Re: [FAQ] Is BitCoin a Ponzi or pyramid scheme? (Newbie-Friendly)

[piramida]

The fiats saved in the transportation of my fiat purchases=bitcoin's intrinsic value.

I agree, bitcoin is an excellent transport. However until prices are set in BTC the double conversion process equals out the transportation efficiency. Also, there's a hanging shadow of having to completely trust the business, especially for large purchases, which tips the scales in fiat's favor now. I would never buy an MBP using bitcoins, for example.

[oakpacific]

The fiats saved in the transportation of my fiat purchases=bitcoin's intrinsic value.

I agree, bitcoin is an excellent transport. However until prices are set in BTC the double conversion process equals out the transportation efficiency.

Not for Chinese whose credit cards are usually not even accepted by American online stores.

Also, there's a hanging shadow of having to completely trust the business, especially for large purchases, which tips the scales in fiat's favor now. I would never buy an MBP using bitcoins, for example.

With multisigs implemented, everyone can conduct a third-party less escrow transaction, I suspect this maybe tempting for those merchants who do not want to pay paypal fees.

[mobodick]

@ HBBZ

I won't deny Bitcoin could be a ponzi.

For a little history peoples masks chang with the tide. At the moment it is the permabulls v the bears, but it wasn't long ago it was all about economic principles - Austrians v Keynesians.

Before you make up your mind consider the following topics for research.

1) the economic benefits of having a fixed amount of money in an economy (Austrian economics)

2) what is the best way to distribute that money (Addam Smith and for intrest Mises money regression theorem)

3) preventing the copying of digital information - no double spending (the blockchain and cryptography)

In my opinion you need to think of the Bitcoin community as an economy. It can be a store of wealth like Switzerland, or gold of today, or it can be a currency.

At the moment it is growing as a store of wealth, and is susceptible to your concerns as a ponzi, but there are the fundamental principles that make it strong.

On the other hand using it as a currency is premature, prices are deflating, very fast, making it more profitable to save than to invest or spend.

There are problems in the distribution that I can see but then again assess the fundamentals give it a value and see if you are willing to risk it. It could all go up in smoke tomorrow.

In a cryptocurrency world there will be no limit to the ammount of money in the world.
Atcoins will pop up and become coin reserves of their own.
Altcoins can compete on any front with bitcoin and so bitcoin itself will never be a magical safe store of value.

[mobodick]

Re: old beaten topic of buying things with bitcoins (even though I do, even when I don't need to) - it is still a for-fun thing mostly, and maybe in some illegal cases it is the only way so it makes sense there, but until there are more unique things you can only buy with bitcoins, it will be an asset used for hoarding. Why? Because you can not buy anything with bitcoins yet. Bitpay and other converters just help you hide the fact of actually buying with fiat; you are using BTC as the transport (which is an intended method) but you as a merchant are stocking up using fiat and your buyers get BTC using fiat, so the coins are only a transport, you stil buy things with fiat.

And this will be slowly changing, over many years ahead. Don't expect everyone to suddenly start buying everything with bitcoins - because there's currently no need to, only if you don't have access to standard fiat transport methods or you want to anonymize them. Later, when we get more products which are produced and marketed using only bitcoins, which will have prices nominated in Bitcoins (not changing with USD exchange rate), that would be the real BTC market where people would have no choice but to buy with coins, and where salaries would be paid in coins, but it is, again, years from fruition.

The fiats saved in the transportation of my fiat purchases=bitcoin's intrinsic value.

That is not what intrinsic value means tho...
Take away the monetary uses of bitcoin and what you're left with is its intrinsic value.
It is all the other ways you can use bitcoin in when it cannot be used as a trade instrument.
Someone mentioned bitcoins could make a neat random number generator.

[oakpacific]

Re: old beaten topic of buying things with bitcoins (even though I do, even when I don't need to) - it is still a for-fun thing mostly, and maybe in some illegal cases it is the only way so it makes sense there, but until there are more unique things you can only buy with bitcoins, it will be an asset used for hoarding. Why? Because you can not buy anything with bitcoins yet. Bitpay and other converters just help you hide the fact of actually buying with fiat; you are using BTC as the transport (which is an intended method) but you as a merchant are stocking up using fiat and your buyers get BTC using fiat, so the coins are only a transport, you stil buy things with fiat.

And this will be slowly changing, over many years ahead. Don't expect everyone to suddenly start buying everything with bitcoins - because there's currently no need to, only if you don't have access to standard fiat transport methods or you want to anonymize them. Later, when we get more products which are produced and marketed using only bitcoins, which will have prices nominated in Bitcoins (not changing with USD exchange rate), that would be the real BTC market where people would have no choice but to buy with coins, and where salaries would be paid in coins, but it is, again, years from fruition.

The fiats saved in the transportation of my fiat purchases=bitcoin's intrinsic value.

That is not what intrinsic value means tho...
Take away the monetary uses of bitcoin and what you're left with is its intrinsic value.
It is all the other ways you can use bitcoin in when it cannot be used as a trade instrument.
Someone mentioned bitcoins could make a neat random number generator.

OK, how do we define the value of its possible application in intermediary-less escrow service? Sounds a bit tricky to me.

[mobodick]

Re: old beaten topic of buying things with bitcoins (even though I do, even when I don't need to) - it is still a for-fun thing mostly, and maybe in some illegal cases it is the only way so it makes sense there, but until there are more unique things you can only buy with bitcoins, it will be an asset used for hoarding. Why? Because you can not buy anything with bitcoins yet. Bitpay and other converters just help you hide the fact of actually buying with fiat; you are using BTC as the transport (which is an intended method) but you as a merchant are stocking up using fiat and your buyers get BTC using fiat, so the coins are only a transport, you stil buy things with fiat.

And this will be slowly changing, over many years ahead. Don't expect everyone to suddenly start buying everything with bitcoins - because there's currently no need to, only if you don't have access to standard fiat transport methods or you want to anonymize them. Later, when we get more products which are produced and marketed using only bitcoins, which will have prices nominated in Bitcoins (not changing with USD exchange rate), that would be the real BTC market where people would have no choice but to buy with coins, and where salaries would be paid in coins, but it is, again, years from fruition.

The fiats saved in the transportation of my fiat purchases=bitcoin's intrinsic value.

That is not what intrinsic value means tho...
Take away the monetary uses of bitcoin and what you're left with is its intrinsic value.
It is all the other ways you can use bitcoin in when it cannot be used as a trade instrument.
Someone mentioned bitcoins could make a neat random number generator.

OK, how do we define the value of its possible application in intermediary-less escrow service? Sounds a bit tricky to me.

Nah, its simple.
Does this valuing have anything to do with the bitcoin being used as a currency? Yes?
Then it is not intrinsic.

[KTE]

Intrinsic value is for example the weight of a pound of gold, or the shiny color of it. The amount of money you get by selling it to someone is not intrinsic to the pound of gold, it can be taken away.

That's the simplest explanation I can give. You can expand that example to anything, including bitcoin. Bitcoin has no intrinsic value, it is just arbitrary data.

[mobodick]

Intrinsic value is for example the weight of a pound of gold, or the shiny color of it. The amount of money you get by selling it to someone is not intrinsic to the pound of gold, it can be taken away.

That's the simplest explanation I can give. You can expand that example to anything, including bitcoin. Bitcoin has no intrinsic value, it is just arbitrary data.

In economy the distinction is subtly different.
We try to separate the economical value of a value holder (what you can get for it on the market) from what you can use the actual value holder for if you decide not to exchange it for something else in the economy.
An apple has an intrinsic value. You can eat it and it makes your hunger go away.
But you can also exchange it for something else. That is its economical value.
A dollar bill has intrinsic value. It is made from fibers and you could burn them, for instance, to get some energy.
But you can also exchange it for something else. That is its economic value.
(You can actually see situations where intrinsic value of paper money becomes greater than its economic value because of hyper inflation. In such situations you can find that people keep their houses warm with the by then pretty worthless money bills.)

Since bitcoin is pretty useless when not being used extrinsically you can say that bitcoin has (pretty much) no intrinsic value whatsoever.

[mobodick]

Intrinsic value is for example the weight of a pound of gold, or the shiny color of it. The amount of money you get by selling it to someone is not intrinsic to the pound of gold, it can be taken away.

That's the simplest explanation I can give. You can expand that example to anything, including bitcoin. Bitcoin has no intrinsic value, it is just arbitrary data.

In any case, i think you are talking about intrinsic properties, not intrinsic value.
Any value needs a human to value it. Nothing has intrinsic value without a human to valuing it.

[oakpacific]

Re: old beaten topic of buying things with bitcoins (even though I do, even when I don't need to) - it is still a for-fun thing mostly, and maybe in some illegal cases it is the only way so it makes sense there, but until there are more unique things you can only buy with bitcoins, it will be an asset used for hoarding. Why? Because you can not buy anything with bitcoins yet. Bitpay and other converters just help you hide the fact of actually buying with fiat; you are using BTC as the transport (which is an intended method) but you as a merchant are stocking up using fiat and your buyers get BTC using fiat, so the coins are only a transport, you stil buy things with fiat.

And this will be slowly changing, over many years ahead. Don't expect everyone to suddenly start buying everything with bitcoins - because there's currently no need to, only if you don't have access to standard fiat transport methods or you want to anonymize them. Later, when we get more products which are produced and marketed using only bitcoins, which will have prices nominated in Bitcoins (not changing with USD exchange rate), that would be the real BTC market where people would have no choice but to buy with coins, and where salaries would be paid in coins, but it is, again, years from fruition.

The fiats saved in the transportation of my fiat purchases=bitcoin's intrinsic value.

That is not what intrinsic value means tho...
Take away the monetary uses of bitcoin and what you're left with is its intrinsic value.
It is all the other ways you can use bitcoin in when it cannot be used as a trade instrument.
Someone mentioned bitcoins could make a neat random number generator.

OK, how do we define the value of its possible application in intermediary-less escrow service? Sounds a bit tricky to me.

Nah, its simple.
Does this valuing have anything to do with the bitcoin being used as a currency? Yes?
Then it is not intrinsic.

Yea, I guess so, I was just randomly pulling things out of my brain.

Anyway, my point was something along the line of "cryptocurrency is as uniquely useful to people as PMs are", in fact you can even count it as something with "industrial applications".

[AndyRossy]

Bitcoin speculation is a pyramid yes.

[oakpacific]

http://en.wikipedia.org/wiki/Intrinsic_value_(numismatics)   OK, there seems to be different definitions for it.

Bitcoin speculation is a pyramid yes.

So are nearly all speculations, no news here.

[AndyRossy]

http://en.wikipedia.org/wiki/Intrinsic_value_(numismatics)   OK, there seems to be different definitions for it.

Bitcoin speculation is a pyramid yes.

So are nearly all speculations, no news here.

But, what % of bitcoin activity is speculation vs trade?  This is the scary part.

Most people who are "doing well" equate doing well, as having lots of dollar-worth in BTC, not the BTC themselves.

[oakpacific]

http://en.wikipedia.org/wiki/Intrinsic_value_(numismatics)   OK, there seems to be different definitions for it.

Bitcoin speculation is a pyramid yes.

So are nearly all speculations, no news here.

But, what % of bitcoin activity is speculation vs trade?  This is the scary part.

Most people who are "doing well" equate doing well, as having lots of dollar-worth in BTC, not the BTC themselves.

You can only realize bitcoin's full potential if people really put their money behind it, the market has to grow to a certain size and liquidity.

I can give you a example: I would like to run a bitcoin remittance service, but if the bitcoin market in the destination country is not big enough, my daily liquidation will be able to swing the market price by +/- 10 dollars, if I want to process enough volume to pay our salaries with the fee incurred. Another example would be cold storage of serious wealth, needless to say people will only use it if they can be certain that bitcoin market is big enough to ensure their coins would not become worthless after years.

[Adrian-x]

@ HBBZ

I won't deny Bitcoin could *edit* be have similarities with *edit*  a ponzi.

Then either you don't know what Bitcoin is, don't know what a Ponzi is, or know what both are, yet are not able to determine why they're not the same thing, or you do know what both are, yet are unwilling to tell the truth.

Bitcoin is not a Ponzi by any possible definition of either term.

Thanks for the correction, your analysis may be technically correct, and Bitcoin is not technically a Ponzi but there are similarities between Bitcoin and a Ponzi scheme.

Should the Bitcoin GDP develop to justify the current market cap (M1 money supply) then I would see no similarities, but the economy is underdeveloped, and can't develop while in deflation, hence the similarity.  

The PO has a point, that is what he is trying to evaluate, denying the point because of a technical definition over a metaphorical colloquial interpretation of the term Ponzi doesn't address the issue.

[Adrian-x]

@ HBBZ

....preventing the copying of digital information - no double spending (the blockchain and cryptography)...

In a cryptocurrency world there will be no limit to the ammount of money in the world.
Atcoins will pop up and become coin reserves of their own.
Altcoins can compete on any front with bitcoin and so bitcoin itself will never be a magical safe store of value.

That is a good point, and one of the features in my opinion that give Bitcoin its value - much like gold is the preferred rare element, I agree it is still a huge risk hence I'd be more comfortable with higher market volatility.

 I see no point in any Altcoins that don't improve on Bitcoin, an improvement would need to be substantial like a huge sift equal to that needed to justify a move from the current internet or, e-mail protocols.

So while I will never have gains like the "Bitcoin Nouveau riche", I will pedal the technical merits and push it as a store of wealth.  As long as you understand what Bitcoin is before you buy in, you only have to follow 2 rules 1) never sell for less then you paid, and 2) keep it safe, don't lose it.  From there an economy will emerge in a few years, or people will keep the dream alive by invest their savings in Bitcoin.

Whatever happens I see a greener future.

[KTE]

Intrinsic value is for example the weight of a pound of gold, or the shiny color of it. The amount of money you get by selling it to someone is not intrinsic to the pound of gold, it can be taken away.

That's the simplest explanation I can give. You can expand that example to anything, including bitcoin. Bitcoin has no intrinsic value, it is just arbitrary data.

In any case, i think you are talking about intrinsic properties, not intrinsic value.
Any value needs a human to value it. Nothing has intrinsic value without a human to valuing it.

You're absolutely right, I was talking about intrinsic properties. Thanks for correcting me. Properties and value are connected though. The intrinsic value is value that comes from intrinsic properties, so in my two gold examples gold would have added intrinsic value because of its weight should you need something to hold things down, or due to its shininess should you want to signal someone from afar via reflection. Also, gold's chemical properties give it more added intrinsic value.

I would however question the need of humans for objects to have intrinsic value. It only requires a lifeform that can gain something from the object. Soil has intrinsic value for trees.

[AndyRossy]

http://en.wikipedia.org/wiki/Intrinsic_value_(numismatics)   OK, there seems to be different definitions for it.

Bitcoin speculation is a pyramid yes.

So are nearly all speculations, no news here.

But, what % of bitcoin activity is speculation vs trade?  This is the scary part.

Most people who are "doing well" equate doing well, as having lots of dollar-worth in BTC, not the BTC themselves.

You can only realize bitcoin's full potential if people really put their money behind it, the market has to grow to a certain size and liquidity.

I can give you a example: I would like to run a bitcoin remittance service, but if the bitcoin market in the destination country is not big enough, my daily liquidation will be able to swing the market price by +/- 10 dollars, if I want to process enough volume to pay our salaries with the fee incurred. Another example would be cold storage of serious wealth, needless to say people will only use it if they can be certain that bitcoin market is big enough to ensure their coins would not become worthless after years.

People put money behind pirate, and other real world ponzis.  Are you arguing that large pyramids have more potential? I agree.

[mobodick]

Intrinsic value is for example the weight of a pound of gold, or the shiny color of it. The amount of money you get by selling it to someone is not intrinsic to the pound of gold, it can be taken away.

That's the simplest explanation I can give. You can expand that example to anything, including bitcoin. Bitcoin has no intrinsic value, it is just arbitrary data.

In any case, i think you are talking about intrinsic properties, not intrinsic value.
Any value needs a human to value it. Nothing has intrinsic value without a human to valuing it.

You're absolutely right, I was talking about intrinsic properties. Thanks for correcting me. Properties and value are connected though. The intrinsic value is value that comes from intrinsic properties, so in my two gold examples gold would have added intrinsic value because of its weight should you need something to hold things down, or due to its shininess should you want to signal someone from afar via reflection. Also, gold's chemical properties give it more added intrinsic value.

I would however question the need of humans for objects to have intrinsic value. It only requires a lifeform that can gain something from the object. Soil has intrinsic value for trees.

Ecosystems show a lot of structures that can be found in economy.
In the end it's all a form of cycling energy or entropy.
But i think we should consider them separately.
Our economy is based on mechanisms that simply are impossible in a natural ecosystem.
We deal in value, representations of value and representations of representaions of value.
Ecosystems are all about what you described as instrinsic value. It's mostly an intrinsic world. Very few animals are capable of things like reason and planning which is needed to consider the future value of things. Try explaining to a lion that this piece of gold will buy him a whole gazelle. The lion will propably only see the intrinsic value of your meat.
There are some examples of informational structures in nature but they are nowhere near anything like money based economy inside our society.

[oakpacific]

http://en.wikipedia.org/wiki/Intrinsic_value_(numismatics)   OK, there seems to be different definitions for it.

Bitcoin speculation is a pyramid yes.

So are nearly all speculations, no news here.

But, what % of bitcoin activity is speculation vs trade?  This is the scary part.

Most people who are "doing well" equate doing well, as having lots of dollar-worth in BTC, not the BTC themselves.

You can only realize bitcoin's full potential if people really put their money behind it, the market has to grow to a certain size and liquidity.

I can give you a example: I would like to run a bitcoin remittance service, but if the bitcoin market in the destination country is not big enough, my daily liquidation will be able to swing the market price by +/- 10 dollars, if I want to process enough volume to pay our salaries with the fee incurred. Another example would be cold storage of serious wealth, needless to say people will only use it if they can be certain that bitcoin market is big enough to ensure their coins would not become worthless after years.

People put money behind pirate, and other real world ponzis.  Are you arguing that large pyramids have more potential? I agree.

Geez,  "bitcoin needs people to put their money behind it to succeed"+"ponzi needs people to put their money behind it "=bitcoin is a bigger ponzi??? That's one hell of a logic.