Are terms pyramid scheme and ponzi scheme misused?

[Etlase2]

You're being pedantic, but you're also wrong. Ponzi is a name and a word: http://dictionary.reference.com/browse/ponzi?s=t

Here's another one for you: http://dictionary.reference.com/browse/phrase?s=t

And I understand fine, you don't seem to understand how Bitcoin isn't a Ponzi/Pyramid scheme or a scam. It has nothing to do with colloquialisms, people are using the term of Ponzi/Pyramid schemes incorrectly. Madoff committed fraud by a Ponzi scam and got people to invest with cash for shares, so are all cash and shares a scam? No. You can use cash or shares for a scam just like you can use BTC, but Bitcoin in itself is not a scam.

Why do you keep putting words in my mouth? I am here to argue the topic of this thread, not whether or not bitcoin is a scam. Can you possibly separate the two concepts?

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[Mike Christ]

I believe the most interesting aspect about these schemes is that you cannot apply them to bitcoin without applying them to all money; so it's not an argument of "bitcoin is a ponzi/pyramid scheme", it's an argument of "money is a ponzi/pyramid scheme", since it would be unusual to argue that one form of money is but not another, when they operate in the same ways.

In this way, the terms are being misused, solely on the basis that people are playing favorites; what applies to one isn't applying to the other, though the definitions of money and these various schemes never change.

[hilariousandco]

You're being pedantic, but you're also wrong. Ponzi is a name and a word: http://dictionary.reference.com/browse/ponzi?s=t

Here's another one for you: http://dictionary.reference.com/browse/phrase?s=t

And I understand fine, you don't seem to understand how Bitcoin isn't a Ponzi/Pyramid scheme or a scam. It has nothing to do with colloquialisms, people are using the term of Ponzi/Pyramid schemes incorrectly. Madoff committed fraud by a Ponzi scam and got people to invest with cash for shares, so are all cash and shares a scam? No. You can use cash or shares for a scam just like you can use BTC, but Bitcoin in itself is not a scam.

Why do you keep putting words in my mouth? I am here to argue the topic of this thread, not whether or not bitcoin is a scam. Can you possibly separate the two concepts?

If you're here to argue the topic of the thread, then "Are terms pyramid scheme and ponzi scheme misused?" Yes, by people like you.

You haven't explained what a "bitcoin scheme" is or how it "closely resembles a pyramid scheme [with] a few twists" yet.

[Etlase2]

If you're here to argue the topic of the thread, then "Are terms pyramid scheme and ponzi scheme misused?" Yes, by people like you.

Please point me to where I've misused the terms. Otherwise, kindly fuck off.

[Impaler]

I've been a principle driver of the argument that BTC is a Pyramid scheme, so I will post here to defend this position.  I have previously stated that I do not feel Ponzi scheme is at all an accurate descriptor of BTC, and I accept the argument that the lack of a central figure that fraudulently misrepresents an investment rules out the Ponzi answer.  Frankly no one should be making any further arguments around Ponzi schemes because it is a settled point and one that is only distracting us form the point at issue now which is the Pyramid scheme.



Of all the posting so far only this one by Hawker makes a cogent argument, that I find worthy of a response.

"A pyramid scheme is an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public" - http://en.wikipedia.org/wiki/Pyramid_scheme

Bitcoin is already a working currency.  So its not any more unsustainable than any other project and as such it can't ever be considered a Pyramid scheme.

I agree with his definition of Pyramid, it is a sufficiently broad definition that I feel it covers BTC even though BTC dose not have the kind of strick quota 'recruitment tree' structure which is common to most pyramids.  Some people might try to make this argument  but so far no one seems to have.  The defining pyramid qualities are

1) Unsustainable business model
2) Rewards members PRIMARILY for enrolling new members
3) Dose not provide it's rewards out of a real investment or profit making service

Hawker argues that BTC is 'a working currency' and is thus not unsustainable, and thus it would fail on point #1 to fit the definition of a Pyramid scheme.  Now right off the Bat Hawker is in my opinion conceding #2, as it is absolutely beyond doubt that the Primary reward most BTC users expect to receive is to see a rise in value of the BTCs they hold, and that rise has always been driven by expanding the user base.  So while a traditional Pyramid scheme has individual rewards for individual recruitment work, BTC offers collective rewards for collective effort (how oddly collectivist for a libertarian scheme but I digress).  The point is that BTC absolutely meets definition #2 in SPADES.

Now moving on to #3 is BTC providing it's rewards from a real investment or profit making service.  This is a bit trickier, as BTC's transaction ability is arguably a service and one that has some value.  But again this is not at all inconsistent with a Pyramid scheme, it is very common to receive and to provide some kind of real service from a pyramid scheme (books or household items are common), such services give the naive the feeling that the whole thing is above board.  This is why #2 says PRIMARILY, real commerce is always a fig-leaf in a Pyramid scheme so to assess BTC we need to actually get some kind of measurement of the real services provided and weight them against the rewards being distributed.

To determine profits we must first look at costs, and we all know BTC has HUGE costs in equipment and electricity.  So to be paying its rewards out of a profitable service BTC would need to be making a profit greater then all the combined rewards to miners in newly mined coins AND all of it's ongoing mining costs, only then could it sustainable maintain both of these expenditures.  But the total collection of transaction fees has consistently failed to keep pace with costs, and in fact the system is falling further and further into debt every day as can be seen on this graph which is transaction fees minus the cost of mining.

https://blockchain.info/charts/network-deficit

To make the situation worse the total costs of performing each transaction are rising as mining revenues increase.  It is impossible to see how a service which is rising in it's costs can be sustained.  Users of BTC are not currently feeling these costs, they are being pushed into the future.  But Ultimately the price of a service in a free market will always return to parity with it's cost.  Costs per transaction are now in the range of $10, a cost that would allow all conventional payment systems to be highly competitive against it.  Thus we can conclude that BTC is not now nor will it ever be a profitable service.

https://blockchain.info/charts/cost-per-transaction

Given that we can see that #2 and #3 defining features of a Pyramid scheme are fulfilled, we can clearly see that their is no way that #1 can not also be meet, for feature #1 is merely a description of what systemically happens when 2 and 3 are true (the hidden axiom here is that the population of potential new members is finite).  Hawkers argument that BTC is a 'working currency' is irrelevant unless he can prove that BTC is a SUSTAINABLE currency, for obviously things that are unsustainable still work FOR A WHILE and their short period of working is not a proof of sustainability.  I do not even need to explode the statement that BTC is currency to prove my case here, even though their are numerous arguments that can be made to that effect, even arguing about that is a misdirection by BTC apologists and an attempt to direct the argument into muddy semantics of what constitutes money or currency.

[Ibian]

You would have to call gold a pyramid scheme too under your very loose definition. You are simply wrong.

Edit: for amusement, let's calculate what the cost of carrying gold coins around on your person would have been back when people used it. After all, they have a weight and thus require energy to manipulate, and energy has a cost.

[Sindelar1938]

Both terms tend to be used incorrectly but ponzi especially

[atc1]

Bitcoins are neither. They neither depend on more people joining,nor is the inherent value of a BTC dependent on newer adopters. These allegations of it being either a pyramid or ponzi scheme stem from the suddenly rising value of it,but that value inflation is due to pure demand-supply equations rather than anything else.

[Daichi]

First, understanding the role of money. Money was created out of barter. Alice grows corn (competitive advantage, lower cost to produce corn). Bob grows wheat (competitive advantage, lower cost to produce wheat). Alice and Bob trade corn and wheat. There is an equilibrium or close to it in the barter system or fairness in the barter, otherwise Alice and Bob would not trade with each other. Thus, the characteristics of sounded money has to have this close equilibrium as in barter.

Bitcoin is not sounded money.

Some people call Bitcoin a ponzi scheme without understanding what the term means. To them, it's an all encompassing term for scam. Stop calling it a ponzi scheme. Bitcoin does not fit the definition of ponzi scheme. Bitcoin fits under the broader term, scam.

BITCOIN IS A PYRAMID SCHEME.

Bitcoin can be separated into two components:
A) the distributed peer-to-peer payment technology
B) the Bitcoin scheme, monetary, method of creation and issuing new coins

The technology part is not the problem. You can have a pyramid scheme over the postal mail system, something like Mailcoin, but it would not be as efficient and will not have the exponential growth than a distributed p2p network has over the Internet.

The monetary part is where the pyramid scheme for Bitcoin is concocted. The early adopters control a huge percentage of BTC and the Pharaoh (Satoshi) controls the most BTC. Immediately that should give an objective person alarm bell that there is something wrong with this picture.

If a new participant were to enter Bitcoin, mining for BTC is astronomically difficult. At the same computing power, a new participant would take more than a million years to get 50 BTC compare to what Satoshi got in 10 minutes at the beginning. That is not how money should work. So, new participants have to use real world currency to buy into Bitcoin, this is where value is flowing up the pyramid.

People that have 1 or more BTC have some skin in Bitcoin, so this make it hard for some to be rational and objective about the Bitcoin scheme. I hope some will step outside the box and take a hard look at it. Some Bitcoiners might know it is a pyramid scheme, but lack the ethical conscience to care. These Bitcoiners are marketing and pumping Bitcoin to get new participants to enter, thus driving the price of Bitcoin up and then cash out with the gains.

For new people that want to get in on Bitcoin, I hope you take an objective view of Bitcoin. If you do choice to buy into Bitcoin with real world currency, just hope you are not one of the many at the bottom of the pyramid left holding the bag when this thing collapses. I am not here to judge your morality. Keep in mind, you are participating in this fraud.

[Hawker]

...snip...

BITCOIN IS A PYRAMID SCHEME.

...snip...

Do yourself a favour.  Go to wikipedia and look up pyramid scheme and greater fool fallacies.  Then revise your post as you don't understand the term "pyramid scheme".

[AnonyMint]

Whether or not the pyramid or ponzi scheme terms are misused by pedantic definitions does not provide an argument against bitcoin being a * scheme. It is a "bitcoin scheme" which closely resembles a pyramid scheme but has a few twists.

28%. Wow we are making headway in the consciousness of the audience.

The key characteristics of anything that resembles a ponzi or pyramid scheme are:

1. No intrinsic value, it is all a willful delusion of the participants.

2. Viral adoption as deluded participants scurry to induce greater fools by word-of-mouth.

Physical gold investment most certainly has an intrinsic value and you will always have that rarity and tangible value (that you can hold in your hand) and thus it can't go to 0. Bitcoins are not rare, because anyone can create an altcoin, and the only thing holding people into Bitcoin is a) the poor quality of the competitors thus far, b) the delusion that Bitcoin is something that it isn't (it isn't a currency), c) the delusion that the limited network effects thus far are a barrier to a great altcoin, d) the delusion that Bitcoin doesn't have technological flaws which doom it, e.g. Transactions Withholding Attack and the Spiraling Transactions Fees.

Shares on major markets usually have intrinsic value and they almost never have the ability to sell like a virus, because most people are inherently skeptical of pink sheets shares because they have many examples of failure.

Whereas, "this is new, it has never happened before, this is the greatest new innovation" is what spreads like a virus.

I see so many of these schemes, such as "this health system will restore your vitality" pyramid schemes, and there is no intrinsic value. It is just herbs you could buy for 1/1000 the price in bulk.

If you want to defeat this logic of mine, your only chance is to argue that Bitcoin has an intrinsic value and justify your willful, collective (what I strongly believe to be) delusion.

Arguing for pedantic, narrow definitions of such schemes makes you look desperate. Actually argue the point.

You can try to argue against:

Physical gold investment most certainly has an intrinsic value and you will always have that rarity and tangible value (that you can hold in your hand) and thus it can't go to 0. Bitcoins are not rare, because anyone can create an altcoin, and the only thing holding people into Bitcoin is a) the poor quality of the competitors thus far, b) the delusion that Bitcoin is something that it isn't (it isn't a currency), c) the delusion that the limited network effects thus far are a barrier to a great altcoin, d) the delusion that Bitcoin doesn't have technological flaws which doom it, e.g. Transactions Withholding Attack and the Spiraling Transactions Fees.

Read this entire thread:

Problem With Altcoins

[Daichi]

Bitcoins are neither. They neither depend on more people joining,nor is the inherent value of a BTC dependent on newer adopters. These allegations of it being either a pyramid or ponzi scheme stem from the suddenly rising value of it,but that value inflation is due to pure demand-supply equations rather than anything else.

The price of Bitcoin is going up because Bitcoiners are pumping it to get more and more new participants to enter. The media is not helping the situation either with their report of skyrocketing prices. This should be a clue for some people that the Bitcoin scheme is a pyramid scheme.

As you state that Bitcoin can work with no new participants. Can it work?
Let's do a thought experiment.

Assuming:
No new coin creation, it stops now
12 million total BTC supply and it's fixed at 12 million
1 million Bitcoiners

Looking at BTC Distribution.
the Pharaoh (Satoshi) 3m BTC 25%
early adopters, ruling class Lords (~100 people) 2m BTC 17%
early adopters, ruling class Governors (~2000 people) 1m BTC 8%
early adopters, elite class (~15000 people) 1m BTC 8%
.... it gets granular as we go down, but let's lump the rest together
late adopters, working and slave class (~980000 people) BTC 5m 42%

This is a rough estimate distribution from Bitcoin supply issuance scheme and early adopters were few, maybe under 20000 people.
Teleport the one million Bitcoiners to planet BitEarth.

On BitEarth, let's simplified things and condense time so we can get a better visual. The basic principle is the same.
One generation is one year and population growth doubles every year. Die-offs after 3 generations.

Year - Population
1 - 1m
2 - 2m
3 - 4m
4 - 7m (1m die-off)
5 - 12m (2m die-off)
6 - 20m (4m die-off)

Since money supply is fixed at 12 million BTC, as population grows economic activity grows, the money supply can be increased by moving the decimal point, 0.01 (year 1), 0.001 (year 2) and so on. Over subsequent generations, the wealth gaps incremental widens more and more. The slave class where the majority resides have the widest gap between the ruling class.

This is not how a fair monetary system can possible work.
I hope people can see why the Bitcoin scheme is a pyramid scheme.

[Daichi]

...snip...

BITCOIN IS A PYRAMID SCHEME.

...snip...

Do yourself a favour.  Go to wikipedia and look up pyramid scheme and greater fool fallacies.  Then revise your post as you don't understand the term "pyramid scheme".

Okay, so you don't even bother to address my points, but dismiss my argument entirely over semantics that I do not know the meaning of pyramid scheme.

Looks like, we do not have much to discuss further. I will say though. You are now plugged into the Matrix. As Morpheus says to Neo.

"The Matrix is a system, Neo. That system is our enemy. But when you're inside, you look around, what do you see? Businessmen, teachers, lawyers, carpenters. The very minds of the people we are trying to save. But until we do, these people are still a part of that system and that makes them our enemy. You have to understand, most of these people are not ready to be unplugged. And many of them are so inured, so hopelessly dependent on the system, that they will fight to protect it."

Anyways. If you so believe in Bitcoin, buy more BTC and hold on to it. It is going up and up. That's sarcasm. I do hope you weak up.

[Ibian]

You honestly sound like a communist. The fact that some people are richer than others does not in itself make it a pyramid scheme. And it's totally fair. Without the early inventors and pioneers people like me would never have gotten into it. They deserve to make thousands of times more on bitcoin than me, and those who come after. That is their market value.

[AnonyMint]

And it's totally fair. Without the early inventors and pioneers people like me would never have gotten into it. They deserve to make thousands of times more on bitcoin than me, and those who come after. That is their market value.

The market value is only what you can cash out. Otherwise the price is just a delusion.

Only a few can possibly cash out (because there is no income and no intrinsic value, thus only greater fools between you and 0) and I doubt you will be one of those few who cash out before the supply of greater fools whithers and the stampede towards 0 ensues.

[mogrith]

Also there is confusion between Bitcoin and bitcoin mining.

[philipma1957]

Just want to get info on these terms.

I go with option 6. That both terms are incorrectly used.

This

[philipma1957]

Bitcoins are neither. They neither depend on more people joining,nor is the inherent value of a BTC dependent on newer adopters. These allegations of it being either a pyramid or ponzi scheme stem from the suddenly rising value of it,but that value inflation is due to pure demand-supply equations rather than anything else.

The price of Bitcoin is going up because Bitcoiners are pumping it to get more and more new participants to enter. The media is not helping the situation either with their report of skyrocketing prices. This should be a clue for some people that the Bitcoin scheme is a pyramid scheme.

As you state that Bitcoin can work with no new participants. Can it work?
Let's do a thought experiment.

Assuming:
No new coin creation, it stops now
12 million total BTC supply and it's fixed at 12 million
1 million Bitcoiners

Looking at BTC Distribution.
the Pharaoh (Satoshi) 3m BTC 25%
early adopters, ruling class Lords (~100 people) 2m BTC 17%
early adopters, ruling class Governors (~2000 people) 1m BTC 8%
early adopters, elite class (~15000 people) 1m BTC 8%
.... it gets granular as we go down, but let's lump the rest together
late adopters, working and slave class (~980000 people) BTC 5m 42%

This is a rough estimate distribution from Bitcoin supply issuance scheme and early adopters were few, maybe under 20000 people.
Teleport the one million Bitcoiners to planet BitEarth.

On BitEarth, let's simplified things and condense time so we can get a better visual. The basic principle is the same.
One generation is one year and population growth doubles every year. Die-offs after 3 generations.

Year - Population
1 - 1m
2 - 2m
3 - 4m
4 - 7m (1m die-off)
5 - 12m (2m die-off)
6 - 20m (4m die-off)

Since money supply is fixed at 12 million BTC, as population grows economic activity grows, the money supply can be increased by moving the decimal point, 0.01 (year 1), 0.001 (year 2) and so on. Over subsequent generations, the wealth gaps incremental widens more and more. The slave class where the majority resides have the widest gap between the ruling class.

This is not how a fair monetary system can possible work.
I hope people can see why the Bitcoin scheme is a pyramid scheme.

 wow and if my grandmother had testicles she would be my grandfather.

dude you have the great gift of imagination I love it.  While I think BTC has lots of long term problems  your example is ??

 can BTC last forever no it can't , but it can last until 2025 maybe 2030.     So i am taking profits as I type are you?

[philipma1957]

Bitcoins are neither. They neither depend on more people joining,nor is the inherent value of a BTC dependent on newer adopters. These allegations of it being either a pyramid or ponzi scheme stem from the suddenly rising value of it,but that value inflation is due to pure demand-supply equations rather than anything else.

yep and   since all world wide interest rates suck at this moment  people are more willing to take a shot at something like this.

 sell me a 30 year fed bond for 10% a year and I have no interest in BTC.

 we have left a 30 plus year world of high interest rates.. getting 5-10% has stopped worldwide and people want something to put money into.  a few years ago gold and silver were hot now this is hot.    As long as easy interest does not exist   there will be a substitute for investers .

[npl]

I've been a principle driver of the argument that BTC is a Pyramid scheme, so I will post here to defend this position.  I have previously stated that I do not feel Ponzi scheme is at all an accurate descriptor of BTC, and I accept the argument that the lack of a central figure that fraudulently misrepresents an investment rules out the Ponzi answer.  Frankly no one should be making any further arguments around Ponzi schemes because it is a settled point and one that is only distracting us form the point at issue now which is the Pyramid scheme.



Of all the posting so far only this one by Hawker makes a cogent argument, that I find worthy of a response.

"A pyramid scheme is an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public" - http://en.wikipedia.org/wiki/Pyramid_scheme

Bitcoin is already a working currency.  So its not any more unsustainable than any other project and as such it can't ever be considered a Pyramid scheme.

I agree with his definition of Pyramid, it is a sufficiently broad definition that I feel it covers BTC even though BTC dose not have the kind of strick quota 'recruitment tree' structure which is common to most pyramids.  Some people might try to make this argument  but so far no one seems to have.  The defining pyramid qualities are

1) Unsustainable business model
2) Rewards members PRIMARILY for enrolling new members
3) Dose not provide it's rewards out of a real investment or profit making service

Hawker argues that BTC is 'a working currency' and is thus not unsustainable, and thus it would fail on point #1 to fit the definition of a Pyramid scheme.  Now right off the Bat Hawker is in my opinion conceding #2, as it is absolutely beyond doubt that the Primary reward most BTC users expect to receive is to see a rise in value of the BTCs they hold, and that rise has always been driven by expanding the user base.  So while a traditional Pyramid scheme has individual rewards for individual recruitment work, BTC offers collective rewards for collective effort (how oddly collectivist for a libertarian scheme but I digress).  The point is that BTC absolutely meets definition #2 in SPADES.

Now moving on to #3 is BTC providing it's rewards from a real investment or profit making service.  This is a bit trickier, as BTC's transaction ability is arguably a service and one that has some value.  But again this is not at all inconsistent with a Pyramid scheme, it is very common to receive and to provide some kind of real service from a pyramid scheme (books or household items are common), such services give the naive the feeling that the whole thing is above board.  This is why #2 says PRIMARILY, real commerce is always a fig-leaf in a Pyramid scheme so to assess BTC we need to actually get some kind of measurement of the real services provided and weight them against the rewards being distributed.

To determine profits we must first look at costs, and we all know BTC has HUGE costs in equipment and electricity.  So to be paying its rewards out of a profitable service BTC would need to be making a profit greater then all the combined rewards to miners in newly mined coins AND all of it's ongoing mining costs, only then could it sustainable maintain both of these expenditures.  But the total collection of transaction fees has consistently failed to keep pace with costs, and in fact the system is falling further and further into debt every day as can be seen on this graph which is transaction fees minus the cost of mining.

https://blockchain.info/charts/network-deficit

To make the situation worse the total costs of performing each transaction are rising as mining revenues increase.  It is impossible to see how a service which is rising in it's costs can be sustained.  Users of BTC are not currently feeling these costs, they are being pushed into the future.  But Ultimately the price of a service in a free market will always return to parity with it's cost.  Costs per transaction are now in the range of $10, a cost that would allow all conventional payment systems to be highly competitive against it.  Thus we can conclude that BTC is not now nor will it ever be a profitable service.

https://blockchain.info/charts/cost-per-transaction

Given that we can see that #2 and #3 defining features of a Pyramid scheme are fulfilled, we can clearly see that their is no way that #1 can not also be meet, for feature #1 is merely a description of what systemically happens when 2 and 3 are true (the hidden axiom here is that the population of potential new members is finite).  Hawkers argument that BTC is a 'working currency' is irrelevant unless he can prove that BTC is a SUSTAINABLE currency, for obviously things that are unsustainable still work FOR A WHILE and their short period of working is not a proof of sustainability.  I do not even need to explode the statement that BTC is currency to prove my case here, even though their are numerous arguments that can be made to that effect, even arguing about that is a misdirection by BTC apologists and an attempt to direct the argument into muddy semantics of what constitutes money or currency.

that was a very good post, but I think what you successfully argued here is not so much that BTC is a pyramid scheme but that, in its current form, it is unsustainable.

Presumably you could find technical solutions that will lower transaction costs, while at the same time increasing profits - as the number of BTC transactions rise. Pyramid schemes could never become sustainable except by fundamentally altering their nature.

Real businesses however are often unsustainable (money losing) in the short (and even mid) term - because of the expectation of long term profitability (see Amazon, Google etc.)

EDIT: there are some issues with BTC that could not be so easily fixed, namely wealth distribution. I'd love to get the Gini coefficient stats for BTC. Unfortunately though, wealth distribution in the US is no better - and on a global scale it is much worse than BTC.