Agreed. Shutting down participation in the planet's largest pyramid scheme doesn't have a lot of downside.
At best, trading these currencies is a zero-sum game where you take money from others without providing any intrinsic worth to humanity. At worst is a pyramid scheme plain and simple.
Person A sells their coin to Person B for $1,000. A is $1,000 richer and B is $1,000 poorer.
B sells the bitcoin to C for $2,000. A is still $1k richer, B is $1k richer, and C is $2k in the hole.
C sells to D for $3k. A, B, and C are all $1k richer, but D is out $3k.
At no point in the chain is any actual value created or destroyed; it merely changes hands. So even though the price keeps going up, the total value across all participants never goes up. The sum of the gains and losses of all participants is $0.
(Note that I'm using "$" to represent a generic indicator of value. Feel free to substitute € or ¥ or gold or shares of Facebook stock or whatever.)
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There are two simplifying assumptions above, both of which make Bitcoin not exactly zero sum.
Good news first. Bitcoin can and does create some value in the same way that other currencies do: by facilitating mutually beneficial exchanges of goods and services. Commercial use appears to only be a tiny fraction of all Bitcoin transactions (and an even smaller fraction that wouldn't have been facilitated anyway using some other means of exchange), but it does happen so credit where credit's due.
The bad news, though, is that all of the above requires electricity. A lot of electricity, as it turns out. Both the initial mining and every transaction thereafter require someone, somewhere to burn some amount of power in order to generate proof of work. Since proof of work is explicitly designed to be useless, all that spent power is essentially deadweight loss.
I haven't seen any good numbers on the first recently (and I would love to have my assumptions proven wrong), but given the ginormous estimates of electricity consumed by the second I have a hard time believing the network as a whole isn't substantially worse than zero sum.
When you say that the net value is negative even if the network itself has some positive benefit, what is the negative component there? The only negative component of all that electricity usage is externalities, which apply equally to each unit of energy regardless of what it is used for. Pricing externalities into the cost of electricity is obviously something I approve of, but that’s a separate issue, and I doubt the externalities of electricity usage are anywhere near the magnitude of the positive impact of bitcoin.
Incidentally, this is (as far as I understand) where most of the transaction fees ultimately end up. They're paid out to the miner who actually commits a transaction. Mining's a relatively competitive field so people aren't going to be able to charge much of a premium. The miners then have to turn around and use those fees to cover their costs, which in practice means their hardware costs and their electrical bills.
It's pretty strange to see people so consumed with it. It reminds me of beanie babies, and my horrible step-grandmother who would send me in to buy them once she had hit her limit. She was an awful speculator and probably has a worthless collection today for all the money she spent on ebay back then. She'd drive to Vegas to buy them, neighboring towns, all over the place. Totally consumed by speculation gambling. It sickens a person to see someone so...lost in that temptation. I'm not sure how else to put it.
Agreed, I've yet to see an ICO that seemed legit.
But I'd be likely to agree with you. While blockchain technology /does/ have a future and will enable forms of socio-economic organization that were previously impossible, it's not there yet, and at the moment we're mostly passing tulips off to the greater fool.
At least tulips have some intrinsic value, I.e. They can be quite pretty!
And increasing opioid supplies, increases the ability of the market to efficiently parlay money into an altered mental state. Doesn't mean it's a net positive for society.
The "liquidity" argument is such a terrible and simplistic justification for so many things.
If you're trying to stand on some kind of anti-opiate moral ground for why cryptocurrency is evil it's a poor hill to die on.
I beg to differ. Not all crypto projects are like that. For example Omise Go is a promising project that stands to make a difference to many people who have no access to banking services.
They have solid financials, already processing over $500m transactions per day with $110m investment.
They are making a completely decentralized open value exchange DEX based on the block chain. Any developer/provider will be able to build apps on top of it.
Any person with a phone will have instant access to essentially a bank account with no need to hand over social security and ID.
So basically giving 2 billion people who have no way to interact with financial systems a way to join in with global commerce.
> It’s not creating any value, any gains are at the expense of someone else.
Except, not in the case of Omise Go. You may earn a dividend simply by possessing the token.
By staking Omise Go tokens you will have the option to validate transactions (proof of stake) for which you will get paid.
Also note, with PoS there is no electricity burden on the system like Proof of Work with mining.
Here is a relevant site guideline:
* Comments should get more civil and substantive, not less, as a topic gets more divisive.*
Bitcoin is a distributed database that solves the "Two Generals Problem". Please don't spread misinformation on things you do not understand.
Decentralized proof of a transaction having occurred is in principle valuable, but the token itself is not the store of value. The reason it is accurately described as a pyramid scheme is because holding bitcoin for the purpose of reselling it is exactly like holding a baseball card, or a share in Bernie Madoff's hedge fund: it is based on the premise that someone will come along and pay you more for it than you paid, despite no actual appreciation in any fundamental value.
To put this in perspective, the most power-efficient miners available right now require 0.1 J/GH of energy. There are roughly 10^24 stars in the visible universe putting out about 10^27 watts each. If you could use the entire energy output of all those stars to mine Bitcoins with the most efficient mining hardware currently available for the entire lifespan of the universe to the present day, you'd still get less than 2^210 hashes, about 1/10^74th of what you'd need to create a rainbow table for SHA-256. I'm pretty sure that even upgrading this hypothetical universe-wide computational machinery to hypothetical mining hardware that's as efficient as the laws of thermodynamics allow wouldn't get you close.
That is by design. Doing useful work would hurt the network's security.
> Decentralized proof of a transaction having occurred is in principle valuable, but the token itself is not the store of value. The reason it is accurately described as a pyramid scheme is because holding bitcoin for the purpose of reselling it is exactly like holding a baseball card, or a share in Bernie Madoff's hedge fund: it is based on the premise that someone will come along and pay you more for it than you paid, despite no actual appreciation in any fundamental value.
What you described more closely fits the definition of a "bubble", not a "pyramid scheme". I agree that Bitcoin could be qualified as a "bubble" in the way you describe it. That is, similarly to paper money or gold, its price is completely disconnected from its "intrinsic" value.
Yeah, no. Any "proof of work" system that meets simple criteria is acceptable: Hard to solve, easy to verify. Hashes are just the easiest to implement, but they're not the only one that could work here.
Factoring RSA keys of different lengths would also fit the bill. If the "difficulty" could be arbitrarily adjusted it'd be no different from SHA2 in terms of effort required.
There's no organisation, recruiting, directors, membership or promise of payments.
But those definitely exist, just not via any singular organization. There very much is organization and organizations, recruiting, would be directors, unofficial membership in the club of ownership, and lots of promises of payments.
When people make that comparison, what they're really saying is Bitcoin is mostly funny money which above all else has enriched early adopters and will probably lose a lot of late adopters lots of money. It's ceased to even be a useful currency.
You don't have to squint very hard to see the comparison, even if it isn't flattering or technically the same thing as a pyramid scheme. This is from your link:
In a pyramid scheme [Bitcoin], an organization compels individuals who wish to join to make a payment [purchase Bitcoin]. In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit [to the moon]. The directors of the organization (those at the top of the pyramid) also receive a share of these payments. For the directors, the scheme is potentially lucrative—whether or not they do any work, the organization's membership has a strong incentive to continue recruiting and funneling money to the top of the pyramid.
Such organizations seldom involve sales of products or services with value. Without creating any goods or services, the only revenue streams for the scheme are recruiting more members or soliciting more money from current members. The behavior of pyramid schemes follows the mathematics concerning exponential growth quite closely. Each level of the pyramid is much larger than the one before it. For a pyramid scheme to make money for everyone who enrolls in it, it would have to expand indefinitely. This is not possible because the population of Earth is finite. When the scheme inevitably runs out of new recruits, lacking other sources of revenue, it collapses. Because in a geometric series, the biggest terms are at the end, most people will be in the lower levels of the pyramid (and indeed the bottom level is always the biggest single layer).
In a pyramid scheme, people in the upper layers typically profit while people in the lower layers typically lose money. Since at any given time, most of the members in the scheme are at the bottom, most participants in a pyramid scheme will not make any money. In particular, when the scheme collapses, most members will be in the bottom layers and thus will not have any opportunity to profit from the scheme, yet they will have paid to join the scheme. Therefore, a pyramid scheme is characterized by a few people (including the creators of the scheme) making large amounts of money, while most who join the scheme lose money. For this reason, they are considered scams.[2]
Sounds like many cryptocurrencies and Bitcoin is approaching that if it hasn't hit it already.
There is no such thing. In that respect, Bitcoin is no different from real estate, stock or gold investors which do tend to sometimes promote their investment of choice. Pyramid scheme has a precise definition which does not fit Bitcoin at all and using it to describe Bitcoin is just misleading and intellectually dishonest. If it was a pyramid scheme, it would be deemed illegal in many, many countries. I agree with one thing however: as with every single investment ever, early adopters, which take on more risk, stand to profit more than late adopters.
I don't want to get into the debate on the definition of a pyramid scheme, but what was anyone risking by mining bitcoins for essentially nothing in 2009-2010?
If I was to tell you to invest in a company whose founder is 'invisible', yet controls a large chunk of the company's stock, would you do it?
Second, it would depend on whether I believed the stock was currently under valued.
Third, Satoshi is likely dead, lost access to his early coins or has little interest in spending them (given he disappeared and hasn't touched them in years).
Satoshi specified 1MB block size temporarily, and advocated increasing that limit to accommodate higher volumes of transactions on the network. The current Bitcoin Core developers, for whatever reason, have refused to compromise on any scaling issue - the blame lies with them.
As for locking away funds, there are a few things to consider: 1. If any of Satoshi's keys were to be used, intense attention would be attracted. 2. The identity and location of such use would likely be discovered by government intelligence agencies. 3. Even if all of that were to be dumped on the open market, the effect would be temporary with the eventual result bring increased availability of unit supply. It will be effectively impossible to transition away from Bitcoin without an overwhelmingly improved alternative once it is embedded in global systems, even if there's a serious shock.
I posit that the actual use of Bitcoin will not be as a transactional currency; it will be a reserve similar to the IMF's SDR. Therefore, only big money will be able to access it - institutions, governments, billionaires... normal people will have to make use of a transactional currency, perhaps Litecoin.
In conclusion: we cannot look for what we intend the usage to be; we have to observe that the the market may decide on a different purpose.
If part of the network gets cut off from the rest they can't participate, they're instead left with an orphan blockchain that will eventually have to be reconciled, and all their changes will get rolled back. Far from ideal.
BitTorrent, by way of example, is resilient even in situations where the network has been split or damaged. If you can connect to a single seed you're good. If you lose that seed, but you can find another, you're still good, you can pick up where your transfer left off. There's no single point of failure: There's multiple trackers, multiple seeds, multiple everything and if any part of this fails, the whole thing can muddle along in a degraded but still functional state.
Please don't comment on things you don't understand.