Why is Bitcoin not a ponzi/pyramid scheme

[coldmug]

There is a post on the Economics sub-forum claiming that bitcoin is a ponzi or pyramid scheme. The position is well argued, and it would appear that there is no one to post back about why bitcoin is not a get-rich-quick scheme invented by Satoshi.

So I'm adding this post to maybe collect the forum's views on the topic, particularly as to why people think it is NOT a scheme. I have to do this because I am unable to post in the above forum and engage directly with the poster.

From my point of view there are a number of reasons why bitcoin is not a scheme. First of all, no one started bitcoin as a means to get-rich-quick, or is advertising it because it has huge upside potential. I for one continuously warn newbies of the risks involved. Moreover, bitcoin has particular use value which is not available through any other means present with current technology. It is possible to transfer capital using bitcoin across borders, something which until recently has been a very difficult and increasingly regulated action. Bitcoin is not subject to capital controls. Bitcoin shines where governments are unstable and the local currency devalued beyond recognition as a matter of policy. So far bitcoin has not significantly introduced to these regions but its only a matter of time, because the internet is hard to stop.

There's more arguments in my mind, but I don't have the time to put them down at this point.

[BurtW]

The reason we no longer respond to AnonyMint is that we are all sick of him.  Just ignore him and maybe he will go away.  He has started many such threads and often posts his crap in other threads.

As to the Bitcoin Ponzi thing that has been answered many, many times in the past.  Just search for Bitcoin Ponzi and find a thread with the answers in it.

[bitbob82]

let just do simple comparison with normal ponzi

1. normal ponzi got central company, the central company can run away with your money anytime
- bitcoin dont have central, all peer to peer, no central company that can run away

2. normal ponzi promise you return such as 10% return per month
- bitcoin never promise you any return

3. normal ponzi product is unlimited
- bitcoin is limited

4. normal ponzi product is not useful
- bitcoin is very useful for you to transfer money from one country to another

5. normal ponzi will collapse once no newcomer join the party
- bitcoin will not collapse even if no newcomer join, the oldtimer can still use them just that the price wont go up anymore

[BurtW]

Another recurrent issue is whether Bitcoin works like a Ponzi scheme or not. Users go into the
system by buying Bitcoins against real currencies, but can only leave and retrieve their funds if
other users want to buy their Bitcoins, i.e. if new participants want to join the system. For many
people, this is characteristic of a Ponzi scheme. The US Securities and Exchange Commission
defines a Ponzi scheme in the following terms:

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing
investors from funds contributed by new investors. Ponzi scheme organizers often solicit new
investors by promising to invest funds in opportunities claimed to generate high returns with little
or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised
payments to earlier-stage investors and to use for personal expenses, instead of engaging in any
legitimate investment activity.

On the one hand, the Bitcoin scheme is a decentralised system where – at least in theory – there
is no central organiser that can undermine the system and disappear with its funds. Bitcoin users
buy and sell the currency among themselves without any kind of intermediation and therefore, it
seems that nobody benefits from the system, apart from those who benefit from the exchange rate
evolution (just as in any other currency trade) or those who are hard-working “miners” and are
therefore rewarded for their contribution to the security and confidence in the system as a whole.
Moreover, the scheme does not promise high returns to anybody. Although some Bitcoin users may
try to profit from exchange rate fluctuations, Bitcoins are not intended to be an investment vehicle,
just a medium of exchange. On the contrary, Gavin Andresen, Lead Developer of the Bitcoin
virtual currency project, does not hesitate to say that “Bitcoin is an experiment. Treat it like you
would treat a promising internet start-up company: maybe it will change the world, but realise that
investing your money or time in new ideas is always risky”. In addition, Bitcoin supporters claim
that it is an open-source system whose code is available to any interested party.

However, it is also true that the system demonstrates a clear case of information asymmetry. It is
complex and therefore not easy for all potential users to understand. At the same time, however,
users can easily download the application and start using it even if they do not actually know how
the system works and which risks they are actually taking. This fact, in a context where there is clear
legal uncertainty and lack of close oversight, leads to a high-risk situation. Therefore, although the
current knowledge base does not make it easy to assess whether or not the Bitcoin system actually
works like a pyramid or Ponzi scheme, it can justifiably be stated that Bitcoin is a high-risk system
for its users from a financial perspective, and that it could collapse if people try to get out of the
system and are not able to do so because of its illiquidity. The fact that the founder of Bitcoin uses
a pseudonym – Satoshi Nakamoto – and is surrounded by mystery does nothing to help promote
transparency and credibility in the scheme.

[coldmug]

Hey I agree completely with you guys. I've ran this idea over in my head a few times too, trying to sort out what exactly makes something a scheme. But this guy is now refuting the arguments made in favor of bitcoin, by saying things like you dont need a central authority to make a ponzi scheme.

What I'm concerned with is what is the main central feature that makes anything a scheme. I'm thinking the answer lies in the nature of the system and how its setup. Still mulling it over.

Thanks for your replies guys.

[Bitlend]

it seems there is no standard answer to such a question.

It could be seen that botcoin is/does have certain characteristics of such, however that could also be said for a lot of startup businesses where investors, buyers are required to facilitate the price rise over time.

 

[coldmug]

It could be seen that botcoin is/does have certain characteristics of such

That's why I want to find a solid reason why it isn't. One of the things that stands out is the fact that in a Ponzi scheme you're really exchanging certificates that on their own are worthless. But bitcoins aren't. You can use them to do actual capital transfers from one place to the other in a secure and open network. The transaction is guaranteed by the network as it's included in the global distributed ledger. I think that even if tomorrow all the "conmen" cashed out, this use case for bitcoin would still be important and hold value for people.

[oakpacific]

It could be seen that botcoin is/does have certain characteristics of such

That's why I want to find a solid reason why it isn't. One of the things that stands out is the fact that in a Ponzi scheme you're really exchanging certificates that on their own are worthless. But bitcoins aren't. You can use them to do actual capital transfers from one place to the other in a secure and open network. The transaction is guaranteed by the network as it's included in the global distributed ledger. I think that even if tomorrow all the "conmen" cashed out, this use case for bitcoin would still be important and hold value for people.

You essentially answer it yourself, payment service is NOT free, without your investment, miners get NO income and they will shutdown(fees are until now pretty negligible, min tx fee is only about 7 US cents), so by buying bitcoins you are actually paying for a useful service, as every coin ultimately comes from mining, that's why it's in no way a Ponzi scheme.

[coldmug]

payment service is NOT free, without your investment, miners get NO income

Well that's not quite what I mean. What I'm saying is that there is a service bitcoin provides. Which is to transfer money from anywhere to anywhere else in the universe which is reachable via internet. Yes there is a fees attached to it, but that's not what I meant when I said "value".

[oakpacific]

payment service is NOT free, without your investment, miners get NO income

Well that's not quite what I mean. What I'm saying is that there is a service bitcoin provides. Which is to transfer money from anywhere to anywhere else in the universe which is reachable via internet. Yes there is a fees attached to it, but that's not what I meant when I said "value".

I know it's not what you meant, but you pretty much had everything you need for the answer: such a service as you said must be paid for to retain a guaranteed degree of quality, that's why the investments are not for some certificates that are worthless.

[coldmug]

Yeah I guess that pretty much answers it. I always had a feeling bitcoin isn't worthless and now I know what it is, I can be more certain its not a scheme.

[WebDesigner1010]

I think the fact that you can actually purchase real products with cryptocurrency makes it valid enough not to be a "pyramid scheme".  Really, any paper currency is held up by the same collective faith in it's value and as long as people agree to use it as an exchange for goods/services it's not a scam.

[po1992one]

Another, you are not required to buy Bitcoin, you can mine it. I mined few Bitcoins with my GPU early this year. You cant mine much anymore because too much competetion, but you can mine at least bit to try Bitcoin

[Lethn]

I'm going to re-post this from one of the press threads which was arguing against people like this

. They don't know what a ponzi scheme is

. They haven't been scammed before or don't know what an actual scam is like

. They don't understand a thing about programming

. They don't know anything about open source software or that Bitcoin is in fact open source

. They directly benefit from the very system Bitcoin is toppling and they hate the idea of it ending

. They don't look up the words they write in the fucking dictionary

I will also say this, if Bitcoin wasn't open source, I would never have taken an interest in it because it would have been exactly like microsoft points or Amazoncoins ( lol ) freeing money from the control of the individual is something that even Monarchs have been struggling to address for centuries because if you look up real history you'll find that entire countries have been usurped by these shadow governments who simple buy up everything with phony money and leave the state powerless and at a dirt cheap price too.

As for the hilarious tulips argument against Bitcoin, they're two completely different things, I don't actually believe that Bitcoin is worth as much as the exchange rate claims, I think what is happening is hyperinflation and the people who cash out of Bitcoin don't understand that.