[FAQ] Is BitCoin a Ponzi or pyramid scheme? (Newbie-Friendly)

[dayfall]

Perhaps Bitcoin is another type of scheme?  Print a new kind of money, then get people to give you fiat money or gold over the next year.  Someone out there has LOTS of coins that they likely mined from during first year, "Bitcoin Year Zero".  They could slowly cash in and buy a big mansion. (instead of giving to the faucet or whatnot).  A mansion they didn't earn by labor.  Granted, this scheme produces a good currency, but someone got rich quick.

If Bitcoins really take off then I will have gotten rich quick too.  I am not sure what I did to deserve it, but I know I won't be giving any to the naysayers.  I do feel sorry for those that haven't heard the "good news".

[Meni Rosenfeld]

Perhaps Bitcoin is another type of scheme?  Print a new kind of money, then get people to give you fiat money or gold over the next year.  Someone out there has LOTS of coins that they likely mined from during first year, "Bitcoin Year Zero".  They could slowly cash in and buy a big mansion. (instead of giving to the faucet or whatnot).  A mansion they didn't earn by labor.  Granted, this scheme produces a good currency, but someone got rich quick.

If Bitcoins really take off then I will have gotten rich quick too.  I am not sure what I did to deserve it, but I know I won't be giving any to the naysayers.  I do feel sorry for those that haven't heard the "good news".

You made a risky investment and it panned out. Try doing some angel investments to get a better feel of how that works. See also https://en.bitcoin.it/wiki/FAQ#Doesn_t_Bitcoin_unfairly_benefit_early_adopters?

I made a suggestion before that this point should be discussed in the OP, but it was so far ignored.

[eMansipater]

@Dayfall people who mined or bought coins early helped BitCoin stay alive when nobody knew if it would succeed.  Like most investments that increase in value, their reward comes from some combination of luck and foresight.  If it had been obvious from the beginning that bitcoins would be as successful as they are now, then the price would have shot to 7$ right away (and the difficulty to 400000).  Instead, it took two years to get there, because that outcome wasn't at all obvious until it actually happened.  Looking back it might seem like free money, but at the time they had just as much risk of losing everything they put in.

When I first heard about BitCoin there wasn't much information available, they were trading at only a couple cents a bitcoin, and I didn't think it would amount to anything.  It wasn't until the end of 2010 when someone referred me to BitcoinMe.com that I ended up digging into the details and realising that the technology could really work.  By then the community had grown larger, the value had risen, and people were finally starting to accept bitcoins for business, so I bought some bitcoins, started using them, started accepting them for my business, and also started processing transactions for the network.  But if I had invested the same amount of time and money when I first heard about it, I would have made thousands of dollars.  The reason other people did instead of me is that they understood, believed, and/or risked when I didn't.  So I think that's fair.  Without them, things never would have gotten to the point where I believed BitCoin would work.  And without people like me, things wouldn't have gotten to the point that they're at now.  Money needs to be widely used before it's useful for anything, so early adopters are serving a very critical role.  And don't forget that less than a third of the total bitcoins have entered circulation--there's still plenty of time to be an early adopter!

I made a suggestion before that this point should be discussed in the OP, but it was so far ignored.

The OP currently says "People who have made money off of buying and/or selling bitcoins are either lucky or have correctly predicted an increase in demand for them."  I think that talking more about people who have made money would detract from the "BitCoin is not designed as an investment" message that people are supposed to take away.  But as noted I do plan an expansion of the "free money" idea in general under a new thread.  One of the reasons work is going more slowly is that's it's unclear to me if the community considers these threads a priority.  Lately, for example, I've been getting more tips from regular posts than from the New to BitCoin? thread (1 tip) and this one (0); so work on these threads tends to sit a little bit lower in my very large stack than it might if I had a more solid indication that people find these threads important.  If there aren't 20 people who can put .05 btc toward saying "please do more of this" then this is really nothing more than a pet project of mine.  Whereas if the community is really behind me I would be willing to put in more than just spare time here and there.

[Meni Rosenfeld]

I made a suggestion before that this point should be discussed in the OP, but it was so far ignored.

One of the reasons work is going more slowly is that's it's unclear to me if the community considers these threads a priority.  Lately, for example, I've been getting more tips from regular posts than from the New to BitCoin? thread (1 tip) and this one (0); so work on these threads tends to sit a little bit lower in my very large stack than it might if I had a more solid indication that people find these threads important.  If there aren't 20 people who can put .05 btc toward saying "please do more of this" then this is really nothing more than a pet project of mine.  Whereas if the community is really behind me I would be willing to put in more than just spare time here and there.

This is getting a bit off-topic, and I know you like things to remain on-topic... But FWIW, I think this kind of threads is extremely important and shares the spot of "most important project development goal" with developing (and documenting) SCI modules for merchants. Though I think they might be a better fit for the wiki than the forums. Personally I've taken the habit of adding questions to the FAQ as I encounter unanswered questions, and referring to it. I really do appreciate the work you're doing in this regard, so I've just sent 1 BTC to your "New to Bitcoin" address. I know you'd much rather have smaller donations from multiple people, but I didn't want to feel like a hypocrite not putting my money where my mouth is.

[todu]

How do we know that the bitcoin currency will ever be used for buying/selling real-world things and services? As it is today (2011-05-30) very few users are using this bitcoin currency to trade real-world things and services. What reasons do we have to believe that this kind of usage will ever increase? If it doesn't, then the bitcoin value will eventually decrease to zero. The "deflationary spiral" faq didn't cover this part of the question. Please give me some arguments or point me to where this has already been discussed/explained.

[Meni Rosenfeld]

How do we know that the bitcoin currency will ever be used for buying/selling real-world things and services? As it is today (2011-05-30) very few users are using this bitcoin currency to trade real-world things and services. What reasons do we have to believe that this kind of usage will ever increase? If it doesn't, then the bitcoin value will eventually decrease to zero. The "deflationary spiral" faq didn't cover this part of the question. Please give me some arguments or point me to where this has already been discussed/explained.

For one thing, the number of merchants that accept Bitcoin is steadily increasing. Have you looked at https://en.bitcoin.it/wiki/Trade ? I'd say the list is quite impressive by now.

Also, merchants can accept bitcoins even without having faith in the currency. They can programmatically sell them for another currency whenever they make a sale, treating it merely as a superior money transfer mechanism. Because of its advantages it is only natural that more and more shops will accept it.

[todu]

How do we know that the bitcoin currency will ever be used for buying/selling real-world things and services? As it is today (2011-05-30) very few users are using this bitcoin currency to trade real-world things and services. What reasons do we have to believe that this kind of usage will ever increase? If it doesn't, then the bitcoin value will eventually decrease to zero. The "deflationary spiral" faq didn't cover this part of the question. Please give me some arguments or point me to where this has already been discussed/explained.

For one thing, the number of merchants that accept Bitcoin is steadily increasing. Have you looked at https://en.bitcoin.it/wiki/Trade ? I'd say the list is quite impressive by now.

Yes, I looked at it and had trouble estimating if that was an expected amount of merchants or not, for the current level of bitcoin adoption. Even if I had a graph for the number of merchants over time, I still wouldn't know if that was "normal" or not for a newly created currency such as bitcoin. I wouldn't have anything to compare the data to.

Also, merchants can accept bitcoins even without having faith in the currency. They can programmatically sell them for another currency whenever they make a sale, treating it merely as a superior money transfer mechanism. Because of its advantages it is only natural that more and more shops will accept it.

Good point. The point would however carry less weight if/when nationstates make bitcoin transactions illegal, because when that happens most irl merchants/businesses would stop using/accepting it. And then the value of bitcoins could drop very much (approaching and perhaps reaching zero) very fast. Because why would criminal organizations want to continue using a currency that cannot buy legal goods and services? I think even they would abandon bitcoins if they wouldn't be accepted by legal businesses.

I mean if bitcoins would be illegalized, then I would no longer be able to buy McDonald's food for it, greatly diminishing the value of having bitcoins for me. How do you think sudden illegalization of bitcoin payments would affect the value/usage of bitcoins, and why? The reason I think bitcoins will very soon be illegalized is because if everyone would start using bitcoins instead of classic currencies, nationstates would loose their ability to tax transactions and stored wealth. They depend on taxes and would fight to keep their ability to tax.

[Bit_Happy]

By definition Bitcoin is not a Ponzi scheme.
Bitcoin could be called an ingenious, kinder, gentler Ponzi or pyramid scheme.
Why?
It has some obvious similarities, but that does not == Ponzi.

[123yabe]

Hello

I have only recently discovered Bitcoin and have to say l am very excited by what l have seen.

Bitcoin is similiar to a trade exchange, without the exchange. I have been involved in Trade Exchanges off and on over the last 20 years and one of my concerns has always been the ability of the exchange to hold you to ransom. In addition they have been able to expand the money supply as and when they wish, usually to line there own pockets and as a member you are powerless to do anything about it.

Bitcoin has retained all the positives of a trade exchange and appears to have removed the negatives.

I note that the value of each Bitcoin has increased substancially over the last 6 months, l expect that it will continue to increase as more and more goods and services become available using Bitcoins. The value of any medium of exchange is attributable to the value stored in the goods and services available through the exchange. The supply and demand will set the value of each coin and having a cap of 21 million coins will ensure that there are no helicopter bens manipulating the market place.

I have recently launched an online auction site in Australia and am in the process of adapting the checkout so that Bitcoins will be an acceptable method of payment. I am looking at the SCI available through https://www.mybitcoin.com/ . Can anyone comment on this application or suggest any other ones?

Thanks

[Findeton]

By definition Bitcoin is not a Ponzi scheme.
Bitcoin could be called an ingenious, kinder, gentler Ponzi or pyramid scheme.
Why?
It has some obvious similarities, but that does not == Ponzi.

You could say that for any investment. Moreover, you could say that any inflationary currency is an ingenious, kinder, gentler Ponzi or pyramid scheme for banks and governments who print money. We just limited money supply and reversed who prints money.

[alaingb]

I'm such a newbie that I don't even know how to post a separate question. Sorry if I intrude in your discussion.

Here's my question. One of the many article I read mentioned that if your laptop crashed or is broken you loose all your bitcoins.

- Is that true? 
- Is there a way to retrieve my bitcoin using another computer?

If I decide to buy a new computer, will I use all my bitcoins stored in my old computer?

Thank you for answering these questions.

Sincerely, alaingb

[brocktice]

I'm such a newbie that I don't even know how to post a separate question. Sorry if I intrude in your discussion.

Here's my question. One of the many article I read mentioned that if your laptop crashed or is broken you loose all your bitcoins.

- Is that true? 
- Is there a way to retrieve my bitcoin using another computer?

If I decide to buy a new computer, will I use all my bitcoins stored in my old computer?

Thank you for answering these questions.

Sincerely, alaingb

Yes this is absolutely true, and this is why you should make backups of any important data on your computer, not just your wallet. Even RAID won't save you in the case of, say, a fire or flood. I recommend JungleDisk for truly secure cloud-based encryption and backup.

If your hard drive dies, hooking up the drive to another machine won't save you (probably).

Moving to another computer is easy, you can copy the wallet.dat, or just set up a new bitcoin instance on the new machine and send all your coins over.

[alaingb]

I'm just a regular guy and not a computer programmer, so forgive me if these sound stupid...

Yes this is absolutely true, and this is why you should make backups of any important data on your computer, not just your wallet.

= What file do I need to back up?

= Where is and how do I find that file?

= I currently back up my most important data on a USB key. IS that good enough?

Even RAID won't save you in the case of, say, a fire or flood. I recommend JungleDisk for truly secure cloud-based encryption and backup.

= What is RAID?

= I have to assume that JungleDisk is an online backup system I have to sign up for, right?

If your hard drive dies, hooking up the drive to another machine won't save you (probably).

= OK

Moving to another computer is easy, you can copy the wallet.dat, or just set up a new bitcoin instance on the new machine and send all your coins over.

= Where do I find wallet.dat?

= How do I create a new bitcoin instance?

I know, I know but this IS a newbie board, right? Thanks for bearing with me.

alaingb

[Meni Rosenfeld]

= What file do I need to back up?

wallet.dat

= Where is and how do I find that file?

That depends on which operating system you use, but basically it's where the OS keeps application data, in the folder for the Bitcoin application. It will probably be easiest to let the OS search for the file wallet.dat

= I currently back up my most important data on a USB key. IS that good enough?

It's better than nothing. But if you have serious amounts of bitcoins you'll want to have multiple backups in several locations. The backup must be relatively recent, so you should update it every week or so (at least some of them). And you'll also want to take precautions against theft, not just loss.

= What is RAID?

You don't need to know.

= I have to assume that JungleDisk is an online backup system I have to sign up for, right?

AFAIK, yes.

= How do I create a new bitcoin instance?

This just means installing Bitcoin on the new computer, which will automatically create a new wallet file. It will have a receiving address to which you can send coins from the old computer.

I know, I know but this IS a newbie board, right? Thanks for bearing with me.

Yes, but since this thread is for one particular topic, if you have additional questions you should probably go to http://forum.bitcoin.org/index.php?board=4.0 and click on "new topic" to start a new thread.

[alaingb]

Thank you Meni for your explanations and patience. Much appreciated.

alaingb

[marife01]

I am a newbie here. My question is if Bitcoin is still a good currency, not yet a ponzi?

[protokol]

I am a newbie here. My question is if Bitcoin is still a good currency, not yet a ponzi?

If it wasn't a Ponzi to begin with, then it can't magically turn into one 3 years down the line unless someone were to somehow take control (which is impossible with Bitcoin), so no, it's still good.

I didn't notice the necrobump till I'd read 90% of the thread! Just goes to show that the fundamentals haven't changed much in the last 3 years.

[marife01]

I am a newbie here. My question is if Bitcoin is still a good currency, not yet a ponzi?

If it wasn't a Ponzi to begin with, then it can't magically turn into one 3 years down the line unless someone were to somehow take control (which is impossible with Bitcoin), so no, it's still good.

I didn't notice the necrobump till I'd read 90% of the thread! Just goes to show that the fundamentals haven't changed much in the last 3 years.

Nice to know that it is still good. Just currently set up my Bitcoin account.

[greatway]

Its a supply and demand equation.

[marife01]

I am a newbie here. My question is if Bitcoin is still a good currency, not yet a ponzi?

 I think it's probably got less than a year left now (before imploding to a large degree, I don't think it will/can disappear for a long time) the smart moneys already gone.

It's easy to look at the copy cat currencies for an explanation of this, they can't all be the next big thing and none of them are really going to find any utility so ask yourself what happens when every one wants to take their money out of an empty pot at the same time  

Having lots of Bitcoin copycats may or may not be good for the BTC future.