Bitcoin = Ponzi Scheme = You are an uninformed idiot

[Operatr]

I'm tired of seeing "its a Ponzi scheme!", pretty much everywhere. Simply because it seems apparently no one actually knows what a Ponzi scheme actually is.

Here is the deal:

A Ponzi scheme is comprised of two things: A person, entity, or group at the top that convinces people to "invest" in some new opportunity collecting unicorn tears or some such, and idiots that actually give these scammers money without checking into it first, like a smart investor does.

Each "investor" is actually just paying the level of "investors" before them except they have no idea that is where their ROI came from in reality, with the heads at the top receiving a very large sum through an upward chain of money, eventually leaving the people at the bottom of the chain screwed when it goes down.


Bitcoin is fully decentralized

There is no head, no chief, no central server, no central authority, no corporation, no Mr. Bitcoin at the top receiving funds, nothing. Now, you could certainly conduct a Ponzi scheme with Bitcoins, but Bitcoin itself is not one in its own right.
It is a free market economy, granted a very young one, but it gives no one the right to call it a scam when it blatantly is not if one would simply educate themselves about Bitcoin for 5 minutes.

https://www.youtube.com/watch?v=Um63OQz3bjo


That pretty much makes it being a Ponzi scheme impossible if there is no one at the top to collect.

So please, stop it. Your claims are baseless and ill informed. Bitcoin itself is not, nor will ever be, a Ponzi scheme.

And Charles Ponzi died broke and alone.

[luffy]

don't try to fight foolishness my friend,
it is too strong and infinite 

[Operatr]

don't try to fight foolishness my friend,
it is too strong and infinite 

It does seem to be an uphill battle 

[Ekaros]

Not a ponzi certainly. But the value can be bubble. And I won't back off from that side.

[herzmeister]

In Ponzi, when no one is buying, it collapses.

In gold, silver, or Bitcoin, when no one is buying, price merely stagnates.

[Operatr]

Not a ponzi certainly. But the value can be bubble. And I won't back off from that side.

Though bubbles are still not a fault of the Bitcoin protocols, but a victim of outside influence from completely unstable fiat currencies, initial speculator greed, etc. Bitcoin is tied to the real world just as much as any other currency, and I think the wildest ride is yet to come.

In Ponzi, when no one is buying, it collapses.

In gold, silver, or Bitcoin, when no one is buying, price merely stagnates.

Bitcoin acts like gold, but unlike gold it can also be spent as a currency. It is only like a gold commodity because it is new, and frankly the only fire market in years after a couple decades of horrible stock problems. As adoption increases over time it will be viewed as a currency and not a commodity. At the moment it has the luxury of both.

[elux]

There is no head, no chief, no central server, no central authority, no corporation, no Mr. Bitcoin at the top receiving funds, nothing.

But effectively, there is.

And that is a big problem.

It is a free market economy, granted a very young one, but it gives no one the right to call it a scam when it blatantly is not if one would simply educate themselves about Bitcoin for 5 minutes.

Rebuttal, courtesy of Tyler Durden of ZeroHedge:
(What we have learned about Bitcoin this week.)

As I write this, the price of Bitcoins has fallen more than 70 percent from where it was on Wednesday.  This is one of the reasons why I have never recommended Bitcoins to anyone.  Yes, alternative currencies are a good thing, but there are a lot of big problems with Bitcoins.  Why would anyone want to invest in a currency that could lose 70 percent of its purchasing power in just two days?  Why would anyone want to invest in a currency where a single person can arbitrarily decide to suspend trading in that currency at any time?

An article by Mike Adams of Natural News described some of the things that we have learned about Bitcoins this week...

#1) The bitcoin infrastructure cannot handle a selloff. Once the rush for the exits gains momentum, you will not be able to get out. Only those who sell early will be able to exit the market.
 
#2) The bitcoin infrastructure is subject to the whims of just one person running MTGox who can arbitrarily decide to shut it down whenever he thinks the market needs a "cooling period." This is nearly equivalent to a financial dictatorship where one person calls the shots.
 
#3) Every piece of bad news will be "spun" by exchanges like MTGox into good-sounding news. As bitcoin was crashing yesterday by 60% in value in mere hours, MTGox announced it was a "victim of our own success!" So while bitcoin holders watched $1 billion in market valuation evaporate, MTGox called it a success. Gee, then what would you call it when bitcoin loses 99%? A "raging" success?

[...]

http://www.zerohedge.com/news/2013-04-12/guest-post-11-economic-crashes-are-happening-right-now

[kgo]

There is no head, no chief, no central server, no central authority, no corporation, no Mr. Bitcoin at the top receiving funds, nothing.

But effectively, there is.

This out-of-context quote has nothing to do with the fact that bitcoin isn't a Ponzi scheme.  Even if I were to concede your point, mtGox isn't fraudulently funnelling new investor's money into artificial profits.

[elux]

There is no head, no chief, no central server, no central authority, no corporation, no Mr. Bitcoin at the top receiving funds, nothing.

But effectively, there is.

This out-of-context quote has nothing to do with the fact that bitcoin isn't a Ponzi scheme.  Even if I were to concede your point, mtGox isn't fraudulently funnelling new investor's money into artificial profits.

I'm not saying Bitcoin is a ponzi scheme. It isn't.

But Bitcoin, as of today, relies on "a head, a chief, a central server, a central authority, a corporation, a Mr. Bitcoin at the top receiving funds."

That head is MtGox. And that head needs to be cut of.

[Teka]

There is no head, no chief, no central server, no central authority, no corporation, no Mr. Bitcoin at the top receiving funds, nothing.

But effectively, there is.

This out-of-context quote has nothing to do with the fact that bitcoin isn't a Ponzi scheme.  Even if I were to concede your point, mtGox isn't fraudulently funnelling new investor's money into artificial profits.

I'm not saying Bitcoin is a ponzi scheme. It isn't.

But Bitcoin, as of today, relies on "a head, a chief, a central server, a central authority, a corporation, a Mr. Bitcoin at the top receiving funds."

That head is MtGox. And that head needs to be cut of.

The problem is that MtGox has become so big that if they fail, Bitcoin will fail.If you take a look at what happened when MtGox was knocked offline for a few hours you will realize that the availability  of  MtGox has a massive effect on the Bitcoin price.

[Operatr]

There is no head, no chief, no central server, no central authority, no corporation, no Mr. Bitcoin at the top receiving funds, nothing.

But effectively, there is.

This out-of-context quote has nothing to do with the fact that bitcoin isn't a Ponzi scheme.  Even if I were to concede your point, mtGox isn't fraudulently funnelling new investor's money into artificial profits.

I'm not saying Bitcoin is a ponzi scheme. It isn't.

But Bitcoin, as of today, relies on "a head, a chief, a central server, a central authority, a corporation, a Mr. Bitcoin at the top receiving funds."

That head is MtGox. And that head needs to be cut of.

I agree, the exchange issue is the biggest at the moment. We must break it apart, in the action that is we need more exchanges or implementing a p2p system for it.

But let's think long term, which I think most fail to do, once this issue is solved it will be fine. The vulnerability is in support systems, not the protocol itself. We are still at the very beginning, once Bitcoin entered the public eye we got a true stress test against the network. And it failed. These are only hobbyists that are now needing to grow to meet the demand. Bitcoin is rapidly becoming serious business. If MTGox fails so be it, there will be others to replace it and do it better then.

At this stage it is only a good thing to discover where Bitcoin has a problem so we can fix it together. This problem today is exchange abuse, which is rooted at MTGox as it was one of the progenitors and as such the most popular one.

[Haole]

BTC is in a confirmed bull market and it has proven itself on more than one occasion that it is absolutely not a Ponzi Scheme.   Anyone who calls it such, even The Tylers and the throwbacks on Zero Hedge, obviously don't even know what a Ponzi is yet.  This does not reflect well on these morons and not only exposes their apparent agenda but discredits themselves completely.

[unk]

the problem is that you're responding to a substantive criticism by identifying a formal distinction. to most people making the claim, it doesn't matter whether bitcoin is literally a 'ponzi scheme' in some platonic, classical sense. some even recognize the distinction and point out that it operates as if it were a ponzi scheme, albeit through a new and interesting process. for example, eric posner's article at slate does this: http://www.slate.com/articles/news_and_politics/view_from_chicago/2013/04/bitcoin_is_a_ponzi_scheme_the_internet_currency_will_collapse.html

i agree that mt. gox's speculations about the price are irresponsible, ill-informed, and essentially fraudulent.

there are many such similar claims in the community. even in this thread, there are ill-informed claims that assume, as background, that the natural progression of the price of a bitcoin is to climb indefinitely:

In Ponzi, when no one is buying, it collapses.

In gold, silver, or Bitcoin, when no one is buying, price merely stagnates.

when nobody is buying and people are selling, the price will fall. that is true of any investment scheme, ponzi or not. a falling price is a falling price. you can only call it 'stagnation' if you assume the natural state of the price is to rise exponentially. there is literally nothing in the world that has that natural state forever.

the bitcoin technology is itself not a ponzi scheme or any kind of scam. the promotion of bitcoins with language like 'it always goes up' or 'get in before it's too late' is, as posner argues, essentially indistinguishable from a ponzi scheme even if there is no organized head and even if the beneficiaries are distributed. the speculatory value of a bitcoin depends on the hope of selling it to others at a profit even though the coin itself, unlike a stock or bond, never generates its own productive return or dividend. (for the record, yes, gold is the same way. it doesn't matter.)

i also think there is a decent chance that mt. gox are actively manipulating the market to bolster the price. the only way to know for sure would be for them to submit to a third-party audit or for enough people to stop using them. they have consistently marketed bitcoins to the public with very scammy language.

it's remarkable how quickly people forget: if it sounds too good to be true, it probably is.

[kgo]

the bitcoin technology is itself not a ponzi scheme or any kind of scam. the promotion of bitcoins with language like 'it always goes up' or 'get in before it's too late' is, as posner argues, essentially indistinguishable from a ponzi scheme even if there is no organized head and even if the beneficiaries are distributed. the speculatory value of a bitcoin depends on the hope of selling it to others at a profit even though the coin itself, unlike a stock or bond, never generates its own productive return or dividend. (for the record, yes, gold is the same way. it doesn't matter.)

That would actually be characterized as a pump-and-dump, not a ponzi.  And if we used that term then we could at least debate the real question.  Are the enthusiastic hype men actually cynical con-men trying to create greater fools so they can dump, or is the enthusiasm authentic by people who are genuinely long on bitcoin?

[Etlase2]

That would actually be characterized as a pump-and-dump, not a ponzi.  And if we used that term then we could at least debate the real question.  Are the enthusiastic hype men actually cynical con-men trying to create greater fools so they can dump, or is the enthusiasm authentic by people who are genuinely long on bitcoin?

People calling bitcoin a ponzi scheme has been the greatest boon for the bitcoin hype tribe. It's so easily defeated by showing that bitcoin does not fit the textbook definition of a ponzi scheme, and that makes it possible to completely sidestep the concern that the history books may call this a "bitcoin scheme".

[odolvlobo]

the problem is that you're responding to a substantive criticism by identifying a formal distinction. to most people making the claim, it doesn't matter whether bitcoin is literally a 'ponzi scheme' in some platonic, classical sense. some even recognize the distinction and point out that it operates as if it were a ponzi scheme, albeit through a new and interesting process. for example, eric posner's article at slate does this: http://www.slate.com/articles/news_and_politics/view_from_chicago/2013/04/bitcoin_is_a_ponzi_scheme_the_internet_currency_will_collapse.html

the bitcoin technology is itself not a ponzi scheme or any kind of scam. the promotion of bitcoins with language like 'it always goes up' or 'get in before it's too late' is, as posner argues, essentially indistinguishable from a ponzi scheme even if there is no organized head and even if the beneficiaries are distributed. the speculatory value of a bitcoin depends on the hope of selling it to others at a profit even though the coin itself, unlike a stock or bond, never generates its own productive return or dividend. (for the record, yes, gold is the same way. it doesn't matter.)

Your argument is extremely weak. Basically, you are saying that it is valid for someone to claim that Bitcoin is a Ponzi scheme if they are uninformed.

The same claims of being a Ponzi scheme could be applied even more accurately to commodity and currency trading. Bitcoin is not and cannot be a Ponzi scheme. Only uninformed people can argue otherwise.

BTW, "in some platonic, classical sense" is funny because the term "Ponzi" does not come from the ancient Greeks. It was invented in the early 20th century, named after a guy named Ponzi. I think "pedantic" is the term you were looking for.

[Herodes]

What else can we expect ? The general public is stupid as hell.

The only thing we can do is to try to educate.

[unk]

That would actually be characterized as a pump-and-dump, not a ponzi.  And if we used that term then we could at least debate the real question.  Are the enthusiastic hype men actually cynical con-men trying to create greater fools so they can dump, or is the enthusiasm authentic by people who are genuinely long on bitcoin?

the two categories can overlap: if madoff's fund had traded in shares, it could have been illicitly pumped (and dumped) even whilst it was also a ponzi scheme.

the reason people see the resemblance between bitcoin's promotion and a classical ponzi scheme is that in both cases, the profit comes as a transfer of wealth from new participants to old participants, merely by convincing new participants to value the asset as an investment scheme on the hope of the cycle continuing. everyone here always says that's identical to shares in a new company, but shares in a new company become valuable (if legitimate) on the expectation of an eventual dividend. bonds become valuable because they will pay interest. etc.

but yes, if you want to say that bitcoin is necessarily different from a classical ponzi scheme because there is no promoter who profits from investment fees tied to assets under management, then i would mostly agree. except that mt. gox comes pretty close.

[odolvlobo]

the reason people see the resemblance between bitcoin's promotion and a classical ponzi scheme is that in both cases, the profit comes as a transfer of wealth from new participants to old participants, merely by convincing new participants to value the asset as an investment scheme on the hope of the cycle continuing. everyone here always says that's identical to shares in a new company, but shares in a new company become valuable (if legitimate) on the expectation of an eventual dividend. bonds become valuable because they will pay interest. etc.

That is called a "pyramid scheme".

[unk]

BTW, "in some platonic, classical sense" is funny because the term "Ponzi" does not come from the ancient Greeks. It was invented in the early 20th century, named after a guy named Ponzi. I think "pedantic" is the term you were looking for.

oh lord. i know. i've written academic articles on the subject.

you people really need some perspective. 'classical' refers to any paradigmatic or flourishing period. (for example, 'classical' music doesn't come from the ancient greeks.) 'platonic' refers to an ideal archetype, based on plato's philosophy of archetypes. have you never heard the phrase 'platonic ideal'?

in any case, we're arguing insignificant terminology now. it's odd that you'd write such a message and then suggest that i use the term 'pedantic'!

sorry, maybe i'm getting frustrated because, in 'real life', i'm used to people trusting what i say a little more -- and perhaps the lesson derived from pseudonymity is useful personally. but good lord is it tedious! as a general rule, you can trust that even if you disagree with my perspective or my analytical priors, i do know what i'm talking about and am neither uneducated nor ill-informed.