You heard some words, you made a list.
You've got some parts pretty good, you've missed some parts badly.
And the result is a big ... s**t, sorry.
While not intended to be an investment, BitCoin certainly can be treated as one. In particular, it is a speculative investment. This means if Bitcoin becomes more useful, it's value may increase. If it turns out that the usefulness is overestimated by the investors, then the value may go down. Speculative investments are not Ponzi schemes, though. A speculative investment IS very risky and you could lose a great portion of your investment (even all of it). This does not make it a scam, though.
You have to read and also understand what a Ponzi is.
With Ponzi you get a promise that you'll get your money back and also some extra.
If people stop "feeding" the Ponzi pyramid, you will get nothing, so you were lied.
Bitcoin is more like speculating on the stock market: you can buy or sell stocks. One day the company may go well, one other day it will go bad or the stock market crashes and you may lose money.
But you know the risks in advance.I know, people will jump and tell that it's a currency. No, it's not yet. It needs to reach much more people to become a currency. And may need - we like that or not - regulations.
I'm inclined to think that bitcoin is a ponzi scheme for a number of reasons:
1. Quality of a currency - It fails this for me in terms of lacking the tangibility of gold. Now people will say that gold or fiat is not 'tangible', but the guns that enforce currencies are, and the fact that millions of ignorant people want to adorn themselves with gold, makes it a value for at least the next 100 years. I guess you could argue its not an investment, but would you make that case? You're expecting/hoping the price to go up aren't you? Capital gain anyone? That makes it at least the illusion of an investment, if not an actual one. This makes it ripe for a 'dump & dump'. Now, I look at efforts by some people to avoid the liquidity problem like the bros in NY who are setting up a listed fund. Such efforts strike me as great ways to increase one's liquidity at other's expense. These are Harvard guys.
In this case USD is also a Ponzi. A bad one. Just read about what you could buy with the same amount of USD 20 years ago.
Capital gain? Do you own USD for gain? No. You own USD because you can't go and work 1 day at the bread factory, 2 days at the shoes factory and so on to get what you need.
BTC is intended to be a currency and to work as one. And it has a chance to become one, sooner or later.
Tangibility? You know that your money is either "records in the bank" (on HDDs) if you work with credit card or, if you prefer cash, that's only paper!! What's the value of that and WHY?
You may tell that I am mixing things, but I only try to follow you. You start with currency and continue with gold, while they are, in the last 100 years, unrelated.
The ones holding
BTC do that in the way some hold stocks. They hope that they bought them cheap and sell high. Some do. Some don't.
The interesting thing is that virtually anyone can "produce" such "stocks" (mine) and sell them, which makes the price move more - in any direction.
2. Bitcoin's usefulness - I've just been to a bitcoin conference in NZ. Unquestionably cryptocurrencies are 'useful'. The technology is amazing. This however does not mean 'coins' are valuable; only that the technology is useful. People will say the technology is the coin, but actually, one of its appeals is that it is scalable, open source, but that just means to be that it will be duplicated.
You are correct in this. The technology and the idea behind it is indeed AMAZING and that's not the one that gives value to
BTC.
BTC is given by 2 things:
1. The companies that invested big bucks in mining (especially in the gox bubble) and try to recover that money and also profit.
2. Peoples' hope to get rich someday.
So for now it's "who fools who".
3. Bitcoin's evolution - Some critics to me at the conference told me that bitcoin can develop insofar as the protocol can be changed. I'd like to know more about this. How a consensus can be reached to change it, because it strikes me as a rubbery problem. My understanding talking to everyone was that 'all parties' (miners, developers, users, et al) have to be satisfied to make changes. I was also told that architecture-wise, some changes are very hard to make. I was told this by developers.
Just take a look at the altcoins. Some of them come with GREAT innovation while still relying on (clone of) bitcoin technology. Some don't even rely on bitcoin technology anymore.
A lot of that innovation can be merged into bitcoin, if "they" want to do so.
The problem is that such change means usually to do a "fork", which will force EVERYBODY to change their programs that work with bitcoin. And this is usually bad/avoided because it weakens the trust in a coin.
I think that at some point in the future bitcoin will have to add best of these features (and do a fork) if it wants to remain "the king" of the crypto-currencies.
4. Inflation from mining - Bitcoin is limited to 21 million BTC. The implication is that there is 42% of inflation to arise over the next 10 years. That is plenty of timer for a new coin to develop without inflation. Why? No mining. Mining is a cost. I'm told that mining adds a cost of 10% to each coin, but that seems too high. Maybe they mean something else. Ultimately the cost is 42% over 10 years.
Mining is so expensive because there are so many miners. I think that without the gox bubble there would have been less than 10% of the miners for this.
Mining is needed. Miners are the hearth for bitcoin. If all miners stop, next
BTC transfer will be stuck forever.
But
BTC goes down, miners shut down the rigs because "it's not worth it anymore" and there will always be an equilibrium.
You tell about a new coin - there are plenty of new coins, most of them cost near to nothing, the transfer fees are near to 0, they are mined and all is working. Another price level, another equilibrium.
5. Redemption - There is a problem getting bitcoins into something I really need - cash. I've heard that its hard to get the currency you want; which strikes me as a liquidity issue. It seems likely that banks will create their own coins, and that these will get far greater credibility. They have 10 years before the inflation of mining expires with bitcoin.
You don't need cash. You need the goods you buy with cash. Cash is just nicely painted paper. Would you buy ruble today? Why not? It's cash!
I'm inclined to have more trust in a scheme like Bitreserve, though again I don't hold that because the price of gold is falling and because rather than buy ounces of gold, I can get shares in a stock with millions of ounces of gold valued at nothing, trading at less than their cash holding. Now, the gold price is $1200/oz, the mining cost if $800/oz, so I'm looking at upside of 300/25=1200% in a few years. Scope for better of worse of course. They have a 2nd great project, they might get nationalised, they might strike very high grade intersections. Like bitcoin, you need a technical understanding to have confidence.
Like any stocks, gold or
BTC, you should buy when price is low and sell when price is high.
If you want something safe to invest, buy land. Earth will not get bigger, population is on a rise and we don't seem to leave this ball of dirt too soon.
The reason I think its a ponzi scheme is that I think developers, having invested in the development of their coin, they want a pay-out. I think anarcho-capitalists, as many are, ethically believe 'market rules', so if you can make money on this 'unregulated market', then why not. Ethically, I think it eases their conscience not to consider the negatives. Its only after I got to the after-party of the bitcoin conference did people seem to agree with me. Everyone at the conference was saying 'you're not a programmer'. True, but I'm more of a generalist than them. They conveyed little understanding of markets and psychology.
Feedback please.
The devs got their share long ago. Also anyone wanted to get a good share made a pool or an exchange.
Now most just try to recover the hardware costs - at least that's what I think -.
However, it's not a Ponzi. You have to read and understand what Ponzi means.
Yes, it is a risky investment. Even more risky than stock markets. Still, it doesn't make it a Ponzi.PS: Apologies for typos, I don't have the patience to re-read it.
