Madoff made his ponzi scheme last 17 years with a limited network. Imagine how long a ponzi scheme accessible by the whole world could last.
Possibly forever (or at least longer than my lifetime). I am thinking about Bitcoin here.
Possibly forever (or at least longer than my lifetime). I am thinking about Bitcoin here.
That's, like, a very specific and applicable definition.
Pon·zi scheme
/ˈpänzē ˌskēm/
noun
a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
All that considered, you might still call it a Ponzi scheme if you really wanted to, but it certainly isn’t only a Ponzi scheme.
"Started at the bottom, now we a little bit above the bottom"
Is there an expectation that by buying Bitcoins, you are funding the growth of a business which creates profits by using your investment, and those profits are where your investment return is coming from? If that's not the case, then it isn't a Ponzi scheme.
That some people are making money hand over fist by investing is then used as proof that it is a good investment.
That the fake enterprise is just lazy meta-financial-jargon rather than a more effort-full fake building project or an imaginary hedge fund with fake books and blueprints and a fancy office and whatnot isn't enough to make the definition inaccurate IMO.
Quacks like a duck, etc.
If you think this isn't a common viewpoint, you need to lurk on some bitcoin forums and discord servers.
https://www.oxfordlearnersdictionaries.com/definition/englis...
was kind of similar and has " a plan for making money that involves encouraging people to invest by offering them a high rate of interest and using their money to pay earlier investors. When there are not enough new investors, people who have recently invested lose their money."
which I think is what is usually meant by a ponzi scheme and is different from bitcoin.
Even with your definition bitcoin doesn't really fit:
"form of fraud" - bitcoin was completely open about what you were getting from the start
"nonexistent enterprise" - the first and largest decentralized digital payments system. The more legit complaint is the enterprise is wrecking the environment more than it doesn't exist.
Re: Bitcoin as a digital payments, my complaint there would be that Bitcoin is not structured to return transaction fees to people buying Bitcoin as an investment.
A trillion dollars a year funneling from business profits to investors is the difference between the S&P 500 and Bitcoin.
The current price is largely a product of the speculation in the market, but at the same time ... a lot of people buy houses just because they want to live in them. So you have people buying houses at two, three times the price they'd be paying without the pure real estate investors speculating up the price, but at the same time, they're just buying them because they want a house and will pay the absurd price.
Likewise, there's a huge amount of speculation in the gold market, and that's probably what defines the price of gold, but at the same time, something like 50% of newly-mined gold goes to make jewelry, and most people buy it because they want it, even though [or because] it is over-priced, and they aren't buying it as an investment, just a pretty thing to have.
That doesn't mean that gold or houses are good investments, or that the markets aren't going to crash to a tenth of their current valuations next month or ten years from now, but it does mean there is a second component to the market -- you have speculators interacting with consumers, and the speculators can extract money from consumers who will buy the underlying good even at a bad price.
(Oddly, I'd say house buyers are more-expecting to get the money they invested back at some time in the future, compared to gold jewelry buyers.)
[But what do I know, I'm just a jerk on the internet saying things.]
In order for it to be a Ponzi scheme, speculators would have to believe they are actually investing in a business which uses their investment to generate profit, and not simply speculating against other investors. The investors must be misled about the actual source of their returns.
I think we agree on the mechanism at play though, it’s just a semantic distinction.
If you want to make a customer cash-flow argument, Ethereum has $9B of ARR. Same story.
It may be the subject of a bubble, it may be subject to market manipulation, it may still play a part in any number of scams or frauds beyond the ones that have already been identified, some of which themselves may be Ponzi schemes. But, even if, for the sake of argment, all of those and more were true, Bitcoin itself would still not be a Ponzi scheme. It is and would still be just a digital commodity.
For it to be a Ponzi scheme, you first have to have some sort of centralized control of the ledger so that you can lie to people about the volume of assets they have in your care. And already we have made a complete departure from what Bitcoin is and how it works.
So did people who invested early in Apple, domain names, or property in Manhattan. I think the bare minimum you'd need to define something as being a Ponzi scheme is, well, a scheme - that is, an intention to defraud people, and I don't see such intent in the creation of Bitcoin.
But that doesn't matter, because functionally, there is no difference between an intentional Ponzi scheme and Bitcoin.
Bitcoin trading is a negative-sum game. All winning that anyone gets comes out of the pockets of newer investors. There is no net inflow of value or money that could cover the gains people make trading, other than the money being put in by other people. There is a net outflow of money, in the form of trading and mining fees, but there is no inflow.
So functionally, with Bitcoin, old entrants are paid off with the money invested by newer entrants. This is exactly how a Ponzi scheme works.
Again, it may not be intentional, but it works the same nonetheless.
Of course that could be true, and people saying it may well believe it. Ponzi believed his international reply coupon scheme would actually pay out. So to some extent it will only be proveable in hindsight.
Particularly when the actual mechanism of raising value for early investors is convincing more to come in based on that narrative, but old investors can only cash out from new ones.
The mechanism you are describing is the mechanism by which every speculative investment works. That's not what identifies a Ponzi scheme. In fact it specifically can't be a Ponzi scheme if the old investors are aware that the returns are coming from new investors.
That’s not true. Most speculative investment promise revenues if they succeed.
For your last sentence, why would that be true? In the case of bitcoin, the early investors have been led to believe that later investors will need to invest. But this can easily be false.
That wouldn't be speculative then (at least not completely)
> For your last sentence, why would that be true?
Because it's not a Ponzi scheme unless you are lying about the origin of the returns which you are giving to investors.
Can you give an example of non crypto speculative investments which are not expected to produce revenues? That’s how 100% of business promise to eventually provide returns.
Even real estate is rents. Collectibles such as sports cards and art are the one exception category I can think of.
> Because it's not a Ponzi scheme unless you are lying about the origin of the returns which you are giving to investors.
Yes that was my point. Bitcoin could be a distributed Ponzi, where people make representations about bitcoin’s eventual value through network value, but it turns out there is nothing to it. There’s no single agent telling a lie but it has the same effect.
To make the limit argument: if bitcoin was run by a single person selling coins and claiming their value would go up because of network value, but this claim was not true, this would be a ponzi correct? Assuming the proferred proof was reported coin value appreciation to date. (I.e. the returns)
How about any commodity or foreign currency? Gold, oil, etc.
> That’s how 100% of business promise to eventually provide returns.
Exactly. Since Bitcoin obviously isn't a business, it couldn't be a Ponzi scheme (because investors in Bitcoin aren't being mislead into believing that the returns are coming from a business activity).
> To make the limit argument: if bitcoin was run by a single person selling coins and claiming their value would go up because of network value, but this claim was not true, this would be a ponzi correct? Assuming the proferred proof was reported coin value appreciation to date. (I.e. the returns)
No, that couldn't be a Ponzi scheme because the person isn't lying about the origin of the returns. They really do come from other investors. That might be considered a pyramid scheme, though.
That's not a Ponzi scheme, that's a market bubble.
There's nothing gained by misappropriating existing jargon just to try and lend more credence to an assertion that a thing is bad.
Imagine if someone were trying to argue that a MacBook's motherboard is just one big integrated circuit because it's a circuit (natch), and solder has been used to integrate it all together. On the one hand, sure I can why someone who isn't a computer techie might see it that way. On the other hand, that's simply not what that term means.
Again, this is not an organised Ponzi scheme, but it is functionality identical anyway.
When Coinbase (or whoever) shows a bitcoin price of 62000, what they are saying is that in their order book they have customers waiting to buy and sell bitcoins at that price right now. It is not just a made up number, it is actually the place where the demand between buyers and sellers is being met right now.
If you think that price is too high, then sell some for cheaper and you will take some of the high-price buyers off the market, therefore lowering the actual fair price of bitcoin.
> this is not an organised Ponzi scheme, but it is functionality identical anyway.
Functionally, a Ponzi scheme requires that investors are being deceived about the origins of their returns. What you are describing just isn't anything like a Ponzi scheme at all and it is a misunderstanding of what they are.
USD also has some similar effects at play. But inflation is also not fraud.
It's true that attempting to conduct your entire financial life in Bitcoin won't save you from receiving tax bills that are denominated in dollars. I think your more immediate problem, though, would be that it's probably impossible for someone living in the US to participate in Bitcoin without owing someone a bill that they will expect to be paid in USD. It's difficult to transact Bitcoin without Internet access, for example. And that'll get you long before the IRS sends police to knock on your door.
It reminds me of an anecdote from my grandfather from the end of WW2, people were giving away gold rings for loaves of bread. (Clearly, only when in desperate need, but it did happen.)
Even if the US government ceases to exist, the features of non reproducibility built into cash dollars (watermarks, intaglio printing) would still exist although they won't be as ultimately durable into the future as an element. At least you can also use them as fire starters.
And people with guns are going to quickly steal your gold anyway.
But not real ones. It's like saying you can make infinite Mona Lisas with a colour photocopier.
Not everyone will accept such a change, so the original 21 million version of the network will still exist and will by many be considered the real bitcoin.
The herd coming into Bitcoin as we speak implies a weakening of its founding values.
Why is Gold coins more valuable than copper coins?
Why is the original Bitcoin more valuable than any of its forks?
What do you think markets are? They're a method for people to come to a vague consensus about the value of something.
There's absolutely no reason why humans can't create a store of value with superior qualities vs gold.
Humans are of nature. Everything we do is of nature accordingly. There is no separating humanity from nature, we are contained within it and we were created by it.
Nature = that which exists, all encompassing, no exceptions. It's not a technicality, it's the fact of what nature actually is (versus what some people like to pretend it is: fantasy pristineness, perfection, devoid of humans).
Gold's status as a physical element is basically irrelevant. Bitcoin is basically gold you can email.
Right now, on coinbase, rate of bitcoin purchases paid in dollars > rate of dollars purchased in bitcoin. Anyone who wants to exit bitcoin today is getting dollars from people buying into bitcoin.
When this changes (for whatever reason), coinbase and other exchanges have a limited capacity to buy back bitcoins for dollars, assuming they would even want to do that in the middle of a run on crypto exchanges.
If bitcoin was a viable currency, then people buying bitcoin today would never want to trade it back for dollars. But that’s not happening- everyone still buys groceries, coffee, gas, tools and computer software with dollars. A run on coinbase is a problem when bitcoin is an “investment” and not an actively used currency.
Finally, Monero has shown that there is still plenty of room for innovation beyond what bitcoin currently implements. If crypto currencies are the future, already Monero looks like a more viable option than btc (note that all the illegal stuff that used to happen with btc is now happening with xmr on the dark web). It’s very possible that even Monero isn’t the final incarnation of the ultimate crypto currency and something even better will replace it one day.
A new crypto doesn’t threaten people who want to transact with that currency. Everyone on the darkweb markets switched from btc to xmr and business continues as usual, and it will continue even when the next evolution arrives. But those who see it as a store of value are at the mercy of everyone else buying that currency more than how much everyone else is selling- a classic ponzi scheme.
Why don't these two numbers have to be equal?
An equivalent way to say the same thing is:
“number of bitcoins being purchased with USD per hour > number of USDs being purchased with bitcoin per hour”.
Except with gold, there's a history of greater or lesser fools buying it from you that goes back thousands of years; there are a great many non-scam businesses trading in it, and they ain't come out with many new precious metals in my lifetime.
Cryptocurrencies have a much shorter history, an exceptionally large number of scams, and nigh-limitless supply of new types of coin and token.
Bitcoin doesn't have an army of people willing to commit violence to support its value. At least not yet.
Back in the 60s the gold trade was highly regulated. That's why the plot of Goldfinger doesn't really make any sense from a moderns perspective. It seemed quaint even to me as a teenager in the 80s. Nowadays gold is just posh bitcoin.
…okay, then: Elon Musk.
"Here I invented this new coin. If you buy it and lock it up, you can generate new ones which you'll be able to sell to others who'll want to get in on it to. This coin serves no other purpose than this though."
Implicit in this is the assumption that bitcoin does not provide value in itself, which is another discussion altogether.
In a ponzi scheme, you buy in at a fictional price and are paid interest derived from the investments of future investors. Bitcoin purchasers don't receive anything from future investments unless they actually sell, again at market price.
The word here is speculation, not ponzi. It's no different than buying/selling land that people may or may not want.
Who promises?
I'm not aware of any such promise.
Not opinion as much as fear and greed.
If you don't have enough people signed up, your ponzi can fail because a sufficient number of people who haven't fallen for it, can object.
If you manage to get everybody signed up, it becomes necessary to not break your scheme, since everybody loses.
I think this is like an unholy hybrid of the ponzi scheme and the Silicon Valley unicorn. It's the great exploit: if you can burn everybody, hard enough, you win forever. You blow up past the point where there is any possible remedy.
Tether just printed another 2 billion USDT today, and didn't they print another billion USDT a few days ago?
Now that developed countries have mostly sunk below 2 kids per woman and most developing countries do not have school systems good enough to provide enough qualified workers to immigrate, we are feeling the slow press of unsustainability of the system.
Unless we can offload a lot of that press on robots, people will have to work until their late 70s. The original Bismarck pension scheme calculated with only 2 years of survival in pension on average. We have expanded it to almost 20, it will have to be reduced again.