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

[johnyj]

IMO, everything valueable in the world will always develope into a ponzi like scheme, but I call it crowd behavior

Take housing for example, as soon as the stable and continuously rising price has fall into the eyes of the mass, more and more capital will flow into the houses, and this process will eventually strengthen itself and suck in more and more capital, but at certain point of time, the available capital will be limited by the banks, sooner or later it will hit a brake and the fall will also strengthen itself

It's like a wave, it is a part of the nature

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[Spaceman_Spiff]

IMO, everything valueable in the world will always develope into a ponzi like scheme, but I call it crowd behavior

Take housing for example, as soon as the stable and continuously rising price has fall into the eyes of the mass, more and more capital will flow into the houses, and this process will eventually strengthen itself and suck in more and more capital, but at certain point of time, the available capital will be limited by the banks, sooner or later it will hit a brake and the fall will also strengthen itself

It's like a wave, it is a part of the nature

Dude, you are talking about bubbles, not Ponzi schemes

Holliday just put up an excellent post laying out Ponzi schemes, pyramides schemes etc. a few posts back:  read it !

[HBBZ]

i do know what is speculation and what is a ponzi scheme and what is pyramid scheme.

Let's say, a miner has 100 k bitcoins, he sells 50 k for profit, he never buys anything with bitcoin, that's not a problem, it's his freedom perfectly. But if he tells people everywhere that bitcoin is the currency of the future, he's a disgusting liar and ponzi scammer. Does that sound reasonable? and if a substantial percentage of bitcoiners are this type of person, bitcoin is doomed and held victim of a ponzi scheme.

No, apparently you don't know what a ponzi or pyramid scheme is or isn't.

A ponzi scheme is an investment where the investors are paid interest with their own money or money from other investors. Normally, this requires fraud on the part of the operator. He lies about what the investment is used for and where the interest comes from. The operator obscures the actual nature of the investment, for obvious reasons.

Pyramid scheme? Same thing with slight differences. The operator promises returns for enrolling others into the scheme. There is no real investment and no real products or services. Those involved get a cut of the new money, as does the operator. Those at the bottom don't actually receive anything.

Again pyramid schemes without the lie can exist, but again the investors are playing with fire.

Bitcoin is nothing like either of these. There is no fraud. There are no obscured details. The protocol is open source for all to see and the block chain is a public ledger of every Bitcoin transaction in existence! Bitcoins are what they are, and users are free to share their opinion. It's up to those people to do their due diligence and decide what the facts are and these facts are available for anyone to find! They may or may not purchase Bitcoin depending on whether or not they value it's properties. This is a key point as well, Bitcoins do exist, and they do have real world uses as well as certain properties that make them desirable for some people.

If I purchase Bitcoins, once I receive the coins, and the seller receives the cash, the exchange is done. There is no interest. There is no promise of return. There is no promise of profit. There is no operator. There is no scheme. There is risk! There is risk that everyone else may decide the properties of Bitcoin have no value. There is risk that a flaw in the protocol may change the properties. There is a risk that a protocol with improvements may replace Bitcoin.

Sharing an opinion, regardless of what it might mean for you personally, does not make you a ponzi scammer. If you are lying it might make you a creep. Saying, "Bitcoin is the currency of the future," is a rather harmless opinion and it's practically impossible to verify. I used to use fiat, now I prefer Bitcoin. That makes it the currency of my future! As far as the rest of the world, who knows?

I figured everything out when I took a walk this afternoon.

When new participants flood their dollars in Bitcoin exchange, the price of bitcoin goes up, hoarders who spread the hypes dump their coins and make their profit, in a colletive and indirect way. You can't see the individual who snaped away your money as a newbie. This is nature of bitcoin exchange as a tool of ponzi scheme. The hypers work in a team that no one exposes his face as a schemer. Is this a ponzi scheme? simple and clear yes, a subtle hidden and intricate one.

Who rescues bitcoin? The feature that a bitcoin can be divided more than a million times which eliminates scarcity. That's why a ponzi scheme works fine with other designated commodity but doesn't work with bitcoin. Hypers and schemers are doomed because they cannot drive the market in the same way as they do with other investment to beat the average return on investment.

So, bubbles exist everywhere, a ponzi scheme has no chance to work with bitcoin if the owners of 51% of the coins are basically lucid.

[Spaceman_Spiff]

I figured everything out when I took a walk this afternoon.

When new participants flood their dollars in Bitcoin exchange, the price of bitcoin goes up, hoarders who spread the hypes dump their coins and make their profit, in a colletive and indirect way. You can't see the individual who snaped away your money as a newbie. This is nature of bitcoin exchange as a tool of ponzi scheme. The hypers work in a team that no one exposes his face as a schemer. Is this a ponzi scheme? simple and clear yes, a subtle hidden and intricate one.

Who rescues bitcoin? The feature that a bitcoin can be divided more than a million times which eliminates scarcity. That's why a ponzi scheme works fine with other designated commodity but doesn't work with bitcoin. Hypers and schemers are doomed because they cannot drive the market in the same way as they do with other investment to beat the average return on investment.

So, bubbles exist everywhere, a ponzi scheme has no chance to work with bitcoin if the owners of 51% of the coins are basically lucid.

no

[HBBZ]

The profitability of hoarding bitcoins can be compared to interest rate...

No it absolutely can't! Interest rate is a tool central banks use to give the currency a value because the potential total moneysupply is infinite, and thus intrinsic future value of a USD is ±0. Now that can be considered a ponzi, because the people who get to spend/borrow the new money FIRST get most for their buck while the last people in the business-cycle pay inflated prices. (last pay for the first)

But in bitcoin there is no interest rate. Because bitcoins are in themself attractive due to a fixed, predictible supply similar to gold, nobody gets any benefit of spending/borrowing the money first or last.

Hoarding, is not an investment, its a speculation. And it can lead to losses.

Let's look in this way, new participants put their dollars in bitcoin exchange and take bitcoins in their wallets as a debit note for their dollars. They expect a higher profit than putting it in a bank. Does that penetrate the surface?

So interest rate is a precise term in this situation, which is the benchmark of alll the investment.

[johnyj]

IMO, everything valueable in the world will always develope into a ponzi like scheme, but I call it crowd behavior

Take housing for example, as soon as the stable and continuously rising price has fall into the eyes of the mass, more and more capital will flow into the houses, and this process will eventually strengthen itself and suck in more and more capital, but at certain point of time, the available capital will be limited by the banks, sooner or later it will hit a brake and the fall will also strengthen itself

It's like a wave, it is a part of the nature

Dude, you are talking about bubbles, not Ponzi schemes

Holliday just put up an excellent post laying out Ponzi schemes, pyramides schemes etc. a few posts back:  read it !

From mathematical point of view, they are the same. The interest can be just the price increase itself and people might reinvest the interest into BTC. If the BTC price increased and you sell part of them, it is equal to collecting interest. As long as there is capital flow into the investment target continuously, be it a concept or a virtual thing or a real thing, the effect is the same

[HBBZ]

IMO, everything valueable in the world will always develope into a ponzi like scheme, but I call it crowd behavior

Take housing for example, as soon as the stable and continuously rising price has fall into the eyes of the mass, more and more capital will flow into the houses, and this process will eventually strengthen itself and suck in more and more capital, but at certain point of time, the available capital will be limited by the banks, sooner or later it will hit a brake and the fall will also strengthen itself

It's like a wave, it is a part of the nature

Dude, you are talking about bubbles, not Ponzi schemes

Holliday just put up an excellent post laying out Ponzi schemes, pyramides schemes etc. a few posts back:  read it !

From mathematical point of view, they are the same. The interest can be just the price increase itself and people might reinvest the interest into BTC. If the BTC price increased and you sell part of them, it is equal to collecting interest. As long as there is capital flow into the investment target continuously, be it a concept or a virtual thing or a real thing, the effect is the same

hey, you know what I'm thinking.

It's common that people hype and rip to increase their chances of profitability. That's the shadow of ponzi scheme, in which there are more than one operator. You can't prosecute them and call them by the name ponzi scheme operators because there are too many. You can't find a specific operator to revenge even if you are intoxicated into buying and losing money. In an organized ponzi scheme, an operator can be identified and held guilty for all the hypes the participants spread. A little unfair, is it?

[odolvlobo]

I figured everything out when I took a walk this afternoon.

I'm not so sure...

Anyway, if you have to pick ponzi or pyramid, bitcoin is a classic pyramid scheme because all the information is available and members make money by finding new members.

However, this is true for any commodity. Housing is a pyramid scheme! If you want to make money in housing, get more people interested in owning a house. Yep, it should be illegal to own a house.

[darkmule]

From mathematical point of view, they are the same. The interest can be just the price increase itself and people might reinvest the interest into BTC. If the BTC price increased and you sell part of them, it is equal to collecting interest. As long as there is capital flow into the investment target continuously, be it a concept or a virtual thing or a real thing, the effect is the same

That's nonsensical.  BTC appreciates in price because its actual market value increases over time, on average, at least now.  Nobody is issuing bogus guarantees that it will continue to appreciate in value.

A Ponzi is backed by absolutely nothing, except usually claims of doing some kind of investing which is total fiction.  A Ponzi invariably hits the point of mathematical catastrophe and collapses.

There is no reason to believe BTC has any of the qualities that would cause it to meet the same fate.

[thoughtfan]

I figured everything out when I took a walk this afternoon.

Your belief that you've 'figured everything out' is the first clue that you're a very long way from having figured much out at all!  I suspect you're going to need to take a good few more walks to make sense of all this.

Your idea of what a Ponzi is seems pretty mixed up to me.  May I suggest you take some time thinking about what makes a Ponzi a Ponzi to you.  What are the disparate elements and how do they fit in with what you consider to be ethical or legal?  Once you have done this then look at Bitcoin again you can see what does or doesn't fit the model and why.  As long as you continue to mush the mathematical, the moral and legal aspects your 'concept' of what a Ponzi is I believe you will continue to make it impossible for you to come to a reasonable understanding of what is going on.

At least until then I'd highly recommend holding back from accusing people of acting immorally by their Bitcoin-related activity just because they don't conform with your mixed up ideas of what's what.

[HBBZ]

I figured everything out when I took a walk this afternoon.

When new participants flood their dollars in Bitcoin exchange, the price of bitcoin goes up, hoarders who spread the hypes dump their coins and make their profit, in a colletive and indirect way. You can't see the individual who snaped away your money as a newbie. This is nature of bitcoin exchange as a tool of ponzi scheme. The hypers work in a team that no one exposes his face as a schemer. Is this a ponzi scheme? simple and clear yes, a subtle hidden and intricate one.

No, you didn't figure anything out.

An increasing exchange rate and early adopters profiting does not make a ponzi scheme. By your definition anything that went up in value would be a ponzi scheme. Google stock is a ponzi scheme. Gold is a ponzi scheme. Land is a ponzi scheme. Oil is a ponzi scheme.

So for your world to be without ponzi schemes, nothing could ever change value. That sounds like prison because someone is going to have to enforce it. The fact is things change. People change. What they value changes. The free market is all about price discovery. Bitcoin doesn't only go up, it goes down as well. Anyone who purchased any Bitcoins at any point from the very start has taken the risk of losing value. That is not a scheme, the risk is, and always will be, there for everyone.

The ponzi operator takes no financial risk (beyond punishment if caught obviously)!

Also, I have no idea what you are going on about with the "divided more than a million times" idea. You can divide it as much as you want, everyone still holds the same percentage of the total. It makes no difference what-so-ever as far as scarcity is concerned. Only how you perceive it. There are either 21 million Bitcoins or 2.1 quadrillion satoshis, I still have the same amount in my wallet and can affect the market equally in either scenario.

Someone came into my home and took my TV. They are a thief! (I forgot to mention that I placed an AD in the local paper offering my TV for sale and then accepted their money in exchange for it.)

It's an honor to have you enaged in a serious discussion. Sorry to hear the theft in your house, has the police done something with that?

I'd like to draw a timeline to determing whether bitcoiners are legally ponzi schemers or not. If 50% of available bitcoins are actively traded in exchange between dollars or euros etc yet less than 5% are used as currency serving as medium of transactions and bitcoin is in perilous situation.

That is not speculation any more.

I'll tell you some of my observations. Bitcoin in mainland China is absolutely a ponzi scheme and gambling with possibly less than 1 BTC used as currency per day. Everyone in a user discussion group is talking about mining, hoarding, buying, selling bitcoins, the daily volume of exchange at BTCCHINA is approximately around 1k.

[odolvlobo]

HBBZ,

It is very apparent that you don't know what a ponzi scheme is. You should take another walk, but this time -- walk to the library and learn what a ponzi scheme is.

[mobodick]

Who are pushing bitcoin towards the dangerous Ponzi scheme? Those who

• hoard bitcoins and sell bitcoins in the exchane in volume
• and don't BUY anything with bitcoins,
• and they advocate that bitcoin is the future currency.

Who are friends of bitcoin that consolidate the value of bitcoin as currency? Happy and reasonable shoppers who BUY things with their bitcoins.

The risks of becoming a big ponzi scheme do exist if most bitcoins are bought and sold on the market.

One crucial mistake.
Hoarding means NOT selling, especially at high volume.

[HBBZ]

Thanx gentlemen, I've completed my own questioning whether bitcoin is a ponzi scheme or not. Thanx a lot for crowd-proving it false that bitcoin is a ponzi scheme .

Dare to question,

Dare to trust,

Dare to be foolish,

And dare to do all,

That is a bitcoiner

[cbeast]

The difference between Bitcoin and a Ponzi scheme:
A Ponzi scheme requires a person lying about what is backing the investment.
Bitcoin only requires the truthful answer to a math problem to back the investment.
Otherwise they are very similar. The real question is why people invest in anything?

[BitPirate]

I figured everything out when I took a walk this afternoon.

When new participants flood their dollars in Bitcoin exchange, the price of bitcoin goes up, hoarders who spread the hypes dump their coins and make their profit, in a colletive and indirect way. You can't see the individual who snaped away your money as a newbie. This is nature of bitcoin exchange as a tool of ponzi scheme. The hypers work in a team that no one exposes his face as a schemer. Is this a ponzi scheme? simple and clear yes, a subtle hidden and intricate one.

No, you didn't figure anything out.

An increasing exchange rate and early adopters profiting does not make a ponzi scheme. By your definition anything that went up in value would be a ponzi scheme. Google stock is a ponzi scheme. Gold is a ponzi scheme. Land is a ponzi scheme. Oil is a ponzi scheme.

So for your world to be without ponzi schemes, nothing could ever change value. That sounds like prison because someone is going to have to enforce it. The fact is things change. People change. What they value changes. The free market is all about price discovery. Bitcoin doesn't only go up, it goes down as well. Anyone who purchased any Bitcoins at any point from the very start has taken the risk of losing value. That is not a scheme, the risk is, and always will be, there for everyone.

The ponzi operator takes no financial risk (beyond punishment if caught obviously)!

Also, I have no idea what you are going on about with the "divided more than a million times" idea. You can divide it as much as you want, everyone still holds the same percentage of the total. It makes no difference what-so-ever as far as scarcity is concerned. Only how you perceive it. There are either 21 million Bitcoins or 2.1 quadrillion satoshis, I still have the same amount in my wallet and can affect the market equally in either scenario.

Someone came into my home and took my TV. They are a thief! (I forgot to mention that I placed an AD in the local paper offering my TV for sale and then accepted their money in exchange for it.)

It's an honor to have you enaged in a serious discussion. Sorry to hear the theft in your house, has the police done something with that?

I'd like to draw a timeline to determing whether bitcoiners are legally ponzi schemers or not. If 50% of available bitcoins are actively traded in exchange between dollars or euros etc yet less than 5% are used as currency serving as medium of transactions and bitcoin is in perilous situation.

That is not speculation any more.

I'll tell you some of my observations. Bitcoin in mainland China is absolutely a ponzi scheme and gambling with possibly less than 1 BTC used as currency per day. Everyone in a user discussion group is talking about mining, hoarding, buying, selling bitcoins, the daily volume of exchange at BTCCHINA is approximately around 1k.

The market is not yet developed in China -- but that doesn't mean it won't develop. People said the same thing about the property market in China. And the coffee market... and numerous others, far too many to mention.

I think BTC is *particularly* attractive in China, given the non-convertibility of the renminbi.

Either way, you can't divorce the reality in China from the reality in the rest of the world. Despite apparent authoritarian efforts to the contrary, the Internet is global. Bitcoin is global. Demand in one country will increase the value for all holders and all within the ecosystem.

[Adrian-x]

@ 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.

[darkmule]

@ HBBZ

I won't deny Bitcoin could be 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.

[piramida]

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.

[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.