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Comment by scottiebarnes | Hacker News Reader

> 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.

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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.

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.

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.

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.

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

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 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.

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.

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.

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

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.

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.

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.

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