Bitcoin: Addressing the Ponzi Scheme Characterization
lynalden.com
lynalden.com
That we managed to make this happen without a central entity that can run off with the money, with lots of people invested in the middle of the pyramid (the author, presumably) also doing the evalgalizing makes it technically different, but not practically. Collapse is always coming, to various degrees of severity.
If not to Bitcoin at one time, then to the planet. And GPU availability.
And before anyone tries to make a stock market comparison: No, this isn’t the same as stocks.
Stocks are, literally, partial ownership of a company. A shareholder owns part of the underlying company, including everything from their bank balances to their brand.
Bitcoin would be like subtracting out all of the valuable parts of a company and leaving nothing but the shares behind. You get an entry in a database (the blockchain) and nothinf else. Literally the only thing that gives this database entry any value is the ability to convince someone else to give you money in exchange for it.
Stocks give you voting rights at the AGM and a claim on future profits through stock appreciation or dividends if the company decides to issue dividends.
Its value comes from being in a secure, immutable database, accessible from any point on the planet with an internet connection, censorship resistant, and more private.
You could say that about lots of investments:
* art
* non-voting stock shares
* coins/stamps
* etc.
Anything with limited/finite supply can increase in value provided there is demand.
Who’s to say that someone’s enjoyment of a piece of modern art is somehow more real or valuable than someone’s enjoyment of holding Bitcoin?
Bitcoin also has some utility as a transaction medium.
The debate is wether or not it’s a smart investment, but as far as investments go it’s characteristics are not unlike many other forms that have provided sustained returns for decades, centuries or more.
No. Share value isn't determined by voting rights alone. It's determined by your ownership stake in a productive enterprise. You own a share of assets and future cash flows whether you vote or not. At some point every business will make a distribution - either share buybacks, dividends or at dissolution. Your share entitles you to a fraction of that. Shares have value regardless of whether someone else will buy them from you. It may be less than you paid, but that's not the same thing.
> Art, coins stamps.
These are much closer to NFTs than they are crypto. Each is unique. Due to their uniqueness there isn't a party constantly extracting value from your existing unique items (as miners do, by constantly producing more Bitcoin and selling it to pay their electric bills).
> Bitcoin also has some utility as a transaction medium.
It really doesn't.
> It really doesn't.
It is pretty difficult to support an argument that Bitcoin has zero value as a transaction medium.
Except for bankruptcy.
Plus, I can’t remember an instance of common share holders receiving a non-dividend distribution. Some stocks don’t pay dividends and common share holders are at the back of the line in any liquidation event. If it’s not pure speculation it’s certainly in the ballpark.
Ultimately everything is a ponzi, for some definition of a ponzi. Likewise securities fraud.
Shortages are still produced as everyone competes for the same limited silicon.
> Ultimately everything is a ponzi, for some definition of a ponzi. Likewise securities fraud.
No, it most certainly is not lol.
It is totally valid to claim that Bitcoin is a scam, or that scammers are targeting Bitcoin, or scammers are using Bitcoin to scam people. You can say that the price is a pump-and-dump (but that's a factor of the price and promotion, not of Bitcoin), you can say that it is a low-liquidity market-manipulation scam (more a function of allowing leverage on exchanges). You can even call it a pyramid scheme, although, once again, you have to be careful because a pyramid scheme is a particular type of scam, which, on closer inspection, this is obviously not. Please stop saying Ponzi. You're besmirching the good name of a perfectly cromulent scam.
But cryptocurrency and derived technologies like NFTs are for the most part scams in the general sense. The type of scam varies but the system is ideal for the unscrupulous to fleece the get rich quick, tech illiterates who think they are smarter than they really are.
Tech-literates see the tech-illiterates getting scammed, and thereby extrapolate that the technology is fundamentally a scam, which is absurd.
Data structures, protocols, algorithms, exist at an abstraction layer below that of socio-economic-marketing scams.
But: Since "crypto" holds no intrinsic value, such as the backing of a states wealth, the actual material value of resources like gold, oil or coffee, or the structural value of a company (knowledge, employees, contracts), all its "value" is dependent on what other people are willing to pay for it, and the money these people have pumped into the system.
To put this in simplest terms: Every cent someone makes from whatevercoin, has to be put into the system by someone else. A house appreciates in value since living space is a scarce commodity facing growing demand...it's sarcity and thus its appreciation in value is a natural process caused by usefulness and demand.
The scarcity of blorkchain "currencies" however, is artificial, and they have no other use than as a token of value for something of actual worth.
(source: https://www.cardrates.com/advice/number-of-credit-card-trans...)
How many transactions are handled per day by major blorkchain currencies again?
You just fell over your own point there. Both houses and bitcoins go up in price if the demand for them goes up or the supply of them goes down... calling demand 'put into the system' when you disapprove changes nothing.
Also there are plenty of people who use houses as 'tokens of value' only to flip them when the market is favorable, and there are plenty of people who use crypto as a functional currency when other options are unfavorable to their circumstance.
Blorkchain "currencies" have no intrinsic value, because they have no other use than as tokens. Their market-value depends entirely on the market, entirely on the money pumped into the system.
In a way, blorkchain coins are a bit like overvalued stocks, the difference is, there is not even a company behind it, there is only the market evaluation.
Let me answer that by showing you a mirror perspective of your point;
Crypto has intrinsic value. People can use Crypto to exchange or store value bypassing dangerous intermediaries and structures of control. Its value was not put into the system, it simply exists, period. even if the housing market crashes, a crypto currency will still be useful and can appreciate. Cryptos market-value is dependent on both demand and usefulness. The second variable doesn't change.
Now the point here is that the mirror argument is about as right as yours. You can imagine ways crypto will devalue, i can imagine ways your house will devalue. You can imagine using your devalued house for things that are useful to you, i can imagine using a devalued crypto currency for things that are useful to me.
What are examples of these things?
Something which has no use other than as a token of value, once devalued, can no longer be used to exchange value. Sure, one could still transfer 100000000 whatevercoins to whoever after they are devalued, but what's the point if there is no value to them any more?
> People can use Crypto to exchange or store value bypassing dangerous intermediaries and structures of control.
EUR, USD and CNY wont suddenly lose a lot of their value overnight. They are tokens of value as well, with no use other that to exchange value between people. In that regard, they are similar to blorkchain "currencies". The difference lies in exactly these structures of control. They are regulated, and powerful actors (states) have an interest in their stability.
Its a feature, not a bug.
Scarcity in blockchains is not, let's say trivial, since you haven't described how being artificial is a detriment. If the Bitcoin Core developers, the exchanges, and all the largest whales all collaborated to increase the supply of Bitcoin in their interest, they would fail lest they somehow convinced everyone who puts value in the network (many put value in for the reason that the supply will likely never change) that the supply should change.
You should do a bit more research on how blockchains work and where there security comes from.
this "value" is also arguably "artifical" bc it is also derived from nebulous concepts like "trust"
I personally think deriding something bc it's source of value it's what I like is a fruitless exercise
For me, Bitcoin isn't really the problem. If anything, I would be happy if Bitcoin remained the cryptocurrency. And, maybe Ethereum, since I respect Vitalik's work on it and his determination.
Problem arises with all the other "shitcoins" and all the stink they bring with them. There is absolutely no valid reason to invest in alternative crypto (coins, NFT, etc,.) because it has no real-world use or direct application for the individual himself.[0]
And everything that will follow in the coming 12 months, it will be merely an attempt to validate it. Web3 (the crypto version) is hyped up so much that will inevitably face the music when an avalanche of tribulations come crashing down on it.
[0]: The argument that you can use alternative coins to replace expensive banking in poor countries is acceptable, but I don't think that is the point here.
Which is indeed a property of any money; if nobody wants it, it cannot have value.
However, I'm not sure they've taken the time to think about what the real-time monetization of a newly discovered commodity looks like. It took gold thousands of years to become a global currency, and now we have something similar but with the speed of the internet. With the physical properties of the Bitcoin protocol / blockchain (halving, fixed supply, etc.), it starts to look very obvious as to why people want to front run it, or use it as a store of value. And so the expected behaviour becomes obvious.
The non-negligible amounts of comparison to bernie madoff or enron suggests otherwise.
The cleanest approach is to give no mining advantage over any adopter, early or late. By fixing the emission rate, for example at one coin per second forever [1].
[1] https://john-tromp.medium.com/a-case-for-using-soft-total-su...
The "buy the dip" promoters don't want their net worth going down and push that so that they can sell again at the peak
Grifters will use the truth just as they will use a falsehood. All you've done is mistaken everything grifters say as a lie. People with solid opinions on Bitcoin(--anything--) form them on their own, not as an obtuse reaction to noise.
Rewarding its creators and early investors is a reason to make a Ponzi scheme but it is not a defining characteristic. The characteristic issue is that there is some negative sum coefficient siphoning out value. In this case, it's the miners.
It's a fresh coat of paint, distributing the Ponzi-esque roles across numerous people.
The promoters and shills are separate from the value extractors are separate from the scheme operators.
The network requires them because they themselves control the network. It's the reason the block size wasn't increased.
Have you heard of this little thing called, Bitcoin Cash? Did the miners prevent that? No, the users put the most value in what they deemed was most valuable. The miners do not have exclusive control over the network - if they did the protocol would be hyper-inflationary by now.
By the way, miners selling Bitcoin by definition does not decrease liquidity, it does the opposite, it puts more Bitcoin up for sale. The fact that miners have to sell to pay for electricity does not mean they siphon value, they provide security and are compensated for it you goofball.
> Your inability to distinguish salesmanship for facts about the network and global economic conditions does not mean they are the same thing.
And by calling real money "Fiat currency" you've demonstrated your complete lack of understanding of finance.
I was only pointing out that for this to be a Ponzi scheme, it doesn't require any malintent from its creator.
You've misunderstood. Your opinions seem to come from your emotional reaction to seeing grift, then applied broadly to all new things which the grift may be associated. You saying its not true doesn't make it so, which also applies to your comment about my use of the term 'fiat currency,' which I used exactly as I intended in line with the definition of the term.
A ponzi with no mal-intent from its creators is irrelevant. If the code is open source and participants understand what they are doing (which they majorly do in much of the space), then it is not a ponzi, users are not being duped.
If you're referring to the creation of a totally useless token and speculation on it, then you're talking about something else. Lumping all of crypto into that bucket is a popular, flawed, obnoxious cope.
I don't know how you ended up with this logic. Is it not possible to run Ponzi schemes on a platform that is open source? How's the source being available prevent any pump and dump ponzi from happening?
Also, stop trying to do a psychological evaluation on me. If anything, you should be the one getting checked.
Also keep in mind that The Bitcoin Network has a quantifiable measure of value and therefore not all trading of it can be labelled speculation, whether you agree on that value or not.
Isn't that what my original comment was?
Aside from that, Bitcoin is still a flawed model stemming from an incorrect understanding of money _whether you agree or not_
That it's _only_ used to run ponzi schemes is a problem on top of that.
It has become, functionally, a decentralized pyramid scheme.
Let's look at some of the criteria reviewed in the article.
- Investment Returns: Not Promised
The promise is peer to peer: players convince each other of investment returns and almost all players (that remain) are there because they believe in that promise. Once the last dude who wanted to buy pizza without giving Visa or Mastercard a cut has left the room...
- Open Source: The Opposite of Secrecy
Yes but that the mechanism of redistribution is (partially) in the open does not invalidate that something is a ponzi or a pyramid scheme. The openness is also partial, Bitcoin is still pseudonymous enough that we know what moves but not always who and why.
- No Pre-Mine
Early mining with exponential reduction in block reward is functionally equivalent to a pre-mine: the founder(s) have a considerable advantage. A bit more open but then one can also usually do well by buying early on the secondary market an explicitly premined coin that later becomes successful (e.g. ethereum). It's effectively a more elegant way to do a premine with nice deniability (harder to get caught for doing a security offering).
- Leaderless Growth
Yes it's decentralized. A decentralized pyramid scheme remains a pyramid scheme. It's not an intrinsic property of the tech but of the social happenings around it. (Many altcoins that are other instances of the same code have failed to get traction and become pyramid schemes.)
I've been seeing comparisons to Ponzi schemes a lot in the last few weeks. AFAICS "Bitcoin as Ponzi scheme" is a useful strawman for pro-bitcoin arguments because it's so easily defeated. Bitcoin as Pyramid scheme is a much stronger argument, with far fewer articles dedicated to it.
The first and foremost is security. Security in Bitcoin is a direct function of hashpower: the higher the hashpower, the more expensive a re-organization attack is and the sooner you can 'trust' newly appended blocks. The longer one has to wait to be sure a 51% attack hasn't occurred the less valuable the network is.
Secondly is scarcity. Bitcoin has a set number of coins which will exist and one of the strongest promises in the world that it will not change. This gives rational reason to hold on to Bitcoin in favor of 'objects of value' which are inflating or have the possibility of inflating.
You can always bring up the fact that traders want to sell higher than they bought and will communicate nefariously if it helps them achieve that goal. That is true for any asset. The misconception in your reading is that Bitcoin only derives value expected future returns, which as I have demonstrated is not true. What can often be confusing to wrap one's head around is that the more Bitcoin is worth in terms of mining cost (dollars currently), the more security it will have; the value goes up with the price, which for many doesn't pass a certain, unsophisticated smell test regarding scams.
If it sets off your alarms, refer back to where the value is coming from. You may not believe what gives Bitcoin its value is actually valuable, but, that's, just like, your opinion, man.
Then it is a decentralized wildcat banking scheme with no FDIC/SIPC protection or any financial controls and auditing around fraud and risk, and the largest market participants think the world is upside down and that those regulations are the problem.
It is vulnerable to a systemic banking crisis that causes a bank panic / collapse across the entire system, with no entity large enough to step in and bail it out.
Up until now it was probably bailed out after the 2017 collapse by the actions of True Believer billionaires. At some point though as it grows then a billion here or there won't be sufficient to address the liquidity outflows, once you start talking about tens or hundreds of billions to backstop a crash then it'll fail.
I wouldn't hold a large amount of US dollars as an investment either.
A common argument I hear from crypto folks is that government-backed currencies are susceptible to hyperinflation, as if cryptocurrencies aren't. But I don't see how this is the case. Once the growth stops, what is stopping everyone from pulling out?
Basically, you're trusting the market to not debase your currency instead of a single issuer.
I thought that was sort of the point, that crypto wasn't really meant to be an investment class, but more of a stable store of value like a currency. The mix-in at present is it's not a de-facto currency, so the price is highly volatile due to people treating it as an investment, speculating, gambling, etc.
And then the conflict to be wary of, or the question always in the back of my mind when looking at the promoters, is there own investments do better when they sell others on the same investment.
Sufficiently large, they are not. What made you think they were?
Assuming you have a de facto currency which is non-inflationary, the value in holding it rather than redirecting liquidity to another asset class is that holding it is the least risky option. The reason money was directed in to the non-inflationary asset in the first place was that the de facto currency was actively devaluing itself through inflation.
The larger concerns of a currency which cannot inflate are the economic problems which can come along with such stiffness - keyword: "deflationary crash."
Bravo.
> ...unlike cryptocurrencny where the amount of money invested into it has no relationship to its capabilities.
The most fundamental thing about Bitcoin is that its price has a direct relationship to network security, which affects how soon you can be confident new blocks will not be out-mined - a clear value. If you don't believe me simply look up a chart comparing Bitcoin hashpower to its price.
Sure, if a company increases revenue the stock price tends to go up. However, there is no requirement that it does so. It tends to do so because people feel the stock has become more valuable. Same thing with Bitcoin, except things other than revenue cause people to feel like it has more value.
> if the enterprise produces more revenue than a stake of ownership is worth more.
And there are many things that a crypto can do to increase its value, for example:
1. Switch to a more efficient algorithm (PoW -> PoS).
2. Increased network effects.
3. Running for a longer time without hacks or the network going down.
4. More projects being built on top.
Obviously... but the reason you use the language "not a requirement" is because everyone knows that's typically how it works. Obviously there are various factors that impact a stock price, but pretty much all of them are a function of expected future revenue. If Apple were to announce a VR product line tomorrow, the stock price would instantly climb because investors would make a judgement that this new product will generate future revenue. With cryptocurrencies this dimension does not exist.
> And there are many things that a crypto can do to increase its value, for example
Even if we grant that these things might amplify the utility of a cryptocurrency, it still doesn't change the fact that buying cryptocurrency does not facilitate productive work, it's merely an exchange of value between two people, no wealth is created. When you invest in a company, you're giving it fuel to grow and create wealth by adding desirable goods and services to the economy. I understand that you believe cryptocurrencies provide a useful service, and even if we grant that, buying cryptocurrency does not make it more useful, it's simply shuffling bits around.
1. Prices are rising because of speculation
2. There is very little non-speculation use of Bitcoin (people are rarely using it for commerce).
3. There is no return on assets from Bitcoin. No yield, no dividend, etc.
Bitcoin could go to $1MM per coin, it's possible. But as a 'fiat' currency, it lacks the institutional backing of other currencies such as the USD. Plus, I would be concerned that nations with their own currency (US, China, etc) could smack Bitcoin pretty hard if they wanted.
Bitcoin is a really cool project/concept/social-experiment. But I do think there's some structural risks and I can't buy into some of the more evangelistic talk about it.
This is not what "fiat" means in monetary econ. USD is a fiat currency (meaning it is backed by government "fiat," which literally means "a formal authorization or proposition; a decree."
BTC is currently only currency at all in limited contexts, but it is difficult to classify in the established categories of money and fiduciary media. The bucket it gets closest to fitting into in how it works, given that it is not backed by anything except its own perceived value? Commodity money. That seems off, of course, since most (though not necessarily all) historical commodity moneys have had a clear, usually industrial, value, and commodities have traditionally been only physical (though that seems to be changing). Some economists are suggesting "synthetic commodity money" as a category for this, but we're still in the early days.
"But," you might reply, "commodity money has a price floor above zero that 'backs' its value." But while that's historically true (see note), it's not clear that it matters. Cryptos designed to be used as currencies are certainly bubbles through some lenses, but through the same lenses all commodity moneys look like bubbles. An economist friend discussing this with me around ~2013 pointed out "money is just a bubble that doesn't pop."
Say a precious metal commodity money trades for $1500/oz, but through a complex model economists estimate that its industrial value would be $100 if it weren't used as a medium of exchange (or speculatively, as a number of commodities like gold are held). A cryptocurrency, on the other hand, is trading for $1500/unit, and its price is estimated to be ~$0 without such use. One has a price floor of $100, and a "bubble" value of $1400/oz, while the other has a price floor of $0, and a "bubble" value of $1500/unit. Does that distinction make a difference? It's not actually clear.
It's certainly possible to imagine a cryptocurrency reaching a long-term equilibrium where it is considered valuable because it is a well-established medium of exchange and has reliable purchasing power. Imagine that someone has created this, and it happens to have the best money qualities (durability, portability, etc.) of any currency ever, plus great UX. How would it get there? Well, there would have to be a fairly drawn-out period of speculation where the value fluctuated pretty wildly as the market attempted to find an equilibrium based on future expectations of its value.
So cryptocurrencies now are behaving exactly as we'd expect them to behave if they were to one day become "synthetic commodity money." The question is whether any of them can actually find that equilibrium. It may not be possible to bridge that gap, whether because the fundamentals just don't work, or because the fluctuations are too strong to ever create a real equilibrium, or because the US or China finds a way to shut down any crypto that gets close. But stranger things that seemed less intuitively plausible have happened.
Note: usually -- there are some historical moneys that don't fit clearly into this paradigm, such as cowrie shells, of which the use in jewelry looks to have been more of a symptom rather than a cause of the value*
It spends a lot of the time discussing the SEC's "warning signs" / red flags that something may be a Ponzi scheme which are symptoms and not causes. Just how a traditional Ponzi scheme may manifest within the context of traditional markets like 'issues with paperwork.' Nobody is going to claim that you need to have 'issues with paperwork' to be a Ponzi scheme.
Bitcoin is best thought of an a distributed or unbundled take on a Ponzi scheme where instead of having a single centralized authority run the whole show, various parties all collude directly or via incentive structure to achieve the same fundamental results.
> Investment Returns: Not Promised
They 100% are - by every single shillfluencer account on Twitter, on Reddit, on TikTok and yeah, even here from time to time. I've been NGMI'd here at least several hundred times.
> Open Source: The Opposite of Secrecy
Everyone agrees the chain is transparent. However, that's the kind of transparency that doesn't matter at all in this context.
What makes it a Ponzi scheme isn't that 1BTC=1BTC, it's that you have shady Inspector Gadget themed Bahamian shadow banks printing un-backed ersatz dollars and pushing the price up to create the illusion of gains. You have exchange "outages" as soon as the price starts dropping - but only when it starts dropping. You have spoof orders, wash trading, tape painting - every trick in the book - to make people think they've gained when in reality, they have not.
> No Pre-Mine
Yeah, all that means is it's not a security under Howey.
> Leaderless Growth
Yes, it's an old scheme with a fresh coat of paint.
> Section Summary: Clearly Not a Ponzi Scheme
Agree to disagree. I'm with Stolfi on this one.
1. It is sold as an investment, with some mysticism around how exactly it is appreciating in value.
2. All gains paid out to previous participants come from new participants.
3. Entities (miners, exchanges) are constantly extracting welfare for self-enrichment creating a negative sum coefficient.
[1] https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-pon...
Gold is a commodity with intrinsic value. It is an input into electronics manufacturing - in fact, you'd have a hard time making Bitcoin miners without it. It's also shiny and people like it, which adds to the demand. Folks are speculating on future commodity value. I don't think it's a good investment, but that's just me.
> Pokemon Cards, Stamps?
No, those are unique non-fungible items. Much closer to NFTs than BTC. There is no central entity extracting value by increasing the supply of these items, as each item is unique or at least fixed in supply.
I understand that, but it has commodity value.
> Its been traded for thousands of years because it is durable and difficult to produce. People who believe in Bitcoin compromised some sheen to make those two most important attributes tenfold more potent.
Nah, they got suckered into a Ponzi scheme.
That's got nothing to do with its price. Nothing is more difficult for someone else to produce than the hair on my head, but that's worthless.
Tether manipulation of 'prices goes up', leads to fomo, leads to cashout of big players, leads to bagholding from retail who has no other option than joining the crypto cult to try to fomo others and move price back up
It's pretty obvious
With any normal Ponzi scheme, there is "a guy", a guy at the center of it all cooking the books and redirecting the funds from late investors to early and skimming a healthy bit for himself. One day that guy gets arrested or decides it's time to run and the scheme collapses. Maybe that day comes a year in, maybe twenty, but it's a-coming.
With a distributed Ponzi scheme, there is no one guy. If some people get arrested for fraud or take their loot and run off somewhere, other people can step in and keep it all going, pumping and dumping and scamming and scheming.
I honestly don't know what it would take to actually make it go away for good.
If you look through the history of amazing scientific breakthroughs, I suspect you'll find that the ones that legitimately changed the world didn't require armies of self-proclaimed experts to explain to everyone what the benefit is and what problems it solves. However, when you look through the history of snake oil, boom-and-bust market crashes, and actual Ponzi schemes, that's exactly what you find.
If you want to convince people of cryptocurrencies merit, just go solve some real problems that real people have. The fact that cryptocurrency has been around for so long and no use-case has materialized outside of pump-and-dump get-rich-quick schemes tells you everything you need to know.
I don't know where it goes from here - its almost too late for it to prove any real world value. Also note that as equity assets tank so do crypto currencies - that strong correlation reflects how the Feds monetary policy has unfortunately inflated crypto. Wouldn't it be ironic if that was how Bitcoin actually did become a reserve currency (it won't because it doesn't behave like one and have underlying value similar to USD).
I mean the traits you describe are not wrong, it's just that crypto is not useful as a payment method due to transaction volume, value / exchange rate volatility, acceptance, etc.
For a laugh, people bought pizzas and the like with bitcoin. Nowadays they hold onto it because it might be worth fiat money. Why spend something as money if it could be worth 20% more tomorrow?
It's an unregulated trading product, it's not practical as electronic money. I mean it might become that, but it would need a lot more oversight, which will cost the traits you mentioned (peer to peer, censorship resistant, etc).
Hmm, we need to tell every Central Bank in the world that the gold bars they're holding aren't money.
Fort Knox must be a cover for government experimentation on aliens.
So its just some sort of very expensive commodity asset, which is used to store value, which we can expect to use to trade with other people, which USED to be money but somehow isn't anymore.
No they don't refer to it as money because words have meaning.
Sorry, gold is not money. You do know that right? It's a commodity. I think you and I talked about this - recently. Money is:
a current medium of exchange in the form of coins and banknotes; coins and banknotes collectively.
inconvertible paper money made legal tender by a government decree.I didn't know that the silver and gold minted coins traded by Roman merchants were in fact not money, but commodities. There's just so much utility in carrying around sacks of metal shards.
It was money in Roman times. Luckily we have moved on. It is no longer money, unless you're planning on trading with Marcus Aurelius. Gold was demonetized in the 30s.
Its interesting because you were even brave enough to includ "coin" in your definition. Coins are made of rare earth metal blends, like silver, copper, nickel, and gold.
So metals are only money when its in a small circular token form factor, but not when its melted together into a heavier bar. Got it.
> Coins are made of rare earth metal blends, like silver, copper, nickel, and gold.
Those are not rare earth metals. They are metals, but not rare earth metals. Those are "any of a group of chemically similar metallic elements comprising the lanthanide series and (usually) scandium and yttrium. They are not especially rare, but they tend to occur together in nature and are difficult to separate from one another."
Also, nickel isn't rare by any definition. Nickel is the fifth most abundant element on Earth.
> So metals are only money when its in a small circular token form factor, but not when its melted together into a heavier bar. Got it.
No, that's also wrong. "The characteristics of money are durability, portability, divisibility, uniformity, limited supply, and acceptability."
Gold fails the acceptability test because to be money, something must be broadly accepted as a medium of exchange. It is not accepted by anyone. Walk into a Walmart with a brick of gold and they'll tell you to get stuffed. You'll get the same response at Home Depot or if you try and email Amazon. That's why it's not money.
> Oh, so only the government definition of money is whats relevant here, and only of the last ~100 years. Historical and physical contexts of money are irrelevant.
They're relevant in antiquity. Not so relevant today. Like a hitching post. What matters isn't even the government definition but rather the social definition.
So while it seems strange to refer to ramen noodles as money in some contexts, and especially from the outside, the economic behavioural context allows us to attribute monetary function to this commodity, and allows us to say it is being used as a money.
When I'm talking about crypto/bitcoin/money, I am using a global trade and historical context, the macro concept of money outside of any single government, currency, or system. I am using money in an economic behavioural concept; something people use to trade and save with.
I understand you're not willing to accept or trade with Bitcoin, which is why it is not money to you.
But there are those that do accept it, and every year the numbers grow. Thus it is already money, and it is only a matter of time before it becomes de facto "money"
If you need long term value storage, use Bitcoin.
Price volatility is a result of trading volume and short term human behaviour. If you have enough imagination, predict what happens to volatility if mass adoption occurs.
Which is kind of the definition of a deflationary currency.
We've been through all of this already with the gold standard: it was useful for a time, but the pros and cons have generally been weighed and the consensus seems to be not to use it.
What if Satoshi wanted Bitcoin to be digital cash but with a limited supply like gold?
From the bitcoin whitepaper:
The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation.
Before Bitcoin there was no ‘cash’ on the internet. Only electronic corporate (controlled) money.
Bitcoin is an attack on the core foundations of our society and is trying to actively undermine democracy. Thankfully it's pretty ineffective so far.
What "democracy" is this? Is that the word you're using for a "choice" between Biden and Trump? Good grief.
Without an attached justification I can't tell whether this is serious or not.
I'm a big beginner believer in Kreiskyan deficit spending for example. Good luck trying to do that once you can no longer print your own money.
Deficit spending is stealing from the future. Bitcoin is sound money, hard money. You can’t steal from your children to pay your bills today.
If you look at what Bruno Kreisky did, you'll see that he didn't "steal from" the future, he invested for it. He basically built the modern Austria I know and love.
I also think the whole "stealing from the future" talking point is BS - to paraphrase Keynes, in the future we'll all be dead :-).
But it's okay for us to disagree here. In a democracy, we can just vote for somebody that represents our views. If either of us can convince the majority to see things our way, we'll get our way.
Now if we had an inflexible monetary system like the one you're proposing, even if the vast majority voted to do things my way, we couldn't anymore, because we robbed the democratically elected state of its power.
This is what I mean when I say Bitcoin is antidemocratic. It entrenches your ideology on a technological level and removes all democratic control.
You don’t want people messing with the money. You can’t trust people and you certainly can’t trust the Keynesians. Taking this power away from the abusers gives power BACK to the people.
You might not agree with my view, but to try to suppress it is antidemocratic.
> You don’t want people messing with the money.
You don’t want people messing with the money. I do. You're trying to remove my democratic right to elect somebody who will do what I want.
I don't care what Satoshi said - he's not some all-knowing saintlike figure. I want the central bank to be able to debase currency. I don't believe in the same things as you and you are attacking my democratic right to see my values reflected in society.
> Taking this power away from the abusers gives power BACK to the people
If you define "the people" as "everyone that agrees with you", sure. But that's an awfully authoritarian thing to do, isn't it?
The good thing about the parallel economies is we can both have it. You can have your rapidly inflating made up Euro, manipulated by your elected and unelected politicians and Bitcoiners can divide everything of value on the planet by 21M BTC. Thing is, as the fiat gets worse and worse, more people will choose to save in things like Bitcoin. Are you familiar with Gresham’s Law?
You are trying to word this like folks are pushing this on you. Nothing is further from the case. Opt-in.
I’m not defining the people as anything. Everyone is free to believe whatever they wish.
Your opt-in is actively harmful to democratic society.
You're saying "don't worry, you don't need to break the social contract, but we will and we'll make it easy for others to do so, too. And if our sabotage makes everything collapse, well I guess that proves we were right all along. wink"
Who’s pushing their authoritarian agenda now.
The only worse thing than having people that might practice bad monetary policy having power over the currency is having bad monetary policy immutably baked into the structure of the currency.
Totally agreed. Lucky it’s opt-in and voluntary! You are welcome to earn and spend money in whatever currency you wish.
The environmental effects are not opt-in, they're externalized to everyone else living on the planet:
If a few terrorists voluntarily fly a plane into a building, they're still taking countless innocents with them.
- Its failures at being a store and measure of value (wild and arational daily value swings) and medium of exchange (long confirm times)
- Real life environmental impacts (overblown, yes, but still glossed over)
- Criminal enablement (there's a reason most forms of ransomware use crypto)
- Scams everywhere
- Knock-on effects on the real world (tried to buy a GPU lately?)
- OPSEC issues (it's a lot harder to secure a crypto wallet than a credit card)
1. Some of those problems are being solved. 2. Some of those problems exist in other socially-accepted technologies and we've learned to deal with it. 3. People have trouble thinking abstractly and don't think deeply enough about their criticisms.
I'll briefly try to address your points:
- Stablecoins are going to be the answer here. In the future I think people will take out micro-loans in stablecoins with their bitcoin/ethereum/etc as collateral. Daily purchases will be in stablecoins. Confirmation times are actively being worked on, namely single-slot finality in ethereum.
- This is being worked on. Ethereum is actively testing their new proof-of-stake algorithm as we speak with the goal of a full release in the next 3-6 months. Bitcoin is another story but I think it's a mistake to lump all cryptocurrencies together.
- Criminal enablement. This exists but is vastly overblown. It turns out that transactions being public is risky for criminals.
- Email has phishing scams. Phones have scams. Internet popups have scams. Any open technology is going to have scams. I suspect this will improve as we develop a social framework to educate people. How many times have you hear warnings about phishing? We can do the same with crypto.
- This is being worked on. You don't need a GPU for proof-of-stake.
- This is being worked on via UX and technology. Smart wallets for example allow people to recover their funds if they lose their keys.
Ether's ecosystem is a lot more promising, but still has a ton of rockiness. More specifically, I'm not confident in the core usability problems being UX implementation details. People don't want to have to think this much when making mundane purchases.
Also, I'd argue just being as good as the existing systems is mere table stakes. It needs to be better (outside of being a speculation vehicle). That is one I truly don't see happening. The anonymity/uncensorability benefits are questionable, the valuation problem appears to rely exclusively on fickle market whims or corrupt centralized entities, lack of refundability is an anti-feature for the mass market (and only solvable with centralized middlemen, which obviates half the reason to be using a crypto in the first place!)
The advocates will of course mention that fiat money and stocks also depend on trust, but both of those have very powerful organizations presiding over them who ensure that the value of e.g. the dollar will not crash overnight, or that you will be compensated if your account gets plundered, or who will pause trading on a stock (or the market as a whole) if people start panicking and acting irrationally. Decentralized products (whether you consider cryptocurrencies money or assets) do not have these securities and guarantees. Individual players like exchanges might, but if one exchange decides to pause trading, the others will gladly take over that business.
Don’t Trust. verify.
- How are you verifying the contents and beneficial ownership of exchange wallets?
- How are you verifying market activity is legitimate, and there's no wash trading, spoofing or tape painting?
The underlying L1 is so utterly incapable that entire centralized, trusted and opaque businesses have to be built on top of and around it - offering none of the guarantees of the underlying - just to get past the fact it can't actually support more transactions than a mid-sized Costco.
I feel nothing for wild swings to my net worth. If anything, it has made the very concept of money more nebulous to me.
Yeah, no, but I do wish you luck with that. [1] USDT is 50% more volume than BTC and ETH combined. It's all the liquidity in the entire market. It's more important now than ever.
[1] https://www.bloomberg.com/news/features/2021-10-07/crypto-my...
The verification you refer to prevents double spending. It does not prevent insane valuation swings due to sentiment, government action, etc. That makes it a worse store of value than most fiat currencies.
Just like any fiat currency?
A fiat currency will only collapse if you lose faith in the state, your fellow humans and the ability of the judicial system to enforce repayment.
Once that happens you have much bigger problems. Like Mad Max style problems.
It will also collapse if people fear that the government will print too much money.
[0] https://purse.io
Really? Name a single one lol. Chivo is a MySQL store. And a garbage one at that. They only use Lightning to transfer value internationally between their own two accounts that they could do instead with an addition and a paired subtraction. Nobody uses Lightning. Nobody's ever used Lightning. Not to mention all the liquidity is provided by 3 centralized entities. [1]
I don't think Monero actually offers the level of security that most folks think it does, and Hydra still uses BTC no?
I did forget to mention ransomware payments, so thank you.
Chivo is one wallet. Agree it’s not great but El Salvador vendors hav implemented Point of Sale Lightning Network. It is an open system and you can use one of many mobile LN wallets. Chivo is probably the weakest. You will find that McDonalds, Starbucks, the local fruit vendor on the street can process an open LN tx. No sweat. “Nobody uses it”. Yeah ok. Those graphs indicate non zero channel balances and nodes.
Monero still has the 650k bounty on tx de anonymization. If you have a way, feel free to claim it.
RW. Sigh.
> “Nobody uses it”. Yeah ok. Those graphs indicate non zero channel balances and nodes.
I didn't see a country come on line in the charts. I see twice as many people using it as 3 years ago and virtually zero increase in usage post-El Salvador.
At the end of the day it's boat anchored to a worthless L1 which would require 75 years and ~1/3 of a trillion dollars to open a channel for everyone on earth.
I think you are being willfully ignorant about this. You said no country uses it: and I said yes they do. You said chivo sucks, I said yeah, but you can use any LN wallet.
I don’t know what more I can say. You are living in the past man, making excuses for the Fed and the State. Things have moved on, and I feel like you will be screaming as more nations adopt this. El Salvador is mining BTC from geothermal power from Volcanos.
My point was that fiat currencies live and die by the trust in governments that issue them. "Full faith and credit".
Luckily that never happens.
[1] https://www.bloomberg.com/news/articles/2021-01-13/venezuela...
It can happen, it has happened, and will happen again.
Anything could happen at any time. But I don't live my life with a pile of weapons, canned peaches and ammo. That's prepper talk.
We have no idea what a hypothetical apocalyptic failed state America looks like. There's no guarantees that there won't be a single entity with more than 50% of the hash power. There's no guarantee that the internet will be up. There's so many things that have to go exactly right to think we'll be trading spreadsheet cells in the apocalypse.
Also, it's completely opt-in, you don't ever need to buy any Bitcoin if you don't want to. It's going to crash and burn, or prosper on its own merits.
Consider that Iceland has a wonderfully stable currency and no standing army. It's got nothing to do with the army.
[1] https://www.bloomberg.com/news/articles/2021-01-13/venezuela...
And look where that got us: the federal reserve printed trillions of dollars in 2020 to prop up the stock market.
They didn't print money to prop up the stock market, first of all, that was a side-effect.
A massive shock to the economy - remember COVID? - caused people to go home and stop working - to save money instead of spending it - and broke down supply chains. Without intervention this would have led to a deflationary spiral where merchants tried to lower the prices to incentivize spending, but of course this would mean they had less money to pay employees, which in turn meant employees couldn't afford goods - and so on. [1] All of the worst periods in world history were deflationary.
So the money supply was increased via QE swaps (which by the way, just swap assets on the books at banks with reserves to collateralize loans) and lower interest rates. This allowed folks to go back to work and allowed the economy to resume functioning.
Money isn't printed and handed out. Money enters the system via lending. All the money that was created will blink out of existence as the loans it was issued against are repaid. The Fed can reduce the supply if the supply itself is causing prices to go up - but it is not. The Fed has the tools to reduce supply just as it has the tools to increase the supply.
A lot of excess liquidity went into assets, but as interest rates go up, it'll come right back out and blink out of existence. So what?
The Federal Reserve literally saved the economy.
Explain to me how this is bad in any way?
This feels a lot like people complaining bitterly about the 2008 bailouts - which by the way were loans not grants, and have been repaid netting the US government over $100B in profits. [2]
Maybe, just maybe, the Fed isn't a scam?
[1] https://www.investopedia.com/terms/d/deflationary-spiral.asp
It's right in the Genesis block:
> The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
The real problem that people have is that the money we currently use is corruptible by those in power.
Funny how you carefully avoided making any solid points here. Let's assume what we all know you're saying - Bitcoin, if it was legitimate, would not require shills in order to be successful. Since Bitcoin is fully capable of securing $1 trillion dollars worth of value (unhackable despite the massive prize) I would say its had some success. Are there many shills around for Bitcoin today? Yes. What does that have to do with its success or value?
Even further obliterating the point you were too scared to make directly: the initial momentum which got Bitcoin started and gave the protocol its security which gave it that aforementioned success in security was grassroots and based in technological and academic interest. This is very clearly spelled in the blog post. Did you read the content before forming your thoughts about it? You might as well have not. Embarrassing.
This definitely isn't it.
The big problem with cryptocurrencies is that most of their promised "benefits" are actually detriments to people who are not anarchocapitalists (or close to it).
We don't want government control of money to be "disrupted", because governments are actually, in principle, accountable to us. The fact that there are certain prominent governments that have become corrupted by big money in practice is not even close to a good justification for tossing the whole "democracy experiment" out the window and replacing it with something that in principle does not answer to regular people in any way, shape, or form, and is very likely in practice to be ruled by those with big money from the outset.
We have about 80% of a working system already in place. What we need to do is fix the broken 20%, not have the absolute hubris to think that because we're The Smartest Guys In The Room, we can build a better, fairer, system that's built on the pure beauty of unfettered technology.
I don't think the mere presence of a lot of internet arguers is particularly strong evidence of anything, tbh.
What it is is the manifestation of the Greater Fool theory. The only reason you buy it is because of the expectation that some fool greater than yourself will pay an even higher price that you.
And if BTC is that, then NFTs are the Greater Fool theory to the second power.
[1] https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-pon...