Bitcoin, Value, and Ponzi SchemesIt appears that Gary North has used the falling Bitcoin price as an opportunity to reacquaint us with his condemnation of Bitcoin as a Ponzi Scheme. No doubt others will do the same in the coming days and weeks.
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Satoshi Nakamoto, Ponzi MastermindLet’s not forget that to call something a Ponzi Scheme means to accuse its creator of fraud & deception, of engineering and initiating the Ponzi Scheme. Every Ponzi Scheme going back to Mr. Ponzi himself had a vile puppet-master orchestrating the ruin. If an enterprise has an honest and legitimate creator, but fails because the marketplace subsequently abandoned it for whatever reason, that cannot be called a Ponzi Scheme. A schemer is needed, so how does such an accusation hold up against Satoshi Nakamoto?
“The Ponzi aspect of [Bitcoin]”, explains North in the beginning of his article, “comes when we look at the justification for bitcoins. They were sold on the basis that bitcoins will be an alternative currency. In other words, this will be the money of the future.”
Mr. North so quickly veers into the sticky realm of misunderstanding. Ignoring Bitcoin’s formative beginnings as an academic white paper turned open-source software project (is that really a feasible genesis of a ponzi scheme?), by the time the coins actually started selling on the open market, their value justification wasn’t that “they will be the money of the future.” Rather, Bitcoin carried a much more humble claim from its creator: that a decentralized ledger could be built, and that such a tool might have application to the world of money. That was the claim of Bitcoin – that it might be the foundation for a better financial system. It might.
Importantly, Satoshi never made the vapid, wild-eyed promises endemic to Ponzi operators. He didn’t tell the first buyers of Bitcoin that “Bitcoin will replace fiat, buy now and make huge profits!” He never promised profits whatsoever. He didn’t promise anything, in fact. Instead he demonstrated, he built, through code and execution, a decentralized ledger system which may, he readily admitted, have profound applications. His simple claim was that his concept of a decentralized ledger was feasible. He built it, and it worked. He proved his claim. That is the behavior of an entrepreneur, a scientist, or an engineer, not a Ponzi operator.
A Ponzi operator promises something that is a lie, and behind its fallacious veneer builds nothing of real economic value. Satoshi Nakamoto, in contrast, theorized and then actually built a system which worked as advertised – a decentralized ledger which operated with no middle-man. He didn’t claim Bitcoin would make you rich, proceeding then to sell them upon you; he claimed rather that Bitcoin would work according to the specs of his whitepaper, and then demonstrated that to be true. That’s it. And this is a crucial reason why Bitcoin cannot be considered a Ponzi scheme. There was never a “scheme.” There was a scientific claim, proven conceptually by the whitepaper and then demonstrated functionally by the software.
“Working as advertised” is the opposite of fraud.
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http://moneyandstate.com/bitcoin-value-ponzi-schemes/
