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Comment by Syzygies | Hacker News Reader

Dunno whether I'm having more fun watching the Musk bonfire, or the FTX collapse.

My digital timestamping paper is cited by the original bitcoin paper, so people assume I appreciate cryptocurrencies. They're an environmental crime and a Ponzi scheme. Many people have tried to explain to me why cryptocurrencies aren't a Ponzi scheme. The poker player / oral examiner in me kicks in: They may not realize they don't understand or believe what they're saying, but they don't make sense.

Denial is powerful. People want to believe this is their moment.

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> Many people have tried to explain to me why cryptocurrencies aren't a Ponzi scheme.

I love how many people will read this sentence, and then respond by trying to explain to you why cryptocurrencies aren't a Ponzi scheme.

cryptocurrencies don't have to be ponzi schemes but most of them are because the crypto "investors" want to get into ponzi schemes.

They don't "believe" in shitcoin's "white paper" but they believe there are more ponzi buyers.

To be fair most retailers do the same with stocks so it's not that different. I don't even mention CFDs where the vast majority lose. Even "analysts" score various instruments based on "demand"/market sentiment not value.

Stocks are different because there’s actually an underlying business beyond “waiting for the next guy”. For example in a non-ponzi security there is long term value as a business grows. No such thing for shitcoins. Nobody is saying sentiment doesn’t matter in the actual economy, it’s made up of humans, of course sentiment matters. It’s “is sentiment the only thing that matters?”, and in the case of crypto the answer is yes.

A year or two ago there were actual business ideas behind some coins like file coin for example but now it's not even that anymore.

Indeed but then people found out they don't care about what's behind the ticker (i.e underlying value) as long as its price goes up. You can find the same behaviour on many stocks as well(i.e $AMC more recently).

> Stocks are different because there’s actually an underlying business beyond “waiting for the next guy”.

I agree but this doesn't change the fact that many people don't care about the underlying business and often the stock price and underlying business are disconnected. They just gamble whatever is "hot" or if they think they are smarter they trade the chart. In this way it's no different than crypo "investing". Both can make you rich or get you bankrupt, fast.

I was always told, "If your feet are wet, and you can see pyramids, you're in de Nile (or a fountain, in Vegas)."

What does that mean?

"de nile" is a play on words.

"In denial" is basically a pop psychology term, meaning that we are not admitting something that is true and obvious[0].

Like, if our spouse is cheating on us, and they come home at 1AM, smelling of booze and perfume, with lipstick all over their collar, but we say "I'm sure he was just working late."

The "Vegas Fountain" bit is a joke, as they have a pyramid-shaped building, for the Luxor casino[1].

[0] https://en.wikipedia.org/wiki/Denial_(Freud)

[1] https://luxor.mgmresorts.com/en.html

Thank you!

I'm not convinced that cryptocurrency is a ponzi scheme.

Crypto is an asset, not a market. Decentralized digital assets cannot inherently be ponzi schemes. The level of transparency and trust in the market on which they trade is what determines if it's a ponzi scheme. I am convinced that many cryptocurrency markets/exchanges are ponzi schemes and need to be significantly regulated so that market manipulation is reduced significantly, especially when non-accredited investors are involved. However the fact that these markets trade crypto is not relevant.

Every time crypto implodes (what are we, on the sixth extinction?) people love to stand by the sidelines and say "see I told you so!". All that's really happening, as someone else on HN aptly put it, is we're speed-running the history of finance out again in crypto-land. It is a shame that self-regulatory efforts that Gemini and Circle tried essentially failed, but it's not really surprising. Power corrupts, and there's almost no regulation in the industry. The industry has clearly shown it needs regulation, so the time to claim that it doesn't is completely gone.

I for one, am extremely optimistic about what cryptocurrency means for the human race. I honestly believe it will do for the human economy what the internet has done for knowledge. I hope I am not wrong, and I'm certain that there will be dark periods full of bad actors, just as there was/is for the evolution of the internet.

I should state that I own no cryptocurrency at the moment, even while being optimistic about the future of cryptocurrency.

> All that's really happening, as someone else on HN aptly put it, is we're speed-running the history of finance out again in crypto-land.

I’d be surprised if the person who said this meant it was a good thing. The sentence literally acknowledges a similarity between crypto and traditional finance. Yet instead of taking those lessons and implementing the solutions the crypto space insists on making the mistakes over again and maybe learning the lessons. The cognitive dissonance in this space is intense.

Yes, the space is making the same mistakes but that has more to do with the nature of humanity and its tendency toward corruption. It does feel like a missed opportunity, but intellectually I am pretty convinced the corruption was inevitable.

That said, this is all growing pains. It’ll pass.

The price of crypto does not need to stay high for the benefits to be present. It just needs to stay above the price level where an adversary can simply buy a significant percentage of the network.

I still believe in the promises of crypto.

> Every time crypto implodes (what are we, on the sixth extinction?) people love to stand by the sidelines and say "see I told you so!".

And each of those times there was more saturation of public interest to be achieved, which levitated prices across the entire asset class.

That’s now done.

Expect to see a steady waning of interest and prices until some stable state is achieved. The entities left in the space will predominantly be obstinate true believers and criminal enterprises.

I find it incredibly funny to read "every time crypto implodes" in a statement that is positive about crypto. A system that keeps imploding and the only reason it's not staying dead is stuff like Tether cooking their books at fusion temperatures seems like it might be a net negative for humanity, no?

It's also weird to see people repeating - at scale - mistakes from the past, as if following a playbook. Finance regulation is a pretty well researched and historically attested field? I suppose greed tops all.

Would you share a link to your paper?

"Improving the efficiency and reliability of digital time-stamping," In Sequences II: Methods in Communication, Security and Computer Science, pages 329-334, 1993.

I love how the discussion is about the efficacy of cryptography/blockchain, yet I confirmed this was the correct paper merely by reading the plaintext posting history of "Syzygies" and seeing him call himself "Dave" in one of them.

I figured it out from a post of his where he links to an article and says that Simon singh said that I introduced him to something.. and then the article quotes Simon as saying David Hayes did that thing.

It's easy to find these things, especially with somebody who's been in computing for so long and probably has a huge digital trail and no desire to hide their identity. If I didn't see anything in 30 seconds of browsing his post history, next step would be to look up the authors of the papers quoted in the Bitcoin paper(not many) and see if any are still living and interested in astronomy, based on his username.

About as good as fiat, just based on shared faith

> Many people have tried to explain to me why cryptocurrencies aren't a Ponzi scheme.

Any currency or "thing", be it fiat, crypto, or commodity, is given value by people who trust and believe in it. If you get more people to adopt and have faith in it, its value goes up. Once people stop believing in it and seek to escape it, its value goes down.

This is why oil is priced in US Dollars; this creates demand for dollars and gives the US government power. This is also why the Brtish pound tanked recently; people didn't like the direction of the newly elected British government, and sought to sell their GBP denominated assets.

So if your definition of ponzi scheme is "people trying to get more people to adopt it because it enriches them", then yes, all currency systems are "ponzis", they compete and have incentive to take value from other currencies.

Surely you are not trying to claim that anything which has any value is a viable currency?

The US dollar holds value because the US demands you pay taxes in it. It also helps that you can actually use it to buy stuff - from an ice cream cone at a street vendor to an oil platform. And it is backed by a massive government, worldwide banking system, and not-too-shabby military.

Meanwhile, crypto is proving to be woefully ill-suited for any kind of payment, contract, or loan. The vast majority of its use is either speculation or crime.

Crypto seemed promising in 2012, but a decade down the line nothing convincing has come out. It is still a solution looking for a problem, and at this point I highly doubt one will come out of the woodwork any time soon.

> Surely you are not trying to claim that anything which has any value is a viable currency?

Obviously you're not going around trading ramen and cigarettes, but if you live in a some closed system like a prison, then yes, anything of value can be used as a currency. History shows many societies have used many different things as money. Eventually gold out-competed those monies and became the de facto standard for money. You forget that US dollars were originally promissory notes for redeeming gold at a bank; this is what gave US notes value (trust that you could get gold for the notes), and the de-pegging of gold gave birth to the experiment that is modern day banking.

This description of money doesn't sound right, to me? Personally, I subscribe to the Graeber-Innes hypothesis: the use of precious metal coinage was a credit risk mitigation strategy. Using gold (or whatever) was important not because of any latent value of the metal, but simply because it provided material accounting for asset backed representative monies in a distributed, robust, vaguely secure manner.

I mean, I seem to remember the Mesopotamian cultures using "fiat" accounting for 3000-odd years? That's one of the theories of the development of writing: accounting.

Currencies generally have value because people are forced to pay tax in them. I started trying to write something witty, but there really isn't anything else to add.

Gold was currency for thousands of years, and its value was not assigned by any state.

Are you sure about that statement?

I’m not a historian, so I could be wrong, but my understanding is that currencies came very early, raw bullion wasn’t really used for normal trade, and silver was much more predominant than gold.

Trade starts with bartering commodities and collectables. Metals start being used in trade. Gold, having superior stock to flow ratio, becomes the premier store of value. People hoard gold when they can, and get rid of the coins of lesser value.

This is how you end up with the US government installing a military base over a huge stash of gold, called Fort Knox. They don't do the same for silver and copper.

Right, written documentary evidence since Roman times shows that currency was measured by count not weight. There was a brief aside in medieval continental Europe when some influential policy makers misinterpreted Roman documents, but by that point the currency was well established.

The value of the constituent metal is dictated by the price (in count) that the mint pays. Nobody pays less because you could go to the mint, and if anybody demands more, you just melt the coin. It was the count that gave value to the metal, not the other way round.

The only evidence for currency from barter comes from the imagination of economists of a particular bent.

I'd bet that plenty of states insisted that the money they demanded be paid in gold or other precious metals (all of which are useful in other ways.) Other governments may have demanded rice or grain. The government doesn't want your goats. If you're giving up your goats for taxes, it's probably to a tax farmer who you have been granted to as a concession, and that tax farmer pays for the right to tax you in goats in gold (or rice, or grain.)

When talking about money with no use, such as USD or bitcoin, however, they've got nothing to hold them up but the demands of the government that issued them to be paid in them.

The US dollar is just an IOU from the government that gets cancelled if you owe the US government anything other than prison time. Bitcoin is an IOU from no one, and the only way to spend it is to find a sucker who wants bitcoin.

Good money is hard money, and hard money stores value well because it is difficult to rapidly debase. That's the purpose of money; to store value so that we can transmit that value in the future.

What holds up gold or bitcoin is firstly the trust of the society that adopts it, and secondly the inability for any party to rapidly debase it.

Are people not paying taxes in Zimbabwe or Venezuela? It seems there has to be more to it than that.

Additionally, there are states that are partly 0 tax (Saudi Arabia I believe used to be), and they still have a functioning currency.

There are plenty of taxes in Saudi.

You're confusing pyramid schemes with ponzi schemes. A ponzi pays people from others' inputs, with a fee taken out by the ponzi runner. In this case, you make money selling a cryptotoken by some other sucker buying in, minus a fee taken by the miners.

crypto is a ponzi scheme because liquidity in it only comes from the next sucker buying in. it’s not connected to anything that generates or has value, you can only get out of your position if you can convince some one else to hold the bag. in a sense this is true of all markets but only in a very weak sense. assets linked to governments or value generating corporations will have value for the foreseeable future, you don’t have to race to find a sucker to liquidate your position

> you don’t have to race to find a sucker to liquidate your position

Whose the sucker when they tell you that limitless, growing, roll-over debt is a actually a feature of the system? Who pays the price when a government hands over billions of dollars to bailout the financial/auto/x industry?

> assets linked to governments or value generating corporations will have value for the foreseeable future

"foreseeable future" means whats exactly? UK pension funds were about to collapse until they were bailed out by the government. How foreseeable are events like these, wiping out people who have otherwise done nothing wrong?

https://www.theguardian.com/business/2022/oct/06/bank-of-eng...

So you’re suggesting we just let the financial and auto industries fail? There’s a cost to that too because once again, these industries provide value to society. Crypto provides no added value and wouldn’t even solve either of the problems you mentioned. And yes we could horribly replace our currency with it but there are zero benefits to doing that over the current system. The fact is it is not a currency and it is not a business providing value, so you are purely speculating on sentiment, hence it’s a ponzi.

The owners and creditors of auto industry can fail and the assets (factories, IP) would remain and be transferred to new owners. Bankruptcy does not disappear factories.

And the owners did fail. Chrysler was transferred to Fiat in bankruptcy, and GM shareholders were wiped out

Lets try some madlibs...

>Real estate/stocks/bonds/gold/silver/etc is a ponzi scheme because liquidity in it only comes from the next sucker buying in.

Tell me why the above statement is wrong.

You can use oil for stuff. You can't use crypto for stuff. It's not even a good currency.

The entire economy and business world is based on TRUST and REPUTATION but by god it is impossible to get crypto cultists to understand that.

The human element seems to completely elude them.

I get the impression that the crypto crowd believes they've eliminated the human element.

Commodities have value because people use them and fiat has value because the government will take your property if you don't give it fiat so only crypto in your list is faith-based.

Twitter is a controlled burn not a bonfire, but I'm sure Musk will be back to eating more babies for your delight and edification soon.

Imagine being cited in the Bitcoin white paper but not understanding the value of Bitcoin:(

The economic value of Bitcoin is extremely low after any substantial, good faith critical analysis. At least that's the bottom I've reached with every deep dive. Of course the typical experience is I get called a "hater" once I ask a question the Bitcoin enthusiasts can't answer off the top of their heads. Or the perennial "this has already been answered" and yet no one ever offers a reference to said answer.

Fundamentally the crypto community is populated by doomers/nihilists who think that crypto is somehow be immune to economic and political shocks, and scammers. Smart contracts might be thing some day, but that's it so far

I got into Bitcoin in 2012 after getting locked out of my PayPal account multiple times with money still in it. It blew my mind how a stranger could send me digital money that nobody could lock up or chargeback

I keep explaining that on average crypto currencies are not Ponzi schemes. As Ponzi scheme is rather specific system.

That however does not mean some of the currencies/tokens are not such, or that such schemes are not run with or advertising currencies.

Or that they aren't pure crap anyway as concept.

Cryptocurrency is by definition, an open transparent market and as such not a Ponzi scheme. Quite literally by definition.

Also many of the current cryptocurrencies run on tiny amounts of energy (Algorand, Cardano).

Some of the brightest minds in applied mathematics and cryptography are working on this stuff. Maybe you should be a little more open minded.

Edit: downvoted without any discourse. This site is so strangely anti crypto, stay smug, let’s see how it works out for you.

> Also many of the current cryptocurrencies run on tiny amounts of energy (Algorand, Cardano).

That's easy to do if you don't care about fair distribution of coins. One company initially holding the entire coin supply is not very decentralized.

> This site is so strangely anti crypto, stay smug, let’s see how it works out for you.

Well, for example losses of this people in FTX collapse are limited. Unlike fraud sector of Bahamas economy described in the article.

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