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Comment by mensetmanusman | Hacker News Reader

I seriously wonder how you differentiate between real crypto and a Ponzi scheme.

By definition, Ponzi scheme’s, like musical chairs, do work as long as people keep playing.

At this point Ethereum has a bunch of applications on top with quite a bit of demand, and you need ETH to pay the transaction fees, a portion of which are burned. Once proof-of-work is discarded early next year, the supply will start shrinking, and it'll be possible to value ETH like shares in a company doing stock buybacks. So I'd say that doesn't look much like a Ponzi scheme.

Lol you had me going for a minute there.

Yeah, I legitimately can't tell if that was supposed to be tongue-in-cheek sarcasm or not.

"The only winning move is not to play". I guess you might miss out on something, or miss out on making a tidy profit off a Greater Fool, but the peace of mind is worth it.

That only works if you have no wealth. If you have any wealth, you should diversify it. Only a fool would dump all their money into crypto, but also only a fool would put all their eggs into the basket of unbacked fiat. You're just picking which game to play, and hoping you play enough games with even enough odds that you don't lose too many at once.

I mean you could say the same things about any sort of investment that isn't risk-free (which is basically all investments that earn a return nowadays). I don't see anything fundamentally different about crypto than any other asset really.

I can be pretty sure that a diversified set of stocks, bonds, and maybe some real estate are not an outright scam, or that someone is going to make off with all of it because the whole thing is completely wild west.

Sure, there's a higher risk profile but also the payoff can be absolutely staggering.

Moreover the risks aren't evenly distributed: crypto isn't a homogenous space.

The risk isn't for everyone, but those that are intimately familiar with the space and practice reasonable risk management can do pretty well.

There's a reason why almost all tradfi trading firms have either already entered the space or are considering it.

Remember 2008? (I know, ages and ages ago.)

If you bought stocks in 2008, you would be massively up right now.

A Ponzi scheme requires creators/beneficiants to actively work on inviting new people by the virtue of simple advertisement. Most of creators/beneficiants of widely used cryptocurrencies do not do that.

> By definition, Ponzi scheme’s, like musical chairs, do work as long as people keep playing.

A shared heuristic, not a definition. You pretty much defined economic participation or confidence in any monetary system (applicable to all markets).

Ponzi schemes require returns, and more specifically the source these returns being the newly invested funds rather than actual trading/investing activity that becomes the scam.

A crypto security on its own doesn't guarantee or promise returns, and gaining value because of other people buying in is no different than company stock also rising in price because of demand. That's just how trading works. The potential issue is if people bought in because of misleading or false details rather than public information.

> By definition, Ponzi scheme’s, like musical chairs, do work as long as people keep playing.

This is not correct. You have to maintain a very particular ratio of new investments to redemptions in order for a Ponzi scheme to be stable. (The amount of money invested in a given period must equal or exceed the amount of money redeemed.) If that doesn't happen, which will almost always be true, you will flame out despite the fact that people are still playing.

But if the players of the Ponzi scheme are invested over many years, it’s still a ponzi, e.g. see Madoff. A slow moving ponzi looks different than a bank run.

His schemes lasted longer than crypto had been around for the general public.

> A slow moving ponzi looks different than a bank run.

No it doesn't; the failure of a Ponzi scheme is a bank run. The only difference is that the bank is trying to turn a profit on its deposits and the Ponzi scheme isn't.

Ponzi schemes require an exponential increase in the number of participants to remain viable. Bitcoin does not.

Well, that depends on what you're thinking about. Bitcoin does if the assumption is that its value continues to increase. And on the other side of things, a Ponzi scheme has no need for the number of participants to increase at all, or remain stable, if the fund manager is free to just revalue everyone's holdings. The part of the Ponzi scheme that causes it to fail is when I tell you you have more money than you actually have.

If people cannot agree on the definition of a term, they cannot communicate. I'll go with this:

"A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[1] The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most of the investors do not demand full repayment and still believe in the non-existent assets they are purported to own."

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

Bitcoin simply does not fit that. Bitcoin is analogous to investing in gold.

> I go with the usual definition of Ponzi rather than thinking up my own

Sorry, what part of your quote differs from what I said? I know what a Ponzi scheme is.

> Bitcoin simply does not fit that.

The part of Bitcoin that doesn't fit that is that Bitcoin doesn't guarantee its own value will rise. If you're analyzing Bitcoin in the context of the idea that its value will rise, then it is a Ponzi scheme.

I'm sorry, I don't see at all how you get from the wikipedia quote to your version. Do you think gold is a ponzi fraud, too?

> The part of Bitcoin that doesn't fit

If it doesn't fit, you must acquit.

I honestly have no idea what you think I believe, but it doesn't appear to be connected to what I'm saying.

Crypto is a catch-all term at the moment. Some cryptos will be more useful than others. Some (like BTC) could be the digital equivalent of gold. Some will facilitate decentralized companies (e.g. LINK). Some will likely be Ponzi schemes (e.g. dogecoin).

Hard to understand the distinction between bitcoin and dogecoin using that logic. Both are PoW systems that can only do one thing: transfers.

Hard to understand the distinction between myspace and facebook.

Perceived value. It worths what people are willing to pay for. A lot of things work that way. Skeptics might wonder how long it would last, but less about how much it should be worth. People aren't only buying tech.

We do have a lot of scammers and useless coins, but tech is only one indicator of value, not the ultimate method to predict perceived value.

You are correct that they both work very similarly. In fact doge was heavily inspired by BTC. Both have PoW and coin minting as a result of block resolutions.

Granted I'm not an expert on doge, but one big difference that I know of is the limit of coins that will be minted – bitcoin caps at 21 million, dogecoin is uncapped.

That's a rather important fundamental when talking about a currency.

I would then point to the communities that hover around either BTC or Doge. From personal observation, BTC is more serious about digital currency as a possible store of value future, whereas doge is a joke / meme focused coin.

At the end of the day, a lot of it is marketing, which is why I actually thought Doge would be a possible contender for a 3rd place crypto coin around the time when Elon Musk was tweeting about it. I believe the fact that it is uncapped and that is really is more of a meme coin than anything serious (see the community around it) led to its downfall. It didn't have solid enough legs.

The "digital equivalent of gold" is nonsense though, WoW gold is the "digital equivalent of gold" too.

By learning what they are. It's not that difficult. A pyramid scheme of any sort requires new participants continually. Crypto currency does not.

Whales depend on new money entering to keep the price from plummeting. I used to think of crypto’s as a decentralized ponzi where all the participants are incentivized to bring in as many new participants as possible. They’ve cut this part out and just decided to go with making fake money out of tether to prop up the price.

No, the price was rising well before any of the "whales" came in. You're just writing a narrative that suits your existing preconceptions.

Whales is a relative term for a percentile distribution; not a static designation for some arbitrary dollar threshold.

The problem with this is that even a well meaning and useful piece of technology will be called a scam and ponzi if they have a coin. Look at the layer one chains, ETH, SOL and AVAX. Are these ponzis?

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