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Comment by pyrale | Hacker News Reader

Gold is stable in isolation. If you bury gold in your backyard, and dig it up 20 years later, you will still have the exact same amount of gold. The exchange rate between gold and other things won't change that.

On the other hand, for btc to keep value, you need people to mine it from to the moment you buy it to the moment you sell it. This has a cost, which is currently paid by newcomers. But if btc becomes stable (i.e. there are no new entrants willing to pay a premium to get in), current holders have to accept depreciation to pay for mining costs. Since btc is not backed by any kind of real world asset, there is no other source of profit.

An investment that is only worthwile as long as it attracts newcomers is in essence a ponzi scheme.

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Good point. The problem is that some people think it is a currency instead of an investment. Other people think it is an investment instead of a currency. It can't be both. Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Investments have cost more overtime otherwise no would would invest. But both groups are buying and driving up the price.

Also, there is a 3rd group that thinks it is a hedge. With hedges you don't really care if the price is going up or down. You want it to give you options. For example, you may buy a stockpile of food or toilet paper, not because you are hoping to turn a profit, but to give you an option to avoid going to the grocery store during another panic buying situation.

>Currencies have to be less valuable over time, otherwise no one would ever spend the currency.

Isn't this only true with the removal of the gold standard?

It's part of the reason the gold standard was removed. Currency deflation made loans expensive, for two reasons: the time value of money was higher in 1933 than it was any point since; and since loans are in nominal dollars, deflation causes loans to be more expensive in real dollars, even disregarding interest. 1932 had -10.3% inflation -- this added an additional 10% interest to every loan, on top of the 17% prime rate (because why lend money?). A 27% effective loan rate is ruinous for business, especially agriculture. The gold standard was removed in 1933, interest rates dropped to 12%, inflation increased wildly to 0.3%, and people could borrow money again.

> Currencies have to be less valuable over time, otherwise no one would ever spend the currency.

I don't have an opinion on BTC (or gold for that matter) but this widely-distributed meme is simply untrue.

1) If I have a bar of gold, and it will buy me 1% more bread loaves in a year's time, but I can invest it in something that will trade for 2% more bread loaves next year, then I will spend it because despite appreciation it is not my best source of appreciation.

2) I have living/operating expenses that I consider to supersede my need for financial return. If I don't pay for shelter and food, I won't be around in a year to enjoy the 1% more bread loaves I would get from appreciation.

3) Empirically/historically, over long time frames, gold appreciates in real terms (slowly). And yet people spent gold coins and gold-backed notes regularly.

Now, if a currency is appreciating much faster than anything else in the economy I agree you can have a deflationary spiral and a liquidity problem. But this is because the economy is collapsing — ordinary sources of growth have disappeared or reversed. This is a very special situation, and is not a general argument that currencies must depreciate.

Sure, people do have to buy food to live, but that isn't the point. Just replace "less valuable over time" with "not much more valuable over time" in my comment. The point isn't that gold went up or down by 1% between 1750-1850. The point is that people are buying bitcoin for opposite reasons. Is it a currency? If so like you said it shouldn't be going up quickly. Is it an investment? If so, where is the cashflow?

> Currencies have to be less valuable over time, otherwise no one would ever spend the currency

The purchasing power of a currency doesn't have to change, the government manipulators could target 0% inflations just as easily as they target 2-3%.

Most modern economies are driven by debt, thats what "creates" new wealth out of thin air. The main reason we target a low, steady level of inflation is to best incentivize lending and investing in debt. If currency value is allowed to swing wildly you can't put a predictable price on future money. If currency is allowed to lose value (deflation) you are incentivized to hold onto it rather than buy up debt. Noone buying debt means noone creating money out of nothing, meaning no GDP growth unless velocity increases.

> Currencies have to be less valuable over time, otherwise no one would ever spend the currency.

Ah, that would explain why we abandoned the gold standard. No one ever spent those gold coins, and no trade existed before 1933.

> Currencies have to be less valuable over time, otherwise no one would ever spend the currency

I'm not deeply steeped in macro-economics. Is this a theory, or an historical observation? Where can I find more about this?

Historically, there have been a wide range of items used in barter and markets. https://en.wikipedia.org/wiki/Currency#Early_currency. Some of those like livestock depreciated in value very quickly since they literally had a lifespan. Others, like rare coins have gone up in value.

In the context of Bitcoin we are talking about the modern world. The major forces in the modern world are Globalization and Technology. Assuming you don't want China to take over the world you need growth. Growth happens when investment and debts are created. Ray Dalio explains it well. https://www.youtube.com/watch?v=PHe0bXAIuk0&ab_channel=Princ... This is why successful countries like the USA target 2-3% inflation. It is theoretically possible to create a country where inflation was -1%, but technological growth, which is very hard to stop would create a deflationary spiral that would bring the economy to a halt.

Bitcoin will stay forever as long as someone has a copy of the blockchain (around 300GB now). The cost of which is negligible today.

Mining is only necessary for making transactions, and it doesn't have to be expensive. It only is because of the competition. That expensive competition is important for stability but in theory, the entire system could run on a smartphone.

And it could run without newcomers. If everyone in the world had bitcoins, making it impossible to have newcomers, it would still have value, in fact a lot more than it has now.

Bitcoin may be a bubble, but it is not a Ponzi scheme.

Gold has some value as a technical material and because of its (subjective) beauty, so it will never crash down to zero, but it could lose a lot of its value if we decided that it is not worth hoarding.

What about chain re-org attacks? Without miners the next blocks would be easy to attack and then you lose immutability along with creditability.

That "someone with a copy of the blockchain" is not going to be credible enough to rehydrate Bitcoin. Mining is not just for transactions, but for maintaining the ongoing legitimacy of the blockchain, which is where the real value of Bitcoin lies.

> Bitcoin may be a bubble

Also, what is not a bubble nowadays. Just look at the gold price, the housing price, etc.

https://en.wikipedia.org/wiki/Greenspan_put#Everything_Bubbl...

That's not really true. You could bury a bottle in the backyard with the address and private key written on paper and still have the bitcoins in 20 years. If no one is running the blockchain software you could get the most recent copy of the chain / software and start it up. With both gold or bitcoin if there are no buyers then you won't be able to sell it for much.

It might actually be entertaining to bury a bottle with $10 worth of bitcoin - it might be worth quite a lot when dug up like that guys hard drive in a refuse tip he wants to dig up. Or not of course.

("A man who says he threw away a hard drive loaded with 7,500 bitcoins in 2013 is offering his city $70 million to dig it up from the dump" https://www.businessinsider.com/man-offers-council-70-millio...)

There have been buyers of gold for thousands of years though

Gold is a metal made in the burning core of dying stars. It doesn't really care about buyers and economy. We use gold for many purposes other than as a store of value, and that is exactly why it became a store of value. It is useful BESIDES being a store of value. Heck if you don't like gold, buy platinum or some other exotic material. Stores value just as well. Bitcoin is useless besides being a store of value. That makes it a bad store of value.

I'm sympathetic to the argument that Ponzi schemes inherently have a small group propagating the fraud while presenting the illusion of a real business, so describing Bitcoin as a Ponzi scheme may be technically inaccurate.

If I understand the tweets correctly, Taleb, et al, are basically saying that the mining pool functions as the insiders in a Ponzi scheme, by outcome if not intent.

The argument is that a Ponzi scheme isn't just zero-sum speculation, with some people winning and some people losing: it is negative-sum, for the speculators, because the insiders were siphoning off money the entire time.

In this situation, the siphoning comes in the form -- among other things -- of the 6.25 BTC / 10 minute block rewards [$20B / year at present], which the miners sell to pay their costs [$10B / year of electricity at present?] and their own paydays. Because these "insiders" have been taking out money the entire time, when all of the investors go to get their money back, there won't be anywhere near as much money as they put in left to get out.

How is BTC mining a Ponzi scheme in a way that gold mining isn't? Neither require any insider information and new entities can join in the mining. In fact BTC mining has lower barriers to entry because it doesn't require license, land rights, etc.

Well for one, gold is a precious metal with great electro-conductivity properties, never rusts and can be worked at low (relatively speaking) temperatures. Kinda useful for all these chips we need and other electronics. Try to do that with Bitcoin.

That's not where its high value comes from though. And the vast majority of gold is not used in the industry.

That's right, but I think the OP was asking about differences in BTC from Gold as Ponzi schemes. I don't think it was "what makes Gold valuable"? I am just saying you can't use the BTC for anything but the scheme if it was a Ponzi scheme.

Just to put some additional data to this:

    Jewellery: 92,947 tonnes, 47.0%

    Private investment: 42,619 tonnes, 21.6%

    Official Holdings: 33,919 tonnes, 17.2%

    Other: 28,090 tonnes, 14.2%

    Below ground reserves: 54,000 tonnes

To answer that question, I would suggest that gold is valuable because it has uses. BTC as a payment instrument is useful, but how useful?

BTC also could be useful as a hedge against other assets, for example the stock market or the currency you save in. I view it as a possible hedge against the Euro. This is the currency I daily use, but I definitely keep the Greek Debt Crisis in mind.

The principle of hedging is that two assets hedge each other if their price demonstrably evolve in opposite directions. For instance, if a bank sells an equal amount of puts (the right to sell at a given time) and calls (the right to buy at a given time) on an action with the same strike price and the same maturity, it is hedged: both positions cancel each other.

Since BTC has no underlying asset, it's hard to demonstrate a correlation with anything. So if you buy btc as a hedge, you could pretend you're hedging against anything. In reality, the only significant factor is btc's popularity.

That means you could probably buy anything that isn't correlated with Euro and get the same result.

Correlation is a pretty fickle thing. Multiple hedges make for a nice diverse portfolio. So yeah, I consider gold a good component as well. Why add bitcoin as well? Because it makes for a nice bet.

We used to all rely on bonds and bills to stabilize our portfolios but central banks have killed that.

The fact that there's no way to fork gold.

Gold is a scheme (not quite a ponzi scheme) in which we've all agreed to maintain the delusion that it's a good marker for totting up wealth. It happens to have nice material properties for that, and it's nearly unique in those properties. The main one being that you can't print more of it.

BTC has a lot of those properties... as does Doge, as does Ethereum, as does Bitcoin Cash, and every other cryptocurrency. BTC has the name recognition -- which it shares with gold -- and in doing so may or may not become Gold 2.0.

But once we've realized that there can be Gold 2.0, why not Gold 3.0, 4.0, etc.? Only gold can ever be gold 1.0. Even adding silver and platinum and such doesn't really substantially diminish that uniqueness. Whereas there's no one crypto... which means that the "you can't print more of it" goes away. The Dogecoin guy did it. So do thousands of others, every day.

Maybe BTC will become the one and only Gold 2.0 and it'll stop there, and if so it'll have a value of some sort -- hard to say what, but eventually it'll reach some kind of equilibrium. Until it reaches that point, it has only its hope to be The crypto, and for the moment that relies on a continuous flow of new investors.

Addendum: the sense in which gold isn't quite a ponzi scheme is that the initial beneficiaries are long since dead. Everybody alive has roughly the same buy-in to it, so we can trade gold among each other on equal terms.

Some original guy got rich by convincing others to take his lump of metal in exchange for goods and services. The fact that it's nice to look at helped. That happened thousands of years ago, and so we're all just living with it as a collective agreement. We could break it if we wanted to, but there's not much motivation to.

TIL that the original "the other gold", silver, is only 9x more common than gold, in terms of "how much have we ever mined". Platinum, we've mined about 1/20th as much as gold.

So that part of the D&D economy actually works pretty well; copper, on the other hand, is something like 3600x more common than gold.

> I'm sympathetic to the argument that Ponzi schemes inherently have a small group propagating the fraud

The existence of a group of insiders runing the scheme is really a detail when it comes to understanding how the market works. If it works like a ponzi scheme, does it really make a difference for the victims whether or not some people get arrested?

There's at least three ways you could ask the question.

There's ontologically, in the manner of pedants, where you're really asking "in this defined ontology of financial phenomena, schemes and frauds, where does Bitcoin fit in?"

There's descriptively, where you are asking if it is useful to model or think of Bitcoin as a Ponzi scheme, regardless of whether it is a fully accurate categorization.

And there's rhetorically, where you are really just using "Ponzi scheme" as a concise way to tell people, "Don't invest in it, people are trying to take advantage of you."

> I'm sympathetic to the argument that Ponzi schemes inherently have a small group propagating the fraud while presenting the illusion of a real business, so describing Bitcoin as a Ponzi scheme may be technically inaccurate.

Have you heard about the miracle of decentralization? :)

I'll give you that is has Ponzi scheme like aspects to it.

https://en.wikipedia.org/wiki/Ponzi_scheme

1) require an initial investment and promise above-average returns

2) money cannot be withdrawn for a certain period of time in exchange for higher returns.

High investment returns with little or no risk.? Overly consistent returns?

Your argument is that if I buy an ETF for gold and they charge 2% to keep the gold safe and manage it. This etf is a ponzi scheme as they need have holders to keep the thing going.

As the transaction fees go to miners you could then argue VISA and mastercard are ponzi schemes?

> On the other hand, for btc to keep value, you need people to mine it from to the moment you buy it to the moment you sell it.

That's not correct. Once you receive your transaction within a block, they are there forever assuming you keep a copy of that blockchain. If miners stop mining, you'll be able to mine yourself within 14 days with a regular computer.

The value of Bitcoin is not just the blockchain. It is the distributed consensus on it being the correct blockchain. So, Bitcoin relies on others believing that this version of the blockchain is authoritative.

Nothing like this in gold. It is an atom which does not require any extra belief from the society.

It's not enough to simply bury the gold. You have to guard its whereabouts and that cost something

https://www.google.com/amp/s/www.bbc.co.uk/news/uk-wales-556...

Burying bitcoin in a garbage pit hasn't paid off yet but given time and patience. Who knows?

Do you have a sense of what that depreciation factor is?

If it’s nearly equivalent to overall population growth, it may not matter.

(For what it’s worth, I’m with you for the most part. Just curious. I’ve been short-term wrong on BTC since $102 and I’m trying to figure out if I’m long-term wrong as well.)

> For what it’s worth, I’m with you for the most part. Just curious. I’ve been short-term wrong on BTC since $102 and I’m trying to figure out if I’m long-term wrong as well.)

It has managed to outdistance both the dotcom bubble and the housing bubble at this point. Although the tulip bubble went from the 1590s to the 1630s, so there is some precedent for these boondoggles to run for a surprisingly long time before gravity catches up.

Someone else quoted $10B worth of electricity yearly, at current price. Given that number, and knowing that it evolves with market cap, that's about 1% depreciation/year.

The are trx fees for this exact reason. The network can continue to be profitable even without the mining of new bitcoins.

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