Bitcoin Forum

We are looking for a topic for the second video of our series "Bitcoin For Dummies" (first one here https://www.youtube.com/watch?v=cWYVktImeTk)

With each episode we will try to answer as simple as possible popular bitcoin question or misconception. All videos will be short and to the point.
The idea is that next time someone asks you stupid question about bitcoin, you just send him the relevant video and let the girl do the talking.

So far one of the ideas that we consider is to explain why bitcoin is not a Ponzi. Unless you come up with more popular and irritating ignorant believe?



edit:
13 days later here is the video result of this thread
https://www.youtube.com/watch?v=kImBgWDgIlA&feature=youtu.be

Please refer to "Tulip Mania"  (or Beanie Baby Mania, for that matter) and differentiate.  Every time I see that comparison I chalk it up to the person stating it as having no idea what they are talking about and just regurgitating what they've heard other people say, but it's still irritating.

About it being 'untraceable' or pyramid/ponzi scheme.

If you bought only $50 to $100 of BTC in early 2010 and sold in late 2013 you would have ~$12,000,000 (12 Million) USD for every small purchase 3 years earlier.
No matter how great (and different) Bitcoin is, the "Tulip Mania" references are rational and fair.

I don't think so. If Bitcoins become worthless, then you can call it Tulip Mania.

This is a pretty awesome idea! I think the ponzi scheme myth is a good one. I feel like when people say bitcoin is a ponzi scheme it just shows that they really don't know what bitcoin is and they also don't know what a ponzi scheme is lol... and too many people hold this irrational belief.

from what I heard, lots of people define a stuffs as a ponzi scheme if it satisfies this property
1) pay stuffs at low price
2) go home and wait
3) get more money later with what you bought earlier

Which covers pretty much every act of investment.

I'm referring to the speculative mania, and you cannot deny the similarities.

Then why not just call it a speculative investment? You can deny the similarities until it tanks and becomes worthless because it's not a valid comparison.

Have you ever read the Tulip chapter in this book?
Extraordinary Popular Delusions and the Madness of Crowds

People used Bitcoin to turn $100 into $12 Million, so IMO it cleary can be compared to Tulip Mania.   :P

Well then that's a good investment, not a tulip mania. Are profitable stocks and shares Tulips too? You can compare Bitcoin to Tulip Mania when Bitcoin becomes essentially worthless, and until it does you shouldn’t be propagating this negative comparison.

I think the idea of the comparison is that it is behaving the way tulips did when they were skyrocketing in value, and therefore it isn't illogical to predict that they might crash like tulips did. I don't think this will be the case but I can see how people would make the comparison. It doesn't have to have already crashed for the analogy to work.

Bitcoins are anonymous.

Bitcoins cannot be fractionally reserved.

YOU, yes YOU, person with just one 300$ laptop can mine bitcoins (or alternatively, that mining is possible for the average person).

Bitcoins have no transfer fees! (too old?)

exchanges are banks.

Bitcoin is centralized. or has a ceo. or created arbitrarily and handed out, or.....

Bitcoin public/private keys can be brute forced.

I can not hold a bitcoin, therefore it is worthless. If you don't hold it, you don't own it. (This reply by gold-bugs particularly bugs me. That saying is for the fact that reciving iou's from banks/exchanges/ETF(s?) means that you may never actually receive the gold they promise you. The same logic applies to bitcoin. Any coins that you don't have in your own privately owned private keys count in the "If you don't hold it, you don't own it." mantra. see:mtgox)

Companies that deal in bitcoin, also have to deal with bitcoin volatility.

Mining is bad for the environment cause of all the electricity it uses.

Bitcoin would be worthless if it was not tied/pegged to fiat. If all fiat and gold vanished, you would have no way of knowing how much a bitcoin is worth.

Because it is deflationary, no one spends it, and will never be adopted by merchants.

by that logic, facebook and twitter and pretty much every successful company is a tulip mania.

That Bitcoin is volitaile and scary without explaining adoption S Shaped curves and emerging technology

Wrong FB & TWTR are companies.  Their stock value can be fundamentally derived from things like earnings per share.  They generate revenue so thats why they have value.  However you are correct that sometimes these companies stock price get too far ahead of their valuation.

Bitcoin's value can't be derived from fundamentals.  It should be treated more like a commodity like gold.  Except gold has a history as money haven in crisis and actual intrinsic value for jewelry & electronics.

Bitcoin is a binary bet.  If it becomes mainstream then it will be of great value.  But it could also disappear and be zero value. 

The problem with bit coin is that it is not a well designed currency.  By its design it will fail at mass adoption.

That's not really the same logic. Facebook and Twitter are companies not currencies. Also they both have intrinsic value, which is probably the biggest difference.

Yeah, that's what he's saying, but then you could call any investment that showed very fast returns Tulip Mania. If Bitcoin collapses quicker than it came, then the comparison will be apt but it's not until it does.

But it's not just that it's rising quickly - it's also that it doesn't have intrinsic value, like tulips. A share of a company that rises quickly in value has intrinsic value in that it means you own a portion of the company. Bitcoin's value comes only from the trust that we share - the trust that if someone gives you bitcoins for a real product, you can spend them elsewhere to get other real products.

The most common misconception I hear from friends and family is that Bitcoin has "peaked" in value, and that they're "too late" to benefit from investing now.

I've tried my best to explain why that's illogical, but the argument comes from an emotional place (regret, envy of early investors), and people seem largely immune to logical arguments.

This. Tulips are still beautiful.

Or maybe they don't buy into the hype.  Its bitcoin speculators who are emotional from greed.  For everyone else you guys are nuts buying bitcoins

I have to reply to this thread....

So, when I talk to many people about Bitcoin or if they ask me a question...

Most people are very confused about what Bitcoin is(duh) but those confused people I talk to, think its a "company" and there is a "ceo" ... or "Bitcoin is in risk of going bankrupt" .. Or "going out of business"

Every fucking intelligent person(obviously idiots too) cant wrap their mind around the simple fact that its NOT A COMPANY nor is it controlled by a COMPANY.

I simply respond to them.... "Thats like calling gold a company..."


Id have to say, recently the above is the most irritating misconception I run into.

I had a conversation this past Thanksgiving with an in-law who is a current macro econ professor at a well-reputed university here in the US and he kept talking about "yeah, but when the person who controls bitcoin does ..."

There's a looong way to go before most people think of bitcoin or other digital currencies beyond what they see/hear in the media, if even that much.

I'd argue that most of us early investors did so for reasons other than greed. Speaking for myself, I held onto my BTC for months as it lost value before finally seeing (enormous) profit.

For me, divesting from my nation's fiat was primarily an ethical decision, and that is why I did so with my entire life savings. I was later financially rewarded for my sound ethical choice.

What happens when the company goes bust? And if that was the case, you can't compare them just because they do or don't share intrinsic value.

Yeahp and I think the HUGE thing that people struggle with is the word "Decentralized" ... they dont get how much of an impact that word when it has in relation to current monetary systems.
I dont think they can fathom it. I knew for the first 2 weeks I was introduced to Bitcoin, I was CONFUSED as fuck and Im a nerd/geek for my career & passion for the last 20yrs of my life!
If it was that hard for me, tryin to get an avg person to wrap their heads around it... I can see how they are confused as hell and the media just jumps on that confusion and drives fear into them =( .. scaring them away from potentially the greatest invention in the 21st century ... it saddens me really =(

I disagree w/ that ... Bitcoins value goes far beyond that. It functions in ways that money / currency never has for humanity. This aspect alone makes it extremely valueable. Its utility value as money.

Your form of value placed in Bitcoin sounds more like why people trust in government backed fiat currencies.

Yeah right.   ::)

Unless you can pay taxes in bitcoin you'll have to convert those into legal tender i.e. fiat.  It is impossible for you to divest yourself from fiat. 

I just learned that some scholars question "Tulip Mania", thinking the stories were exaggerated.
How can we learn from history, if the truth is not known?

Of course, this can be done right away.
So... if I can show tulips were a speculative investment, that would strengthen the comparison to Bitcoin even more? 

Tulips were a speculative investment, they had "formal futures markets".
Here is 'proof':
The contract price of rare bulbs continued to rise throughout 1636, but by November, the price of common, "unbroken" bulbs also began to increase, so that soon any tulip bulb could fetch hundreds of guilders. That year the Dutch created a type of formal futures markets where contracts to buy bulbs at the end of the season were bought and sold.
http://en.wikipedia.org/wiki/Tulip_mania


ps. When I compare Tulip Mania to Bitcoin it's about the way people rush in trying to make big money fast.
There is a strong similarity, whether you see it or not.
Bitcoin speculation also has some amazing similarities to a Ponzi scheme, but it is NOT a Ponzi.

Maybe its you who don't understand "decentralized".  Before Centrals Banks all currency were decentralized meaning it was backed by the individual issuer (private banks).

What you don't understand is that bitcoin isn't even money.  Money is an IOU thats backed by the issuer.  For example in the olden days:  Someone holding your gold deposit will give you gold note in return.  You go spend that note and the person holding the note has claim that amount in gold from issuer.

Fiat is money that is not backed by hard asset so it has no intrinsic value.  By definition bitcoin is fiat.  However, fiat is backed by gov't.  The gov't creates fiat on debt.  Then they make you pay taxes so they can pay down that debt in future.  Because we are legally required to pay taxes the demand on dollar is guaranteed.  This assures its stability not some "trust" system.  Fiat currencies valuation are derived from things like GDP and also supply/ demand of money.

What I noticed is that bitbugs get smarmy about their knowledge of bitcoin.  But most don't understand undergrad economics.  The irritable misconception of bitcoin come from the bitcoin community itself not from outside.

Most bit bugs are towing the line without critical thought whatsoever

I can see the similarity, but it's still a misleading and invalid comparison, and so is comparing it to a Ponzi. Ponzis are a scam. Tulip Mania had the quick rise then the quick fall to worthlessness. You can't say it's half Tulip Mania because it meets the criteria of the first half. It's Tulip Mania because of the rise and fall. Can we compare the Pope to Adolf Hitler because they both wore trousers?

Besides tulips there were a lot of speculative bubbles and they all share similarities regardless of asset class.  

Definition from investopia:  A speculative bubble is usually caused by exaggerated expectations of future growth, price appreciation, or other events that could cause an increase in asset values. This drives trading volumes higher, and as more investors rally around the heightened expectation, buyers outnumber sellers, pushing prices beyond what an objective analysis of intrinsic value would suggest.

The bubble is not completed until prices fall back down to normalized levels; this usually involves a period of steep decline in price during which most investors panic and sell out of their investments.

^ this

I hear this all the time, no one ever has a logical argument to back it up, but yet they regurgitate the opinion everytime btc comes up in a conversation

I mean, bitcoin objectively has zero intrinsic value =/ neither does a dollar bill really. Just so we're on the same page as far as what intrinsic value means, the intrinsic value of a dollar bill doesn't go much beyond its use to snort cocaine or write on. Compare a hundred dollar bill to a hammer - the hammer honestly has much more intrinsic value despite the fact that it is not worth $100. Intrinsic value means the value of the thing in itself, and not the value that you can obtain from it by trading. If someone had all the bitcoins in the world but nobody was willing to accept any of them or give any money for any of them, they would be worthless because they have no intrinsic value.

And it is true that the value of bitcoin comes from trust only... it is not backed by the government and it has no intrinsic value - we trust each other to attribute value to it. I personally don't see this as a problem, but it's still true. It's value as a currency is easily replicable, as we can see with all of the alternative cryptocurrencies.


I don't understand what point you are trying to make. If the company goes bust then you lose money, but it's still different from the tulip craze because the company has (or had) intrinsic value. It didn't become valuable because people trusted that it would, as was the case with tulips and as is the case with bitcoin. It became valuable (presumably) because it produced a desirable product.

Um ok dude.... go look up the meaning of "money" and get back to me.

I see where you think it's similar. But when you buy some other 'investment' like a stock, there is something BEHIND that backing that. If you buy Disney stock, there is a company 'Disney' which the value in the stock is related. The stock cannot just go to 0 if people still believe in Disney, and Disney is still making money. Eventually most people will not believe Disney is worth the value in it's stock price - and sell it, and the stock will fall, but it won't fall forever, the value will reach a point where more people believe that Disney is worth more money than it's stock price, buy more of it, then it will rise. In a stable company, the price will rise and fall, but generally settle in an area.
 
Investing in bitcoin is investing in something that has no intrinsic value. Nothing is backing it. This is one part of a Ponzi Scheme.

The other part of the Ponzi Scheme is that people early in get bitcoins for free or with no real effort, and it's exponentially harder for anyone else to get them. Yes, people who were with Disney early get more stock options than those that come in later - but they don't get it for free. They worked hard - were usually underpaid for what they did, and did it for a long time before getting stock options. The stock options were their 'reward' for working so hard.

Another part of the Ponzi Scheme is that you need more people to join your cause to make it's value rise. And a cult-type following occurs. This is not true of a stock. Sure, the more people buy the stock, the more it might rise, but it can't rise just by people buying it, because at some point other people will sell when the value skyrockets too much, and the stock will stabilize. Lots of profits are made in stocks when a group of people buy a stock low, advertise it and pump it up like crazy (and lie about some 'secret' thing that they say will make the stock soar) until other people buy it based on their recommendations, and then the original people sell, and the newcomers are stuck with stock they paid too much for. This happens all the time, and is just as bad as a ponzi scheme, and is illegal.

So, yes, bitcoin has a lot in common with a ponzi scheme, but it doesn't necessarily make it one. If bitcoin eventually becomes a currency, the ponzi scheme aspects of it will be forgotten.

Because he's using the example of a company (or having shares in one) having "intrinsic value". It doesn't if it goes bust. And didn't tulip bulbs had "intrinsic value" then too? People were using them as medium of exchange and you could also grow them.

I would say the 0 transfer fee for sending bitcoins!, this is total BS. This came from someone working in a bitcoin related company.

You have to pay the fee or wait a few years for tx to arrive.

Slight exaggeration there. Wasn't even a couple days last time I sent a transaction without a fee.

...the first half
The 2011 "Bubble" lost over 90% from top to bottom, so we had one complete Tulip cycle.  :D


I'm not looking to "win" a debate; My point is about similarities.
(For example)
 comparing it to a Ponzi

"We need new money coming in"
"The early investors/miners are way to wealthy!"
"Careful the bubble might burst"
"First one out the door gets the best prices, sell before the whales".
^^^
The above quotes are all said about Bitcoin (even by many supporters), and they are also true about certain stages of a (temporarily) "successful" Ponzi.


Is BTC a Ponzi?

Q) Does a single person reading this post remember Stock Generation?
http://en.wikipedia.org/wiki/Stock_Generation

I never invested a penny, but I was curious.
Q) Does anyone reading this question remember 'hundreds of posts' on the Stock Generation forum about members (literally) looking out their window hoping to see the UPS/FedEX truck pull up to deliver a check?


Bitcoin is not a Ponzi
Observing some of the people here, you would never know the difference.
...Oh look, another new crapcoin is launching:
https://bitcointalk.org/index.php?board=159.0

If a company "goes bust" it still had intrinsic value before which is what caused it to go up in value in the first place. People invested in the company because they thought it would be successful and provide some valuable product/service to the world, and therefore rise in value. They are investing in ownership of the provider of this product/service. When you invest in bitcoin, you're investing in something that does not have intrinsic value and only holds value because people TRUST that it does. Once again, this is different from investing in a company because people make these investments because the actual product or service the company provides is intrinsically valuable.

The only intrinsic value of a tulip is that it's pretty (at least as far as I know). And to say something has intrinsic value because it is useful as a currency really does not make sense. Anything can be used as a currency - honestly gold probably holds the most intrinsic value of anything in that regard.

I just defined money for you.   Its an IOU.

Bitcoins are "mined".  Money is like for a carpenter to buy  bread but the baker doesn't need a chair.   A bank creates notes so these people can exchange stuff.  But these notes have to be backed by assets or credit

How does bitcoin do this?   It doesn't.  Its a public ledger that tracks exchanges using a network.

Its more of a transfer system than money

Does the sudden silence indicate people are tired of my stubborn persistence, or that I was able to effectively communicate a "winning" argument.   ;D
// I am only 1/2 serious, it hasn't been the best day; Please pardon my odd humor. 

 You don't have to buy 1 whole Btc   :P

yea when I hear it is a ponzi scheme it irks me because people were running around like chickens with there heads cut off trying to get others to invest and see the value in it....  Their were also many people giving away coins to anyone interested for a while until the "crash" took place and people lost good chunks of change.

Perhaps the Bitcoin exchanges are not Bitcoin itself?

How miners can generate Bitcoins with their computers and why they (the audience) can't.

one misconception that pains me is that folks assume that you cannot buy fractions of btc

Add another vote for the ponzi scheme.  Not necessarily a misconception but how about an episode where it is clarified where Bitcoins come from.  More specifically, how the block solved reward system works.  "Who put the Bitcoins in the block" is a common question.  Something that answers that in an easy way would be beneficial IMO. 

^^ That and also the Ponzi or Pyramid scheme.

Plus another thing I get all the time is:
How can Bitcoin not be a Pyramid? it has nothing to back it up (Gold, etc). It's not even physical. You cannot touch it.
If you can create a short clip explaining that it would save A LOT of us sometime trying to explain it ;)

Thanks :)

So I thought it was both:  Bitcoin is the transfer system with the trust, and bitcoin is the currency.  Maybe this is what needs explaining ...

Retarded comments along the lines of "Bitcoin is nothing, it isn't even real, it's a bubbly, it's air, it's worse than the tulip mania, you're paying something for nothing" and so on.

I always feel a bit depressed, having to the absolute basics explain YET AGAIN. Would be great if there is a short, yet crystal clear explanation against this sort of bullshit, that I can refer to.

That was an incredible input, thank you all! :)

So far seems like Ponzi and Tulip are the most irritating ones. We will do both but probably Ponzi first.

Now the next step is to explain it in the simplest way possible in under 2 minutes :)
help is welcome :)

Here is the auction that will determine the one that gets to have his product/site placed in the video
https://bitcointalk.org/index.php?topic=538342.0

$100 @ $5 per bitcoin would be 20BTC. If you sold them right at the peak of Nov 29, 2013 at $1242, you would have received $24840.00. Far outside the limits of the '~' symbol I would say.

Looking at bitcoincharts for MtGox in 2010, the highest open/close I could see in 2010 was $0.46 / BTC.  The lowest was much lower, below $0.05.  Using these number you end up between $270,000 and $2,484,000 depending on when in 2010 you assume someone bought btc.

The idea that bitcoin is virtual.

In early 2010 (pre-Gox) BTC commonly sold for under 1/2 a penny.
Try again and you'll see:
You can spend $100 ....Give away/lose/sell 50% ....and still end up with $12,000,000 in late 2013.

Bitcoin is deflationary.  There is no one to fight inflation so the value of bitcoin would deflate if widely used.  

(Many people seem to think that inflation and deflation are synonyms (prices going up / money going down).  If you ask them if they'd prefer their money to go further next year than it does this year, they normally say yes, however, so there is still hope).  

Good idea, most people really do not know what is bitcoin, too many people hold irrational beliefs Ponzi scheme.

Most annoying misconception? If I had .001 BTC for every time someone talked about the "CEO of bitcoin," I'd be rich. Explain that bitcoin is decentralized, and doesn't have a CEO.

Hi
to me its that people get all confused about the numbers and it puts them off unnecessarily. Most people drop maths in high school and so anything "mathematical' as they might see it is confusing and therefore a turn off.
For example they are told some or all of the following whenever they read about bitcoin
1. there are 21 million bitcoins of which 12 million have been mined
2. large rises and falls in the bitcoin in the bitcoin 

Whenever I am explaining bitcoin to a newbie I try to put the thing in simple maths

eg for 1 above I use the number 12. I say imagine we create our own currency where the only units are whole numbers that when multiplied by another we end up with 12 . eg 12 and 1, 6 and 2, 3 and 4 . Thus we have 6 units in the whole of our currency. These can then be divided into many subparts just like 100 cents make up 1 dollar unit
 Bitcoin is the same just with a more complicated formula that means there are only 21 million not 6 units.

eg for 2 above I explain the difference between using and holding.

Using - if a retailer wants 1 bitcoin for a product then look at the current bitcoin price to buy 1 bitcoin. The retailer of course will have already done this so the 1 bitcoin price will be within a few cents/dollars of the credit card or cash price. if you want to buy with bitcoin buy the 1 coin you need then and there and then do the transaction - this gets rid of any bitcoin price fluctuations. if it does start to move the retailer will adjust the bitcoin price to future customers not you eg it may become 1.01 bitcoins to buy tomorrow.

Holding - basically bitcoin is being speculated just like shares can be. usually there is enough information about a company that its share price does not have the ride bitcoin has had ( and will continue to have). But nobody knows what the longer term settling point for bitcoin is. Since most people have little in the way of savings I say to have more than say a few percent of their savings in bitcoin is playing with fire. I also say if they are to buy to hold do not buy until there are exchanges in place in their own country that have some controls on them eg escrow/trust systems so your money does not disappear even if the exchange goes bust ( i use the travel agent analogy here)

good luck with your project - it is much needed

Why the idea that miners can make changes to the protocolis is so bad?

Who can explain why Bitcoin is not Ponzi in under 2 minutes so that even an idiot will understand it?
We are collecting good points.

Explain what a Ponzi is and how money is distributed,
Then do the same for Bitcoin  ;)

In a Ponzi, the scam is hidden from the participants. In bitcoin noone can give you a promise, the fact that there is nothing behind it is completely in the open.

That is why it is more like a pyramid scheme. Who can debunk that in 2 minutes?

Good point! :)

Thank you all guys, here is the result of this thread! :)
https://www.youtube.com/watch?v=kImBgWDgIlA&feature=youtu.be

Are you happy with it?

The new very annoying thing is "dude, bitcoin just closed and announced bankruptcy" and this is the expression of allot of people who heard about MTGOX closure.

yeah true, but that will go away within few weeks or months
we would like to cover the "evergreen" myths first :)

ok we are probably going to do why bitcoin has value