Ponzi vs Pyramid vs PoW vs PoS

[r0ach]

As most people know, lots of blue collar people in the world that have no idea how Bitcoin even works like to call it a Ponzi scheme.  This is mostly just due to being angry someone else made money as an early adopter and they view Bitcoin as a zero sum game (even though they don't even know what the word zero sum means) where if they purchase BTC, someone else will just be profiting at their expense.  

I've posted about a million times saying that every currency on earth, whether it's fiat, gold, or cryptocurrency, qualifies as a pyramid scheme, so if Bitcoin is some kind of scheme, that's what it would probably fall under.  The only way out of the pyramid is to just use barter, but since we live on a planet with finite resources, someone has likely already turned those resources into a pyramid as well.

Even though blue collar Bitcoin detractors don't know how the system even works, I'm beginning to think their claim of Ponzi is actually true, at least for PoW coins in particular  All money is generally based on debt in the form of future goods or services rendered whether people acknowledge it or not.  The key element of a Ponzi is having old holders paid by new people entering the system.  Instead of just existing on it's own, it relies on a continuous stream of new revenue coming in (usually exponential).

While PoW does not require exponential investment to keep functioning, it does require continuous investment in the form of mining hardware upgrades from all involved, plus the energy cost to run it.  The only real difference from a classic Ponzi is the keywords continuous investment vs exponential investment.  I'm not an expert on the subject of scamming, but does that distinction really even matter?  Is something required to have exponential investment to be a Ponzi, or is the trait of requiring continuous investment enough?  If a monetary Ponzi is sustainable, does it automatically get downgraded to a Pyramid scheme (which gold is), or is it simply a sustainable Ponzi?

Whether you think PoS is more or less secure, it would also require energy use to exist, just not as much, so maybe it would qualify as a Ponzi as well by technicality.  PoS doesn't require infinite hardware upgrades though, so maybe it would be considered to have less Ponzi elements, but still technically qualifying as one too.  Satoshi tries to address claims like this by saying "no free lunch", meaning you need to hire guards and vaults for gold, but the gold doesn't cease to exist if you don't.  Even if Bitcoin only required one watt of power for the entire world to function, would that technically classify it as a Ponzi still since it ceases to exist if you don't supply the one watt?

[tokeweed]

I'd like to hear DE's (the white male libertarian bro) comment here.  I'm sure it'll be interesting.

[monsterer]

The key element of a Ponzi is having old holders paid by new people entering the system.

A ponzi is a scheme whereby the creator convinces people to invest in something that has no current value on the promise of future returns. Satoshi made no such promise, therefore bitcoin is not a ponzi. This is totally orthogonal to any given consensus method.

[solid12345]

The key element of a Ponzi is having old holders paid by new people entering the system.

A ponzi is a scheme whereby the creator convinces people to invest in something that has no current value on the promise of future returns. Satoshi made no such promise, therefore bitcoin is not a ponzi. This is totally orthogonal to any given consensus method.

I wouldn't say BTC is necessarily a ponzi but the early massive rewards with little CPU power needed to mine them was pretty unfair if you think about it. I always believed Bitcoin emissions should have had a more gradual slope.

[alt19]

What if you start a new business and issue shares?
You are looking for investors, you "convince people to invest in something that has no current value". But it is not a Ponzi.

Ponzi/pyramids refer to artificially raising prices
when today a price is x and tomorrow it is x+1 and the day after tomorrow it is x+2 ...x+3...x+4... until the total crash.

"Bitcoin is a digital asset, like real estate, gold or stock. It is just one more option now. With Bitcoin hard-coded to be limited, it's like a collectible".B.Lee, BTC China CEO

Gold mining is the process of mining of gold or gold ores from the ground. It takes resources,

and POW mining takes resources. Very simple.

[iGotSpots]

A ponzi pays people back with future investor money and a pyramid pays you for recruiting others to do the actual work. It's pretty easy to know BTC is neither when you actually know what both of those words mean

[tmfp]

In my opinion, the terms "Ponzi scheme" and "pyramid scheme" don't scale up very well.
Both came into use to refer narrowly to deliberately fraudulent 'investment' schemes, the key to which is the central falsehood, that the money being paid out is the result of bona fide business activity whereas in reality it is other investors' money. They are useful terms in those situations, but ideologically inspired use to describe fiat banking or even civilization itself is essentially meaningless.
Large systems of interaction must exist on a planet with billions of people on it, those systems have evolved and mutated and can be unbalanced and cruel, but they are all we have. Arguments about destroying them or replacing them are valid, but criticisms don't relate to "ponzi" and "pyramid" in anything but a general concept of centralization.
Bitcoin, a ponzi? No, I don't see it.
It is decentralized, freely traded at agreed value. Cost and method of production aren't relevant, anything man made comes at a cost which can increase or decrease according to outside influences which are not necessarily fraudulent.
Is Bitcoin a pyramid? I can't see that either, or why someone would say it.
There is no structured recruiting scheme, no 'matrix' of commissions, and likening early adopters to a centralized fraudulent admin doesn't do it for me.

Proof of Stake? That's another can of worms...
 

[alt19]

A ponzi pays people back with future investor money and a pyramid pays you for recruiting others to do the actual work.

Still Ponzi and pyramid schemes differ from an economic or speculative bubble, or referral marketing.

Large systems of interaction must exist on a planet with billions of people on it, those systems have evolved and mutated and can be unbalanced and cruel, but they are all we have. Arguments about destroying them or replacing them are valid, but criticisms don't relate to "ponzi" and "pyramid" in anything but a general concept of centralization.

http://www.econmatters.com/2013/02/the-stock-market-is-giant-ponzi-scheme.html

[tmfp]

Large systems of interaction must exist on a planet with billions of people on it, those systems have evolved and mutated and can be unbalanced and cruel, but they are all we have. Arguments about destroying them or replacing them are valid, but criticisms don't relate to "ponzi" and "pyramid" in anything but a general concept of centralization.

http://www.econmatters.com/2013/02/the-stock-market-is-giant-ponzi-scheme.html

That article reinforces my point about the word "ponzi" being used in an incorrect macro sense.
The author is griping about Quantitative Easing (QE) and its inflationary effect on equities, which is a valid point. He also says that QE can be used in a Keynesian sense to front run or 'kick start' private economic activity, which is the Central Banks' justification for doing it.
You may agree or disagree with that approach being used to manipulate 'free' markets. It may be kicking the can down the road, but that doesn't make it a ponzi.

[DecentralizeEconomics]

I'd like to hear DE's (the white male libertarian bro) comment here.  I'm sure it'll be interesting.

This is obviously some poorly conceived Chinese communist attempt to discredit all cryptos except Bitsnares by labelling them as ponzi/pyramid schemes.  The only ponzi/pyramid I see here is the communists/corporate fascists trying to sucker more poor souls into their "derivatives are assets" "Don't worry it's Safer than a Swiss Bank" scheme in the hopes of claiming "referral fees".  If they fail to con(vince) enough individuals to pour fresh money into their prediction market ponzi, it will undoubtedly collapse in a heap of flames when the last sucker has purchased an imaginary asset at par of real thing and everyone realizes that, guess what?, they're not redeemable for the physical asset.

I've posted about a million times saying that every currency on earth, whether it's fiat, gold, or cryptocurrency, qualifies as a pyramid scheme, so if Bitcoin is some kind of scheme, that's what it would probably fall under.

Typical communist argument.

All money is generally based on debt in the form of future goods or services rendered whether people acknowledge it or not.

And here comes the old corporate fascist/communist line... "Since all money is based on debt, let's all use these nice "tokens" (which are intrinsically worthless and not redeemable or backed by anything) to store your wealth.  I'll loan these "tokens" into existence and charge you a "small" fee for this service."  Sound familiar?

[monsterer]

And here comes the old corporate fascist/communist line... "Since all money is based on debt, let's all use these nice "tokens" (which are intrinsically worthless and not redeemable or backed by anything) to store your wealth.  I'll loan these "tokens" into existence and charge you a "small" fee for this service."  Sound familiar?

What is the USD backed by? How about the GBP?

[r0ach]

A ponzi pays people back with future investor money and a pyramid pays you for recruiting others to do the actual work. It's pretty easy to know BTC is neither when you actually know what both of those words mean

This is completely wrong.  Fiat and gold are both pyramid schemes.  When you go to a business and try to convince them to accept your gold or fiat notes for goods or services, you are acting as a recruiter for the pyramid scheme.  The dollar even has a nice pyramid on it for people who can't figure this out.  The currency is based on debt, the obligation for others to give you goods or services in the future.  Since the exchange rate always fluctuates, and they can refuse to render those goods or services at any time by switching to a different currency, the system is inherently not sustainable just like any simplistic example.

The only example I can think of where a currency isn't a ponzi or pyramid scheme is the transformers cartoon where they use blocks of energy called "energon" that can be redeemed at full value at any time in the future.

[Nxtblg]

What if you start a new business and issue shares?
You are looking for investors, you "convince people to invest in something that has no current value". But it is not a Ponzi.

Ponzi/pyramids refer to artificially raising prices
when today a price is x and tomorrow it is x+1 and the day after tomorrow it is x+2 ...x+3...x+4... until the total crash.

"Bitcoin is a digital asset, like real estate, gold or stock. It is just one more option now. With Bitcoin hard-coded to be limited, it's like a collectible".B.Lee, BTC China CEO

Gold mining is the process of mining of gold or gold ores from the ground. It takes resources,

Gold mining is actually a great analogy, particularly on the exploration end. Every exploration company is run on the basis of turning new capital into new work. If you're a shareholder in one, you have to resign yourself to being diluted: to see your stake watered down by new share offerings for more $$$ to do more work to further explore and (if lucky!!) develop the property.

That's why gold-exploration company shares sometimes have market caps that are less than the cash they have in the bank. In any other industry, a company like this would make value investors holler about Heaven falling to Earth...

...but not in the exploration industry. Even the semi-experienced punters know that the cash in the till is there to be spent, so a company selling for less-than-cash is not an insanely compelling value play. It's a speculation, just like all the others: the only difference is there's "money to spend."


But I do see what r0ach is getting at. His "blue-collar" folks are using "Ponzi" as a metaphor. Those blue-collar sorts have two characteristics: 1) they're results-oriented thinkers; 2) they rely on hindsight bias. Put the two together and you have a good lock on blue-collar common sense.

So: if a promising speculation turns out to be a bust, folks like that will call it a "Ponzi." Thanks to their hindsight bias, plus their focus on results, they'll say that a busted speculation was held up by nothing more than empty promises, smooth words, and the greater-fool theory. A "Ponzi." So obvious in retrospect...

They're a lot like the blue-collar dad who yells at his son for "wasting his time" on a bootstrapping startup that can't afford to pay anyone. If the startup ends up going nowhere, the blue-collar dad will conclude: "You see? You did waste your time! Now get your head out of the clouds so you won't be the last to know anymore! And get a real job! Stop acting like you're a welfare bum who has to work for free to hide it!"

Hindsight bias, yes, but also results-oriented thinking.

So r0ach does have a point, particularly if you're a would-be (or frustrated!) evangelist.

[Nxtblg]

In my opinion, the terms "Ponzi scheme" and "pyramid scheme" don't scale up very well.

To return to literal-mindedness, Ponzi scheme always scale up badly. The more they scale, the more vulnerable they are to falling apart - to being "found out."

[alt19]

tmfp
you're right that "kicking the can down the road" is not a Ponzi

Nxtblg
the problem is that results-oriented thinking and results are different things,

and no offense, but real Ponzi/pyramid schemes are always centralized. Very centralized.

[r0ach]

and no offense, but real Ponzi/pyramid schemes are always centralized. Very centralized.

Doesn't matter what most of them were in the past, you have plenty of decentralized Ponzi now such as on the Ether chain. 

[maokoto]

I once exited Pos coins for thinking they were a ponzi. Then thought a bit more and came to almost the same conclusions as you: Bitcoin has ponzi-like features too (you will only get money from it if other people enter it after you), and then came to think the same about money (let's say you sell your potatoes for money, you will only get the potatoes back if other person after you enters the scheme).

And then still I thought that a ponzi always tells you that your investment will be rewarded by something (forex trading, greenforest, stamps etc), when in reality it is rewarded by the money of other investors, and came to the conclusion that no altcoin or money does that. Crypto does not promise a thing when it really does other, so it cannot be considered a ponzi in that sense.

[Nxtblg]

Nxtblg
the problem is that results-oriented thinking and results are different things,

and no offense, but real Ponzi/pyramid schemes are always centralized. Very centralized.

None taken. I was just trying to explain why so many folks use "Ponzi" as an allegory.