sold at $1000, etc. Actually, I'm not sure the people bitcoin made rich are that many. I have yet to see an article explaining how someone got millionaire by getting early into bitcoin.

As for fundamentals, the underlying value of cryptocurrencies is to be a store of value that is not as easily stolen than cash, while still not sitting in at a bank. You can see it as cash that can be transmitted over the network, in small or big amount (and quite fast in that case, comparatively to a wire transfer). Of course, whether this tech will become mainstream is yet to be seen, it can still fail. On the other hand, the company you bought stocks from can also bankrupt and close.

If someone got millionaire on Bitcoins, spending it would not be easy; the IRS might want to know how you are living beyond what your paycheck allows...

Or they may declare their gains to IRS. Bitcoin is not just a tax evasion thing :) (and it's actually quite dumb to use it for tax evasion, given how the ledger is public and will always be there)

That's not that easy. It assumes you have tracked your cost basis, for example.

AFAIK it's not illegal to make money off of bitcoin speculation. It's just like selling any other form of property.

there are lots of people operating entirely on cryptos around the world right now.

That doesn't mean it isn't a scam. Bernie Madoff's customers were all quite happy for many years.

In Germany it's tax free if you where holding them for more than one year. A person can also move to another country where they don't care so much.

>Bitcoin used to be at $1, now it's at $1,xxx. What happened in between was a massive influx of newcomers.

That argument does not follow. An equivalent argument is:

"A house in San Francisco used to cost at $100k, now it costs $1000k. What happened was a massive influx of new people to San Francisco."

What happened is that the utility of a house in San Francisco changed and no one was willing to sell below $1000k.

> "A house in San Francisco used to cost at $100k, now it costs $1000k. What happened was a massive influx of new people to San Francisco."

Seems pretty reasonable to me.

Except that it isn't--it's a bubble and at some point that bubble is going to pop. We already went through all this in 2008 and people have already forgotten the lesson! It's amazing how fungible the human mind is. "This time it will be different." That's what every communist who ever lived thought, too. This time, the stupid scheme of wealth transfer will work perfectly if we just can pass a few more laws and control a little bit more of people's behavior, we can build our everlasting, perfect utopia.

Real estate crashes when the last marginal buyer is priced out of the market. California real estate has crashed 2-3 times just in my lifetime. It will crash again and whoever bought at the top will be bagholders. It is the immutable law of bubbles.

Asset prices move because bids /and/ asks change not because the number of people who hold the asset increase.

>The acquisition of bitcoin by newcomers in no way enriches earlier adopters

Doesn't it though? The reason we're talking about ethereum here is because it's got the best adoption of any of the newer altcoins. And the more people talk about these altcoins the better they seem to do. Hence things like "this is good for bitcoin", they're trying to get buy in.

I suppose. But there is no guarantee of return, or even the promise of return, which is something a Ponzi scheme almost always offers.

As OP pointed out, everyone who is investing in mining / purchasing these coins is hoping they will be a store of value that will appreciate. At some level, it's no different from betting on specific commodities. No one is promising anything. I think that's an important distinction.

The comment I'm replying to is talking about pyramid schemes so for clarification: the subject of this thread is ponzi schemes on an alt-coin but my belief is that the altcoins themselves are a classic pyramid scheme.

>there is no guarantee of return, or even the promise of return

You should check out some altcoin subreddits and /biz/ and I think you might disagree with yourself.

"Frgtpsswrdlame-coin is going to the moon! You guys need to hop onto this, I already have a 100% return. Plus it's safe because frgtpsswrdlame-coin has <encryption gibberish>. It's still early so get in!"

"Buy the dip! If you look at frgtpsswrdlame-coin's charts you can see that there's a <technical analysis gibberish> pattern forming which means this is going to bounce right back!"

Perhaps what seperates this from a more traditional pyramid scheme like door-to-door knife sales is that you can't point to the guy who convinced you to buy in and you can't point to the guys at the top of the hierarchy but they still exist and they still misled you. It's just obfuscated because of the internet.

Who invented Bitcoin? WE DON'T EVEN KNOW!!!! Who the hell would buy such a thing? Idiots.

It's a pump and dump, not a Ponzi scheme.

There is a marked difference between investing and outright gambling. When you invest, you are placing capital at risk in order to achieve some kind of gain, be it growth or dividends. At the end of the investment, there is the return of your original principal. There are legal mechanisms in place that govern real investments. That's not to say that you can't lose all that initial principal, you can, but it's still a remarkably different process than what these Ponzi schemes look like. At least to me.

Look, every Ponzi that ever existed has anecdotes about those who made it big--it's part of the con. Getting rich quick is the dream of every peon everywhere.

I agree. Nobody at any time promised anything. If you invested early, it was a high risk that the whole cryptocurrency could just have imploded and actually for many it did (BTC and Mt.Gox or lost wallets). Now a few years later it pays out for those who cared early about it. Congratulations for those.

It's a Ponzi.

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