Why bitcoin is very different from Ponzi/Pyramid/Bubble

[johnyj]

From wiki:
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A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation.

Since the scheme requires a continual stream of investments to fund higher returns, once investment slows down, the scheme collapses as the promoter starts having problems paying the promised returns (the higher the returns, the greater the risk of the Ponzi scheme collapsing)

  A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. In a pyramid scheme, those who recruit additional participants benefit directly. It explicitly claim that new money will be the source of payout for the initial investments, and it requires exponential increases in participants to sustain it

  An economic bubble: A bubble is similar to a Ponzi scheme in that one participant gets paid by contributions from a subsequent participant (until inevitable collapse). A bubble involves ever-rising prices in an open market (for example stock, housing, or tulip bulbs) where prices rise because buyers bid more because prices are rising. Bubbles are often said to be based on the "greater fool" theory. As with the Ponzi scheme, the price exceeds the intrinsic value of the item, but unlike the Ponzi scheme, there is no single person misrepresenting the intrinsic value
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So, the common reason for all these schemes to collapse is that the system run out of increased participants (and money inflow). Same thing will happen to bitcoin (of course not now)when the market reach certain level of saturation, its value can not appreciate exponentially forever. What makes bitcoin to hold its value by then?


I can think of several reasons:

First is its utility as a payment medium. If every merchant accept payment with bitcoin, then people don't have the need to sell bitcoins on the exchanges, that will reduce the sell pressure on the exchanges. Especially, if merchants around the world use a fixed bitcoin price for their goods during a year, when bitcoin exchange rate crashed, people will rush to buy cheap coins to purchase those goods, thus push the exchange rate back

Second is its utility as a store of value. With ever increasing productivity, many people will accumulate more and more savings and those savings must find a secure form of storage that is inflation resistant. Bitcoin is the right candidate to virtualize the assets

Third is the backing of miners. Miners are the distributed central bankers in bitcoin ecosystem. Just like central banks, they will accumulate large amount of bitcoin and foreign currency reserve to stabilize the exchange rate. They sell coins when it rise too fast, and buy back coins when the price crashed, this will ensure the price stability of bitcoin. People always say that there is nothing backing bitcoin, but many early adopters have accumulated huge amount of fiat currency during each price rally and can absorb a great deal of the sell pressure released from the market with their fiat currency reserve

Any other ideas?

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[Ibian]

How about "because it isn't"? It doesn't fit the definition.

[thaaanos]

I would normally agree if not for the Hodling Parrots, their arrival heralds the spring of bubble.

On a more serious note If bitcoin ultimately lead to perpetual depression in the economy would that count as a collapse?
Making bitcoin bubble by proxy?

Can bitcoin deliver what future economy will need (whatever that may be)? A lot depend on that answer I think.

[Ibian]

I would normally agree except that you are a government employee with obvious fiat interests. Fuck off.

[Lloydie]

I would normally agree if not for the Hodling Parrots, their arrival heralds the spring of bubble.

On a more serious note If bitcoin ultimately lead to perpetual depression in the economy would that count as a collapse?
Making bitcoin bubble by proxy?

Can bitcoin deliver what future economy will need (whatever that may be)? A lot depend on that answer I think.

My dear Thaaanos again with more lies.  Aren't we already in perpetual stagnation?  Europe with 12% unemployment and rising.  The US unemployment at 11.8% if participation rate was constant.  All this with $4 Trillion in money printing in the US alone.  China is printing even more money.  Japan is also manning the pumps.  

You don't want to admit - the world is already in trouble with the debt based fiat system.  It is not Bitcoin that is causing the problems.  Bitcoin is the foundation of a better monetary system. It will be a hard currency that will be even better than the Deutshmark because it is more trustworthy than the Bundesbank.  It will be the best currency.

It will be super difficult to create credit out of thin air with Bitcoins.  The 1% will diminish over time.  The world will be fairer.  Most likely we don't even need a banking sector.  They can all get real jobs.  Same goes for the economists.  (Have you personally considered astrology or maybe comedy?).  The world will be more productive without the parasitic financial sector sucking on it.

[kkaspar]

Well, the bitcoin market system is indeed a pyramid scheme. And bitcoin can't be a bubble, but the nature of the market can consist of constant bubble growing and bursting. It would be an Ponzi scheme if it would turn out that most markets are presenting falsified market data and the amount of fiat that is allegedly flowing into markets is not true.
The thing that makes bitcoin attractive to most, is the same thing that would be the end of bitcoin - deflation. Looking at the community, it seems that over 90% of people who are interested in bitcoin, are so because they have hopes of buying low and selling high. Deflation is the thing that attracts people who dream of gaining wealth by just being in the right place at the right time. We mostly see the same people visiting motivational lectures and reading books from Robert Kiyosaki on how to find a shortcut in being a millionaire. These people dream that the bitcoin pyramid will grow bigger and bigger and bigger, because if it does, then the current bottom of the pyramid will be the top in the future.
But the problem is that in an economical perspective, money shouldn't be considered mainly as value. Money should be the intermediate tool to help trade value, not be value by itself. If money is attractive as an investment opportunity then it is very attractive to speculation and that leads to hoarding. And that creates very big problems with price stability, and more importantly with wealth distribution. The rule applies that the more bitcoins you have, the easier it is to gain new bitcoins with market trading. The ones that have hoarded the most can actually know the future price because they have the means to  create the future price. That will lead into a snowball effect where the richest become even richer everyday and the bitcoin based economy would suffer bigger wealth distribution issues then fiat ever had. Inflation is still the key because money should be unattractive to hoard and should only be used as a tool in trading.
I think that most of the bitcoin community is ok with bitcoin deflative nature, because that would make them a lot richer then the 99,99% of humanity. That is the greed that drives the bitcoin community where everyone wants to be a lot richer then others and want to be so without actually doing any real work that would have any practical value. That is why the bitcoin market is indeed an pyramid scheme under the guise of technology. And the entire pyramid will fall at the critical point when there won't be any new people wanting to become the bottom of the pyramid with hopes of rising higher in the future. When the inflow of new people, who would rise the old people, will stop, then everyone wants out and it will be a total crash. I personally don't think that bitcoin will live long enough to meet this critical point of final crash. It is more probable that in a year or two, another crypto will surface, that will outmatch bitcoin in general quality and then most of the value from bitcoin will flow into this new coin.

[jballs]

mostly good points all the way around.

Here is a hypothetical. Suppose JPMorgan comes out tomorrow with an edollar that they control. They make it exchangeable at any ATM machine for 1 USD at a fixed rate.

Would bitcoin survive? I think so, but I think it would lose popular appeal. The masses would go with JPM. I suspect this will happen, though they have all vested interest in being slow about it (fees etc).

As for the bubble question I addressed the real bubble here

https://www.youtube.com/watch?v=BzcEiszx09g

Major concern. We are headed for a shitstorm of great magnitude and no solutions to speak of. Hence my bitcoin enthusiasm/hope.

As for the

It will be super difficult to create credit out of thin air with Bitcoins.  The 1% will diminish over time.  The world will be fairer.  Most likely we don't even need a banking sector. 

Re credit being difficult, No it won't. All you need are savers and fractional lending system which can be built around bitcoin or fruit loops if you set it up right. The 1% won't diminish. It is not a static group, see. It changes every day. It always will. People get richer and poorer. There will always be a 1%. This is exactly the same mistake the Marxists made, thinking if you got rid of the ruling class and replaced it with common working class folks (like Stalin), everything would be better. It was a nightmare. Power corrupts. You think Zuckerberg is a paragon of integrity? He was not a 1%er ten years ago. Most of today's billionaires were not wealthy 20 years ago. Whoever rises to power will face the same temptations as today's powerful do, and most will fail accordingly.


Lastly I vote we change the name from Ponzi scheme to Madoff scheme. Ponzi didn't invent it, he just held the record for awhile. His total take was iirc about 10 million before it collapsed. Madoff took down 50 billion. We should give the devil his due.

Think that was all.

[Lloydie]

mostly good points all the way around.

Here is a hypothetical. Suppose JPMorgan comes out tomorrow with an edollar that they control. They make it exchangeable at any ATM machine for 1 USD at a fixed rate.

Would bitcoin survive? I think so, but I think it would lose popular appeal. The masses would go with JPM. I suspect this will happen, though they have all vested interest in being slow about it (fees etc).

It will be super difficult to create credit out of thin air with Bitcoins.  The 1% will diminish over time.  The world will be fairer.  Most likely we don't even need a banking sector. 

Re credit being difficult, No it won't. All you need are savers and fractional lending system which can be built around bitcoin or fruit loops if you set it up right. The 1% won't diminish. It is not a static group, see. It changes every day. It always will. People get richer and poorer. There will always be a 1%. This is exactly the same mistake the Marxists made, thinking if you got rid of the ruling class and replaced it with common working class folks (like Stalin), everything would be better. It was a nightmare. Power corrupts. You think Zuckerberg is a paragon of integrity? He was not a 1%er ten years ago. Most of today's billionaires were not wealthy 20 years ago. Whoever rises to power will face the same temptations as today's powerful do, and most will fail accordingly.


Lastly I vote we change the name from Ponzi scheme to Madoff scheme. Ponzi didn't invent it, he just held the record for awhile. His total take was iirc about 10 million before it collapsed. Madoff took down 50 billion. We should give the devil his due.

Think that was all.

People would go to JPM?  Don't think so.  One is a devaluing currency USD and the other is an appreciating currency Bitcoins.

As Bitcoin is deflationary (and massively so for the next few years), there is no incentive to borrow in Bitcoins and invest in fiat as interest rates would easily exceed 15%.  It is better to borrow in fiat and invest in Bitcoin.  To create fractional reserve banking around Bitcoin requires a bank be able to issue more bitcoins out of thin air.  Sorry, protocol does not allow that.  End of story.

[Lloydie]

Well, the bitcoin market system is indeed a pyramid scheme. And bitcoin can't be a bubble, but the nature of the market can consist of constant bubble growing and bursting. It would be an Ponzi scheme if it would turn out that most markets are presenting falsified market data and the amount of fiat that is allegedly flowing into markets is not true.
The thing that makes bitcoin attractive to most, is the same thing that would be the end of bitcoin - deflation. Looking at the community, it seems that over 90% of people who are interested in bitcoin, are so because they have hopes of buying low and selling high. Deflation is the thing that attracts people who dream of gaining wealth by just being in the right place at the right time. We mostly see the same people visiting motivational lectures and reading books from Robert Kiyosaki on how to find a shortcut in being a millionaire. These people dream that the bitcoin pyramid will grow bigger and bigger and bigger, because if it does, then the current bottom of the pyramid will be the top in the future.
But the problem is that in an economical perspective, money shouldn't be considered mainly as value. Money should be the intermediate tool to help trade value, not be value by itself. If money is attractive as an investment opportunity then it is very attractive to speculation and that leads to hoarding. And that creates very big problems with price stability, and more importantly with wealth distribution. The rule applies that the more bitcoins you have, the easier it is to gain new bitcoins with market trading. The ones that have hoarded the most can actually know the future price because they have the means to  create the future price. That will lead into a snowball effect where the richest become even richer everyday and the bitcoin based economy would suffer bigger wealth distribution issues then fiat ever had. Inflation is still the key because money should be unattractive to hoard and should only be used as a tool in trading.
I think that most of the bitcoin community is ok with bitcoin deflative nature, because that would make them a lot richer then the 99,99% of humanity. That is the greed that drives the bitcoin community where everyone wants to be a lot richer then others and want to be so without actually doing any real work that would have any practical value. That is why the bitcoin market is indeed an pyramid scheme under the guise of technology. And the entire pyramid will fall at the critical point when there won't be any new people wanting to become the bottom of the pyramid with hopes of rising higher in the future. When the inflow of new people, who would rise the old people, will stop, then everyone wants out and it will be a total crash. I personally don't think that bitcoin will live long enough to meet this critical point of final crash. It is more probable that in a year or two, another crypto will surface, that will outmatch bitcoin in general quality and then most of the value from bitcoin will flow into this new coin.

Bitcoin cannot be a bubble for the simple fact that there are only 1 Million users and there are 7.25 Billion people on the planet.  Further, there is no leverage that is driving up the value of Bitcoins.  (leverage is normally required for bubbles to exist).

The people using Bitcoins choose to use Bitcoins because it is better.  The features that make Bitcoin better don't disappear overnight.  These features include scarcity, transferability, divisibility, transparency and incorruptibility. 

The fairness issue is so way overblown in a Bitcoin market cap of $10 Billion.  Versus the banksters controlling trillions of dollars, the "unfairness" of Bitcoins pales into insignificance.  In any event, Bitcoins must be spent to derive economic value.  The same is not true in debt based fiat because the wealthy obtain massive amounts of credit which boosts asset prices for their own benefit.  They draw these out as equity and capital gains which they spend on their lifestyles.

Bitcoin is not a pyramid for the simple fact that there is a fixed limit, usage is increasing, population growth is increasing, productivity is increasing and there are lost coins.  If there is a new superior alt coin, then the value will transfer from Bitcoin to that superior coin, in which case the "pyramid" did not collapse - the value is fully preserved and transferred that new coin. 

[jballs]

mostly good points all the way around.

Here is a hypothetical. Suppose JPMorgan comes out tomorrow with an edollar that they control. They make it exchangeable at any ATM machine for 1 USD at a fixed rate.

Would bitcoin survive? I think so, but I think it would lose popular appeal. The masses would go with JPM. I suspect this will happen, though they have all vested interest in being slow about it (fees etc).

It will be super difficult to create credit out of thin air with Bitcoins.  The 1% will diminish over time.  The world will be fairer.  Most likely we don't even need a banking sector.  

Re credit being difficult, No it won't. All you need are savers and fractional lending system which can be built around bitcoin or fruit loops if you set it up right. The 1% won't diminish. It is not a static group, see. It changes every day. It always will. People get richer and poorer. There will always be a 1%. This is exactly the same mistake the Marxists made, thinking if you got rid of the ruling class and replaced it with common working class folks (like Stalin), everything would be better. It was a nightmare. Power corrupts. You think Zuckerberg is a paragon of integrity? He was not a 1%er ten years ago. Most of today's billionaires were not wealthy 20 years ago. Whoever rises to power will face the same temptations as today's powerful do, and most will fail accordingly.


Lastly I vote we change the name from Ponzi scheme to Madoff scheme. Ponzi didn't invent it, he just held the record for awhile. His total take was iirc about 10 million before it collapsed. Madoff took down 50 billion. We should give the devil his due.

Think that was all.

People would go to JPM?  Don't think so.  One is a devaluing currency USD and the other is an appreciating currency Bitcoins.

As Bitcoin is deflationary (and massively so for the next few years), there is no incentive to borrow in Bitcoins and invest in fiat as interest rates would easily exceed 15%.  It is better to borrow in fiat and invest in Bitcoin.  To create fractional reserve banking around Bitcoin requires a bank be able to issue more bitcoins out of thin air.  Sorry, protocol does not allow that.  End of story.

You maybe don't understand debt and credit very well.

All there needs to be to create bitcoin credit is a reserve. This is easily created through certificates of deposit. Coins are locked in for 1 or 2 years at preset interest. Once a bank has a certificate of deposit they can trade it like it is money. In fact that is where money came from. Just gold instead of bitcoin.  They always have more certificates than gold. Eventually everyone forgot about the gold and just traded the certificates. Aka legal tender as we know it today. There is nothing new under the sun.

People like money. They will use Jpm because it is easy and immediately fungible.  Speculators and savers should go with bitcoin. But for ecommerce transactions and the 80% of the people who are a paycheck from insolvency they aren't much concerned with devaluation. There is probably space for both but we will have to find out.

People also like credit. You are much better off borrowing a devaluing currency than a deflating currency. Especially at low interst rates. I would much prefer to borrow dollars and repay dollars. Thus, the demand for fiat will probably remain the overwhelming choice for the broad economy.

Bitcoin is more like a rare earth element, artificial as it may be, I think it's value will hold in perpetuity because of who the early adopters are and the level of cultish devotion it already has, as a collectible in essence. But the altcoin deluge proves how not novel the concept is. The banks will catch up and dominate the payment processing aspect of it eventually. Of course they are in no hurry as much profit as they reap from it now.

I'd love to see visa and the rest crash and burn, they have taxed the real economy long enough and bitcoin is better. But you're dealing with serious power players and they will not get cut out of their own game to any meaningful degree if they can co-opt the technology.  And they can.  

[Xav]

So, the common reason for all these schemes to collapse is that the system run out of increased participants (and money inflow). Same thing will happen to bitcoin (of course not now)when the market reach certain level of saturation, its value can not appreciate exponentially forever. What makes bitcoin to hold its value by then?

[...]

Any other ideas?

Lots of ideas here, I must say. First. A Ponzi scheme does not collapse because of the number of participants, but it fails because of its fraudulent nature; not all people are stupid. Bitcoin does not have such nature. Bitcoin is a revolutionary Network which enables payments without a third party; "in maths we trust". Second. Bitcoin supersedes conventional currencies because it replaces institutions like Fed by a mere 100 lines of coding; this not only makes Bitcoin much cheaper but it also makes it less (zero in fact) corruption sensitive. Third. A P2P network works as a virus, which is very hard to extinguish; the only real danger lies in an internal bug, which is very unlikely. Four. The most vulnerable properties so far, are Bitcoin's lack of anonymity and fungibility, yet all hands are on deck solving those problems; system's integrity is fundamental. Five. Alt-coins are used as playgrounds by the Bitcoin diehards for performing all kinds of testing scenarios; none of them will survive mainly because the best expertise is concentrated in Bitcoin.

[Ibian]

Well, the bitcoin market system is indeed a pyramid scheme.

No. You are wrong. Look it up, there are very clear definitions.

But the problem is that in an economical perspective, money shouldn't be considered mainly as value. Money should be the intermediate tool to help trade value, not be value by itself.

That's just armchair pseudo-philosophy. No, economic religion more likely. You can't buy things with money without money being valuable. It always amazes me how hard it is for people to accept reality for what it is.

[kkaspar]

No. You are wrong. Look it up, there are very clear definitions.

Only thing different with any other pyramid scheme, is the reward system. Usually, pyramid schemes use an individual reward system. Meaning, there is a fixed reward that goes directly to the older member for every new recruit and for other recruits that come after the new recruit. With bitcoin, the reward system is more general. Meaning, if you recruit someone, then everyone who are already in the pyramid will get an equal amount of reward. I think that this is a smart trick, since it makes the community stronger and that will hodl the pyramid together with more strength.

That's just armchair pseudo-philosophy. No, economic religion more likely. You can't buy things with money without money being valuable. It always amazes me how hard it is for people to accept reality for what it is.

No it isn't. It's the same school of thought why we currently have inflation based currencies. Deflative currencies have an regressive influence to the economy. When you are in a situation, where it's more profitable to sit on your money and do nothing, then you can be sure that everyone will sit on their asses doing nothing. If money will lose value then it is more profitable to use the money as soon as possible and that encourages doing something and by that helping the progression of the economy.
The idea of deflation is attractive to those whose goal is to sit on their ass doing nothing and still being rich in the process. Most of the people in the world are like that and that is why most of the people aren't rich. They are only fixated in looking for new shortcuts, while they could use their time in working on something that would have practical value.
And my point was that money shouldn't be a value by itself, but it should only represent value. I was not talking about money having no value. You are putting wrong words into my mounth which you try to argue against. This is is just bad demagogy.

[kkaspar]

Bitcoin cannot be a bubble for the simple fact that there are only 1 Million users and there are 7.25 Billion people on the planet.  Further, there is no leverage that is driving up the value of Bitcoins.  (leverage is normally required for bubbles to exist).

Yes, bitcoin can't be a bubble because bitcoin is a piece of software. But the bitcoin market system is in a constant trend of bubble forming and bursting.

The people using Bitcoins choose to use Bitcoins because it is better.  The features that make Bitcoin better don't disappear overnight.  These features include scarcity, transferability, divisibility, transparency and incorruptibility.  

Bitcoin has very little practical value in legal business models. Because all of it's value is still supported by the value of fiat money, it's just a gimmick for payment. A company actually has to spend more resources on accepting bitcoin payments then it gains. Currently bitcoin is adopted as an payment option just for marketing purposes. When some company adopts bitcoin then it can get a lot of free attention and maybe gain new loyal customers who are also loyal to bitcoin.
Cryptos will be serious alternatives to fiat only when they are able to support their own value. When bitcoin value isn't measured in USD, but for instance in LTC instead. Then will cryptos be more then a gimmick.

The fairness issue is so way overblown in a Bitcoin market cap of $10 Billion.  Versus the banksters controlling trillions of dollars, the "unfairness" of Bitcoins pales into insignificance.  In any event, Bitcoins must be spent to derive economic value.  The same is not true in debt based fiat because the wealthy obtain massive amounts of credit which boosts asset prices for their own benefit.  They draw these out as equity and capital gains which they spend on their lifestyles.

No it doesn't. It is already easily seen how cryptos have wealth distribution issues. For instance looking at the top 500 richest addresses (and it's only a fraction where most of the richest probably hold their funds in thousands of different addresses), observing the market manipulation and the artificial deficit created can already give you an idea how bad the wealth distribution already is. And it will only get worse, because the richer you get the more advantages you have in gaining new riches. And with deflative currencies you don't have to invest into new projects and use your money to some progressive actions. All you have to do is manipulate the market with numb minded tactics, sit on your money numbers and everyone will owe you more and more everyday. I am quite sure that deflative currencies would soon create a lot bigger wealth distribution problems then fiat. Only way to stop mindless hoarding with deflative currencies would be an heavily regulated market system that presents a lot of laws that prohibit hoarding. But that's a slippery road and will lead to centrally controlled economy and I know that it isn't a something pretty, because I have also lived in soviet union.

Bitcoin is not a pyramid for the simple fact that there is a fixed limit, usage is increasing, population growth is increasing, productivity is increasing and there are lost coins.  If there is a new superior alt coin, then the value will transfer from Bitcoin to that superior coin, in which case the "pyramid" did not collapse - the value is fully preserved and transferred that new coin.  

There is no fixed limit in the value of one coin and that is where the pyramid game is played.
I agree that bitcoin will probably see an transfer of value before it's collapse, because I also truly believe in the future of cryptos and the general idea of privatized monetary systems. I just don't believe in bitcoin, because I find it simplistic and full of determinative flaws. The progression with bitcoin is also very slow, so it will be quickly outmatched by an altcoin that is backed by serious people with skills and resources. Only reason why bitcoin is nr.1 at the moment, is because other coins have been created by students and hobbyists.

[Ibian]

No. You are wrong. Look it up, there are very clear definitions.

Only thing different with any other pyramid scheme, is the reward system. Usually, pyramid schemes use an individual reward system. Meaning, there is a fixed reward that goes directly to the older member for every new recruit and for other recruits that come after the new recruit. With bitcoin, the reward system is more general. Meaning, if you recruit someone, then everyone who are already in the pyramid will get an equal amount of reward. I think that this is a smart trick, since it makes the community stronger and that will hodl the pyramid together with more strength.

You. Are. Wrong. There is no debating this. You are factually wrong.

Edit: About most of the rest that followed too, but that is not worth the trouble.

[Lloydie]

mostly good points all the way around.

Here is a hypothetical. Suppose JPMorgan comes out tomorrow with an edollar that they control. They make it exchangeable at any ATM machine for 1 USD at a fixed rate.

Would bitcoin survive? I think so, but I think it would lose popular appeal. The masses would go with JPM. I suspect this will happen, though they have all vested interest in being slow about it (fees etc).

It will be super difficult to create credit out of thin air with Bitcoins.  The 1% will diminish over time.  The world will be fairer.  Most likely we don't even need a banking sector.  

Re credit being difficult, No it won't. All you need are savers and fractional lending system which can be built around bitcoin or fruit loops if you set it up right. The 1% won't diminish. It is not a static group, see. It changes every day. It always will. People get richer and poorer. There will always be a 1%. This is exactly the same mistake the Marxists made, thinking if you got rid of the ruling class and replaced it with common working class folks (like Stalin), everything would be better. It was a nightmare. Power corrupts. You think Zuckerberg is a paragon of integrity? He was not a 1%er ten years ago. Most of today's billionaires were not wealthy 20 years ago. Whoever rises to power will face the same temptations as today's powerful do, and most will fail accordingly.


Lastly I vote we change the name from Ponzi scheme to Madoff scheme. Ponzi didn't invent it, he just held the record for awhile. His total take was iirc about 10 million before it collapsed. Madoff took down 50 billion. We should give the devil his due.

Think that was all.

People would go to JPM?  Don't think so.  One is a devaluing currency USD and the other is an appreciating currency Bitcoins.

As Bitcoin is deflationary (and massively so for the next few years), there is no incentive to borrow in Bitcoins and invest in fiat as interest rates would easily exceed 15%.  It is better to borrow in fiat and invest in Bitcoin.  To create fractional reserve banking around Bitcoin requires a bank be able to issue more bitcoins out of thin air.  Sorry, protocol does not allow that.  End of story.

You maybe don't understand debt and credit very well.

All there needs to be to create bitcoin credit is a reserve. This is easily created through certificates of deposit. Coins are locked in for 1 or 2 years at preset interest. Once a bank has a certificate of deposit they can trade it like it is money. In fact that is where money came from. Just gold instead of bitcoin.  They always have more certificates than gold. Eventually everyone forgot about the gold and just traded the certificates. Aka legal tender as we know it today. There is nothing new under the sun.

People like money. They will use Jpm because it is easy and immediately fungible.  Speculators and savers should go with bitcoin. But for ecommerce transactions and the 80% of the people who are a paycheck from insolvency they aren't much concerned with devaluation. There is probably space for both but we will have to find out.

People also like credit. You are much better off borrowing a devaluing currency than a deflating currency. Especially at low interst rates. I would much prefer to borrow dollars and repay dollars. Thus, the demand for fiat will probably remain the overwhelming choice for the broad economy.

Bitcoin is more like a rare earth element, artificial as it may be, I think it's value will hold in perpetuity because of who the early adopters are and the level of cultish devotion it already has, as a collectible in essence. But the altcoin deluge proves how not novel the concept is. The banks will catch up and dominate the payment processing aspect of it eventually. Of course they are in no hurry as much profit as they reap from it now.

I'd love to see visa and the rest crash and burn, they have taxed the real economy long enough and bitcoin is better. But you're dealing with serious power players and they will not get cut out of their own game to any meaningful degree if they can co-opt the technology.  And they can.  

Sure you can create vouchers or certificates or whatever you want to approximate bitcoins, but it will never be bitcoins. To have bitcoins you must be on the ledger and everyone can see how many you have. So maybe your understanding of bitcoin is deficient more than my understanding of fractional reserve banking. Once I see you have only 10% of bitcoins on your ledger and have lent out the rest, it won't take much for a bank run to occur, especially since there is no central reserve.

Further, as you create these bitcoin notes, we can all see how many bitcoins are really backing them. The trick with gold was that it was stored in vaults. Well that trick won't work this time round, unless I've missed something.

Anyway, I do hope JPM does their crypto. It will teach people about the blockchain and all that. However, they will also soon realise they don't need a copycat devaluing crypto when they can have bitcoins which can't be duplicated. Also, they won't have to use the JPM blockchain which is a third party, exactly the thing that bitcoin was designed to remove.  That's the problem with all these centralised bodies. They just don't get that the protocol is decentralised and therefore as long as people have choice they will veer towards decentralisation 10 times out of 10. I'm sure JPM will try. This is good to see how the public will react.

Lastly, I don't think people love credit. Before the 80s credit was not used speculatively. The recent love of credit is simply a function of a society that has lost control of credit formation. Minsky describes the 4 key phases. We are in the final phase where more credit is needed not only to pay off existing debt but also to cover interest expenses. How else can you describe the US and congress having to lift the debt ceiling?

[Lloydie]

Bitcoin cannot be a bubble for the simple fact that there are only 1 Million users and there are 7.25 Billion people on the planet.  Further, there is no leverage that is driving up the value of Bitcoins.  (leverage is normally required for bubbles to exist).

Yes, bitcoin can't be a bubble because bitcoin is a piece of software. But the bitcoin market system is in a constant trend of bubble forming and bursting.

The people using Bitcoins choose to use Bitcoins because it is better.  The features that make Bitcoin better don't disappear overnight.  These features include scarcity, transferability, divisibility, transparency and incorruptibility.  

Bitcoin has very little practical value in legal business models. Because all of it's value is still supported by the value of fiat money, it's just a gimmick for payment. A company actually has to spend more resources on accepting bitcoin payments then it gains. Currently bitcoin is adopted as an payment option just for marketing purposes. When some company adopts bitcoin then it can get a lot of free attention and maybe gain new loyal customers who are also loyal to bitcoin.
Cryptos will be serious alternatives to fiat only when they are able to support their own value. When bitcoin value isn't measured in USD, but for instance in LTC instead. Then will cryptos be more then a gimmick.

The fairness issue is so way overblown in a Bitcoin market cap of $10 Billion.  Versus the banksters controlling trillions of dollars, the "unfairness" of Bitcoins pales into insignificance.  In any event, Bitcoins must be spent to derive economic value.  The same is not true in debt based fiat because the wealthy obtain massive amounts of credit which boosts asset prices for their own benefit.  They draw these out as equity and capital gains which they spend on their lifestyles.

No it doesn't. It is already easily seen how cryptos have wealth distribution issues. For instance looking at the top 500 richest addresses (and it's only a fraction where most of the richest probably hold their funds in thousands of different addresses), observing the market manipulation and the artificial deficit created can already give you an idea how bad the wealth distribution already is. And it will only get worse, because the richer you get the more advantages you have in gaining new riches. And with deflative currencies you don't have to invest into new projects and use your money to some progressive actions. All you have to do is manipulate the market with numb minded tactics, sit on your money numbers and everyone will owe you more and more everyday. I am quite sure that deflative currencies would soon create a lot bigger wealth distribution problems then fiat. Only way to stop mindless hoarding with deflative currencies would be an heavily regulated market system that presents a lot of laws that prohibit hoarding. But that's a slippery road and will lead to centrally controlled economy and I know that it isn't a something pretty, because I have also lived in soviet union.

Bitcoin is not a pyramid for the simple fact that there is a fixed limit, usage is increasing, population growth is increasing, productivity is increasing and there are lost coins.  If there is a new superior alt coin, then the value will transfer from Bitcoin to that superior coin, in which case the "pyramid" did not collapse - the value is fully preserved and transferred that new coin.  

There is no fixed limit in the value of one coin and that is where the pyramid game is played.
I agree that bitcoin will probably see an transfer of value before it's collapse, because I also truly believe in the future of cryptos and the general idea of privatized monetary systems. I just don't believe in bitcoin, because I find it simplistic and full of determinative flaws. The progression with bitcoin is also very slow, so it will be quickly outmatched by an altcoin that is backed by serious people with skills and resources. Only reason why bitcoin is nr.1 at the moment, is because other coins have been created by students and hobbyists.

There are too many things wrong in your comment so I'm not going to bother. You just made it into my ignore list for being TFS. Bye.

[keithers]

With ponzi schemes you cannot typically buy goods or services with your investment.

[kkaspar]

You. Are. Wrong. There is no debating this. You are factually wrong.

Edit: About most of the rest that followed too, but that is not worth the trouble.

There are too many things wrong in your comment so I'm not going to bother. You just made it into my ignore list for being TFS. Bye.

Well, I would be lying if I told that answers like that, coming from the current bitcoin community, surprise me. They really don't. This forum reminds me of times when I actually visited religious forums trying to debate their point of view. What I found out was that it is futile to do so, because religion is mainly defined by the dogmas it follows and dogmas aren't considered to be debatable.
The current bitcoin community is becoming more and more of an religious cult, not an community that is interested in technological development of finance. Most of the people here are totally clueless about technology or finance and I think that it is the main reason why progression with bitcoin is so slow. Most of the people here think that they actually give their contribution to the community by chanting the words of the holy scripture: "choo choo, to the moon". Why the community is like that? Well I explained it above, that the deflative nature of bitcoin attracts a certain type of people that probably also visit motivational lectures for finding shortcuts how do be a millionaire without any education or hard work.

[Ibian]

You. Are. Wrong. There is no debating this. You are factually wrong.

Edit: About most of the rest that followed too, but that is not worth the trouble.

There are too many things wrong in your comment so I'm not going to bother. You just made it into my ignore list for being TFS. Bye.

Well, I would be lying if I told that answers like that, coming from the current bitcoin community, surprise me. They really don't. This forum reminds me of times when I actually visited religious forums trying to debate their point of view. What I found out was that it is futile to do so, because religion is mainly defined by the dogmas it follows and dogmas aren't considered to be debatable.
The current bitcoin community is becoming more and more of an religious cult, not an community that is interested in technological development of finance. Most of the people here are totally clueless about technology or finance and I think that it is the main reason why progression with bitcoin is so slow. Most of the people here think that they actually give their contribution to the community by chanting the words of the holy scripture: "choo choo, to the moon". Why the community is like that? Well I explained it above, that the deflative nature of bitcoin attracts a certain type of people that probably also visit motivational lectures for finding shortcuts how do be a millionaire without any education or hard work.

The cultist is you. You are wrong about bitcoin being a pyramid or a ponzi. Factually wrong, it is not a matter of opinion or feelings. You have been told why you are wrong. You know perfectly well where to look up the definitions and any technical questions about how bitcoin works can be answered here on this very board or looked up from other sources if so preferred. You can even look through the source code yourself. And you don't care. You have made up your mind and there is no budging it with facts.