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?

[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.

[quone17]

Bitcoin's CLEARLY not a ponzi or scheme or anything like that.  It can be used for things and transactions and it can be traded and it adds something that nothing else has (being a cryptocurrency).

[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.  

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?

It is very interesting how much history comes into the analysis for being a revolutionary concept. I agree there are unique aspects here and I will keep an open mind as to how things will unfold. I really don't know. I think it's great that questions about monetary theory are arising though, as most of the public never really stops to question the status quo other than bitch about the banks.

As for known reserves against derivatives (money et al), doesn't matter. From Breton woods to Nixon closing the gold window there was always more dollars issued than gold backing it. This was known by all who cared to inquire. The gold window was closed when France (only france) tried to convert their dollars to gold. There was not even enough to cover them. All the same it was fractional for 30 years before anyone called their notes.  Of course a bitcoin bank may not have the power to change the rules and so there is a distinction there.  

We do have a credit catastrophe looming for sure. I cover that in the video I published.  Nonetheless, even my very wealthy friends finance a lot of their purchases. All of my poorer friends do except the very poorest who cannot get access to credit at all. This is what I mean by people live credit. They love to finance and borrow. The devaluing of currency helps debtors pay back loans with cheaper money. There are downsides to this but given the choice it is a no brainer to finance in dollars rather than bitcoin. Unless we have an all out paradigm shift and/or the current system implodes (plausible if not probable), well I just see bitcoin as a payment service and a speculative vehicle for now, and probably a store of wealth like metals. The credit based system will carry on as long as people want to be in debt to possess more than they can afford. Which is probably forever.  

[htspringer]

Why bitcoin is not a Ponzi scheme...
1. No central authority.
2. No one is promising anyone anything.

[Lloydie]

It is very interesting how much history comes into the analysis for being a revolutionary concept. I agree there are unique aspects here and I will keep an open mind as to how things will unfold. I really don't know. I think it's great that questions about monetary theory are arising though, as most of the public never really stops to question the status quo other than bitch about the banks.

As for known reserves against derivatives (money et al), doesn't matter. From Breton woods to Nixon closing the gold window there was always more dollars issued than gold backing it. This was known by all who cared to inquire. The gold window was closed when France (only france) tried to convert their dollars to gold. There was not even enough to cover them. All the same it was fractional for 30 years before anyone called their notes.  Of course a bitcoin bank may not have the power to change the rules and so there is a distinction there.  

We do have a credit catastrophe looming for sure. I cover that in the video I published.  Nonetheless, even my very wealthy friends finance a lot of their purchases. All of my poorer friends do except the very poorest who cannot get access to credit at all. This is what I mean by people live credit. They love to finance and borrow. The devaluing of currency helps debtors pay back loans with cheaper money. There are downsides to this but given the choice it is a no brainer to finance in dollars rather than bitcoin. Unless we have an all out paradigm shift and/or the current system implodes (plausible if not probable), well I just see bitcoin as a payment service and a speculative vehicle for now, and probably a store of wealth like metals. The credit based system will carry on as long as people want to be in debt to possess more than they can afford. Which is probably forever.  

Yes. But the whole point is that France did get the heebie jeebies and ask for gold. By creating notes backed by bitcoin you are simply asking someone to make a run at you at some point.

Sure, it's cheap to borrow now. However, there are consequences when access to credit dries up. At some point interest rates will rebound, as they are currently doing. Your rich friends will start selling assets and your poor friends will buy less food. Hence foodstamp usage goes up and consumer demand drops.

There is already a paradigm shift going on. You just have to observe that people now have a choice to opt out into a non debt based non fiat monetary system called Bitcoin. It will happen gradually then all at once. Kind of like 2013 but with more people. Hopefully many, many more people.

I think the debt based system has already seen its best days. We are simply not going to get the credit growth rates that we used to get. China's credit growth in 2013 was 49% of GDP according to Fitch. Good luck to them with that. In the US interest rates are rising. In Europe, they are pretty much still a hard currency zone. All that is happening is Germany shipping out BMWs and taking IOUs in return. Shhh, they just haven't told the German public.  In Japan, they are still firing arrows to no effect. Abe's popularity is yet to hit rock bottom. They are just squeezing everyone in Japan via yen devaluation. There is not long to go, IMHO.

[johnyj]

The focus is the sustainability, not the definition. If bitcoin is a Ponzi/Pyramid/Bubble scheme that never collapses, people will still gladly join it 

The key is to identify those motivations to sell all the coins when bitcoin reached certain level of market saturation and the exchange rate can not rise exponentially any more. In that moment, it is a choice between fiat money and bitcoin

[kkaspar]

The cultist is you. You are wrong about bitcoin being a pyramid or a ponzi.

Again this childish demagogy or you actually didn't read what I wrote. I never sayd that bitcoin is a ponzi scheme, so again, you are putting wrong words into my mount. There is a clear distinction between an ponzi scheme and an pyramid scheme. And like I said, IF it would turn out that the bitcoin exchanges are presenting falsified market data about the amount of fiat that is flowing into bitcoin, then bitcoin would also be a ponzi scheme. But currently bitcoin can be considered as an pyramid scheme.

Factually wrong, it is not a matter of opinion or feelings.

No I am not. Bitcoin falls perfectly under the general description of an pyramid scheme. Wikipedia: "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.". Only thing different from the pyramid schemes that we see everyday is the general reward system where the entire pyramid is rewarded for new recruits.

You have been told why you are wrong.

I was only told how you won't bother explaining me why I am wrong. I would be really surprised if you could explain me why I'm wrong. But I'm quite sure just another "whatever, you are not worth explaining to" response will follow.

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.

Yes, and I have been telling you that bitcoin falls under the general definition of an pyramid scheme.

You can even look through the source code yourself.

Well, I have to say it but you are stupid. The source code isn't hiding a secret pyramid that could be found. The pyramid scheme can be seen from the financial and marketing properties of bitcoin.

And you don't care. You have made up your mind and there is no budging it with facts.

Yes I do care. That is why I argue with people like you. I'm really waiting for you to try and explain your point of view. But only thing I get is "YOU ARE WRONG! I'M NOT EXPLAINING ANYTHING, BUT YOU ARE WRONG I TELL YOU!"
This is so familiar and reminds me of religious forums.

[kkaspar]

Why bitcoin is not a Ponzi scheme...
1. No central authority.
2. No one is promising anyone anything.

Actually the thing that distinguishes the bitcoin market system from an ponzi scheme is the amount of fiat that is told to be flowing into exchanges. If exchanges are presenting correct data about the amount of fiat flowing in, then it's not a Ponzi scheme. But if it would turn out that exchanges are actually presenting false data to stimulate trade, then the bitcoin market system would also be an Ponzi scheme. It would mean that the exchanges don't have the amount of fiat in their bank accounts that they present. It would also mean that, if a large amount of people would sell at the same time, then there wouldn't be enough money to pay the last sellers.

I myself am not ruling out the possibility that the bitcoin market system could be an Ponzi scheme. What troubles me are the constant issues what people seem to be having when trying to cash out their coins, especially with MtGox.

[jballs]

If you call bitcoin a pyramid scheme you might as well call Amazon stock, hell all stock in all companies, and of course SSI and pension funds across the board, pyramid schemes. You are equating anything that requires increased participation for growth in value a pyramid scheme.

Welcome to planet earth 21st century. It's all dependent on that.

If you would differentiate it from your run of the mill gifting circle or productless MLM, we would probably appreciate your point. Otherwise you really have none.

[kkaspar]

If you call bitcoin a pyramid scheme you might as well call Amazon stock, hell all stock in all companies, and of course SSI and pension funds across the board, pyramid schemes. You are equating anything that requires increased participation for growth in value a pyramid scheme.

Welcome to planet earth 21st century. It's all dependent on that.

If you would differentiate it from your run of the mill gifting circle or productless MLM, we would probably appreciate your point. Otherwise you really have none.

The main thing that makes the bitcoin market system a pyramid scheme is the sustainability. Bitcoin value won't be able to sustain itself as soon as the flow of new participants start to slow. We can see this from looking at the market history and the constant trend of bubble forming and bursting. People are only holding if they believe that new people will be buying and therefor will raise them higher in the pyramid. There are no annual dividends paid, nor isn't your invested funds put into practical use. Your investments will be used to grow the pyramid or pay out other participants.
You could argue that the investments go to practical use by rewarding miners, but I think that the mining arms race is one of the most idiotic things regarding bitcoin. Enlarging the miner network doesn't speed up transaction times, nor does it increase the security, because all the mining is pooled together into single points that could be compromised in spite how much network power they handle. The mining arms race is mindless and wasteful.
Important thing to consider is that bitcoin is still a gimmick as an payment option in the legal business world. It doesn't help companies make their payment system more efficient when adopting bitcoin payment. It makes the companies waste even more resources for the ability to handle bitcoin (reprogramming the accounting software) and to convert bitcoin to fiat after every transaction. Not to mention that the clients also have to pay the fee at the exchanges to convert their money into bitcoin. That is why the CC system is still a lot more efficient and comfortable to everyone. Only reason why some companies are currently adopting bitcoin payment is for free publicity and marketing reasons. Adopting bitcoin gets you a place in the daily newspaper and those loyal to bitcoin may become your loyal customers as well.
You can see how news about payment adaptation give very little effect to the market price. The main factor to have positive influence to the price, are new markets that will introduce a new wave of recruits.
And because there is very little practical (legal) use for bitcoin, is why there is very little intrinsic value in bitcoin. Remember that pyramid schemes also don't offer any real usable goods or services and the value it holds is created by new recruits.

But I agree that there are also stocks out there that could be considered as pyramid schemes (not amazon), and there are pension funds that have all the characteristics of an pyramid scheme. But to me "others do it as well" is not the proper justification here...

[johnyj]

Take a look at the fiat money pyramid scheme and why it has not collapsed:

Modern fiat money cost almost nothing to make, but people are still willing to give up their valuable things in exchange for fiat money, just because all the other people also accept fiat money as payment medium. They never worry that they can't find the next greater fool to accept that fiat paper

The reason this pyramid scheme did not collapse is history: Everyone already born into such scheme, they need a unit to measure the value, and there is already one unit available - fiat money, so they established a consensus of the value of fiat money from their childhood, once this consensus reached, it seldom changes. A perfect example of first mover advantage

Another very important reason that people don't dump their fiat money: Before bitcoin, they don't have other widely accepted currency to dump to (suppose that most of the governments are similarly operated, dump USD for EUR does not make a lot of sense, unless you are a foreign currency trader)

[kkaspar]

Take a look at the fiat money pyramid scheme and why it has not collapsed:

Modern fiat money cost almost nothing to make, but people are still willing to give up their valuable things in exchange for fiat money, just because all the other people also accept fiat money as payment medium. They never worry that they can't find the next greater fool to accept that fiat paper

The reason this pyramid scheme did not collapse is history: Everyone already born into such scheme, they need a unit to measure the value, and there is already one unit available - fiat money, so they established a consensus of the value of fiat money from their childhood, once this consensus reached, it seldom changes. A perfect example of first mover advantage

Another very important reason that people don't dump their fiat money: Before bitcoin, they don't have other widely accepted currency to dump to (suppose that most of the governments are similarly operated, dump USD for EUR does not make a lot of sense, unless you are a foreign currency trader)

The problems with fiat money are different. Fiat money is inflative, so it is not attractive as an investment. The service that central banks offer is relative price stability. They keep on track of world's resources and print money according to this and with planned inflation.
The problem with the banking sector is that they are overpayed and overprivileged. State law demands the use of their services with legal tender, there is no proper public audits of their work and they get constant bail-outs for their mistakes. It is so, because those in charge of the public sector are corrupt to the extent where they are not actually in charge. That is also why the public sector is having problems with debt, because the corrupt leaders keep using banks "debt services" even when they don't have to.
I believe that the current banking system will also collapse and the future is in private monetary systems that are judged by fair competition. And that is why I am interested in bitcoin at all, because it's one of the first major steps in the ongoing evolution of finance. It's just hard to understand how anyone could think that bitcoin itself could be sustainable or how bitcoin itself is the actual evolution.

[Xav]

Bitcoin falls perfectly under the general description of an pyramid scheme. Wikipedia: "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.". Only thing different from the pyramid schemes that we see everyday is the general reward system where the entire pyramid is rewarded for new recruits.

This is beginning to look like another repetitive "semantic game." What you call a "pyramid scheme" others would define as building up a P2P-proof-of-work-trusted-Network, which becomes stronger and of more value with each participant. Where you interpret a relation between diminishing amount of participants and value, others understand that the rise and fall in price follow directly upon good-or-bad news about a future digital, yet vulnerable, currency; any new currency has to deal with volatility in the beginning. Nobody can know for sure wether this Bitcoin-Network is sustainable or not, whereas you seem to have some fortune-telling capacity predicting the latter. Anyway, my common sense tells me you are deliberately trying to spread fraudulent information.

[Lloydie]

Bitcoin falls perfectly under the general description of an pyramid scheme. Wikipedia: "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.". Only thing different from the pyramid schemes that we see everyday is the general reward system where the entire pyramid is rewarded for new recruits.

This is beginning to look like another repetitive "semantic game." What you call a "pyramid scheme" others would define as building up a P2P-proof-of-work-trusted-Network, which becomes stronger and of more value with each participant. Where you interpret a relation between diminishing amount of participants and value, others understand that the rise and fall in price follow directly upon good-or-bad news about a future digital, yet vulnerable, currency; any new currency has to deal with volatility in the beginning. Nobody can know for sure wether this Bitcoin-Network is sustainable or not, whereas you seem to have some fortune-telling capacity predicting the latter. Anyway, my common sense tells me you are deliberately trying to spread fraudulent information.

A lot of FUD from banks I do believe.

[kkaspar]

This is beginning to look like another repetitive "semantic game." What you call a "pyramid scheme" others would define as building up a P2P-proof-of-work-trusted-Network, which becomes stronger and of more value with each participant. Where you interpret a relation between diminishing amount of participants and value, others understand that the rise and fall in price follow directly upon good-or-bad news about a future digital, yet vulnerable, currency; any new currency has to deal with volatility in the beginning.

Bitcoin and the bitcoin market system are two different things. Where one is just a neutral piece of software, the other is a well marketed pyramid scheme.
And again I'm reminded of religious forums. Where I see fantasy, others see the word of an omnipotent god. And no explanations are given for religious dogmas, they just are so and I just am wrong for not believing it so.

Nobody can know for sure wether this Bitcoin-Network is sustainable or not, whereas you seem to have some fortune-telling capacity predicting the latter. Anyway, my common sense tells me you are deliberately trying to spread fraudulent information.

Well, no one can predict the future, but many people can speculate the probable outcome. And I still haven't found one solid argument that the bitcoin expansion is sustainable. All I see is high hopes from people who wish for an easy fix to get rich.

[Roger_Murdock]

The main thing that makes the bitcoin market system a pyramid scheme is the sustainability. Bitcoin value won't be able to sustain itself as soon as the flow of new participants start to slow. We can see this from looking at the market history and the constant trend of bubble forming and bursting. People are only holding if they believe that new people will be buying and therefor will raise them higher in the pyramid. There are no annual dividends paid, nor isn't your invested funds put into practical use. Your investments will be used to grow the pyramid or pay out other participants.

The current rate at which Bitcoin's purchasing power is increasing is obviously not sustainable indefinitely, but so what?  The "price" of a bitcoin doesn't need to increase exponentially forever in order to prevent some "scheme" from collapsing. Bitcoins are simply digital commodities whose value will continue to be determined by the intersection of supply and demand.  That value can go up, down, or sideways. And in fact, we've already had several extended bear markets where the price has fallen.  Now, your response might be something like: "Yeah, but the only reason people are interested in buying bitcoins is because they believe the price will continue to rise over the long-term and that can't continue indefinitely."  And my response would be to ask you to think about how money works.  No one actually wants dollars (or Bitcoins). They want stuff -- useful goods and services that can be used to directly satisfy their wants and needs. The only reason anyone ever agrees to accept money in exchange for providing something else of value is because they believe that later, they'll be able to exchange that money for something they really want. And note that it doesn't particularly matter whether people access the stored value represented by their bitcoins by exchanging those bitcoins directly for goods and services, or by going through the intermediate step of first exchanging them for fiat. (Consider that gold still serves a useful monetary function as a store of value even though almost no one "spends" gold directly.)

And so the inevitable end game for Bitcoin is not that you eventually run out of "greater fools" to sell them to; it's that Bitcoin's monetization reaches a saturation point. When that occurs, people who accept Bitcoin in exchange for fiat / providing goods and services won't do so because they expect its value to increase dramatically; they'll do so simply because they expect Bitcoin to hold its value (or increase relatively slowly at a rate that's commensurate with the growth of the underlying economy).

[corwin]

kkaspar thanx for your point of view, interesting reading
i like your statement about deflation - sitting on money doing nothing and why its bad, i agree with that and personally i feel its true in real world because i doing it too - just collecting coins because i know their value will increase if i dont spent them...

[Roger_Murdock]

Inflation is still the key because money should be unattractive to hoard and should only be used as a tool in trading.

I disagree.  Remember that money isn't wealth. Instead, it represents your right to make an immediate claim on wealth, i.e. useful goods and services. When you don't exercise that claim immediately and instead save your money, the resources that would have gone into satisfying your present consumption remain available to be immediately used by others -- including new businesses. You've effectively made a loan to the remaining holders of the currency who do spend now whether for consumption or investment. (They're able to buy cheaper because there's now less money chasing the same number of resources.) And that's why savers are rewarded with increased purchasing power over time in an economy that uses sound money. In such an economy, deflation is simply the market-determined interest rate for an extremely low-risk loan that can be recalled at any time.

And when I say that it's a market-determined interest rate, I mean it.  People frequently argue against deflation by imagining absurdly unrealistic deflation rates, e.g. "Would you buy a car that costs 1000 bucks today if you knew that it would cost 500 tomorrow?" No, probably not. Very few people would. On the other hand, in that scenario, you'd have LOTS of sellers willing to sell you a car today for 1000 bucks. (Even if you need your car, why not sell it today and buy another one tomorrow at half price?) Lots of people willing to sell at that price and almost no one willing to buy = that won't be today's market clearing price. The actual rate of deflation will reach an equilibrium reflecting people's preferences.

[thaaanos]

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.

I would add here that such is the nature of capitalism, and since bitcoin doesn't change that model, things will continue bubble and burst one after the other.

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.

I believe that a true milestone will be (even a rally startline) when power companies accept payments by bitcoins.

kkaspar I stand behind you

[thaaanos]

Why bitcoin is not a Ponzi scheme...
1. No central authority.
2. No one is promising anyone anything.

Actually the thing that distinguishes the bitcoin market system from an ponzi scheme is the amount of fiat that is told to be flowing into exchanges. If exchanges are presenting correct data about the amount of fiat flowing in, then it's not a Ponzi scheme. But if it would turn out that exchanges are actually presenting false data to stimulate trade, then the bitcoin market system would also be an Ponzi scheme. It would mean that the exchanges don't have the amount of fiat in their bank accounts that they present. It would also mean that, if a large amount of people would sell at the same time, then there wouldn't be enough money to pay the last sellers.

I myself am not ruling out the possibility that the bitcoin market system could be an Ponzi scheme. What troubles me are the constant issues what people seem to be having when trying to cash out their coins, especially with MtGox.

I call that a sure bet.

[kkaspar]

The current rate at which Bitcoin's purchasing power is increasing is obviously not sustainable indefinitely, but so what?  The "price" of a bitcoin doesn't need to increase exponentially forever in order to prevent some "scheme" from collapsing. Bitcoins are simply digital commodities whose value will continue to be determined by the intersection of supply and demand.  That value can go up, down, or sideways. And in fact, we've already had several extended bear markets where the price has fallen.  Now, your response might be something like: "Yeah, but the only reason people are interested in buying bitcoins is because they believe the price will continue to rise over the long-term and that can't continue indefinitely."  And my response would be to ask you to think about how money works.  No one actually wants dollars (or Bitcoins). They want stuff -- useful goods and services that can be used to directly satisfy their wants and needs. The only reason anyone ever agrees to accept money in exchange for providing something else of value is because they believe that later, they'll be able to exchange that money for something they really want. And note that it doesn't particularly matter whether people access the stored value represented by their bitcoins by exchanging those bitcoins directly for goods and services, or by going through the intermediate step of first exchanging them for fiat. (Consider that gold still serves a useful monetary function as a store of value even though almost no one "spends" gold directly.)

And so the inevitable end game for Bitcoin is not that you eventually run out of "greater fools" to sell them to; it's that Bitcoin's monetization reaches a saturation point. When that occurs, people who accept Bitcoin in exchange for fiat / providing goods and services won't do so because they expect its value to increase dramatically; they'll do so simply because they expect Bitcoin to hold its value (or increase relatively slowly at a rate that's commensurate with the growth of the underlying economy).

I was telling that if BTC is not rising, then it is falling. That is the pyramid scheme part that the price won't be able to sustain itself without a rise. BTC either has to rise or fall, there won't ever be any stability. The reason is deflation and how the main attraction to BTC is speculation, not in transfer of value or holding of value. When people see that the price won't rise then they will sell their coins because holding seems useless. The financial world doesn't see BTC in a religious sense like the hodlers here see. They see speculation as the only practical value of BTC and that is why it will lose value in their eyes if the price stops rising.
You just can't create a working currency with deflation and unregulated free market. It will cause an speculation frenzy that will turn the entire system into a big pyramid scheme.

[kkaspar]

I believe that a true milestone will be (even a rally startline) when power companies accept payments by bitcoins.

kkaspar I stand behind you

Sadly I think that not many power companies will start using BTC. The main thing here is that the only value that a company will get in accepting BTC is marketing value, not financial value. Starting to accept BTC will get your company free press and you will get new loyal customers from people who are loyal to BTC. But in financial terms, you are actually spending more then you did when you weren't accepting BTC.
I think that the big companies will stay away from BTC because the marketing value can also backfire. People who control most of the BTC aren't mostly known and the market system isn't very transparent. For instance if it would leak that even the biggest markets are presenting falsified data to stimulate trade, then BTC would be called an all out scam by the media. And when that happens then noone want's to be associated with BTC.

Thanks by standing behind me

[dissident]

to those that say it's not a pyramid scheme, I wonder how many of them would still be mining or buying if they knew the currency had a fixed value tied to a modest inflation rate with no huge price runups allowed at all, if such a coin existed.

Most alt coins, not all of them, most of them, are generated solely as pyramid schemes.. they start off with super high block rewards that diminish rapidly rewarding those who find them first. They are pre-mined with the creator of the coin already holding 5-10% of the coins with grand promises about the good uses coin will be used for.... some people have honorable intentions with crypto currency while others are just looking to profit. If all the miners with $20,000 rigs started to find that all the alt currencies had fixed, low reward blocks and low to no profitability with actual inflation rates that kept their coin prices from spiking all over the place, I bet you wouldn't have the interest in crypto currencies.

People are only here because they expect bitcoin to 'go to the moon' and they can lie to themselves if they want, but I'll admit why I'm here... to cash in trading alt coins.. pure and simple. If bitcoin becomes accepted as a currency, all the better, but that's not my primary motivation.

Having been involved with smooth talking people selling pure lies in the past, I can and do know that people will say anything as means to their end. Never trust anybody when they stand to profit from their activities. What's coming out of their mouth or appearing on the computer screen may not be what they are thinking.

I do love the wild west feel to these crypto currencies and plan to stay along for the ride though! I'm just not going to lie and pretend I have noble causes and that I would be here if I knew there wasn't potential for profit.. just like trading any stock. Time is money and there  has to be incentive for time utilized.

The main danger in bitcoin now is that such a small percentage of the users hold such a large proportion of the coins, just like in real life, the top is small and concentrated.... the riches belong to a different subset of the population.. INTJs laying around in 'mom's basement' to coin a phrase who now have the last laugh.. but nonetheless the result is the same.. wealth disparity. By the way, I always hated that phrase 'mom's basement' .. well now at least they can afford to move out.

[jballs]

to those that say it's not a pyramid scheme, I wonder how many of them would still be mining or buying if they knew the currency had a fixed value tied to a modest inflation rate with no huge price runups allowed at all, if such a coin existed.

Most alt coins, not all of them, most of them, are generated solely as pyramid schemes.. they start off with super high block rewards that diminish rapidly rewarding those who find them first. They are pre-mined with the creator of the coin already holding 5-10% of the coins with grand promises about the good uses coin will be used for.... some people have honorable intentions with crypto currency while others are just looking to profit. If all the miners with $20,000 rigs started to find that all the alt currencies had fixed, low reward blocks and low to no profitability with actual inflation rates that kept their coin prices from spiking all over the place, I bet you wouldn't have the interest in crypto currencies.

People are only here because they expect bitcoin to 'go to the moon' and they can lie to themselves if they want, but I'll admit why I'm here... to cash in trading alt coins.. pure and simple. If bitcoin becomes accepted as a currency, all the better, but that's not my primary motivation.

Having been involved with smooth talking people selling pure lies in the past, I can and do know that people will say anything as means to their end. Never trust anybody when they stand to profit from their activities. What's coming out of their mouth or appearing on the computer screen may not be what they are thinking.

I do love the wild west feel to these crypto currencies and plan to stay along for the ride though! I'm just not going to lie and pretend I have noble causes and that I would be here if I knew there wasn't potential for profit.. just like trading any stock. Time is money and there  has to be incentive for time utilized.

The main danger in bitcoin now is that such a small percentage of the users hold such a large proportion of the coins, just like in real life, the top is small and concentrated.... the riches belong to a different subset of the population.. INTJs laying around in 'mom's basement' to coin a phrase who now have the last laugh.. but nonetheless the result is the same.. wealth disparity. By the way, I always hated that phrase 'mom's basement' .. well now at least they can afford to move out.

You raise some interesting thoughts, by accident probably but feel I should comment. I agree with you on the last part. I hope someday our culture no longer associates living with one's extended family as derogatory. It's really fascinating, albeit tragic, that the societal imperative implies not only that you should not live with your parents (or grown children), but the implicit that the parents are not together either. I'm not sure why it's funny, to make a class distinction that forces the massively dysfunctional miserable drugged out culture we have today. By all means, perpetuate the stereotype and stigmatize family values, it's totally working out well for everyone. Get out of the house and go into debt to buy a shitbox of your own to flip to the next chump.

Which leads me to your "oh all these coins are pyramid schemes"... but first I will add my mom doesn't have a basement... let me help you grok this. CAPITALISM IS A PYRAMID SCHEME. All of it. You know why stocks boomed from 1950 to the 2000's? Because the world population went from 2 billion to 6 billion. You know why it is crapping out here? Because we cannot extract resources fast enough to downline the 7th billion with the gross excess required to feed the pyramid. Stock market IPOs oar pyramid schemes. Fiat money is pyramid scheme, decaying at fixed rate to guarantee loss to holders. Credit/debt is the ultimate pyramid scheme, requiring exact exponential growth and unavoidable collapse. This is fact. Social security, that's just a ponzi scheme but the differences aren't that significant. There is very little in modern society that is not absolutely dependent on growth. The rate of growth and collapse vary, if it is too short is a disallowed pyramid, if it is long enough it is an allowed pyramid, if it is a genefration r more it is often a legally mandated pyramid.

Think that was all I had to say. Good luck getting out of your shitbox.

[Lloydie]

Which leads me to your "oh all these coins are pyramid schemes"... but first I will add my mom doesn't have a basement... let me help you grok this. CAPITALISM IS A PYRAMID SCHEME. All of it. You know why stocks boomed from 1950 to the 2000's? Because the world population went from 2 billion to 6 billion. You know why it is crapping out here? Because we cannot extract resources fast enough to downline the 7th billion with the gross excess required to feed the pyramid. Stock market IPOs oar pyramid schemes. Fiat money is pyramid scheme, decaying at fixed rate to guarantee loss to holders. Credit/debt is the ultimate pyramid scheme, requiring exact exponential growth and unavoidable collapse. This is fact. Social security, that's just a ponzi scheme but the differences aren't that significant. There is very little in modern society that is not absolutely dependent on growth. The rate of growth and collapse vary, if it is too short is a disallowed pyramid, if it is long enough it is an allowed pyramid, if it is a genefration r more it is often a legally mandated pyramid.

Think that was all I had to say. Good luck getting out of your shitbox.

Cogently explained. And on an inflationary fiat planet, the existence of a deflationary alternative that can't be killed is a good thing. I can only hope that more people will come to appreciate the inherent unsustainability of credit based systems.

[thaaanos]

Which leads me to your "oh all these coins are pyramid schemes"... but first I will add my mom doesn't have a basement... let me help you grok this. CAPITALISM IS A PYRAMID SCHEME. All of it. You know why stocks boomed from 1950 to the 2000's? Because the world population went from 2 billion to 6 billion. You know why it is crapping out here? Because we cannot extract resources fast enough to downline the 7th billion with the gross excess required to feed the pyramid. Stock market IPOs oar pyramid schemes. Fiat money is pyramid scheme, decaying at fixed rate to guarantee loss to holders. Credit/debt is the ultimate pyramid scheme, requiring exact exponential growth and unavoidable collapse. This is fact. Social security, that's just a ponzi scheme but the differences aren't that significant. There is very little in modern society that is not absolutely dependent on growth. The rate of growth and collapse vary, if it is too short is a disallowed pyramid, if it is long enough it is an allowed pyramid, if it is a genefration r more it is often a legally mandated pyramid.

Think that was all I had to say. Good luck getting out of your shitbox.

Cogently explained. And on an inflationary fiat planet, the existence of a deflationary alternative that can't be killed is a good thing. I can only hope that more people will come to appreciate the inherent unsustainability of credit based systems.

What I just fail to see is the "Revolutionary" part of bitcoin, it would be more honest to claim bitcoin crystalizes Elitistic Capitalism

[Lloydie]

What I just fail to see is the "Revolutionary" part of bitcoin, it would be more honest to claim bitcoin crystalizes Elitistic Capitalism

That's right if Elistic Capitalism did not already exist, Bitcoin would have a flatter wealth distribution. The advantage of Bitcoin is that it will be difficult for people to perpetuate their financial advantage via asset price inflation by creating extra monetary units via fractional reserve banking.

[mestar]

From wiki:
--------------------------------------------------------------------------------
  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
--------------------------------------------------------------------------------

In the case of bitcoin, the "subsequent participants" must pay both the old participants, as well as miners electricity bills.

Since the bitcoin transaction are still mostly free today, value created by those transactions is not directly captured by the system.

[thaaanos]

From wiki:
--------------------------------------------------------------------------------
  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
--------------------------------------------------------------------------------

In the case of bitcoin, the "subsequent participants" must pay both the old participants, as well as miners electricity bills.

Since the bitcoin transaction are still mostly free today, value created by those transactions is not directly captured by the system.

They are by giving up FIAT for bitcoins. If Fiat is irrelevant then why all the fuss about bitcoin getting higher? Higher relative to what?

What I just fail to see is the "Revolutionary" part of bitcoin, it would be more honest to claim bitcoin crystalizes Elitistic Capitalism

That's right if Elistic Capitalism did not already exist, Bitcoin would have a flatter wealth distribution. The advantage of Bitcoin is that it will be difficult for people to perpetuate their financial advantage via asset price inflation by creating extra monetary units via fractional reserve banking.

I am reading it over and over again, and I can't get a thought straight, your arguments keep me derailing and shortcircuiting.

[Lloydie]

From wiki:
--------------------------------------------------------------------------------
  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
--------------------------------------------------------------------------------

In the case of bitcoin, the "subsequent participants" must pay both the old participants, as well as miners electricity bills.

Since the bitcoin transaction are still mostly free today, value created by those transactions is not directly captured by the system.

They are by giving up FIAT for bitcoins. If Fiat is irrelevant then why all the fuss about bitcoin getting higher? Higher relative to what?

What I just fail to see is the "Revolutionary" part of bitcoin, it would be more honest to claim bitcoin crystalizes Elitistic Capitalism

That's right if Elistic Capitalism did not already exist, Bitcoin would have a flatter wealth distribution. The advantage of Bitcoin is that it will be difficult for people to perpetuate their financial advantage via asset price inflation by creating extra monetary units via fractional reserve banking.

I am reading it over and over again, and I can't get a thought straight, your arguments keep me derailing and shortcircuiting.

Re point 1: I believe Bitcoin appreciating relative to fiat indicates the expansion of the Bitcoin economy.  Even if Bitcoin is the dominant financial system, it would still make sense to price Bitcoin relative to other fiat currencies. 

Re point 2: Elitist Capitalism (and vision) is what allowed the Winkelvii to acquire 1% of existing bitcoins in the first place.  Without their financial advantage, that acquisition would have been a lot more difficult.  So, Bitcoin will be relatively unequal to start with.  However, over time the Winkelvii cannot maintain their financial advantage without spending monetary units of Bitcoin.  Whereas under a debt based fiat system, they could take out a loan and invest in ever appreciating asset prices, and thus perpetually maintain their financial advantage over ordinary workers.

[thaaanos]

From wiki:
--------------------------------------------------------------------------------
  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
--------------------------------------------------------------------------------

In the case of bitcoin, the "subsequent participants" must pay both the old participants, as well as miners electricity bills.

Since the bitcoin transaction are still mostly free today, value created by those transactions is not directly captured by the system.

They are by giving up FIAT for bitcoins. If Fiat is irrelevant then why all the fuss about bitcoin getting higher? Higher relative to what?

What I just fail to see is the "Revolutionary" part of bitcoin, it would be more honest to claim bitcoin crystalizes Elitistic Capitalism

That's right if Elistic Capitalism did not already exist, Bitcoin would have a flatter wealth distribution. The advantage of Bitcoin is that it will be difficult for people to perpetuate their financial advantage via asset price inflation by creating extra monetary units via fractional reserve banking.

I am reading it over and over again, and I can't get a thought straight, your arguments keep me derailing and shortcircuiting.

Re point 1: I believe Bitcoin appreciating relative to fiat indicates the expansion of the Bitcoin economy.  Even if Bitcoin is the dominant financial system, it would still make sense to price Bitcoin relative to other fiat currencies. 

Re point 2: Elitist Capitalism (and vision) is what allowed the Winkelvii to acquire 1% of existing bitcoins in the first place.  Without their financial advantage, that acquisition would have been a lot more difficult.  So, Bitcoin will be relatively unequal to start with.  However, over time the Winkelvii cannot maintain their financial advantage without spending monetary units of Bitcoin.  Whereas under a debt based fiat system, they could take out a loan and invest in ever appreciating asset prices, and thus perpetually maintain their financial advantage over ordinary workers.

If you don't treat bitcoin as currency, then you self defeat. It would make sense to price goods at bitcoins, if you are not going there then you are going nowhere.

Nope that was pure speculation, but I am not arguing that there is no elitist capitalism, I am arguing that bitcoin is designed to distill it and crystalize it, not Kill it.

[spyro]

I'd love to speak with someone who said it IS a Ponzi.

[Lloydie]

If you don't treat bitcoin as currency, then you self defeat. It would make sense to price goods at bitcoins, if you are not going there then you are going nowhere.

Nope that was pure speculation, but I am not arguing that there is no elitist capitalism, I am arguing that bitcoin is designed to distill it and crystalize it, not Kill it.

I'm sure Btc or derivation of will eventually be dominant. At present it is not, but it's no big deal.  Things can be priced in baht and I pay in USD or Btc, no one is getting defeated there.

As I see it, debt based fiat is the real problem. Btc will go a long way to fixing that due to it being deflationary and strongly so over the next few years. Get on board Thaaanos before you get really left behind!

[Undone]

From wiki:
--------------------------------------------------------------------------------
  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
--------------------------------------------------------------------------------

In the case of bitcoin, the "subsequent participants" must pay both the old participants, as well as miners electricity bills.

Since the bitcoin transaction are still mostly free today, value created by those transactions is not directly captured by the system.

They are by giving up FIAT for bitcoins. If Fiat is irrelevant then why all the fuss about bitcoin getting higher? Higher relative to what?

But thaaanos, we can calculate the cost that transaction fees add to the price paid for goods & services. And it's not really that much. Someone will certainly chime in and claim that it is - but it's not.

So the potentially newest buyer of bitcoin (let's call him buyer n + 1) has to ask himself why he's willing to be buyer n + 1. He's only going to trade his fiat for bitcoin if he believes that bitcoin will be worth more later than it is now. Higher relative to what, you ask? Define it however you want - it just has to be more.

The idea of trading your dollars for bitcoin won't go mainstream unless bitcoin proves that it is a competent & safe store of value. And it better continue to do that really quickly, specifically by convincing new fresh cash to pump into the buy side of the market. If this doesn't happen, the "value" of bitcoin either stays the same, or goes nowhere. If it goes nowhere, will people trade their fiat for bitcoin simply because bitcoin promises, let's say, roughly 3% in gains from no/lower transaction fees? It's possibly, but incredibly unlikely.

[Lloydie]

But thaaanos, we can calculate the cost that transaction fees add to the price paid for goods & services. And it's not really that much. Someone will certainly chime in and claim that it is - but it's not.

So the potentially newest buyer of bitcoin (let's call him buyer n + 1) has to ask himself why he's willing to be buyer n + 1. He's only going to trade his fiat for bitcoin if he believes that bitcoin will be worth more later than it is now. Higher relative to what, you ask? Define it however you want - it just has to be more.

The idea of trading your dollars for bitcoin won't go mainstream unless bitcoin proves that it is a competent & safe store of value. And it better continue to do that really quickly, specifically by convincing new fresh cash to pump into the buy side of the market. If this doesn't happen, the "value" of bitcoin either stays the same, or goes nowhere. If it goes nowhere, will people trade their fiat for bitcoin simply because bitcoin promises, let's say, roughly 3% in gains from no/lower transaction fees? It's possibly, but incredibly unlikely.

N + 1? More pseudo maths from economics. Frankly just annoying when you could have easily said "new person". GTFO!

Moreover, the analysis itself is crapola: the "Bitcoin Bet" is as follows - will more people want to transact directly with one another without relying on a third party? Yes or no? If yes, Bitcoin economy expands then all the above pseudo analysis is total rubbish, as is most of economics itself because the assumptions are totally unrealistic. GIGO!

Further, bitcoin is deflationary. No one can make more bitcoins so it will always appreciate relative to fiat as long as the bitcoin economy keeps expanding. And why will it expand? Because of the Bitcoin Bet.

[jballs]

Which leads me to your "oh all these coins are pyramid schemes"... but first I will add my mom doesn't have a basement... let me help you grok this. CAPITALISM IS A PYRAMID SCHEME. All of it. You know why stocks boomed from 1950 to the 2000's? Because the world population went from 2 billion to 6 billion. You know why it is crapping out here? Because we cannot extract resources fast enough to downline the 7th billion with the gross excess required to feed the pyramid. Stock market IPOs oar pyramid schemes. Fiat money is pyramid scheme, decaying at fixed rate to guarantee loss to holders. Credit/debt is the ultimate pyramid scheme, requiring exact exponential growth and unavoidable collapse. This is fact. Social security, that's just a ponzi scheme but the differences aren't that significant. There is very little in modern society that is not absolutely dependent on growth. The rate of growth and collapse vary, if it is too short is a disallowed pyramid, if it is long enough it is an allowed pyramid, if it is a genefration r more it is often a legally mandated pyramid.

Think that was all I had to say. Good luck getting out of your shitbox.

Cogently explained. And on an inflationary fiat planet, the existence of a deflationary alternative that can't be killed is a good thing. I can only hope that more people will come to appreciate the inherent unsustainability of credit based systems.

What I just fail to see is the "Revolutionary" part of bitcoin, it would be more honest to claim bitcoin crystalizes Elitistic Capitalism

Two parts to that, the first part is there is a lot of delusion that bitcoin will solve all the evils of the world. I find it interesting, Marx and Lenin believed if the bourgeois class were replaced by working class all would be equal and well with the world. Instead they got Stalin and mass starvation and world wars. Not so easy to figure these things out in advance.

On the other hand, what we have now is a tiny group of people with absolute power and infinite wealth. There are some (many) good things that arise from this but also serious abuses and in the big picture we are all stuck working for them like plantation slaves without the chains. I don't know that bitcoin can change that, but maybe it is a step in that direction. As it is, the real power wants to buy an army to topple a democracy, they write a check. They want to take over and exploit a natural resource, write a check. They want a law passed to give them anything they want anywhere in the world, they write a check. And the more checks they write the more debt there is and the more powerful they become, because they wrote themselves the laws that said they would be the creditors, and all others would be the debtors.

A little known open secret swept under the rug in 2008. When oil clipped $140 a barrel, the few central banks who own the system decided to break the market. They shut down letters of credit to somewhere between 80-130 countries, literally overnight. Now you cannot call Kuwait and order a supertanker full of crude cash-on-delivery. they won't send it. Letters of credit work like escrow through the banking system and all nations are stuck with it (by gunpoint, mostly). So overnight 2/3rds of the world's oil buyers were locked out of the market and a few months later the price of crude was trading in the 30's.

Not to say bitcoin would prevent the concentration of power either. But as is these creditors own money, the idea of money, and have granted themselves infinite resource. It will end badly and if there is an alternative to playing their game, I will take it, on principle, because fuck them.











 

[Undone]

But thaaanos, we can calculate the cost that transaction fees add to the price paid for goods & services. And it's not really that much. Someone will certainly chime in and claim that it is - but it's not.

So the potentially newest buyer of bitcoin (let's call him buyer n + 1) has to ask himself why he's willing to be buyer n + 1. He's only going to trade his fiat for bitcoin if he believes that bitcoin will be worth more later than it is now. Higher relative to what, you ask? Define it however you want - it just has to be more.

The idea of trading your dollars for bitcoin won't go mainstream unless bitcoin proves that it is a competent & safe store of value. And it better continue to do that really quickly, specifically by convincing new fresh cash to pump into the buy side of the market. If this doesn't happen, the "value" of bitcoin either stays the same, or goes nowhere. If it goes nowhere, will people trade their fiat for bitcoin simply because bitcoin promises, let's say, roughly 3% in gains from no/lower transaction fees? It's possibly, but incredibly unlikely.

N + 1? More pseudo maths from economics. Frankly just annoying when you could have easily said "new person". GTFO!

Moreover, the analysis itself is crapola: the "Bitcoin Bet" is as follows - will more people want to transact directly with one another without relying on a third party? Yes or no? If yes, Bitcoin economy expands then all the above pseudo analysis is total rubbish, as is most of economics itself because the assumptions are totally unrealistic. GIGO!

Further, bitcoin is deflationary. No one can make more bitcoins so it will always appreciate relative to fiat as long as the bitcoin economy keeps expanding. And why will it expand? Because of the Bitcoin Bet.

It's basically impossible to disagree with the bold; Bitcoin also has that going for it.

But the exchange rate, both history and future, will most likely decide whether or not the average person trades his fiat for bitcoin. And the exchange market has some incredible hurdles to overcome - but it could happen.

Also, I really love the way you use those fun acronyms.

[Lloydie]

Two parts to that, the first part is there is a lot of delusion that bitcoin will solve all the evils of the world. I find it interesting, Marx and Lenin believed if the bourgeois class were replaced by working class all would be equal and well with the world. Instead they got Stalin and mass starvation and world wars. Not so easy to figure these things out in advance.

On the other hand, what we have now is a tiny group of people with absolute power and infinite wealth. There are some (many) good things that arise from this but also serious abuses and in the big picture we are all stuck working for them like plantation slaves without the chains. I don't know that bitcoin can change that, but maybe it is a step in that direction. As it is, the real power wants to buy an army to topple a democracy, they write a check. They want to take over and exploit a natural resource, write a check. They want a law passed to give them anything they want anywhere in the world, they write a check. And the more checks they write the more debt there is and the more powerful they become, because they wrote themselves the laws that said they would be the creditors, and all others would be the debtors.

A little known open secret swept under the rug in 2008. When oil clipped $140 a barrel, the few central banks who own the system decided to break the market. They shut down letters of credit to somewhere between 80-130 countries, literally overnight. Now you cannot call Kuwait and order a supertanker full of crude cash-on-delivery. they won't send it. Letters of credit work like escrow through the banking system and all nations are stuck with it (by gunpoint, mostly). So overnight 2/3rds of the world's oil buyers were locked out of the market and a few months later the price of crude was trading in the 30's.

Not to say bitcoin would prevent the concentration of power either. But as is these creditors own money, the idea of money, and have granted themselves infinite resource. It will end badly and if there is an alternative to playing their game, I will take it, on principle, because fuck them.
 

I really enjoy reading your posts Mr jballs.  They are informative.  

Are we delusional about Bitcoin?  Perhaps.  However, in my view, Bitcoin offers the possibility of a hard currency + capitalism.  You know, like Germany through the 70's and 80's as it was rebuilding its economy.  Even now, the Euro is technically still a hard currency zone, though Draghi is trying his best to subvert that.  Germany's response is that you cannot breed a competitive economy based on bailing everyone out.  They have a point.

You're also right that Bitcoin is perhaps a step in the direction we all want to head towards.  One of the key features of Bitcoin that I favour is the transfer of seigniorage away from corruptible human entities to a predictable protocol.  Therein lies the hope and of course the fantasy of a better world.  And you're right, we can't go on in a world where central banks have the power to control money and direct it towards political purposes (whether good or bad).  They can't help themselves, which is why a trust less system, such as Bitcoin, is required.

Humans now have the potential to move forward based on decentralisation and agreement on open protocols to prevent the kinds of corruption that occurred in the past.

[thaaanos]

Two parts to that, the first part is there is a lot of delusion that bitcoin will solve all the evils of the world. I find it interesting, Marx and Lenin believed if the bourgeois class were replaced by working class all would be equal and well with the world. Instead they got Stalin and mass starvation and world wars. Not so easy to figure these things out in advance.

On the other hand, what we have now is a tiny group of people with absolute power and infinite wealth. There are some (many) good things that arise from this but also serious abuses and in the big picture we are all stuck working for them like plantation slaves without the chains. I don't know that bitcoin can change that, but maybe it is a step in that direction. As it is, the real power wants to buy an army to topple a democracy, they write a check. They want to take over and exploit a natural resource, write a check. They want a law passed to give them anything they want anywhere in the world, they write a check. And the more checks they write the more debt there is and the more powerful they become, because they wrote themselves the laws that said they would be the creditors, and all others would be the debtors.

A little known open secret swept under the rug in 2008. When oil clipped $140 a barrel, the few central banks who own the system decided to break the market. They shut down letters of credit to somewhere between 80-130 countries, literally overnight. Now you cannot call Kuwait and order a supertanker full of crude cash-on-delivery. they won't send it. Letters of credit work like escrow through the banking system and all nations are stuck with it (by gunpoint, mostly). So overnight 2/3rds of the world's oil buyers were locked out of the market and a few months later the price of crude was trading in the 30's.

Not to say bitcoin would prevent the concentration of power either. But as is these creditors own money, the idea of money, and have granted themselves infinite resource. It will end badly and if there is an alternative to playing their game, I will take it, on principle, because fuck them.
 

I really enjoy reading your posts Mr jballs.  They are informative.  

Are we delusional about Bitcoin?  Perhaps.  However, in my view, Bitcoin offers the possibility of a hard currency + capitalism.  You know, like Germany through the 70's and 80's as it was rebuilding its economy.  Even now, the Euro is technically still a hard currency zone, though Draghi is trying his best to subvert that.  Germany's response is that you cannot breed a competitive economy based on bailing everyone out.  They have a point.

You're also right that Bitcoin is perhaps a step in the direction we all want to head towards.  One of the key features of Bitcoin that I favour is the transfer of seigniorage away from corruptible human entities to a predictable protocol.  Therein lies the hope and of course the fantasy of a better world.  And you're right, we can't go on in a world where central banks have the power to control money and direct it towards political purposes (whether good or bad).  They can't help themselves, which is why a trust less system, such as Bitcoin, is required.

Humans now have the potential to move forward based on decentralisation and agreement on open protocols to prevent the kinds of corruption that occurred in the past.

Protocols MUST evolve, so who will take up the task? You are exchanging politicians/bankers to developers, that may sound nice but it is the same thing. Power corrupts.

You assume that code is crystal : Logical, Hard and Transparent, No code is Art: Emotional, Fragile and Ellusive.

If you have not already noticed, bitcoin is already under fire, there is a technical bubble with a burst waiting to happen, greed has been used as a virus, to expand the bitcoin network, but it is also its fatal flaw. Because there are others who understand Greed better and can weaponize it for fun if they choose so. And Who can destroy a thing, can control it. Isn't that right?

[Lloydie]

Protocols MUST evolve, so who will take up the task? You are exchanging politicians/bankers to developers, that may sound nice but it is the same thing. Power corrupts.

You assume that code is crystal : Logical, Hard and Transparent, No code is Art: Emotional, Fragile and Ellusive.

If you have not already noticed, bitcoin is already under fire, there is a technical bubble with a burst waiting to happen, greed has been used as a virus, to expand the bitcoin network, but it is also its fatal flaw. Because there are others who understand Greed better and can weaponize it for fun if they choose so. And Who can destroy a thing, can control it. Isn't that right?

I'm in agreement. I see a future where we shall have governance via protocols. People will design the best protocols and all these protocols will compete until the best survive.

It is not a situation of no regulation. It is a situation where the free market will determine the regulation that it wants. I know you're not going to agree entirely.

I don't believe bitcoin is a bubble. The adoption rate is less than 2 million souls and real money hasn't even poured in yet. Bitcoin represents the ability to transact without relying on third parties. I see that people will want this technology. In fact, I see it being the dominant and pervasive means of wealth transfer.

Those that have a moral objection to the early adopters and their hoard of btcs are always welcome to design an alternative protocol. However, one must also abide with the judgement of the markets if that protocol is rejected by open markets. What we individually find just may not be what the market wants. Satoshi understood that and designed a system to encourage early adopters.  You can't fight hard money capitalism Thaaanos.

[thaaanos]

Which leads me to your "oh all these coins are pyramid schemes"... but first I will add my mom doesn't have a basement... let me help you grok this. CAPITALISM IS A PYRAMID SCHEME. All of it. You know why stocks boomed from 1950 to the 2000's? Because the world population went from 2 billion to 6 billion. You know why it is crapping out here? Because we cannot extract resources fast enough to downline the 7th billion with the gross excess required to feed the pyramid. Stock market IPOs oar pyramid schemes. Fiat money is pyramid scheme, decaying at fixed rate to guarantee loss to holders. Credit/debt is the ultimate pyramid scheme, requiring exact exponential growth and unavoidable collapse. This is fact. Social security, that's just a ponzi scheme but the differences aren't that significant. There is very little in modern society that is not absolutely dependent on growth. The rate of growth and collapse vary, if it is too short is a disallowed pyramid, if it is long enough it is an allowed pyramid, if it is a genefration r more it is often a legally mandated pyramid.

Think that was all I had to say. Good luck getting out of your shitbox.

Cogently explained. And on an inflationary fiat planet, the existence of a deflationary alternative that can't be killed is a good thing. I can only hope that more people will come to appreciate the inherent unsustainability of credit based systems.

What I just fail to see is the "Revolutionary" part of bitcoin, it would be more honest to claim bitcoin crystalizes Elitistic Capitalism

Two parts to that, the first part is there is a lot of delusion that bitcoin will solve all the evils of the world. I find it interesting, Marx and Lenin believed if the bourgeois class were replaced by working class all would be equal and well with the world. Instead they got Stalin and mass starvation and world wars. Not so easy to figure these things out in advance.

On the other hand, what we have now is a tiny group of people with absolute power and infinite wealth. There are some (many) good things that arise from this but also serious abuses and in the big picture we are all stuck working for them like plantation slaves without the chains. I don't know that bitcoin can change that, but maybe it is a step in that direction. As it is, the real power wants to buy an army to topple a democracy, they write a check. They want to take over and exploit a natural resource, write a check. They want a law passed to give them anything they want anywhere in the world, they write a check. And the more checks they write the more debt there is and the more powerful they become, because they wrote themselves the laws that said they would be the creditors, and all others would be the debtors.

A little known open secret swept under the rug in 2008. When oil clipped $140 a barrel, the few central banks who own the system decided to break the market. They shut down letters of credit to somewhere between 80-130 countries, literally overnight. Now you cannot call Kuwait and order a supertanker full of crude cash-on-delivery. they won't send it. Letters of credit work like escrow through the banking system and all nations are stuck with it (by gunpoint, mostly). So overnight 2/3rds of the world's oil buyers were locked out of the market and a few months later the price of crude was trading in the 30's.

Not to say bitcoin would prevent the concentration of power either. But as is these creditors own money, the idea of money, and have granted themselves infinite resource. It will end badly and if there is an alternative to playing their game, I will take it, on principle, because fuck them.

I am sorry to say that as long as they can legislate they are unfuckable, writing checks is the easy way, they have other ways as you described to fuck markets and people.
The only threat to their domination as they perceive it is Religion, not because they can print money but because they can legislate too
Bitcoin is a toy for them, hell they can even (mis)use it as they use gold right now, fix exchnges, create IOUs, heck they can build a whole new market on top of it, to shamelessly steal more people globally, with minimum fee.
Wages would shrink every year (cause it's deflationary see mate?) while the bitcoin Bonds would inflate at will. and nothing really change except we would be stuck with en even harder currency that freaking EURO.

[thaaanos]

Protocols MUST evolve, so who will take up the task? You are exchanging politicians/bankers to developers, that may sound nice but it is the same thing. Power corrupts.

You assume that code is crystal : Logical, Hard and Transparent, No code is Art: Emotional, Fragile and Ellusive.

If you have not already noticed, bitcoin is already under fire, there is a technical bubble with a burst waiting to happen, greed has been used as a virus, to expand the bitcoin network, but it is also its fatal flaw. Because there are others who understand Greed better and can weaponize it for fun if they choose so. And Who can destroy a thing, can control it. Isn't that right?

I'm in agreement. I see a future where we shall have governance via protocols. People will design the best protocols and all these protocols will compete until the best survive.

It is not a situation of no regulation. It is a situation where the free market will determine the regulation that it wants. I know you're not going to agree entirely.

I don't believe bitcoin is a bubble. The adoption rate is less than 2 million souls and real money hasn't even poured in yet. Bitcoin represents the ability to transact without relying on third parties. I see that people will want this technology. In fact, I see it being the dominant and pervasive means of wealth transfer.

Those that have a moral objection to the early adopters and their hoard of btcs are always welcome to design an alternative protocol. However, one must also abide with the judgement of the markets if that protocol is rejected by open markets. What we individually find just may not be what the market wants. Satoshi understood that and designed a system to encourage early adopters.  You can't fight hard money capitalism Thaaanos.

"Protocolizing" behaviour and modus vivendi and taking human decision making out of the loop raises some ethical and philosofical for me.
It is what i call Law as Force of Nature, for me One must always have the choice to break the law. I don't know if you agree or not  but think about it hard, because for the first time in history human societies will face that decision.
An ecosystem of protocols and an evolutionary process can avoid the above pitfall, but *not* at a personal level, only at a group level.

I insist that, for bitcoin to achieve currency status, people must be willing to part their bitcoins for goods and services, not for/to FIAT, otherwise it's just a Bet as you said, a speculation, and like all bets there is a possibility of loss, and panic.
IMHO For the above to happen people should be encouraged to spend bitcoins not hodl them, and here lies a design flaw.

And yes there are grave justice issues with early minning that I believe is interlocked with the above issue.

Satosi's plan propably was to demonstrate a proof of concept, that it CAN be done, he propably didnt even thought of the issues of what a wide adoption can mean. His only concern was adoption rate, and achieving critical mass. I could bet that he doesnt even have a single bitcoin, or at least he has some hundreds.

And of course I believe that the bitcoin community should seriously consider, a proper implementation after techincal issues have been dealt, and all financial issues have apriori discussed.  And relaunch the project

If not I will have to do make a proper one myself, remember my suggestions about a rolling blockchain? If only I had time and clear head...

[asfbhero]

Deflation isn't attractive because people seek to convert it to another currency for profit.  Deflation is attractive because as the world economy, propelled by innovation and a growing human race, that creates economic growth;  When measured against a fixed unit of measure, for example bitcoin with a finite number of coins, by law of simple mathematics, each unit of bitcoin is becoming inherently more valuable.  Any fixed unit of measure divided by an increasing amount of stuff increases the value, the amount of stuff that each unit of measure is worth (can buy).  This cannot collapse.  If it could collapse it would be a pyramid scheme, and not deflation.  Words and their definitions matter.  Especially in macroeconomics and international banking/finance.

[keithers]

I have been starting to think that Gox has been operating like a Ponzi, and they are not getting enough new deposits for the requested withdrawals