Why people think Bitcoin is a ponzi scheme?

[BTC-Joe]

Bitcoin is analogous to a ponzi scheme because it is cannot be sustained in the long-term.
People have an intuition that this is true (though they don't know why), so they sloppily label it a ponzi.

The better answer to the OP's question is to explain what a ponzi scheme is. A ponzi scheme is essentially an investment scam that promises high returns in short time frames. It accomplishes this by using money from new investors to pay current investors, but the money is never actually invested in anything and so the fund has no way to gain value.

Ponzi schemes fail once they reach critical mass - the point where there are more current investors than there are new investors - making the "investment" scheme insolvent. This is when the operator of the scheme (scam) takes the remaining balance of whatever was invested and runs for the hills.

This has nothing to do with long term viability. You can string a ponzi scheme along for years, if not decades, if you do some basic number crunching to manage the rates and policies of your scam...but it does not change the fact that ponzi scheme investments have no opportunity growth and rely solely on new investments to exist.

Bitcoins are not an investment scheme and do not rely on newcomers to sustain themselves. Do do rely on community participation, however they can be thought of as freelancers rather than investors. As long as there is interest in bitcoins they will be able to exist.

[cunicula]

Bitcoin is analogous to a ponzi scheme because it is cannot be sustained in the long-term.
People have an intuition that this is true (though they don't know why), so they sloppily label it a ponzi.

The better answer to the OP's question is to explain what a ponzi scheme is.

Lets look at the first part of the OP's post.

Title: Why people think Bitcoin is a ponzi scheme?

Opening Words: If your like me, you probably first heard about bitcoin because you could earn money with your computer.  Although I don't think bitcoin is a ponzi scheme, I think it does make some sense to see it that way.

Why would you think that explaining what a ponzi scheme is answers the OP's question?

[cunicula]

I also believe bitcoin mining should be used as a marketing tool to get people interested,

I think that distributing bitcoins that Skittles the unicorn farts out would be more effective than a method where a dollar's worth of bitcoin is spent on "marketing" yet the recipient, the miner, only gets a few cents of that.

Bitcoin needed a system to subsidize the mining function until the currency has enough traction where it can be self-sustaining with transaction fees.  Now once the bitcoin subsidy drops in half, there will still be enough mining capacity remaining to provide the needed service (preventing double spending).  And in four years when it drops again, the number of transactions fess will be higher so there will be even less need then for the higher subsidy.  And four years after that, even more transaction fees and thus less subsidy is needed.  And on and on.

There's currently way more capacity than is needed, but there is not yet enough from the transaction fees to meet the needed level.  So the subsidy is doing its jobs, and it dropping in half next week won't hurt the security of bitcoin.

Nice restatement of the myth.

There is no 'needed capacity'. One CPU worth is completely adequate. Or do you believe that double-spending is otherwise impossible to prevent in a decentralized system? [Hint: it isn't at all impossible or even very hard.] If not, then what do you mean by 'needed capacity'? What is the capacity 'needed' for exactly?

[thoughtfan]

I think the simple reason people think of Bitcoin as a ponzi scheme is it is that for people who are either against Bitcoin or, who out of concern for we brainwashed want to warn us against Bitcoin, 'ponzi' is a great FUD term and repeating it, using it in headlines etc. perpetuates its association with Bitcoin.

I never participated in pyramid/ponzi/mlm schemes but have been attracted to them and not believing the legal/illegal differentiation is what counts, wanted to get to the bottom of the difference between such a scheme that is beneficial and one that is detrimental to its participants.

My reasoning went like this:  If the benefit to participants is solely profits from those further down the chain it will sooner or later collapse - and when it does, by necessity the vast vast majority of participants will lose.

If there is a product or service being sold along with the promise of profits from those further down the chain and the product or service is one that is not (without the potential profits) worth the money paid then it will sooner or later collapse - and when it does, by necessity the vast majority of participants will lose - although they will at least have something to show for it!

However, if there is a product or service being sold (with or without a promise) and it is a product or service that would be of value at the asking price regardless of potential profits from marketing then every buyer as well as every seller, regardless of where in the chain, have gained.  So why would it collapse?

Granted there are many who hate the idea of those towards the top of MLM schemes making so much more money from doing basically the same thing as what the last-in-chain seller is doing.  Many people also still believe if someone has made a heap of money by necessity there is someone else who has suffered as a consequence.  This can't be helped.  But I think it is helpful to tease apart the elements making up the varied interpretation of what makes a ponzi because it then gives us the conceptual tools to see which aspects may be relevant to Bitcoin and which aren't.

[BTC-Joe]

Bitcoin is analogous to a ponzi scheme because it is cannot be sustained in the long-term.
People have an intuition that this is true (though they don't know why), so they sloppily label it a ponzi.

The better answer to the OP's question is to explain what a ponzi scheme is.

Lets look at the first part of the OP's post.

Let's not.

Title: Why people think Bitcoin is a ponzi scheme?

Opening Words: If your like me, you probably first heard about bitcoin because you could earn money with your computer.  Although I don't think bitcoin is a ponzi scheme, I think it does make some sense to see it that way.

Why would you think that explaining what a ponzi scheme is answers the OP's question?

If you know what a ponzi scheme is then you can quite easily determine what is not a ponzi scheme. If the OP understood what a ponzi scheme actually is then he probably would not have started this thread in the first place.

Do I need to hold your hand and walk you through anything else?

[cunicula]

The cult-like attitude of bitcoin proponents also plays an important role here. Thanks. Case in point. ↑

The proper response when bitcoin and Ponzi are mention in the same sentence is: Provide reassurance that bitcoin is not a ponzi scheme.

Members of the cult are expected to produce certain pat responses. Even when these responses are unrelated to the question asked.

Observing such cult-like behavior, outsiders are distrustful and suspect a ponzi. As they should.

[superfastkyle]

The fact is if mining rewards stopped tomorrow, one of two things would happen. (a) Bitcoin would just about die except for extremists who will mine without a profit, or (b) miners would only accept transactions with high transaction fees. There goes transferring money for almost free across the world. Whether miner income is from transaction fees or inflation the end outcome is no different, just a different way of marketing it (similar to buy 3 get 1 free vs 25% off only reversed) Miners have already decided on what they are willing to work for regardless of technology.

What I'm looking for is a way to reach out to people who think bitcoin is a scam. Not try to convince myself it is not. A large amount of the tech community thinks bitcoin is still a scam/ponzi and I think they are possible the best place to reach out and start increasing our user base.

[superfastkyle]

My reasoning went like this:  If the benefit to participants is solely profits from those further down the chain it will sooner or later collapse - and when it does, by necessity the vast vast majority of participants will lose.

So does every company that is running today, so how do you differentiate a valid business vs a ponzi. What does one use as proof? If particular one like our's with no tangible product or place of business. Every company eventually collapses.

Which brings me back to my original idea, when the select few profit too much, that will increase the chance of collapse. Just take a look at hostess they gave the executives 300% raises and lowered the workers pay.

[Stephen Gornick]

Which brings me back to my original idea, when the select few profit too much, that will increase the chance of collapse.

You are using the "collapse" word again.   I'm kind of perplexed as to why.

Miners either hold what they mine, sell it at an exchange, or to some degree, spend their mining proceeds within the bitcoin economy.  But that happens once.  After the miner spends those funds the funds are then spent.  Those coins are ultimately either bought by someone investing/speculating or they continue to circulate in the bitcoin economy.

Starting later this month, the currency issuance rate drops to a 12.5% level (at an annual rate).

So in the year that follows miners will either save, cash out or spend those 1.3 million coins that they earn.

 - If 100% of those funds are saved ("hoarded") by the miners then, of course, that will not cause "collapse".
 - If 100% of those funds are spent in the bitcoin economy, that will be fantastic, and will not cause a "collapse".
 - If 100% of those funds are cashed out immediately upon being earned by miners, that might keep the exchange rate subdued, but I can't think that is anywhere enough to cause "collapse".
 - And thus, if there is any combination of the above, there is nothing there that would cause a "collapse".

So where do you see low profits (or losses) to miners as being something that will cause Bitcoin's collapse?

[BTC-Joe]

The cult-like attitude of bitcoin proponents also plays an important role here. Thanks. Case in point. ↑

You've yet to make any points.

The proper response when bitcoin and Ponzi are mention in the same sentence is: Provide reassurance that bitcoin is not a ponzi scheme.

Oh, am I trying to reassure people about bitcoin by explaining what a ponzi scheme is? This isn't about bitcoin so much as it is a failure to properly utilize the English language. We're not going to redefine words to suit your opinions.

The proper response, which has eluded you, is that bitcoins do have fundamental flaws that will prevent them from gaining mainstream adoption as they are now...but in no way are they comparable to a ponzi scheme. Do I personally "believe" in bitcoins as a currency (or a replacement for any national currency)? No, but I do see opportunity here in the context of bitcoins being more of an virtual item than a currency.

Members of the cult are expected to produce certain pat responses. Even when these responses are unrelated to the question asked.

Observing such cult-like behavior, outsiders are distrustful and suspect a ponzi. As they should.

And people who lack the intellectual capacity to support their arguments with logic will quickly resort to misdirection and eventually trolling in an attempt to mask their shortcomings.

[cunicula]

And people who lack the intellectual capacity to support their arguments with logic will quickly resort to misdirection and eventually trolling in an attempt to mask their shortcomings.

Let's review, since you missed it the last time

OP wrote
Although I don't think bitcoin is a ponzi scheme, I think it does make some sense to see it that way.

The question is: 'why do people make a mental association between A and B (even though A and B are not the same)'

You responded by saying that A and B are not the same. This indicates that you have trouble differentiating between logical reasoning and reasoning via analogies and symbols.

On reviewing your writing, I believe you suffer from cognitive limitations. (e.g. Asperger's)

I don't have anything more to say to you, other than a suggestion that you seek help for your condition.

[thoughtfan]

My reasoning went like this:  If the benefit to participants is solely profits from those further down the chain it will sooner or later collapse - and when it does, by necessity the vast vast majority of participants will lose.

So does every company that is running today, so how do you differentiate a valid business vs a ponzi. What does one use as proof?

I don't think you've understood what I intended to say - or I'm not reading you right...

I was talking of a classic pyramid or MLM model where there is a direct benefit to be gained from people who are sold to or 'recruited' by those who recruited them and by those who recruited them etc.

The difference in my eyes between a marketing scheme that is doomed to fail and one that I'd count as constructive commerce is whether the which the vast majority of participants (including and especially the 'bottom layer') have derived value from the initial transaction irrespective of any further profits.

Where this is the case, say if I bought a plastic sandwich box and was happy that the combination of quality/price meant I got good value then it makes no odds whether it was bought from a shop or from an MLM scheme.  The only difference is how the profits are split - and that's only of interest if the buyer, in additional to being content with initial purchase value, is interested in further participation by marketing him/herself.

I'm afraid I don't understand what you're saying about what I said that is like 'every company that is running today'.  I'd be happy to elaborate or does my further explanation clear it up for you?

Note I've not yet brought Bitcoin into the equation.  I wanted to try and separate out detrimental and positive aspects of schemes generally classified as 'ponzi' first.  Mushing up concepts like greed and fraud and bound-to-fail and profiteering and small numbers making massive money etc. in one emotive word then jumping in on the 'Oh yes it is, Oh no it isn't' pantomime virtually guarantees the discussion can not move forward.

...when the select few profit too much, that will increase the chance of collapse. Just take a look at hostess they gave the executives 300% raises and lowered the workers pay.

I don't understand this sorry.  Are you talking about a normal business, a marketing scheme of some sort or something to do with Bitcoin?  I don't know of the 'hostess and the executive' example you gave nor what it is meant to illustrate.

[BTC-Joe]

The question is: 'why do people make a mental association between A and B (even though A and B are not the same)'

You responded by saying that A and B are not the same. This indicates that you have trouble differentiating between logical reasoning and reasoning via analogies and symbols.

On reviewing your writing, I believe you suffer from cognitive limitations. (e.g. Asperger's)

I don't have anything more to say to you, other than a suggestion that you seek help for your condition.

Nah bro, I'm not the one missing anything here. Let's examine:

The OP said he doesn't think of bitcoin as a ponzi scheme - nothing suggests that he has a clear understanding of what a ponzi scheme is or is not (that is your assumption)...and since this is a public forum and not a 1 to 1 discussion between myself and the OP, other readers may not be clear on what constitutes a ponzi scheme.

You're really hung up on me explaining what a ponzi scheme is rather than addressing the real issue - that is the actual faults of bitcoin and similar 'e currencies'. You don't need to tell me that you have nothing more to say because that was quite evident from your first response. Try to stay on topic, compadre.

[RodeoX]

I wonder if the main reason is because they have heard about ponzi schemes but don't know what that is. Because it sounds cool to say, they are looking for a place to use the term.

[Korbman]

And people who lack the intellectual capacity to support their arguments with logic will quickly resort to misdirection and eventually trolling in an attempt to mask their shortcomings.

Let's review, since you missed it the last time

OP wrote
Although I don't think bitcoin is a ponzi scheme, I think it does make some sense to see it that way.

The question is: 'why do people make a mental association between A and B (even though A and B are not the same)'

You responded by saying that A and B are not the same. This indicates that you have trouble differentiating between logical reasoning and reasoning via analogies and symbols.

On reviewing your writing, I believe you suffer from cognitive limitations. (e.g. Asperger's)

I don't have anything more to say to you, other than a suggestion that you seek help for your condition.

Sorry Cunicula...having just read this entire thread, I must say I agree with BTC-Joe. His statements are right on point when describing a "Ponzi Scheme" and how most members react to the phrase. After that, your posts haven't made much sense and have instead resulted in insults instead of thought out and flowing statements.

[cunicula]

And people who lack the intellectual capacity to support their arguments with logic will quickly resort to misdirection and eventually trolling in an attempt to mask their shortcomings.

Let's review, since you missed it the last time

OP wrote
Although I don't think bitcoin is a ponzi scheme, I think it does make some sense to see it that way.

The question is: 'why do people make a mental association between A and B (even though A and B are not the same)'

You responded by saying that A and B are not the same. This indicates that you have trouble differentiating between logical reasoning and reasoning via analogies and symbols.

On reviewing your writing, I believe you suffer from cognitive limitations. (e.g. Asperger's)

I don't have anything more to say to you, other than a suggestion that you seek help for your condition.

Sorry Cunicula...having just read this entire thread, I must say I agree with BTC-Joe. His statements are right on point when describing a "Ponzi Scheme" and how most members react to the phrase. After that, your posts haven't made much sense and have instead resulted in insults instead of thought out and flowing statements.

Hmm... Korb Investments... Member of the mining cabal I see ↑. I understand why my statements may not have "made much sense." As a miner, you are paid to not understand them.

[rupy]

to further confuse things it MUST be said that the global fiat reserve currency credit bubble is a ponzi scheme! and not all ponzi schemes end up with the creator escaping and living happily ever after, I would guess that never happened once? everything is "energy to do work" at the end of the day, be it USD or BTC!

[Crypt_Current]

And people who lack the intellectual capacity to support their arguments with logic will quickly resort to misdirection and eventually trolling in an attempt to mask their shortcomings.

Let's review, since you missed it the last time

OP wrote
Although I don't think bitcoin is a ponzi scheme, I think it does make some sense to see it that way.

The question is: 'why do people make a mental association between A and B (even though A and B are not the same)'

You responded by saying that A and B are not the same. This indicates that you have trouble differentiating between logical reasoning and reasoning via analogies and symbols.

On reviewing your writing, I believe you suffer from cognitive limitations. (e.g. Asperger's)

I don't have anything more to say to you, other than a suggestion that you seek help for your condition.

Sorry Cunicula...having just read this entire thread, I must say I agree with BTC-Joe. His statements are right on point when describing a "Ponzi Scheme" and how most members react to the phrase. After that, your posts haven't made much sense and have instead resulted in insults instead of thought out and flowing statements.

Hmm... Korb Investments... Member of the mining cabal I see ↑. I understand why my statements may not have "made much sense." As a miner, you are paid to not understand them.

I'm a miner.  I wish I were paid to understand your statements.  I'm glad I'm not paid to agree with them.

[Gatorhex]

Ponzi Scheme = promising an interest rate to investors and paying it with new investors money.

Pyramid Scheme = paying someone higher up for the right to join a scheme and inviting people below you to pay up to you.

Bitcoin Scheme = converting electricity into a digital currency.

Like mining in the real world, the value of a commodity, comes from the effort/cost to obtain it and the demand for it.

People who say bitcoin is a ponzi scheme have never tried to make one and so don't understand it's value.

[cunicula]

Bitcoin Scheme = converting electricity into a digital currency.
People who say bitcoin is a ponzi scheme have never tried to make one and so don't understand it's value.

No, the whole PoW thing is not a marketing scheme. No, not at all.