Bitcoin is a Ponzi
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With a decentralized digital asset there is no sole person or company that profits from just lying to you about where your Dollar goes in exchange for digitals. Sure, miners and exchanges make profits based on fees when Bitcoin is created or sold, respectively — but they are only being rewarded for their legitimate efforts required to maintain and sell a digital currency. They do not pretend making your money work for you by some magical scheme.
This whole confusion stems from a rather vague understanding of what the subjective theory of value means: Goods and services provided by humans have no intrinsic value but become precious simply there being demand by other humans. Gold can become worthless if nobody wants or needs it anymore. A stupid trading card may cost thousands of dollars costing pennies to make but is sought after by enough collectors. Edit: Yes, Bitcoins are just numbers stored in a computer memory around the world but so is software. And software ain’t cheap.
While Bitcoin‘s value might be grossly overestimated due to rampant speculation but even then, these speculators are no victims in an investment fraud but they truly believe that Bitcoin will become much more useful in the future. They may be wrong but, currently, nobody knows. Only the future will show.
Edit: Typos.
No. They instead take your money, buy coal, and burn it. Nothing is left.
As you say, Ponzi schemers take money for themselves and keep it. Most of what Madoff stole was recovered, for instance.
Whereas virtually 100% of all money invested into crypto has been burned by miners. This is pretty easy to model.
So there’s nothing left to recover if new money collapses. Bitcoin is worse than a typical ponzi in this respect.
> But if one wants to know whether bitcoin is a good investment, or just an old type of investment fraud with a new coat of paint, the legal definition is irrelevant. One must use a quacks-like-a-duck definition, that describes the mechanism through which fools and money are separated and the reasons why it is a fraud.
It's the world's first decentralized Ponzi scheme, where each participant cell need not understand the whole picture to achieve the end result. It's a financial cancer.
Yes, miners “take your money” but only a portion of every transaction as a service fee for processing your transaction. This is a payment for a service, the value of which is predicated on a service immediately provided rather than a promise for future value.
Also “nothing is left” is also a false statement as most of the bitcoin/money processed by miner’s isn’t going to them.
Also, every time a miner processes a block of transactions they receive newly minted bitcoin from something called a Coinbase transaction. This transaction will not keep getting doled out since the protocol enforces that there can only be 21 milllion bitcoin minted, but it provides extra incentive for the money poured in for the time being.
In other words, money is not “burned” it’s being exchanged into a different commodity. If this commodity fails to hold value over the long run then sure there’s nothing left in terms of value but I’d say the same risks exist and have been realized by government issued currencies. Look at countries like Venezuela for example.
I have a lot more reasons on why it’s improbable Bitcoin will ever plunge to 0 in value but in the spirit of clearing up some misconceptions I’ll leave that for another comment.
Interesting, I never thought of it that way, and it makes sense.
Since money is not created or destroyed the balance sheet on inflows and outflows of BTC to dollars must be zero at all times. And some x% (which is variable) of it is transferred to miners which is the so-called "transaction" cost.
I guess there must be a point at which the bubble bursts, and that's when a run on BTC happens. At which point it should go swiftly down as the value of BTC has been taken out by the miners.
People like Bitcoin's provable global ledger and this is where the value lies. The value is not burned, it's embedded into this ledger.
However, I wish governments would ban regulated institutions from throwing peoples real money into non-governmental/undemocratic cryptocurrency.
If banks/govts want to get in on the action, they should perhaps start their own cryptocurrency/blockchain.
Ponzi schemes don't have to run by single individuals, but perhaps by multi-person organizations like the mafia. The mob was the reason the RICO laws came to be.
And undoubtedly, the mafia organizations would collaborate to break up their crime into regions. Mafia group A would take the West, etc. Since they're a criminal organization, anti-trust laws were meaningless. There wasn't a requirement that the different mob bosses had to compete with each other.
There are different waves of investors from the true believers who mined because the idea was powerful to the mt gox crowd, coinbase newbies, wall street / hedge fund crowd. Each group has a different reason. The latest groups are looking to make money and the earlier adopters have moved to a less popular more ideological coins with advantages over bitcoin.
Mafia no.. something else yes.
And I disagree that bitcoin proponents doesn't claim they make your money with for you: there's a lot of talk about the "deflationary nature" of bitcoin, aka the "magical scheme". Miners haven't burned all the money invested in bitcoin, but I'll admit this particular scheme has an unusually high cost of business, for a Ponzi scheme.
Most victims of a Ponzi scheme believe they're investing in something that will earn them money in the long run, otherwise they wouldn't have fallen for it.
Bitcoins long-term value is clear by examining it's usefulness: it's a tulip, at best.
I'll also freely admit that bitcoin is by far the most cleverly disguised Ponzi scheme yet, it's nature will probably only be obvious after the inevitable collapse.
Things like longevity and (protocol enforced) scarcity are previously things attributed to gold and remains one of the reasons why gold continues to hold value. Tulips on the other hand can easily wither away and its amount can grow exponentially. There are more reasons on why Bitcoin should be valuable in its own right, but many people who can write a lot better than me have written about it.
If you haven’t made up your mind on Bitcoin and still have an open mind to learning what it is, or even if you want more intelligent arguments to critique and debunk, I highly recommend reading The Bitcoin Standard written by Saifedean Ammous.
You likely never used bitcoin for any of the many advertised functions. You held it, and sold for a loss. Some will win, more will lose. Its a concentration of wealth with a little more class chaos than normal because it's accessible to a more diverse crowd. It still ultimately fails to incentivize useful work to society and it's still going to cause wealth to concentrate in the wrong direction.
This incorrect. I can purchase a home or food from humans and they have intrinsic value. If whatever market they were purchased on collapses, I simply live in the home and eat the food to realize their value, no further transacting required. Similarly with services I can pay for someone to build the home and harvest the food, the value is immediately realized because I can still eat, have a place to live and my time free to do other things. This is literally why the term "intrinsic" was uh, coined, to contrast these types of goods and services with things like precious metals which may have little intrinsic value.
If the market for food „collapses“ that means there is too much of it. Its value has gone down because your fellow humans do not want to buy any food from you anymore. Now, you can eat your own food, yes, but if you hoarded too much of it you will have to let the remainders rot away. In this extreme case the value of a good is only given by yourself. So your argument does not contradict the subjective theory of value at all.
On the day nobody cares for Bitcoin anymore, its value will go to _almost_ zero. Maybe some former Bitcoin zealots will keep the blockchain on their hard disks anyway as a memory. Then some subjective value will be left to Bitcoin even then.
>Goods and services provided by humans have no intrinsic value but become precious simply there being demand by other humans.
Nonsense that's easy to disprove: try to stop eating food and start 'valuing' dirt as food. You will, of course, starve to death. Why? Because actual value is objective and exists regardless of what people think.
Intrinsic value objectively exists, but in most cases can only be estimated, correctly or not. It depends both on location and time coordinates.
Civilizations that estimate objective value too incorrectly collapse or get conquered. Those that estimate it correctly enough prosper.
The long term metric for any civilization is fortunately clear enough - energy use, also called the Kardashev's scale. It's a long term metric because foolish civilizations can waste energy in the short term (eg. by mining bitcoin) - but because it's wasted it results in less available energy in the future.
In cases like bitcoin there are no unknowns - it objectively has negative value and destroys wealth. It's backed by nothing and generates no income.
Don't get me wrong - I'm not saying don't play in crypto.
Never in history was it so easy to get rich by extracting wealth from others - which is what bitcoin and 99% of crypto in general is for. Is it a scam to promote it? My personal definition is pretty simple: it's a scam when promotion involves lies. Telling people bitcoin has value, while being a developer (thus smart enough to know it's worthless)? Scammer. Telling people it may go up in price (because other people may buy it)? Not a lie.
China was smart to ban crypto - they're too big to hope to profit at the expense of the west, and in fact most coins and tokens are held by Westerners, virtually guaranteeing it would end up as wealth transfer from China.
Crypto tokens can have real value - if they monetize efficiency increase in the real world. A smart contract economy is a possibility and it can exist - but right now it's all in the proof of concept stage. Without the ponzi factor I think eth should be valued between $1B-$10B (based on future potential, not current income), other smart contract platforms collectively at 20% of it, some defi tokens like MKR in the upper 8 figures - lower 9 figures. Everything else - worthless.
I'm really far from an expert in economics so I could be wrong but ain't that how the stock market works for non-dividends stocks?
> Telling people bitcoin has value, while being a developer (thus smart enough to know it's worthless)? Scammer.
There is little about being a programmer that qualifies you to declare Bitcoin a scam, or not a sacm. There is a set of programmers opposed to cryptocurrency that believes that their background qualifies them uniquely - that is hubris.
People don't need to understand any code to understand that Bitcoin is a spreadsheet.
Your entire statement is wrong. I'm surprised you managed to write so much without realising how wrong it is.
Sounds like you don't know what digital assets are, or what a ponzi scheme is.
Trading cards are ponzi schemes too. From an entertainment point of view, they are created for the purpose of being fun to trade. From a monetary point of view, they are a ponzi scheme.
Bitcoin is neither fun, nor solves a problem, nor has any use beyond monetary.
No, not really. You're confusing the concept of intrinsic vs perceived value, and completely ignoring the concept of utility.
People who buy cards for fun do it because it's fun, just like we could spend money to rent a sports car, go on a vacation, or drive around a test track. The monetary value of a hotel say from last month is zero, but that does not make hotels any type of fraud.
What would represent a Ponzi scheme would be, say, advertising Beany Babies as a safe and guaranteed investment to attract speculators, sell them Beany Babies for a hefty markup, and proceed to leave them holding the bag.
There are many different reasons to own Bitcoin, however the author seems to only view it through the lens of someone living in a wealthy and developed country with financial stability.
The properties of it being difficult/impossible to confiscate and its privacy make it valuable in oppressive regimes. A refugee could store their wealth in Bitcoin, leave their country, settle somewhere else, and access their Bitcoin without the risk of it being confiscated during the journey, because they can simply memorise the seed phrase (24 words).
It's predictable issuance schedule also makes it valuable in countries suffering from high inflation or hyper-inflation.
This is a good article to rethink the use cases of Bitcoin: https://bitcoinmagazine.com/culture/check-your-financial-pri...
Alex Gladstein works for the Human Rights Foundation and does lots of good work in Bitcoin advocacy. His other articles are worth checking out.
And the data backs this up. Some of the biggest growth in Bitcoin users around the world have been in places around Africa and Vietnam who are subject to some of the situations mentioned above.
Do you think these people see Bitcoin as a "Ponzi"? Do you think they care if such a definition doesn't change the properties they find useful/valuable?
It made me quickly appreciate that a persons ability to transact while not quite a human right, isn't too far from it either. There is no way the government (or financial world) should hold the power to wreck someone with no accountability. Bitcoin as I see it, is a way to shift the balance of power somewhere closer to where it belongs.
I don't hold bitcoin because I think it'll go up in value, I hold it because I don't want someone to tell me I can't pay rent because ... well they can't tell me why, because "sorry, I don't have access to that information"
You set up a scene of a refugee "storing their wealth in Bitcoin", but it begs the question: where are these refugees with substantial wealth they are looking to exfiltrate? Typical refugees are emigrating from locales where they were earning dollars per day. The use case of shielding hoarded wealth during a journey to a freer locale is a blinkered fantasy. (Of course, if this is incorrect, surely there are hundreds, at least dozens of compelling case studies by now?)
The average transaction fee during slow periods is about $5 and it jumps to $20 whenever there is load on the network.
And the lightning network is a poor solution to this because the LN requires a lot of capital to fund channels, something poor people explicitly don't have.
Finally, the fact that Bitcoin proponents have to point to poor authoritarian countries to find legitimate usecases is telling in and of itself. It's basically a blunt admission that the technology is mostly useless in the US.
Sure, there’s very tiny amount of people who use Bitcoin as you described. But so there’re people who get benefits from smoking.
Problem: Who is selling Bitcoin for local currency in an area where there is a problem which is generating refugees?
Sure - you can electronically send Bitcoin to people, but how is the seller going to receive local currency from a war torn region without being local themselves? And if they are local...why are they selling their Bitcoin?
Remember - this is an area presumably in some form of collapse. How is a refugee going to transact their savings to another party who can accept them safely in the first place (rather then say, just being robbed - presumably why they're fleeing).
With that said, each day that goes by I am more inclined to agree with him in relation to Bitcoin and all projects that tout "fixed supply", "store of value", PoW crap.
I agree that the unbanked and people that fear persecution or censorship can benefit from crypttocurrencies. The part where I don't agree anymore is these people have BTC as their best alternative to protect their wealth or to be sovereign over their finances.
LOL, who in those countries would sell them bitcoin?
You've pulled out an argument I see all the time about the utility of bitcoin, but you can always just tell that it's made by someone who's never lived under an oppressive regime.
It's a first-worlders idea of what thirdworlders can do.
This is a misconception and a fundamental misunderstanding of gold's primary utility for thousands of years.
While it is true that gold's price reflects a significant premium beyond the "natural" market price, this has been the case for millennia. Since ancient times, most demand for gold has not been for industrial uses or jewelry, but rather as a store of a value. This results in gold having a "monetary premium".
It's also worth mentioning that it is no coincidence that humans happened to chose gold as money. Among all chemical elements, gold has a favorable combination of chemical properties and rarity in the earth's crust that make it a suitable choice for storing value over long periods of time. In fact, nearly all gold mined in human history is still around today. We've been hoarding it since the time of the pharaohs.
I'm sympathetic to crypto skepticism, but I'm afraid many people are missing the forest for the trees. I'm curious for those that still truly believe Bitcoin is a ponzi scheme or a bubble - at what price point and time would you start to consider that you may be tragically wrong?
In theory Bitcoin can keep growing as long as people believe in it.
It has a strictly negative EV though.
* it returns no revenue
* At current mining levels, it burns about 1.8% of its market cap annually. By burns I mean literally burns energy and ASICs. (About $18 billion at current market prices)
* That’s just for mining costs. There are other costs associated with bitcoin such as costs associated with running exchanges, etc. won’t venture to guess here but it’s all in the billions. Coinbase alone had costs of about $1.1 billion in Q1
No market price changes this fundamental math. People could bid up the price to $1 million per coin and burn $360 billion per year on mining and the dynamics would be the same.
Now, what would change my mind would be some kind of use case. Currently we have money laundering, avoiding governments, etc. thin gruel
There is some interesting stuff happening with Ethereum. I don’t know if it will take off, but I at least see ways in which it could (Chainlink etc)
If bitcoin develops some kind of use case, then I’d change my view.
Right now bitcoin in economic is more akin to tourism or a church or something. It takes a bunch of economic resources to run it, but it also makes people happy, and that’s the benefit.
But don’t be mistaken: money goes in to bitcoin to be burnt (like tourism). It doesn’t generate money. That there is a number going up doesn’t change any of the dynamics laid out above. That’s just shuffling around between participants, not revenue or a use case.
Bitcoin could be the world reserve currency and the same people would still say it's a scam.
Ultimately, who cares? The world is changing with or without them.
What price would tulips have had to have attained for them to be proved "not a mania"? [1] "At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled artisan."
Which is to say a high price by itself is not a proof of bitcoin not being bubble. I do have a criteria - bitcoin will not be a ponzi scheme if it genuinely winds up being used as currency. Of course, this wouldn't solve its other noxious problems.
Lol. Bitcoin is exactly comparable to gold. Plenty of people buy gold expecting it to appreciate...because other people use it as a hedge. Even if it were true originally that Gold's only purpose was as a hedge (protip: it's not), its very utility as a hedge would make it useful as a source of alpha for those wanting to bet on the demand for hedges.
This article is just stupid and pointless. It's attempting to take a label that has a strong negative valence, deconstruct its attributes and apply them to something else, and then port that valence over to the new thing. The negative valence ascribed to "ponzi scheme" is because it is a scam intended to defraud its investors. A ponzi scheme that is not an attempt to defraud its investors, even if it fits some "technical" description of a ponzi scheme, does not deserve to have the valence of "ponzi scheme" assigned to it.
I certainly don't believe Bitcoin meets the technical definition of a Ponzi scheme. But even if it did, this article would still be a stupid and pointless attempt at valence hijacking. An activity that the world already has far too much of.
Long run? I think not. Gold hasn’t really risen over millenia, just stayed in a certain band.
Buffett made a good argument that you could either buy a giant gold cube and fondle it, or a large number of productive assets in the states and collect the revenues. He’d bet on the assets being worth more over the decades, and over the long run he was right.
Bitcoin proponents expect bitcoin to soar long run, unlike gold, which doesn’t.
I said they expected it, not that it did. I know plenty of people who buy gold expecting it to appreciate. Whether or not it does appreciate is irrelevant.
> Buffett made a good argument that you could either buy a giant gold cube and fondle it, or a large number of productive assets in the states and collect the revenues. He’d bet on the assets being worth more over the decades, and over the long run he was right.
No he wasn't. If you invested all your money in the medieval equivalent of an index fund, it'd be worth far less today than if you had invested in gold. You can't just cherry pick the last century.
Anyways, i'm sure there was a first person to discover gold. And i'm sure that person had the most gold when the discovery was made. That doesn't really have much bearing on whether gold is a ponzi scheme, though.
Having said that, speculating on FX is a zero-sum game, which I'm not generally in favor of.
Now apply that to Forex. There are players who needs to hedge against target currency devaluing and others who are willing to take the risk premium. That you can gamble on it if another matter but then again, you can gamble on many different otherwise useful financial instruments.
https://www.statista.com/statistics/273418/unadjusted-monthl...
There are plenty of shitcoins out there that are purely pump and dumps, but it seems like BTC is here to stay.
Bitcoin is doing what, 100m transactions per year? Most of which are not for physical goods. Venmo, which started around the same time, does over 2 billion. M-Pesa, a "digital money" solution the same age does 15 billion. US credit transactions? 45 billion. Debit? 75 billion per year. And unlike Bitcoin, most of those are what people would call real transactions. Bitcoin's real use is a rounding error.
Cryptocurrency can be here to stay and also be driven by scams. Set up a Google News alert for "Ponzi scheme". Ponzi was active 100 years ago, but his approach is more popular than ever. As they say, there's a sucker born every minute.
After about a year, only about 0.3% of checkouts were done with crypto. Even manual bank transfer is used magnitudes more often.
Edit: Not sure why the downvotes, but this is a common phrase used to denote ponzi schemes.
Go to Coinbase and try to figure out how to use Bitcoin to buy something with. All they talk about is Bitcoin as an investment.
A currency can’t be an investment as the expectation that it will rise in value undermines the main quality of a currency, which is to maintain a stable value, so it can be used as intermediary.
Coinbase has a focus on trading. However, you can use bitcoin to buy things through Coinbase Commerce.
The idea that gold is useful as a store of value is ridiculous. You have painted the picture perfectly with your comment. It is not easily moved. It is not easily utilized. It is worthless to the average person and it’s price is heavily inflated.
After all, the eponymous scheme by Charles Ponzi was built on legitimate postal reply coupons.
So a list of non-monetary uses for gold is not evidence that its monetary uses are not Ponzis.
Most financial instruments are at least Ponzi-adjacent in that their value is derived from the expectation that other market participants will pay more for them than you did.
Whether it's real estate or equities, precious metals or cryptocurrency, profit requires an infinite cycle of growth that must collapse at some point.
https://www.gold.org/goldhub/data/gold-supply-and-demand-sta...
As of June 30, 2012, the $100 bill comprised 77% of all US currency in circulation. Federal Reserve data from 2017 showed that the number of $100 bills exceeded the number of $1 bills. However, a 2018 research paper by the Federal Reserve Bank of Chicago estimated that 80 percent of $100 bills were in other countries. Possible reasons included economic instability that affected other currencies, and use of the bills for criminal activities.
https://en.wikipedia.org/wiki/United_States_one-hundred-doll...
There's actually been far more industrial usage proportionally recently than any prior year. Prior to 2020, the highest industrial usage year was 2016, at ~7%. The article is wrong; the VAST majority of the demand for gold does indeed come from investors. This is ignoring gold's historical status, of course. Before the advent of modern computing, there was extraordinarily little "practical" use for gold beyond use as tooth fillings. And yet, it is during this time that gold was most coveted. Why is this? Economists have been debating that for a century! :o)
>Jewelry is its own category but it does have “utility” if viewed through the lens of human behavior across civilizations over time.
Jewelry does have utility yes, but gold jewelry has no marginal utility over, say, brass jewelry, other than the material composition. And yet, gold jewelry commands a far higher price, and despite even this, it is still in higher demand. This is because buyers place a premium on the metal itself, hence why I referred to it as a para-investment.
(B) is perhaps gold's most unique physical property, but given the historical prominence of silver (a metal that corrodes rather easily), I seriously doubt that this alone justifies a single ounce of gold historically having been worth an average person's months of wages.
(C) is true of many metals, and has only come into existence as a method for verifying gold in more recent years, which again belies its historical value.
Generally speaking, the people who provide the goods, use fiat for production of the good, and convert the crypto back into fiat to realize profits.
and that therefore, someone selling goods for cryptocoins, must, in addition to using cryptocoins, also use fiat currencies (because most of their business expenses can only be paid in fiat currencies).
And the system has revenues. Ethereum did around $35 million daily in fees this last week. Uniswap did around $3 million. https://cryptofees.info/
No doubt there's something to it.
As long as you don't steal the electricity you need to pay for it in fiat. And you not only need electricity to mine new coins, but also for transactions
Ransomware creates demand in bitcoin and this demand keeps the value up.
Or is the author going to try to argue that txn fees don't count, and then Visa is also a Ponzi?
It's clear as day from my perspective that everyone is jumping on the speculative mania bandwagon. It used to have some utility in facilitating cheap illicit transactions, but those days are long gone.
For the record I believe that enabling criminal activity is REAL utility, whether one agrees with the moral implications or not.
Almost nobody is using bitcoin as a currency. It's all speculative investment. This is coming from someone who has made quite a bit of money off crypto and has actually used it countless times as a currency to buy physical goods.
To those of you pointing out that other markets like equities are also detached from reality, I agree with you and don't think it means bitcoin is any less bullshit. At least ETH has some utility as gas for distributed applications.
The author published these in 2014:
https://ic.unicamp.br/~stolfi/bitcoin/bitcoin-beggar-1024.pn... https://ic.unicamp.br/~stolfi/bitcoin/2014-03-02-ShortHistor...
Bitcoin ended 2014 around $378.
I think it's proved it's staying power. Let's move on.
The Social Security Administration is entirely solvent by itself. The only "ponzi scheme" comes from congress using it like a piggy bank. And despite all that, SSA is backed by the US government. Bitcoin is backed by... nothing. So it's basically the equivalent of the zimbabwe dollar, not SSA.
[0]https://www.theguardian.com/technology/2021/jul/31/out-of-co...
https://cbeci.org/index/comparisons
I'd be curious to read your thoughts.
Back in 2010, credit card companies blocked off all donations to wikileaks, even though they had not been found to be breaking any laws.
Yet, people could still donate bitcoin to them.
Censorship resistance, is still useful, even in situations where nobody has broken any laws.
It's far worse than a ponzi: ponzi's aren't usually compulsory.
Government runs a debt and finances it on the bond market with US Treasuries. That's not a ponzi scheme.
Edit: Not sure why the downvotes, but it's true and will continue to be true in the forseeable future.
Hashrate and mining investment is a reflection of that belief.
Don't take this as advice to buy Bitcoin at 50k.
Normal currencies like USD are, in the end, also based on trust. They're just pieces of paper, and the value is in the belief that those pieces of paper will represent approximately the same thing tomorrow. Trillion dollar pieces of paper could be made worthless tomorrow, but everyone trusts that they won't due to the dire physical consequences.
Even those currencies, that we consider normal today, were bootstrapped over a very long period by originally representing physical metal that could be redeemed.
Possibly. It is an asset, after all. The problem is that people are buying it because they expect it to appreciate significantly, hence "when lambo." There's a difference between believing something will retain its value and believing it will appreciate.
It's the people invested in it that gives it value. Just like fiat, gold, art, stamps, useless antiques, etc. As long as it has value to someone, then it has value. I can't see it disappearing anytime soon. Yes, it might fall and rise in value but to disappear like any other Ponzi scheme? Don't hold your breath. Bitcoin is more than a decade old now. It will be the longest running "Ponzi" scheme. Be back in a decade to say I told you so. Bye!
I strongly believe bitcoin will be the new gold one day, if it doesn't pan out as a currency. It sounds insane, but I actually believe the Winklevoss twins when they say Elon and SpaceX will be able to mine gold on asteroids within the next 20 years, which would crash the price of gold. Not to mention as everything inevitably moves digital, we need to have a digital store of value.
On the other hand, if one were to buy proven gold reserves stored on an asteroid, then that might make sense. The exploration company could discount the value of the gold by the existing cost of sending it to Earth and the ongoing cost of guarding it which will necessary given an absence of enforceable property rights. As the cost of terrestrializing shrinks and potential value of off-Earth use grows the value of the asteroid stored gold would increase over time.
What is the energy cost to get a refined kilo of gold back to Earth?
what would be their incentive to do it, then?
"First, few if any gold investors have expectations of profits. They generally invest in gold as a hedge -- a "store of value" -- that they hope will retain its value in case other assets go sour."
Actually almost every other point he tries to make on things NOT a Ponzi could be made for Bitcoin too.
The entire forex trading industry: am I a joke to you?
Hearing your friend got into Forex is about the same as when they get into Amway, Tupperware, DoTerra, or Herbalife …
Hahaha somebody let GameStop, Tesla, and Virgin Galactic know about this rule.
What if people are seeing discussion of minting a trillion dollar coin, trillions in QE, 25% of all dollars created in the last 12 months…and concluding that fiat currency is in an endgame and they are permanently trading what fiat they have now for one of a finite number of digital assets that will ever be created.
As Michael Saylor once said in an interview: “It’s the superior asset, Laura”
What if my grandmother had wheels?
More seriously, how many people do you know are seeing what you are talking about?
Everyone I know that invested in crypto did so hoping to trade it back later on for more fiat than they paid. Sure, maybe it's a biased sample, but it's a sizeable sample and I do not know even a single person that traded their fiat for crypto definitly.
IMO he comes off a grifter who needed to save his company and kept buying loads of BTC to start the "institutions are buying" FOMO.
That would have been a plausible explanation, if not for the abundance of digital currencies. There are now many more times crypto assets than there are actual currencies in the world, and new ones seem to be created every day. There is absolutely nothing "finite" about crypto anymore.
* Within margin of error
Money without an army is just paper. Or, in this case, imaginary numbers.
There will be no one to cry to when the machines start cracking all the hashes and wipe away the entire ecosystem.
I'd wager the NSA already has this capability, but they won't blow it on something so stupid.
And? Should we should look at it through a lens of a non-traditional Ponzi scheme? Ponzi 2.0 is better than Ponzi 1.0?
> What if people are seeing discussion of minting a trillion dollar coin, trillions in QE, 25% of all dollars created in the last 12 months…and concluding that fiat currency is in an endgame and they are permanently trading what fiat they have now for one of a finite number of digital assets that will ever be created.
If the Debt Bubble is nearing its end and fiat currency is in grave jeopardy, what is the mechanism by which the people holding these "digital assets" will save themselves from the economic hell that awaits the world?
Bitcoin may be a scam on so e level, but it is not a Ponzi scheme. The linked article seems to miss the most important property of such a scheme:
Incoming capital is misrepresented as returns and passed back to investors. Bitcoin does not pay dividends. There are no returns in Bitcoin, only pure capital speculation. As there are no returns, there is no misrepresentation of capital inflow as returns and no Ponzi scheme.
Bitcoin is more like a tulip...
> First, few if any gold investors have expectations of profits. They generally invest in gold as a hedge -- a "store of value" -- that they hope will retain its value in case other assets go sour.
I believe Bitcoin has potential to become the "new" gold. It's better in many ways. Does that mean I can only buy Bitcoin if I want to use it as a hedge? No! I can buy it with the expectation of profit because I expect it to be commonly used as a hedge in the future, at which time it will have a much higher price and I'll have made money.
This is not the case with gold.
Banks existed long before the internet did, and in a post-apocalyptic crunch we could always go back.
In HN's mind, crime is okay if our enlightened government does it.
This is a very simplistic view of equities markets and does not explain penny stocks, meme stocks (GME/AMC), TSLA, and other things that seem to escape traditional fundamental analyses.
Tesla unfortunately undermines your argument. Has it been hyped to the moon? Definitely. Is there a good chance people will lose a lot of money on it? That too. But they make actual cars that get actual people actual places. That is the kind of actual value creation that underlies most stocks.
But by understanding that it is a gambling machine - I can make a "reasonable" choice, buy some token, sell it at a "small" profit of 10-25% and move on.
The crypto is here, it's fact. It's not going anywhere soon. No one loud is out there with an agenda to deliver the message of its uselessness. Most people don't understand how crypto works - and not even trying - and I personally got over screaming "the emperor has no clothes" and now just quietly do some trades from time to time.
Just a bit of reality to the "lens of someone living in a wealthy" blah-blah-blah.
I did a SWIFT transfer of 30k USD from an eastern European country to a 1st world country. It cost me 20 USD to send and 10 USD to accept the cash within 3 working days. Yes I had to go the bank and it took some time - fair enough - BUT the fees were much lower than I would've paid to the exchanges. I had an ability to reverse the transaction (to an extent), it was an open and legal non-commercial transaction (and I don't have to explain it later to the tax man).
C'mon crypto, try to beat that :)
"Bank the unbanked", "inflation", "poor immigrants" - you know it's all BS.
We lived through crazy inflation periods - basically you either convert your local cash to USD/EU as soon as you can or buy some local products (that you can resell) if the currency is not available. Thus people buy fridges/TVs, etc. There is probably a local village smart-ass who would use crypto for it, sure. But it's just an exception. These people have zero trust in anything, including their governments, so crypto is even lower in this chain of trust.
Immigrants and refugees have 101 ways to transfer their money. There are so many companies/networks that it makes your head spin. And their amounts are so small so very often it all goes under the radar anyways.
Basically all the crypto-mania as is is a big joke AND a great opportunity to make a quick buck :)
Nano has instant transactions and 0 fees. Try to beat that.
Is there any non currency use case of blockchain?
NFTs (Not just art but concert tickets like GET protocol, gaming like Axie Infinity, collectibles like Crypto Punks, etc)
DAOs (Internet scale corporations/governments)
Identity systems (ENS, BrightID, Proof of Humanity, etc which allow for supranational products that build on top of reputation and uniqueness. The Sign-In With Ethereum standard is bringing self-custody OAuth authentication to Web 2.0 applications)
Enterprise interoperability (Baseline)
There's a ton of stuff going on and it's almost impossible for any one person to keep up with everything. It's easy to write everything off as a scam but there's hundreds of thousands of really smart and high integrity developers working in this space and it's worth keeping an eye on.
There's also interesting things going on in the NFT space towards MMORPGs based around an economy of in game items being themselves NFT's. It's not all stuff and nonsense and jpeg millionaires lol :)
Some of it is, surely, but as time goes on more and more technologies will use it to greater effect with more utility beyond merely, "prices go up".
The purpose of blockchain is decentralised consensus for the Bitcoin protocol. It has fulfilled that function very well for the last ~12 years.
There MAY be other legitimate use cases, but the majority of them right now are varying degrees of money grabbing scams or cargo-cults.
It's one of the most exciting things happening in tech right now, and HN is at best ambivalent and at worst openly hostile to Bitcoin.
Why wouldn't the tech crowd be excited about digital native money which is perfect for the Internet?
Look at what's happening around the ecosystem with the Lightning Network, Impervious.AI, RGB etc.
The repeated bashing of cryptocurrency on HN of all places is tiring. There is a lot of innovation in the space outside of BTC. What about DAOs? What about lending products? The space is booming in interesting ideas and all I ever see on HN are posts about BTC being some kind of scam. Where did the 'hacker' mindset go on this site?
Now it is absolutely shit at that job. Cost per transaction, transaction throughput, time to assurance a transaction won't be rolled back, all make Visa/Mastercard look amazing except for certain business domains. As such people offer it up as an investment, and that is the reality the average person engages. Like the gold rush, the people making money are the ones selling shovels (as pointed out in the article).
Does that make it a Ponzi scheme? I am not an economist, but I don't think so.
A horrible investment? I refuse to deal with crypto, volatility and environmental concerns are my primary reasons.
Actually holding land out of use so you can speculate on its increased value, which comes from the activity of the community around you (and not any actual hard work or investment you yourself did), is an unproductive speculative activity that is a drag on the whole economy and the cause of our housing crises. I'm not sure if I'd call it a ponzi specifically, but it's bad and we shouldn't encourage it.
[0] https://www.statista.com/statistics/1195753/bitcoin-trading-...
[1] https://www.statista.com/statistics/1200477/bitcoin-mining-b...
I laughed a little, but then I realized he was serious.
OK yeah that's called an investment. Most people don't invest in stuff they think will be unprofitable. Maybe you're different?
>> that expectation is sustained by such profits being paid to those who choose to cash out
Profits aren't paid out from Bitcoin. There are no profits being paid out. That's sort of the key difference. Bitcoin doesn't send you a check if you own it.
>> the operators take away a large portion of this money
If there were "operators" of the Bitcoin scheme, they left billions of dollars on the table. Which...I hope they did!
But sadly, unlikely.
That's a pedantic evasion. You're conflating profit ("making net money") with dividends or other rent mechanisms. Selling an investment is colloquially "profit taking" too. And you can only sell, on balance, to those entering the bitcoin system.
So, no it is not a Ponzi scheme. It might be something similar to a https://en.wikipedia.org/wiki/Pump_and_dump
This sentence is proof enough that this person doesn't get bitcoin.
You're welcome to change those two lines, start mining and then see what happens.
Your mined blocks will be rejected by other nodes in the network and you'll be spending energy costs without getting anything in return.
The whole point of bitcoin is that you can't just change the source code and thereby the properties of the emergent network. You need to get a majority of nodes (not just miners) to support your change. This is not easy to do, and won't happen if your change is detrimental to the majority of network participants.
This might be questionable and thankfully we have non-PoW/PoS systems that dont do this but the whole Ponzi thing is just nonsense. Its entirely irrelevant if it matches some (your/anyones) definition of a Ponzi or not. Just to usual click-bait "bitcoin very bad" title that gets the HN people all existed to up-vote it.
Yes, bitcoin is garbage tech, but all the hate posts will only push it further. People should focus on systems that do the same as bitcoin but without the "bad". There is a multi billion dollar demand that does not go away. A little bit education about FBA systems would reduce the resource wasting from PoW by a lot and all without taking away the peoples freedom to gamble with "digital money".
Is it theoretically still possible to make a profit with that kind of hardware nowadays?
Please someone just tell me. I have no interest to do research into this. I just feel sadness for the crypto-bros.
Going a bit more in-depth: Mining is a competitive activity. Your chance of being the person to mine a block is proportional to the fraction of the hash rate of all miners you hold. Therefore, if everyone is using super advanced mining hardware and you go in with a GPU, you hold an insignificant fraction of the hash rate and have next to no chance of actually mining a block, while you still spend on power and hardware maintenance - which will probably make mining a net negative for you.
Nowadays BTC mining is advanced enough that the only way to make a profit is with big specially-designed rigs located in places with access to very cheap energy sources.
The others have become a proxy for Bitcoin.
Money’s value has been dictated by how much of something a currency can buy – which is dependent on inflation and economic performance.
I would love to have seen/heard the conversations that were had around the changes that people had to go through and if the conversations were similar to this day. Because I would imagine that back then, considering that money is just an agreed upon invisible force a la Bitcoin, people probably hard a very hard time understanding the intrinsic value of this metal coin/paper money.
I can't see any conceivable way that happens at this point. Even a coordinated effort by the world's governments to "ban" it (they can't really ban it) would not drive its price to zero... if anything it might even have the inverse effect.
Can you provide any conceivable way this would actually happen? Maybe an asteroid hitting Earth and wiping out all human life on the planet?
1. A banana is yellow
2. A banana starts with B
Bitcoin is usually represented by a yellow coin with a b in it, and it starts with B, therefore bitcoin is a banana.
----
The article just redefine the word Ponzi so it loosely fit Bitcoin. But it is missing one key feature of the common interpretation of a Ponzi scheme: the fraudulent part.
There are companies that never made any profit yet their shares increased in value. There are companies who made some small profits but their shared increased much more because there are high expectations.
By the definition in the article any asset which can be speculated is part of a Ponzi scheme: land, stocks, bonds.
If you buy and sell land, increasing its price, without other means to derive value of that land, such as agriculture or rent, it fits the definition of a Ponzi scheme.
> bitcoins can be earned and spent, not just bought and sold. That makes no difference for the purpose of this discussion. If you buy a $2000 laptop directly with bitcoin, for financial analysis it is the same as if you had sold the coins for $2000 and bought the laptop with that.
The core of the post seems to be a claim that demand for Bitcoin is a recursion with no base case. But then this passage gets to the base case and just dismisses it as irrelevant -- since it could counterfactually transit through dollars. If you think a state currency is the only logically possible currency, that needs an argument (and an difficult one, given history).
The rest I'd call rhetoric and side issues.
If people expected no gain in USD (or inflation) then they would not hold USD and instead choose assets or other investments.
If one does expect profits they can achieve that not just by BTC going up in value, but other currencies being inflated.
I myself hold bitcoin as a store of value and do not necessarily expect profits. I simply feel that it will hold it's value better than other things. I could be wrong, but that doesn't mean it is a Ponzi.
I hold cash knowing full well that I’m bleeding due to inflation, but the versatility is well worth it. That’s pretty much everyone who is holding cash other than a small handful of forex traders speculating on USD vs euros or whatever
They are willing to pay the inflation penalty because holding the dollars in question provides them something. Generally that means either a sense of security or liquidity on short notice.
Holding dollars is paying a fee for liquidity.
The question is: how long is the public going to place trust in cryptocurrencies?
There is an upper cap to the ability to generate bitcoins [1] which acts as a similar cap on the long-term viability of the system.
1. People invest thier time/effort for "Dollars" 2. When someone "buys" something they are effectively cashing out the worth of the "Dollar" through trade (someone else's time/effort) 3. "Dollars" do not nessarily create more labor (time/effort) 4. "Dollars" are just effectively pieces of paper or digital bits if people stop actually working. It is worth something because people are willing to work, invest time/effort, for "Dollars". 5. Printing money effectly dilutes the existing pool of labor, etc. "taking away money".
You can reliably expect a dollar to decrease in value, by contrast. People may hold it as a hedge but no one expects a dollar to 10x.
You have hit on something useful: dollars are just a claim on the real economy, but if the economy stops dollars are worthless. But this isn’t the same as the dollar (or any type of savings) being a ponzi
Silver or gold in a speculative bubble behaves just the same as crypto right now but they are not Ponzi schemes. They are simply a property of how markets work when speculation gets over energized
Yes, Bitcoin is a Ponzi scheme (by virtue of people making it so), but that does not, nor should it, imply that the only thing Bitcoin is, is a Ponzi scheme.
Bitcoin is a Ponzi scheme in the same way that sociopaths exist in the game of geeks, mops, and sociopaths: https://meaningness.com/geeks-mops-sociopaths
It's part of the ethos but does not describe the whole ethos, and trivializing Bitcoin to a Ponzi scheme is the wrong answer. As, honestly, is trying to defend that Bitcoin is not a Ponzi scheme.
Irrespective of how value is in practice (or volume) making its way through the system is different from the system itself.
There are several promising elements of Bitcoin which contribute to its value. One is sheer access and connectedness (e.g. Metcalfe's law). People use facebook (its valuation reflects this) or pay for a phone plan because connecting to the Internet is a synecdoche for ubiquitous access. Creating a fabric where people in any country may work for a company, irrespective of its location, is a paradigm shift from what we had previously. Today, working for a US company from Taiwan is a legitimate challenge & deterrent.
There are many such examples, where transparent ledgers for instance may increase trust between parties and give people more confidence in financial robustness. All of these things have intrinsic value, just as the architecture which is PageRank has value for Google.
A common mistake I hear is for people to point to these advantages as if to suggest that it is without flaws or incapable of flaws, when we -- the people using the system -- are quite fallible and driven by prisoner's dilemma-type incentives which may by no means be long-term efficient or equitable (given we're all in the same boat). And I think these social challenges should be noted and not discounted on behalf of "technology being good enough".
So, I think this is a case of "Yes and".
Gold is worth more than metals far more rare because of hoarding and resulting scarcity, etc. Historically those who buy early accumulate more value.
>that expectation is sustained by such profits being paid to those who choose to cash out. However,
>there is no external source of revenue for those payoffs. Instead,
>the payoffs come entirely from new investment money, while
>the operators take away a large portion of this money.
This seems to perfectly fit financial markets.
The type of scheme operated my Mr Ponzi was characterised by fraud and the money going to Mr Ponzi and so was different.
If reading that kind of delusion (this guy Jorge Stolfi has been at it since 2014), here's some additional fuel to kindle your fire:
https://www.reddit.com/r/CryptoReality/comments/o7v5xs/is_bi...
Currently, the US Treasury pays old bond holders by a combination of tax revenue and by issuing new bonds. However, each year, a bigger fraction of old bonds are paid by issuing new bonds. Over time, this will lead to almost 100% of old bonds being paid by issuing new bonds, and then they will be a true ponzi.
Bitcoin, by definition, can't be fraud. The protocol and code are open source. We know how it works.
If you lose money because it's a speculative bubble that eventually pops, that's because you made a bad bet, not because you were defrauded.
You get rich from crypto by selling, not HODLing.
Bitcoin is money which provides sheltering services for wealth.
How is this true of bitcoin investors? When bitcoin price action is near all time highs, most bitcoin investors are not in the red.
I like the idea of a network for money separate from an asset presented here.
As far as I'm concerned cryptos are backed by cocaine and at a much higher tangible rate than fractional banking the dollar is.
There was a time when bitcoin was a possible way to either encode data into the blockchain, or to make financial transactions. These uses are still possible but at vastly less available price points.
Let’s say Bitcoin is a Ponzi. What or who will do the inevitable rug pull that comes with those scams? What if the rug pull never comes (or does 1000 years from now)? Is it still a Ponzi? Was it a Ponzi for those people who benefited from it in that 1000 years?
What if your ponzi becomes a globally accepted currency.
What operators?
Prove me wrong.
> real estate
> stocks
Sure, these things aren't ponzis. What about art and stamp collecting, though? How are they not ponzis under this definition?
It's clear that the HN crowd does not like Bitcoin. So why keep reiterating similar arguments all over?
There is zero utility in the article shared. It states some anti crypto views and that's it. Even the author concedes that this is according to his own definition and not based on real life legal tests (which have of course shown that Bitcoin is not a ponzi).
Just let Crypto users be. I get it. You don't like Crypto, but at this point it's not like an opinion piece can change the their views.
Users transacted in the trillions of USD over last month. Crypto got institutions, countries, wealthy individuals, poor individuals using it every day. It's clear it has some utility to them.
It's time to reflect and consider that your anti Crypto position might be wrong.
Edit: clarity
This is what the maxis are after.
If we don't cut this off ASAP, we all stand to lose.
[1] https://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.ht...
You're not saving anything. There are valid criticisms of the current financial system, but cryptocurrencies are not a good answer to them.
Bitcoin is getting a lot of attention from a lot of very smart financial people around the world because they see that with so much USD being printed, inflation is bound to happen and Bitcoin is one of many ways they can hedge against it.
HN is where you can find great commentary about tech related stuff. But outside of that eg. financial matters .. no.
I expect that many users on HN have known about Bitcoins since the beginning and are upset that they didn't look into it years ago. Many will find their niche in it(smart contracts, NFTs..), younger people more so.
Stateless P2P open source currency is an incredibly powerful combination of words.
> which have of course shown that Bitcoin is not a ponzi
What are you referring to here? This would be a rebuttal if it exists, but to my knowledge no such thing does
> Just let Crypto users be
This is your main point of substance. But as another user pointed out, the collapse of the Albanian ponzi started a war and devastated a country.
Bitcoin, if it is the ponzi it appears to be, is the biggest ponzi in history.
It is unwise to merely leave ponzis alone. They’re illegal for a reason
When we take a closer look at crypto it appears to be as corrupt or even more as the institutions it was trying to replace. Tether, of course, is the poster child of crypto corruption.
Bitcoin is fraud
Bitcoin is a bubble
Bitcoin is OpenSource
Idiotic definition of a ponzi scheme crafted intentionally to include bitcoin, fails to include bitcoin, but does cover many valid economic activities.
I agree with you in spirit. Stocks that will never pay a dividend (if you can see the future) are worth $0. Most stocks are effectively speculative assets.
The difference is that a stock has a real, legal value: ownership of a company that has cashflows. If that company is liquidated, you have rights as a shareholder. You may also be able to vote on important decisions that the company makes.
Bitcoin is an asset that, by definition, never will pay a dividend. It is a stock that we know with certainty is worth $0. Its only value is speculative.
In that sense, Bitcoin is very much like fiat currency: its value is imaginary and based on how other people value it.
But if we're comparing Bitcoin and, say, USD, then Bitcoin is by far the worse currency because it's deflationary and unbelievably expensive to transact.
That's why, in places with unstable currencies, people mostly shelter their money in USD. If cryptocurrencies factor into it, it's because those currencies are seen as easier ways to transact USD. People who need their assets to be spendable on a daily basis don't hold them in Bitcoin.
HN doesn't know everything, do your own research, use your own logic.
It's funny how people on HN which are likely some of the first people in the world to know about bitcoin (eg. since it was only at $100 or less) keep upvoting articles like this for years now.
I think these people deep down know that they missed an amazing chance by not investing in bitcoin (and other cryptocurrencies) years ago, so articles like this make them feel better about it and lets them justify not investing in bitcoin to themselves.
But then in a few years bitcoin 5xs again and then they realize if they bought it at todays price would still have made them massive profit.
But then they see a new article saying bitcoin is a ponzi and upvote it and feel good about themselves again.
Oh but they have to downvote any comments like yours too.