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Comment by h2s | Hacker News Reader

Does anybody else feel that the current proliferation of P2P cryptocurrencies looks symptomatic of a pyramid scheme that has proven its viability (in the form of BTC) and is now being repeated by unscrupulous copycats who smell a quick buck?

I'm not calling the concept of BTC-style cryptocurrency a deliberate, malicious pyramid scheme in itself. I think this is an unintended side-effect.

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Yes. Well, qualified yes: I don't believe that the new cryptocurrencies are more of a pump-and-dump than Bitcoin is. The pump-and-dump model is intrinsic to why Bitcoin is popular: creating lots of widely distributed coins early, then making them increasingly dear, creates a built-in base of... let me be charitable and call them "cryptocurrency evangelists", who have high incentive to go to their local online watering holes and claim that Bitcoin is the next big thing.

The equilibrium is predictable:

http://news.ycombinator.com/item?id=2608891

[Y]ou can create an arbitrarily high number of bitcoin-like electronic currency units. [These new varieties will have] guaranteed scarcity, anonymity, and a new goldrush phase -- so if you got dumped rather than pumped, you have a new opportunity to start at the top of the pyramid scheme this time.

The equilibrium is that sooner or later expected returns on starting a new distributed pump-and-dump dwarf expected returns of getting in late on bitcoins. And then poof.

Bitcoin is a wonderful engineering achievement: a spontaneously organized, decentralized, peer-to-peer boiler room from which arises a mediocre transaction processing network.

I like some of the concepts behind this freicon, it disincentives pump and dump and pyramid schemes. I personally will never put money in bit coins because it is like a pyramid scheme. Again what we really need is probably frictionless digital payments, not another currency.

You should never put money in freicoins either. Rather you should use it for buying and selling things, and just keep enough at hand for cash-flow purposes. What we want is a frictionless medium for digital payments, with good economic properties. Bitcoin doesn't offer that.

* Disclaimer: I'm one of the creators of Freicoin.

I appreciated the thoughts behind it, the relation between interest rates and incentives for investment is not something I thought about. It makes a lot more sense to me than bitcoins.

What is the best transaction processing network out there?

I wouldn't call it a side-effect but rather history recurrence. When fiat money became popular in 19th century almost each country started to issue its own currency. Issuing money gives real power. While the analogy is not complete because you can't dilute BTC-style currencies, the advantage here is in being bright and early adopter.

I think that demurrage proposed by Freicoin adds no value because hoarding isn't a real problem for Bitcoin or for any other currency. I suppose that the fear of hoarding comes from the fact that we still live in the world full of harmful keynesian ideas.

I'm still not getting why people call it a pyramid scheme. I don't make money by getting other people involved.

Sure, by getting others involved I increase the likelihood of it succeeding, but...that's everything.

If there's a fixed supply increasing demand by getting more people involved raises the price, which makes current BTC holders money.

That's true for anything though. If I convince you to get into model trains it's not because it will significantly raise the after-market value of my current (rolling) stock.

Except that model train manufacturers can raise production to maintain a price equilibrium (and have an incentive to do so, namely the profit they make from producing trains). Nobody can manufacture any more bitcoins than the algorithm allows.

Now if you convince me to get into collectible model trains, say pre-war Lionel models, the supply of which is fixed, that will raise the after-market value of your pre-war Lionel models. Whether or not that increase is significant depends on a lot of things of course.

So, you're saying all collectible markets are also ponzi schemes?

I didn't say anything was a Ponzi scheme. For starters, a Ponzi scheme involves fraud ...

Ugh, me no no wurds.

Ponzi scheme was not what I wanted to say. Pyramid scheme is what I wanted to say.

Collectible markets are not liquid and very whimsical. They are a place for rich people to show off their money, because when you have enough money, the money isn't important, it is buying something new and unique.

so you're saying that gold is a ponzi scheme ?

Gold is a lot of silly things but it's not a Ponzi scheme.

I would not call it a ponzi scheme because the idea of cryptocurrency does not entail any return, it is more like a seigniorage.

Some of these cryptocurrencies appeared in 2011, if I'm not wrong, in the middle of the first bitcoin price hike but they proposed different algorithms to generate coins, so I do not know if we can attribute their design to malice.

My main problem with it all is that users from these currencies built an identity around them, which mixes politics, ideology and hoarding of this currencies.

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