In a Ponzi scheme, a fraudulent perpetrator takes your money (and the money of many others), gives some of that to early dropouts but takes the rest for himself. Ponzi schemers profit from lying to you where your money goes.
With a decentralized digital asset there is no sole person or company that profits from just lying to you about where your Dollar goes in exchange for digitals. Sure, miners and exchanges make profits based on fees when Bitcoin is created or sold, respectively — but they are only being rewarded for their legitimate efforts required to maintain and sell a digital currency. They do not pretend making your money work for you by some magical scheme.
This whole confusion stems from a rather vague understanding of what the subjective theory of value means: Goods and services provided by humans have no intrinsic value but become precious simply there being demand by other humans. Gold can become worthless if nobody wants or needs it anymore. A stupid trading card may cost thousands of dollars costing pennies to make but is sought after by enough collectors. Edit: Yes, Bitcoins are just numbers stored in a computer memory around the world but so is software. And software ain’t cheap.
While Bitcoin‘s value might be grossly overestimated due to rampant speculation but even then, these speculators are no victims in an investment fraud but they truly believe that Bitcoin will become much more useful in the future. They may be wrong but, currently, nobody knows. Only the future will show.
Indeed this is a new form of Ponzi scheme, and I agree with the authors use of the "quacks-like-a-duck" model.
> But if one wants to know whether bitcoin is a good investment, or just an old type of investment fraud with a new coat of paint, the legal definition is irrelevant. One must use a quacks-like-a-duck definition, that describes the mechanism through which fools and money are separated and the reasons why it is a fraud.
It's the world's first decentralized Ponzi scheme, where each participant cell need not understand the whole picture to achieve the end result. It's a financial cancer.
>No. They instead take your money, buy coal, and burn it. Nothing is left.
Yes, miners “take your money” but only a portion of every transaction as a service fee for processing your transaction. This is a payment for a service, the value of which is predicated on a service immediately provided rather than a promise for future value.
Also “nothing is left” is also a false statement as most of the bitcoin/money processed by miner’s isn’t going to them.
Also, every time a miner processes a block of transactions they receive newly minted bitcoin from something called a Coinbase transaction. This transaction will not keep getting doled out since the protocol enforces that there can only be 21 milllion bitcoin minted, but it provides extra incentive for the money poured in for the time being.
In other words, money is not “burned” it’s being exchanged into a different commodity. If this commodity fails to hold value over the long run then sure there’s nothing left in terms of value but I’d say the same risks exist and have been realized by government issued currencies. Look at countries like Venezuela for example.
I have a lot more reasons on why it’s improbable Bitcoin will ever plunge to 0 in value but in the spirit of clearing up some misconceptions I’ll leave that for another comment.
The bulk of miner income is mining new bitcoins. And the money received from that goes to burning energy mostly.
So if someone new buys a miner btc at $54,000 today, that represents money paying for coal that was burnt. It isn’t profits and the money is gone. Effectively you are transforming $54,000 into burnt coal and a bitcoin.
Eg:
1. Miner expects $54,000 bitcoin sale. Takes $53,000 loan, buys coal, burns it. Gets bitcoin
2. Received $54,000, gives 1 BTC. Pays back loan
If you ask for your $54,000 back, it isn’t there. It’s gone.
(I know mining doesn’t work so precisely but that’s just a thought experiment to illustrate the dynamic)
So unless you burn cash in a fire or counterfeit money, the only entity that can create and destroy money is the Federal Reserve.
Everyone else can only create "value". So I can combine two widgets together to make a third widget and sell it for less than you could do it. That's "value" in a nutshell.
So on an exchange balance sheet (stockmarket, coinbase, etc), dollars aren't created or destroyed, just transferred for something of perceived value. So I trade one dollar for a fraction of AMD Stock, e.g. But the dollar goes to whoever sold me AMD. The price of AMD stock can go up and down ("value") but the total dollars created or destroyed is always zero. Same is true with BTC.
Right, makes sense? Good.
So every transaction in BTC has a "cost" associated with it, where some "value" of BTC is transferred to miners. The miners spend money burning energy which removes "value" from the economy as a whole. Basically that means we had "X" many tons of fossil fuels left on Earth, but now we have slightly less because energy was "burned" for the transaction.
If I give you a ton of coal you can burn that for heat. But that removes the coal permanently from the world. OTOH, if I want to make a cryptocurrency with 10^86 coins and if I do that a billion times over, well, I have a limitless supply of cryptocurrency.
If you look at the situation as a flow of dollars you see an equation that looks like this:
BTC bought in dollars = BTC Sold in dollars + Mining Costs in dollars.
So while dollars flow back and forth, some have to go to the miners to burn physical energy. That incurs real world costs. So "value" has to be extracted and transferred to the energy companies to "burn" energy. Even if dollars aren't exchanged in the transaction, "value" has to be extracted regardless for confirmation. That value is "burned" by consuming non-renewable energy.
You might say that's exactly what credit card transactions are, (which is not incorrect) but the burn rate of Visa per transaction is much less than BTC.
This shows the cost of 1 BTC transaction vs 100K Visa transactions.
What this means is that if you reduce the "burning" cost per transaction in BTC, you can keep the value in BTC, and I'll be less cranky about it, since you're not hurting the environment.
> So unless you burn cash in a fire or counterfeit money, the only entity that can create and destroy money is the Federal Reserve.
I think this is generally false as a premise depending on your definition of “money”. If your definition of money is equivalent to US dollars then I guess this could be interpreted as correct, but other countries have “money” that isn’t issued by the Federal Reserve (the Federal Reserve being what we refer to as the US banking system)
> The price of AMD stock can go up and down ("value") but the total dollars created or destroyed is always zero. Same is true with BTC.
I don’t understand why you’re comparing the “value” of a stock or bitcoin with the “amount” of dollars. A fair comparison would involve the value of the US dollar, which is subject to change (take a look at the Forex market to see people capitalizing on that every day).
> The miners spend money burning energy which removes "value" from the economy as a whole
“Burning energy” is not removing value, it’s providing value by means of strengthening a proof of work blockchain. Whether that’s worth something to you is irrelevant to it being valuable to others.
> If I give you a ton of coal you can burn that for heat. But that removes the coal permanently from the world. OTOH, if I want to make a cryptocurrency with 10^86 coins and if I do that a billion times over, well, I have a limitless supply of cryptocurrency.
It seems like you’re saying scarcity implies value here. If that is what you’re implying, this arguments starts to take the form of a “straw man”. Bitcoin is not unlimited. Part of Bitcoin’s whole appeal is that there is a limited quantity of it to go around. Grouping Bitcoin with any other random cryptocurrency without that limitation will make any argument related to it a moot point.
> You might say that's exactly what credit card transactions are, (which is not incorrect) but the burn rate of Visa per transaction is much less than BTC.
I will agree that the amount of electricity to process a transaction on the Visa network is a lot lower than the energy required to run the Bitcoin infrastructure, but that energy just happens to be the price needed to pay for a decentralized proof of work blockchain. Even if you subjectively don’t believe Bitcoin is worth the value that’s spent to maintain its infrastructure, other people do and that’s reflected in the current economy.
> I think this is generally false as a premise depending on your definition of “money”.
Banks, exchanges (BTC or stock), and markets in the US all use dollars. So dollars it is.
"Value" can be represented by "money", but also by widgets, hay bales, labor, corporate stock, etc. AMD stock has "value" but is not "money".
> I don’t understand why you’re comparing the “value” of a stock or bitcoin with the “amount” of dollars
Dollars are transferred, but never created (unless you're the Fed). You "make money" by creating, or holding something of value and selling it. But you are not actually printing dollars -- really you're exchanging dollars for value.
Money doesn't have to be dollars it could be the North Korean Won, the Iraqi Dinar, Russian Rubles, etc, but it helps to have a stable currency to measure value. You could, yes, pay in Gold if you so desired.
> “Burning energy” is not removing value, it’s providing value by means of strengthening a proof of work blockchain. Whether that’s worth something to you is irrelevant to it being valuable to others.
That's where the disagreement is, right? I'll get to this in a minute.
> Bitcoin is not unlimited.
Today it is limited. It may change in the future. But more to the point, the original 21 million BTC came from thin air in the first place. There's only an "artificial" limitation in that people agree there will only be 21 million, and not a physical limitation.
People can't just code more coal or copper out of thin air.
So now the question is, how do you measure value?
> Even if you subjectively don’t believe Bitcoin is worth the value that’s spent to maintain its infrastructure, other people do and that’s reflected in the current economy.
Therein lies the problem.
All for-profit corporations want cash inflows that are greater than cash outflows. Corporations create things of value that other people or corporations want.
Profits must be objective, not subjective. "Value" can be subjective, sure, but profits must be objective.
So where do we find objective value in BTC? What about BTC drives economic efficiency?
Visa provides a bunch of services to merchants and customers. Yes they take a percentage of the transaction, but corporations realize the fee has value, since they don't have to do billing, fraud management in the VISA system, reconciliation, dealing with multiple banks, bad checks, etc etc etc. Those things have a direct measurable impact to a business, because they're cash outflows.
When we look at BTC we see money exchanging hands for BTC plus some money going to miners.
But what's more interesting is when money doesn't exchange hands, but when BTC is just transferred (like a gift). In that value must be extracted out of BTC in order to confirm the transaction because this needs to be converted to dollars to pay the electric bills.
Today most corporations that supported BTC have shut off BTC as a means of payment. The barriers of entry are high, and pricing BTC to the value of your goods and services is a hard issue since BTC fluctuates. That makes BTC hard to trust.
> but that energy just happens to be the price needed to pay for a decentralized proof of work blockchain.
No argument there, but I fail to see what huge advantage it has for businesses and the economy over Visa, say. The economic advantage for criminals OTOH is easy to see -- it just has to be less expensive than traditional money laundering.
But if crime is like 1% of all BTC use, and using it to pay for services is like 4% (numbers are pulled out of my ass to make the point) of BTC, then 95% of the perceived value of BTC right now is for speculation. E.g. Elon Musk isn't buying $1bn dollars worth of goods on BTC or Dogecoin.
The only way to make money on BTC then would be to create more demand for BTC. And that's certainly what it looks like from my viewpoint.
But in the end, if it's only purpose is speculation, well then we're burning a lot of real world resources for it -- hence "burning value".
> No. They instead take your money, buy coal, and burn it. Nothing is left.
Interesting, I never thought of it that way, and it makes sense.
Since money is not created or destroyed the balance sheet on inflows and outflows of BTC to dollars must be zero at all times. And some x% (which is variable) of it is transferred to miners which is the so-called "transaction" cost.
I guess there must be a point at which the bubble bursts, and that's when a run on BTC happens. At which point it should go swiftly down as the value of BTC has been taken out by the miners.
Yeah pretty much. Except the miners don’t take the money, they burn the money. Mining has low barriers to entry (more or less) so you’d expect low profit margins. And the major costs are energy (lost forever) and ASICs (unfit for other purpose)
So while most industries have costs that feed back into economy, mining costs are just burnt.
But yeah beyond that it’s just musical chairs. Depends entirely on inflows.
And those aren’t too high. Coinbase’s USD volume is $300,000,000-$1,500,000,000. And that’s buying and selling. You couldn’t sell the whole $1,500,000 and exit without crashing price. 2% depth negative is a bit over a million.
So with an apparent $1 trillion in value in the btc market, the exit door is thin.
Isn't USD created? Thus BTC functions as a USD sink. As the USD economy expands BTC represents some claims on it. It's a store of value that automatically appreciates (by design basically).
If you're so certain short it. The amount of wealth you would gain by being correct is immense. You should be spending every waking moment attempting to predict it.
Something about anti btcers I don't get you'll wax how smart you are and how everyone else is dumb. Just put your money where your mouth is.
This is dreadful advice that nobody should follow.
(1) Shorting has a completely different risk profile than going long. If you're short, you can lose an infinite amount of money. If you're long, the most you can lose is what you put in. Unless you're familiar with what it means to take a short position in traditional markets, for the love of God don't do it in crypto.
(2) The market can remain irrational longer than you can remain solvent, and Herbalife has been chugging along since 1980 - in spite of the widely publicized 5-year-long short Bill Ackman took. Even if the shorts are right, timing it is extremely hard, and chances are you'll lose your shirt before then.
(3) Most exchanges that permit short positions are criminal enterprises, all the major non-US ones are under investigation. Binance is under investigation by every major world financial authority including the Cayman Islands. They'll require you post collateral in crypto as well, which adds yet another layer of counter-party risk. Even if you're right, and you time it right, a collapse would likely wipe out Binance (or your collateral) - or it wouldn't and they just wouldn't pay you out, SFYL.
(4) All exchanges have a huge interest in seeing the game continue, and are more than likely colluding to keep the price up.
Most of us bears believe that Bitcoin exchanges are crooked Mob casinos - entirely in isolation of the fundamental Ponzi nature of the underlying asset. What you're suggesting amounts to telling someone who believes the casino is crooked to bet on red instead of black. The only way to win is not to play.
[edit] Yes, you can short CME futures (with massive 200% collateral requirements), yes I've done it, yes I've made money, not you shouldn't. Nobody should.
WOOOSH The point is that it's terrible advice. My point is people who espouse how smart they are about something should put up or shut up.
1.) there are a multitude of ways to you can do this on a decentralized exchange DYDX as well. Or a Mercantile exchange like BITMEX.
2.) Funny you should bring up Bill Akman he publicized his short position, and another investor took a counter bet to him. That investor so happened to do it out of (speculated) spite. So not really a good example but since we're here Herbalife was investigated and not found to be an MLM, although I'll grant you that the SEC came RIGHT up to the line in calling them an MLM scheme.
3.) I'll move past the criminal enterprise portion as that's for courts to decide. With respect to binance specifically there are multiple ways to go short I'll post the straight forward versions. Cash settled perpetual swaps, Coin settled perpetual swaps, Put option contracts, Margin shorting. The way I would recommend people short bitcoin is cash settled perpetual swaps, you will be paid out as there are insurance funds that are VERY LARGE you can see what they are, that will pay out winners should losers positions can't be sold to the market.
4.) So does every exchange with respect to the market they serve, the smart exchanges actually want to be price neutral as they view as a business, both FTX and Binance CEO go on the record about this.
So you don't want to short BTC but you still think it's a ponzi scheme ... report it as such to the SEC. Accept that's a loss cause because bitcoin is deemed as property, furthermore a commodity and thus regulated by the CFTC.
I'll finish about the crooked casino portion... you can do this in a decentralized fashion with DYDX or another de centralized exchange. EVEN IF you didn't want to take the time to do that. RIGHT NOW you can go to IBKR and take a short position on the greyscale trust which is essence a short position on BTC. FURTHERMORE if you think these exchanges are crooked and are doomed to fail. Take a short position on the exchange it self. Binance and FTX have their own coins (which are probably securities) that you can take short positions out on.
Final words, how long must a market remain irrational before your prospectus is wrong about the market being irrational? The paradox is if you answer infinity, you may be "right" but you're still wrong.
> WOOOSH The point is that it's terrible advice. My point is people who espouse how smart they are about something should put up or shut up.
I get your point, and I'm telling you that the thing they should do is nothing, not take a short position.
Your argument that "if you're so smart you should short it" is BS. If you're smart, you'd stay the heck away.
(1) Decentralized exchanges have all sorts of their own issues, from contract bugs to flashbots, to requiring crypto collateral that may also get nuked in the event of a systemic collapse due to Tether or Bitcoin.
(2) Herbalife is an MLM, but MLMs are not illegal. In fact it says so on their wikpedia page [1]
(3) Anything at any crypto exchange is subject to massive systemic risk.
> So you don't want to short BTC but you still think it's a ponzi scheme ... report it as such to the SEC. Accept that's a loss cause because bitcoin is deemed as property, furthermore a commodity and thus regulated by the CFTC.
The SEC is well aware of its structure, as is the CFTC. They'll act as they deem appropriate in due course, or they won't. But that's a non sequitur. It's actually the first item listed under common misconceptions.
>> That is not the legal definition of ponzi in country X. The legal definition is relevant to understanding the legal implications: can anyone in Crypto Space be prosecuted for running/promoting/aiding that scheme in country X? But if one wants to know whether bitcoin is a good investment, or just an old type of investment fraud with a new coat of paint, the legal definition is irrelevant. One must use a quacks-like-a-duck definition, that describes the mechanism through which fools and money are separated and the reasons why it is a fraud.
> FURTHERMORE if you think these exchanges are crooked and are doomed to fail. Take a short position on the exchange it self. Binance and FTX have their own coins (which are probably securities) that you can take short positions out on.
At the same casino, taking a short against the casino at the casino is the worst plan I've ever heard. If they go under they won't pay you out. The entire crypto ecosystem is one giant distributed casino. Why would you say crooked exchanges are doomed to fail - and on any particular time horizon?
> Final words, how long must a market remain irrational before your prospectus is wrong about the market being irrational? The paradox is if you answer infinity, you may be "right" but you're still wrong.
This is a total non sequitur.
Nothing you've said is representative of the way markets actually operate here in reality, and you've provided incorrect and dangerous advice.
> Something about anti btcers I don't get you'll wax how smart you are and how everyone else is dumb. Just put your money where your mouth is.
I don't have infinite money to keep propping up my short positions until this thing collapses. That's the reason, not because I don't want to put my money where my mouth is, it's because I don't have enough money to see the pay off.
It's not that hard of a concept to grasp, I believe...
If you are long bitcoin, you hold bitcoin. If you are for some other asset vs bitcoin, you hold that asset and not bitcoin.
Some things are simply tradeable, and his advice is not “throw money at the owners of a fraudulent casino to say you are short”
Nassim Taleb himself wrote a paper arguing Bitcoin’s value is zero and sold all his Bitcoin. I do not believe he believes it is his moral duty to open a Binance account and make a short on a Tether Exchange
In some religious rituals, devotees offer luxury items to gods to appease them. These are items like new clothes, food, maybe even non-metallic jewelry. These are subsequently burned on a pyre by the way of offering them to the gods. Bitcoin is like that, only now you have a receipt on the blockchain. I like it.
The value is not embedded in the ledger. Miners need to keep mining for all of eternity to maintain the security of the ledger. The featured article explains this point quite well. Ask yourself what would happen if miners stop mining?
If miners were to stop mining the difficulty (the computing power needed to mine blocks of transactions) would drop and people like me would start mining. So where did all the existing work go? It went into improving the security of the chain that my mining program is adding blocks to. That basically means that for someone to completely rewrite the provenance of all the bitcoin before the point where miners stopped mining, they’d have to replicate the same amount of work that was originally put into making that history. With less people of ordinary means working on the chain, the security of the blocks generated will be decreased. This is because it would then be easier to launch attacks on the chain and erase history and double spend, but the community could easily be rebuilt to a point where it is no longer feasible for a malicious actor to compete with the miners again.
Most of the value of gold is not due to those properties. Yet even for those properties, if you look close enough, it is shared hallucinations all the way down.
I think you'll also have a hard time explaining how "good conductivity" is fundamentally different from e.g. "resistance to tampering of historical records".
Bitcoin is only resistant to tampering of historical records if you have a continuous expenditure of compute to maintain that tamper-proofness.
In the absence of substantial compute resources dedicated to maintaining the longest fork, there is in principle nothing stopping anyone from changing a historic blok and rolling forwards from that.
The good conductivity is a base physical property, not really requiring any external investment of anything to be maintained.
By this definition, isn't for example USD a ponzi? Afterall, it is a Fiat currency now and not backed by a commodity. If I received wampum back that would offset it no? How does taxes/gdp protect you if taxes are of their self made up of USD.
> ... Where people choose to throw their own money should be left to them.
Yes, unless it causes harm to the broader economy.
I explained this in a different reply lower down, but when enough people participate it can destabilize the entire financial system in the country. And if it takes down the USD, globally. Pardon the pasta, but in 1997, the entire economy of Albania collapsed because everyone started participating in Ponzi schemes. They even jailed their finance minister for trying to stop it, and it led to a civil war. The IMF had to air drop in big bags of money to bail the country out. [1] This is what is at stake.
[edit] > At their peak, the nominal value of the pyramid schemes' liabilities amounted to almost half of the country's GDP. Many Albanians—about two-thirds of the population—invested in them. When the schemes collapsed, there was uncontained rioting, the government fell, and the country descended into anarchy and a near civil war in which some 2,000 people were killed. [1]
> With a decentralized digital asset there is no sole person or company that profits from just lying to you about where your Dollar goes in exchange for the digitals.
Ponzi schemes don't have to run by single individuals, but perhaps by multi-person organizations like the mafia. The mob was the reason the RICO laws came to be.
And undoubtedly, the mafia organizations would collaborate to break up their crime into regions. Mafia group A would take the West, etc. Since they're a criminal organization, anti-trust laws were meaningless. There wasn't a requirement that the different mob bosses had to compete with each other.
The mob isn't running bitcoin as a Ponzi scheme. People who buy bitcoin are not mobsters.
There are different waves of investors from the true believers who mined because the idea was powerful to the mt gox crowd, coinbase newbies, wall street / hedge fund crowd. Each group has a different reason. The latest groups are looking to make money and the earlier adopters have moved to a less popular more ideological coins with advantages over bitcoin.
I think you miss the point. Ponzi schemes can be run by multiple organizations, and agreeing to a scheme together without signing legal formalities.
The big example of this would be the 2008 banking crisis where CDO's were bought and sold by multiple banks, but ended up being worth less than the pieces of paper they were printed on -- even though the banking industry should have known this were the case.
Once it was known, they sought to protect themselves first -- "Too big to fail", TARP were common terms of the time.
This isn't even true you can track wallet addresses and see their movement overtime. Look up a graph called hash ribbons. People hold btc for very long periods of time.
Actually, kind of. It would involve appealing to other organized crime outfits that the given mob interacts with to have them reign in their behavior. Group A might think they can bully group B, and maybe they can, but they can't bully groups C, D, E, and F, who all rely on each other to not attract unwanted attention from the authorities or the public.
Rarely is it one person doing all the lying in a Ponzi scheme. Commonly they're labeled as multi level marketing, which then encourages more people to lie.
And I disagree that bitcoin proponents doesn't claim they make your money with for you: there's a lot of talk about the "deflationary nature" of bitcoin, aka the "magical scheme". Miners haven't burned all the money invested in bitcoin, but I'll admit this particular scheme has an unusually high cost of business, for a Ponzi scheme.
Most victims of a Ponzi scheme believe they're investing in something that will earn them money in the long run, otherwise they wouldn't have fallen for it.
Bitcoins long-term value is clear by examining it's usefulness: it's a tulip, at best.
I'll also freely admit that bitcoin is by far the most cleverly disguised Ponzi scheme yet, it's nature will probably only be obvious after the inevitable collapse.
A lot of people compare the Tulip craze to Bitcoin but the differences in the properties of each should make it clear why Bitcoin has a higher chance of maintaining value over time. The qualities that Bitcoin has, have typically been sought after in other high valued commodities.
Things like longevity and (protocol enforced) scarcity are previously things attributed to gold and remains one of the reasons why gold continues to hold value. Tulips on the other hand can easily wither away and its amount can grow exponentially. There are more reasons on why Bitcoin should be valuable in its own right, but many people who can write a lot better than me have written about it.
If you haven’t made up your mind on Bitcoin and still have an open mind to learning what it is, or even if you want more intelligent arguments to critique and debunk, I highly recommend reading The Bitcoin Standard written by Saifedean Ammous.
I agree that bitcoin has exactly one of the properties that makes gold valuable. It lacks the others though: you can actually use gold for a wide range of applications, from electrical to cosmetical, and it's rarity actually makes it even more useful as decoration, as it becomes a brag (look how much expensive gold I can afford).
You can't build electrical circuits from bitcoin, nor can you wear them as a necklace(I guess you could print your keys on a shirt or something, but then they wouldn't be yours for very long)
Scarcity alone isn't enough, you need a use for them too..
I used to think like that. Except most of the value of gold comes exactly from the same mindset it puts value on BTC and not on those properties you describe.
While gold does have some interesting properties in no way would that explain a 10 trillion dollar market cap, and the price of 55 000 $/kg, sorry. It's just not that much better and rarer than other competitor materials. If comparing by properties alone, there are materials that should then be more expensive. For example Platinum is almost half of its price, and yet way rarer, and it's properties more useful.
I don't believe utility is the driving force of gold as a store of value and if anything I would say it competes with it. I can assure you that most of the gold reserves in the world aren't holding gold with the future intent of having its value tied to its usage in circuits or beauty products, they're using it as a store of value. Being a store of value has utility in itself so again I implore you to look at arguments from someone who has studied Bitcoin a lot more extensively than I have and can give more hard data and context to the usage of similar commodities for comparison (i.e. the author of The Bitcoin Standard)
Its a ponzi because of how exchanges work. The exchange takes your money, gives it to some of the early dropouts. When you sell for a loss, you've been lied to about the utility of bitcoin.
You likely never used bitcoin for any of the many advertised functions. You held it, and sold for a loss. Some will win, more will lose. Its a concentration of wealth with a little more class chaos than normal because it's accessible to a more diverse crowd. It still ultimately fails to incentivize useful work to society and it's still going to cause wealth to concentrate in the wrong direction.
> Goods and services provided by humans have no intrinsic value but become precious simply there being demand by other humans.
This incorrect. I can purchase a home or food from humans and they have intrinsic value. If whatever market they were purchased on collapses, I simply live in the home and eat the food to realize their value, no further transacting required. Similarly with services I can pay for someone to build the home and harvest the food, the value is immediately realized because I can still eat, have a place to live and my time free to do other things. This is literally why the term "intrinsic" was uh, coined, to contrast these types of goods and services with things like precious metals which may have little intrinsic value.
> If whatever market they were purchased on collapses, I simply live in the home and eat the food to realize their value
If the market for food „collapses“ that means there is too much of it. Its value has gone down because your fellow humans do not want to buy any food from you anymore. Now, you can eat your own food, yes, but if you hoarded too much of it you will have to let the remainders rot away. In this extreme case the value of a good is only given by yourself. So your argument does not contradict the subjective theory of value at all.
On the day nobody cares for Bitcoin anymore, its value will go to _almost_ zero. Maybe some former Bitcoin zealots will keep the blockchain on their hard disks anyway as a memory. Then some subjective value will be left to Bitcoin even then.
I am in agreement with you precisely because I wasn't trying to contradict the original comment. I did want to correct their statement about intrinsic value because others will accept it as fact without understanding that things can be evaluated in multiple value systems at once, and their intrinsic value can be more or less independent of their market value.
The only way to make profit on bitcoin is to make someone else poorer by that amount. That's what makes it a ponzi - anything with this property that pretends to be an investment is one. Implementation details are irrelevant.
>Goods and services provided by humans have no intrinsic value but become precious simply there being demand by other humans.
Nonsense that's easy to disprove: try to stop eating food and start 'valuing' dirt as food. You will, of course, starve to death. Why? Because actual value is objective and exists regardless of what people think.
Intrinsic value objectively exists, but in most cases can only be estimated, correctly or not. It depends both on location and time coordinates.
Civilizations that estimate objective value too incorrectly collapse or get conquered. Those that estimate it correctly enough prosper.
The long term metric for any civilization is fortunately clear enough - energy use, also called the Kardashev's scale. It's a long term metric because foolish civilizations can waste energy in the short term (eg. by mining bitcoin) - but because it's wasted it results in less available energy in the future.
In cases like bitcoin there are no unknowns - it objectively has negative value and destroys wealth. It's backed by nothing and generates no income.
Don't get me wrong - I'm not saying don't play in crypto.
Never in history was it so easy to get rich by extracting wealth from others - which is what bitcoin and 99% of crypto in general is for. Is it a scam to promote it? My personal definition is pretty simple: it's a scam when promotion involves lies. Telling people bitcoin has value, while being a developer (thus smart enough to know it's worthless)? Scammer. Telling people it may go up in price (because other people may buy it)? Not a lie.
China was smart to ban crypto - they're too big to hope to profit at the expense of the west, and in fact most coins and tokens are held by Westerners, virtually guaranteeing it would end up as wealth transfer from China.
Crypto tokens can have real value - if they monetize efficiency increase in the real world. A smart contract economy is a possibility and it can exist - but right now it's all in the proof of concept stage. Without the ponzi factor I think eth should be valued between $1B-$10B (based on future potential, not current income), other smart contract platforms collectively at 20% of it, some defi tokens like MKR in the upper 8 figures - lower 9 figures. Everything else - worthless.
> The only way to make profit on bitcoin is to make someone else poorer by that amount. That's what makes it a ponzi - anything with this property that pretends to be an investment is one. Implementation details are irrelevant.
I'm really far from an expert in economics so I could be wrong but ain't that how the stock market works for non-dividends stocks?
> Telling people bitcoin has value, while being a developer (thus smart enough to know it's worthless)? Scammer.
There is little about being a programmer that qualifies you to declare Bitcoin a scam, or not a sacm. There is a set of programmers opposed to cryptocurrency that believes that their background qualifies them uniquely - that is hubris.
People don't need to understand any code to understand that Bitcoin is a spreadsheet.
Non-programmers can be easily bamboozled by marketing: for example they may sincerely believe bitcoin stores energy in some magical way.
For a dev there's no such excuse - they know for a fact bitcoin isn't backed by anything and all energy used for mining is irrevocably gone, and that no mechanism exists for bitcoin holders to earn transaction fees (because miners are a separate entity). There's no escape from knowledge that bitcoin is a negative sum game - which means claiming it's anything but a new version of a ponzi is a deliberate lie.
You do realise digital assets have to be created right?
Your entire statement is wrong. I'm surprised you managed to write so much without realising how wrong it is.
Sounds like you don't know what digital assets are, or what a ponzi scheme is.
Trading cards are ponzi schemes too. From an entertainment point of view, they are created for the purpose of being fun to trade. From a monetary point of view, they are a ponzi scheme.
Bitcoin is neither fun, nor solves a problem, nor has any use beyond monetary.
> Trading cards are ponzi schemes too. From an entertainment point of view, they are created for the purpose of being fun to trade.
No, not really. You're confusing the concept of intrinsic vs perceived value, and completely ignoring the concept of utility.
People who buy cards for fun do it because it's fun, just like we could spend money to rent a sports car, go on a vacation, or drive around a test track. The monetary value of a hotel say from last month is zero, but that does not make hotels any type of fraud.
What would represent a Ponzi scheme would be, say, advertising Beany Babies as a safe and guaranteed investment to attract speculators, sell them Beany Babies for a hefty markup, and proceed to leave them holding the bag.
They might make a range of beanie babies, or they'll suddenly start using the range that already exists. A ponzi scheme can start anywhere in the lifecycle.
A lot of the "Common Objections" relate to the REASONS people choose to own Bitcoin and how those cases make it a Ponzi.
There are many different reasons to own Bitcoin, however the author seems to only view it through the lens of someone living in a wealthy and developed country with financial stability.
The properties of it being difficult/impossible to confiscate and its privacy make it valuable in oppressive regimes. A refugee could store their wealth in Bitcoin, leave their country, settle somewhere else, and access their Bitcoin without the risk of it being confiscated during the journey, because they can simply memorise the seed phrase (24 words).
It's predictable issuance schedule also makes it valuable in countries suffering from high inflation or hyper-inflation.
Alex Gladstein works for the Human Rights Foundation and does lots of good work in Bitcoin advocacy. His other articles are worth checking out.
And the data backs this up. Some of the biggest growth in Bitcoin users around the world have been in places around Africa and Vietnam who are subject to some of the situations mentioned above.
Do you think these people see Bitcoin as a "Ponzi"? Do you think they care if such a definition doesn't change the properties they find useful/valuable?
I got involved in bitcoin after being blackballed from the (US) financial world while for 2-3 months while I was "investigated" in the most dystopianly opaque way possible. One day I lost the ability to transact. A few months later I got it back. Had it not been for good friends who could cover my expenses, I could have easily ended up homeless. And the most shocking part of it all, was that I was merely collateral damage -- I had done nothing to piss off any of the powers to be.
It made me quickly appreciate that a persons ability to transact while not quite a human right, isn't too far from it either. There is no way the government (or financial world) should hold the power to wreck someone with no accountability. Bitcoin as I see it, is a way to shift the balance of power somewhere closer to where it belongs.
I don't hold bitcoin because I think it'll go up in value, I hold it because I don't want someone to tell me I can't pay rent because ... well they can't tell me why, because "sorry, I don't have access to that information"
I personally know others that have experienced this I have had to help out. Another who simply lost all their identity documentation in a fire and was locked out of their accounts. Similar stories with many homeless people I used to worn with.
It made me realize how fragile our access to bank accounts and identity actually are.
I have as such setup a portion of my wealth in crypto-assets with a dead mans switch and recovery methods covering fire, amnesia, identity loss, or death, while ensuring the majority can't be seized by a government or rubber hose attack without the consent of myself and a quorum of people I trust around the world confident I am not under duress. As long as I have the freedom to communicate and some time I can recover.
The market value of crypto-assets may not be predictable, but I prefer to be able to count on never losing access to it, and having theft protections no bank can offer.
To begin with, let me say I'm very sorry this happened to you, and I think it sounds like an example of a really broken system. This should never happen to someone randomly, and I think you should have been compensated a lot for the troubles and stress it must have caused you.
However, I think we should be careful with drawing the conclusion that technology for circumventing our institutions' ability to regulate altogether is the natural solution, when perhaps fixing the institutions would lead to an overall better outcome. If we all moved to Bitcoin, then we would no longer have central democratic control over who is allowed to transact or not, and I don't think that leads to a better society.
The institutions ought to be under democratic control in the sense that they are regulated by elected representatives. If they are not, then that is a big problem which should be fixed rather than circumventing the institutions altogether.
Physical cash is de facto restricted in many places in the form of upper bounds on the amounts that one can withdraw and deposit.
An open exchange is progressive. A verified list of people who can transact is a closed stockmarket. Democratic imples a direct vote which is very far from true.
No, not at all. During my asset freeze, I considered trying to take action against my bank to force something to actually happen and facts to come to light. But I also had access to no money, and and my time was better spent working some cash jobs so I didn't have to lean so much on my friends. And then once my assets were unfrozen, I don't think I really have much grounds for recourse..
I’m sorry but what? Was this in the US? Because the intro was “oppressive regime,” and then you gave an example of an oppressive regime, and now I’m realizing you might very well be in the US.
I’m just shocked; never considered this could happen. Was this related to your employer, and… Well, I should just ask rather than guess :) thank you for sharing, and I’m really sorry that happened.
One of the best decisions I’ve made recently is to set up a company for myself. More specifically, I set up a non profit “for the world” (mostly as an intellectual exercise of “how hard would it be to mimic what openai originally set out to do? Turns out, it’s not hard!) which then put me in a position where I knew exactly how to set up an LLC for myself for consulting, and how to set up a bank account (use https://www.mercury.com — don’t use anything else).
The takeaway is that, if you’re in the US, you can have protection from exactly this sort of thing, for roughly zero cost — in Missouri the filing fee for an LLC was a whopping $50. That’s how much it cost me to set everything up, start to finish.
I now have a business banking account, quickbooks takes care of the taxes (admittedly $24/mo isn’t “totally free” but it’s also “pretty cheap” relatively speaking) — which means that yes, someone could freeze my LLC (hello IRS) or freeze my personal account (hello US Bank, you suck) but it’s highly unlikely both will ever be frozen simultaneously, unless both the business and my personal accounts are under scrutiny simultaneously.
The cure for that is very simple, as long as you’re rigorous: income comes in to your Mercury account; it flows out into your personal account, by paying yourself a salary. Never use the Mercury account for anything else. Congratulations, your LLC is almost impervious from problems. (My famous last words; the fact is, I have no idea what I’m talking about, and this is what I’m expecting to be true as t approaches infinity).
So yes. Bitcoin: good solution. LLC: also good solution. Wish I’d taken advantage of it sooner.
Unsure about outside of the US though, sadly. Though I’ve often toyed with the idea of making a company specializing in setting up one of those offshore bank tax havens, and offering a product like Stripe whose sole purpose is to automate that. :) Then everybody gets the loophole, rather than a rich few.
Anyway, thanks again for sharing that very unexpected story; I hope it never happens to you again!
Yeah, it was the US. Funnily enough, I never found out why it happened. Everyone claimed to not know, have no access to it, and the people who were supposed to be in touch with me never were. A week earlier I did send a reasonable amount of money to someone in country that is most well known for it's illegal drug industry. Although I have nothing to do with drugs or anything illegal, and no way of knowing if that was even related or not (no one even asked me about it, so hard to tell if it was a coincidence or not)
If you want to protect your money, wouldn't it be easier to open an account in another country and transfer the money there? In Europe we can do it very simple with Revolut or Monese.
When you have money in the Revolut account you can spend them in any country and it would be very difficult for some entity to block your funds.
That's a good point! I don't know anything about that. I assumed it was difficult for a US resident to open a long term bank account in Europe without having to reside in Europe. But that assumption is probably wrong.
Thanks for the hint about Revolut and Monese. Now I'm curious what their requirements are...
That’s sadly the catch. I’m sorry — I completely forgot to mention that this works for me because I’m consulting, so businesses pay my LLC rather than me.
However, I will say that one business wanted to hire me full time, and I refused and asked for a higher consulting rate, which they agreed to. So it’s not impossible for your next job to end up similarly.
But then you don’t get benefits (my wife’s health insurance covers us both), sick days, and you probably have to log hours (to my surprise). So even if it’s more lucrative for me right now, there are definite reasons this path isn’t suitable for everyone.
Definitely consider it if you can swing it though. And also, you can simply invoice yourself for services rendered from your LLC, which effectively transfers money from your personal account to the LLC. I’ve had to do this to bootstrap funds into the account (since your balance starts with $0, which is useless).
The problem is tax. There are two issues. One is that an LLC is a pass-through entity. That means all profits are expected to pass through immediately to your personal account, or used immediately on business expenses. If you try to maintain a $20k balance for a year, for example, you’ll discover that this balance counts against your deductions for that tax year (effectively a negative $20k deduction). Or at least that’s my understanding so far.
Therefore, as with most things, you should ask an accountant for advice. But that’s an unsatisfying answer. My answer was going to be, therefore, you can create a C Corp instead of an LLC, and transfer some of your personal funds into that (by invoicing yourself).
The problem (argh, they never end) is that the income will be taxed for the Corp, and then taxed again when you pay from the Corp back to yourself. This is precisely the “double taxation” problem that LLCs were designed to solve!
The reason it still might make sense is because of all the incredible benefits of setting up your own company. For example, merely opening a Mercury account at all means you can redeem $5k of aws credits. $5k! I’ve done this! To my surprise, it happened!
And that’s just one of like 80 Mercury perks. There are so many, and it’s been so much fun window shopping through them all. It’s how I wound up using quickbooks for example.
Plus you’ll have an account that people can wire money to. Mercury has a nice little PDF with all your wire transfer details. It feels like driving a Tesla, whereas US Bank was like not having a car at all. (It was truly one of the worst business banking experiences imaginable. They even managed to lose an incoming $10k wire transfer. Nonsense like that simply doesn’t happen with Mercury.)
So there’s a brain dump of pretty much everything I’ve learned over two months of studying this. The takeaway is that if I had a day job, I would set up a C Corp and transfer a few grand to it by invoicing myself. (No, I wouldn’t use stripe atlas. That’s $500. You can do it yourself for $50, and it’s been surprisingly painless. Both Missouri filing and the IRS EIN were entirely online, so you don’t even have to mail anything.)
Just, uh… perhaps consider it a side hobby. This kind of nerdiness is uniquely fun to me. I imagine that it’s incredibly un-fun for most people. Treating it as a hobby helps overcome that pain, and the risk turns out to be minimal. I was surprised by that.
> . If you try to maintain a $20k balance for a year, for example, you’ll discover that this balance counts against your deductions for that tax year (effectively a negative $20k deduction). Or at least that’s my understanding so far.
You don’t get taxed on having a balance; you do get taxed on the income that generated it. (Or am I missing something crazy?)
In one of these links, I am quite certain I saw words to the effect of "if you maintain a balance in the business, then the following tax year, it will count as a negative deduction for the shareholders (i.e. you), because the business type is a pass-through entity, and pass-through entities are expected to pass all of their income through to the shareholders."
The fact is, I don't know whether it was an LLC or a sole proprietorship, and I'm now second guessing what I thought I knew. Because yes, it does sound pretty ridiculous that an LLC needs to maintain a $0 balance or else it will penalize the owners of said LLC. That doesn't sound right.
And yet, words to that effect were located in one of these links. (Hunting for it now.)
EDIT: Welp. Can't find it anywhere. At least I admitted from the outset that "ask your accountant, do not trust me" is reasonable advice for anyone thinking of taking business advice from random HN comments.
I'll downshift to "I don't know whether it's a bad thing to maintain a long term balance in an LLC, but I'll be finding out the answer before the end of this tax year."
If there's no disadvantage to keeping a balance in an LLC, then I revert to "Just form an LLC for yourself; it costs $50 to do so. And you can keep as much money in it as you want, as long as you don't mind paying income tax simply for transferring money into your LLC."
It's possible I was thinking of a negative tax basis for an S corporation, if the S corporation has a long term account balance. But a tax basis is certainly not the same thing as a tax deduction, so I throw my hands up in the air and say "I'll be using a portion of my consulting income to clarify these questions with both an accountant and a lawyer; all advice should be considered suspect."
> Because yes, it does sound pretty ridiculous that an LLC needs to maintain a $0 balance or else it will penalize the owners of said LLC. That doesn't sound right.
It's definitely not correct at all. Neither is issuing phantom invoices to yourself to put money into the account.
A bank account is just a vehicle to store business cash, it really has nothing directly to do with the way you should be maintaining your LLC's books. You should be recording things like that as "capital contributions" which increase your "capital account."
Similarly, profits and losses should be booked to your capital account. I would strongly recommend doing some reading on capital account bookkeeping.
Excellent -- thank you very much for the corrections. I was wondering precisely that, when I was initially funding my Mercury account.
I may have given the wrong impression, but to be clear I certainly wasn't recommending using Mercury as your tax accounting software! I was saying that as long as income flows into your LLC's bank account, and out into your personal account, and that you never use your business account for personal expenses, then you have nothing to worry about.
I really appreciate the reference on capital accounts; not knowing how to classify inbound transfers from my personal account was bothering me. That still raises the question of whether there is a tax, and how much the tax is. Are you saying there's no income tax when you transfer your personal funds into an LLC, since capital contributions aren't income?
> If you plan to contribute property, you will need to obtain a market valuation to determine the value of the property you are contributing to the LLC. Capital contributions in the form of property may also attract a number of potential tax consequences, so it's generally a good idea to consult with a tax advisor beforehand.
> You also can make a capital contribution in the form of services. As with property, you will need to obtain a market value for the value of your services. There also are tax consequences, as you will have to treat this value as if it were actual income you earned for your services, meaning you will have to pay personal income taxes on the value of these services. Because of this, services are not as popular a form of capital contribution.
So, yes, you can "invoice for services rendered" (aka services capital contribution, apparently) but it'll be taxed as income. Therefore, you want to contribute property, and the tax consequences are left as an exercise to the reader.
Looks like I'll be completing that exercise, but perhaps not at 2:30am.
> The capital contribution increases the owner or partner's equity interest in the entity. Capital contributions are not considered business income unless given in the form of a loan.
> For a Single Member LLC (that has not made an election to be taxed as a corporation), the IRS does not recognize the LLC exists (for most purposes). Therefore, you and the LLC are the same. Therefore, there really isn't such thing a Capital Contribution for tax purposes.
Apparently "It's complicated(TM)" is still the final answer, because single member LLCs can't have Capital Contributions. Hmm.
One reason I post openly about this sort of thing is precisely because people like yourself come out and correct my misunderstandings. So again, thank you! This is certainly a reminder that I have lots more reading to do.
> I don't hold bitcoin because I think it'll go up in value, I hold it because I don't want someone to tell me I can't pay rent because ... well they can't tell me why, because "sorry, I don't have access to that information"
Well you certainly can't do that with Bitcoin unless your landlord has a similarly anarchocapitalist worldview. You'd have to cash it out at an exchange and pay the individual in question. This choke point would leave you similarly locked out.
This applies to only a fringe minority of the participants in the Ponzi.
More sympathetically, even if this was a real problem that doesn't mean a Ponzi scheme is the way out. It's like saying you got burned in 2001 so decided to invest with Madoff knowing full well he was a Ponzi, but at least he wasn't a tech company.
You'd have to cash it out at an exchange and pay the individual in question. This choke point would leave you similarly locked out.
Would it? The parent commenter was in the United States, and even in cities of about 1 million people, I've seen Bitcoin ATMs at chain supermarkets. Some were even integrated into the ubiquitous CoinStar machines at the front of the store.
Wouldn't that only work if you had places (like your landlord) taking Bitcoin off the blockchain directly for payment? Otherwise, transacting still requires the cooperation of intermediaries subject to sanctions. Maybe you can launder through a friend, but... it doesn't seem any easier.
It's massively easier. If at the time I had my money in bitcoin, I would just need to find willing trader (someone who would trade my bitcoin for making my rent payment). But because I didn't, and my bank account was frozen, I had to find someone to pay my rent _on credit_. I was lucky to have someone to turn to, I suspect not everyone is fortunate to have friends who are willing and able to help and trust someone with a frozen bank account.
And what also is scary, if I had been a real target and not bycatch, I bet anyone who helped me would've also faced the same asset freeze for helping me.
I tried out localbitcoin a bit before the pandemic. Absolute shit show. Nobody wanted to actually trade. Seemed like most participants were phishing for personal information, probably for identity theft.
"Bitcoin privacy" is a contradiction in terms, as has been repeatedly proven.
You set up a scene of a refugee "storing their wealth in Bitcoin", but it begs the question: where are these refugees with substantial wealth they are looking to exfiltrate? Typical refugees are emigrating from locales where they were earning dollars per day. The use case of shielding hoarded wealth during a journey to a freer locale is a blinkered fantasy. (Of course, if this is incorrect, surely there are hundreds, at least dozens of compelling case studies by now?)
this is not an accurate portrayal of refugees. i can’t be bothered to look for a source atm, but the first wave of refugees out of syria that caused a panic in Europe were not poor, unskilled laborers - they were middle and upper class families who could afford plane tickets. It costs many thousands of dollars to cross borders illegally by the way, so you’re likely to exhaust your savings trying to escape whatever you’re running from.
I wrote "'typical' refugees". No doubt monied folks need to migrate under duress as well, but they are absolutely a vanishing minority of worldwide refugee flows.
> It costs many thousands of dollars to cross borders illegally by the way, so you’re likely to exhaust your savings trying to escape whatever you’re running from.
...and worse, often end up in debt along the way. Where is the room in that common situation for the need for exfiltrating funds via BTC?
I didn’t mean to suggest BTC was useful along the way, just had a kneejerk when I read the comment about penniless refugees. but by the time people are congregating in border camps i’m sure you’re right, the majority have less pennies than they’d like.
>>>but it begs the question: where are these refugees with substantial wealth they are looking to exfiltrate? Typical refugees are emigrating from locales where they were earning dollars per day. The use case of shielding hoarded wealth during a journey to a freer locale is a blinkered fantasy.
African migrants trying to cross the US southern border, on the low end. Airfare from West Africa isn't cheap. In this article[1], one migrant says the trip had cost her $5,000. It takes some assets to pull that off, and some of that is probably kept on their person for the duration of the journey. A microSD card in a condom in a....sensitive location....is not likely to be detected if/when narco-smuggler cartels shake you down for cash.
At the high end....government kleptocrats fleeing Afghanistan. Supposedly President Ashraf Ghani and his family had to leave piles of cash because they couldn't carry it all when he boarded a helicopter.[2] Too bad they didn't convert to stablecoins and store them on a wallet on a thumb drive.
if it came down to that, depending on time, i think i would prefer to stitch 256 bit patterns into various articles of clothing before i stick any memory cards anywhere
Perfect example, thank you. Given the typical wage in Venezuela of late, someone looking to exfiltrate their "wealth" there would be looking at working weeks if not months to afford a single typical BTC transaction fee.
Again, these proposed use cases are absolute fantasies.
i don't think you know what the typical wage in venezuela is. i do because i live here. you can watch this video if you want to know (it's not 3$ a month): https://www.youtube.com/watch?v=br7aSAXcPW4
say i've happened to save 1000$ and i want to leave the country and i don't want the police near the airport to take my money as they're known to do. do you think it would be an absolute fantasy for me to find some way to sell my 1000$ for bitcoin and buy them again somewhere else?
One way people have of affording these fees is by working for people outside the country who can pay a salary that would cover the fees alongside being a living wage. After building enough wealth in crypto, they can choose to leave the regime in better terms than as a refugee. This has happened many many times already, this is the most valuable use case for crypto in practice.
I loathe Bitcoin, but that’s vastly wrong. As one counter-example, the Syrian civil war didn’t only displace poor people who never had anything to begin with; it displaced a lot of middle class families, made of engineers and doctors and such, who did have assets to their name but that were almost certainly incapable of taking it out of the country with them.
It remains to be seen whether it would have been practical to move money from Syrian liras to Bitcoin. No one wants to buy hyper-inflating currency.
It is unfortunately quite factual that the vast majority of refugees worldwide functionally have no assets and often end up in debt at the end of their journey from home. Anecdotes of relative handfuls of affluent migrants are hardly compelling vis a vis the utility of e.g. BTC, especially given the lofty claims being made.
Outside of whether it would be feasible to move wealth to bitcoin before fleeing, discounting the existence of people who weren't miserable before they had to flee their decent existence due to war is insulting. You insinuated that all people who flee their country were resourceless before their displacement. Confronted with the fact that they aren't, you thought to save your point by declaring them "anecdotal". Not classy.
I didn't discount anyone's existence, or make any insinuation about "all people" of any description. The claim upthread was that BTC is useful when exfiltrating wealth when emigrating; for that to be a compelling and common use case for BTC, said wealth would need to be common. My pointing out trivially verifiable facts re: the typical (a.k.a. statistically predominant) financial disposition of refugees might not put that claim in a good light, but it's not pejorative or dismissive whatsoever of anyone or their experiences.
IMO, the not-classy thing is cryptocurrency advocates constantly trying to leverage the plight of refugees, the unbanked, and those living in locales with constrained economic freedom to underwrite the reputation of a set of technologies that are overwhelmingly used as pernicious speculative vehicles.
The fees for Bitcoin are way too high to make sense for citizens in poor authoritarian counties.
The average transaction fee during slow periods is about $5 and it jumps to $20 whenever there is load on the network.
And the lightning network is a poor solution to this because the LN requires a lot of capital to fund channels, something poor people explicitly don't have.
Finally, the fact that Bitcoin proponents have to point to poor authoritarian countries to find legitimate usecases is telling in and of itself. It's basically a blunt admission that the technology is mostly useless in the US.
>Finally, the fact that Bitcoin proponents have to point to poor authoritarian countries to find legitimate usecases is telling in and of itself. It's basically a blunt admission that the technology is mostly useless in the US.
You say that as though it makes it all but useless, despite the value it provides to people in those countries... that's very telling in itself.
But as I said there are many use cases, I just pointed out a few that I thought were most important on a global scale... because, you know, it's not all about people in wealthy developed nations.
But outside of those types of countries, and in countries like the US, the self-serving use case is a hedge against inflation. If inflation doesn't worry you, that's ok, but the recent money printing in trillions of dollars worries lots of other people. In 20 years I've seen the purchasing power of my money halved. I'm much happier to store my money in an asset that, so far, is seeing its purchasing power increase year on year.
From a technical standpoint the other use case, over the lightning network (and other layers and sidechains), is that it allows for instant micro-payments not possible with the legacy financial system. People are building products like podcast platforms which stream satoshis to content creators for every minute someone listens to their podcast. Others are building systems where every API call can be instantly billed. Or content distribution systems (think Bittorrent) where seeders can be compensated for service.
There are plenty of technical uses cases for a digital native money on the internet.
If you don't understand why it has utility I don't think there's anything more I can say to convince you. Sorry.
This may be a bit off-topic and I don't know much about crypto currencies, but I do know that one of the reasons Stellar was set up the way it is, is to enable tiny transaction fees so that anyone could participate, including the poor or those without the kind of access to a stable currency or financial services that most of us on this forum would normally expect. Thus, the transaction fees are minimal.
I guess it should be possible to trade bitcoin via the stellar network (according to their intro page[1], any currency can be), but I could well be wrong.
I got some given to me in the Keybase drop so I read up on them, but that's the limit of my knowledge in this area. I'd love to find a way to use them but articles like this talking about ponzi schemes etc tend to put me off bothering.
$5-$20 for any amount is comparable or much less than almost any international transaction fee. If you're other option is transferring money out of the authoritarian country into your destination then this could be very attractive.
I mean my bank (Monzo) charges $0.40 for a small international transfer, and $3.20 for one that is $1000, so depending on the transaction size in most scenarios for me personally bitcoins fees would be WAY higher and will presumably only grow more if Bitcoin gains further adoption.
The problem is that the Bitcoin fee is also payable on all domestic transfers too, which of course are free in traditional banking.
If your account is frozen for whatever political reason your bank can't help you. Bitcoin fees can be 15 cents. I think it is a dollar now. Plus the 10,000 or 100,000 limit you would have could prevent you.
Keep in mind that this purely the onchain transaction fee.
You are also going to paying exchange fees each way and those fees are likely to be quite large in authoritarian countries (as any illegal activity is generally more expensive).
Also, in countries with fake exchange values (like Argentina or Venezuela) you get 1/3 of the currency for your dollars, while with bitcoin you get the full value.
I'm sorry if I appear a bit dense, but this is the part of bitcoin I least understand. On an individual level, when transferring person to person, are the transactions ever more complex than just remove funds from here and add it to another wallet?
No it's not real, the cost to do a simple transfer up until yesterday has been in the ballpark of 0.1-0.15. This very moment it's around $1. You can see the current estimated cost here: https://mempool.space
In addition to that, there's always the Lightning Network as well wherein you can transact for fractions of pennies.
The lightning network only allows you to transact if you fund a channel first, which requires an on-chain Bitcoin transaction to create and eventually one to close, thus incurring transaction costs twice.
You should fund a LN channel for more than one transaction because you cannot change the channel funds after creation, so you better make sure enough is in it. This makes it unsuitable for things that require more than a tiny fraction of your monthly income, e.g. rent.
LN channels also need to be constantly monitored to not get scammed, which the LN whitepaper suggests you to pay third parties for.
The LN whitepaper completely obmits the routing problem, too. It more or less says "we don't want to think about that now". A network whitepaper that doesn't think about routing, imagine that.
What? You can download a lightning wallet right now and I can send you sats without you having to fund anything or even provide any personal information.
Yes, that makes it a closed system, but it was never realistic to have every single person on earth access bitcoin via on-chain transactions.
When people stop buying the latest and greatest machines for Bitcoin mining, Bitcoin's price will crash to zero. It will trigger double-spending attacks, which will undermine trust in the network. Gold doesn't have this problem; so gold is better.
Gold has been used to store value for thousands of years, while Bitcoin is a new and experimental technology. It's absurd to say that you would use an experimental technology to store long-term wealth. Maybe once it's tried and proven, fine. But right now it's inefficient, volatile, has high fees, and has got the problem with mining I talked about above.
For clarity: My comments above are directly relevant to the comment above about inflation. Guarding against inflation is about holding onto your wealth for the long term. I was comparing Bitcoin to gold for that purpose -- which is entirely valid.
> When people stop buying the latest and greatest machines for Bitcoin mining, Bitcoin's price will crash to zero. It will trigger double-spending attacks, which will undermine trust in the network. Gold doesn't have this problem; so gold is better.
Nope, you're laboring under a misapprehension. Even if all new compute power stopped being manufactured miners will run their existing equipment. The mining difficulty will plateau and overtime gently decrease as equipment breaks.
Older and less efficient (at computing double SHA-256) equipment can be profitably brought online where the price of electricity to do so is available and other more valuable uses of that energy in that locale are not possible.
You can ride this all the way back down the years and generations of ASICs then GPUs to CPUs. Once humanity is out of CPUs, well, we'll have more pressing issues. We'll talk again then, or not.
Yes, mining and securing the network nevermind transmitting transactions would be difficult with ink, paper, and abacus technology alone. I'd expect gold to hold some value here despite difficulty in securing and assaying it restricting its useble value to technical specialists and institutions. Nonperishable food, water filters, consumable entertaining substances, etc. would be a better bet if you're prepping against a Mad Max level of collapse.
I find it very manipulative to offhandedly dismiss the utility it provides to people suffering under oppression or unstable financial systems and to compare that to smoking.
As the article states, check your financial privilege.
And "tiny amount of people"? What's "tiny" here? Hundreds, thousands, millions? Do you know how many people use Bitcoin in this way?
It's very hard to get exact numbers of users, because of how Bitcoin works, but this should give you a good sense of proportions and you could infer numbers of people based on known population sizes for each country
That link plays fast and loose with stats making any actual analysis impossible.
"We calculate the metric by estimating total cryptocurrency received by that country, and weighting the on-chain value based on PPP per capita"
Weigh how?
"we rank countries by their P2P trade volume and weight it to favor countries with lower PPP per capita and fewer internet users"
Weigh how? How do you get the numbers on internet users?
"We rank all 154 countries according to each of those three metrics, take the geometric mean of each country’s ranking in all three, and then normalize that final number on a scale of 0 to 1"
What?
It's not a methodology conductive to analysis. Is a hodge-podge of smart sounding words that create pretty graphs.
Oh, and they changed the methodology this year, but still compare results to previous years that used the old methodology. Very scientific
Bitcoin is merely a technology. Calling it a Ponzi is the same as calling the Internet a Ponzi. They are merely tools. How one uses ultimately determines the coarse.
> A refugee could store their wealth in Bitcoin, leave their country, settle somewhere else
Problem: Who is selling Bitcoin for local currency in an area where there is a problem which is generating refugees?
Sure - you can electronically send Bitcoin to people, but how is the seller going to receive local currency from a war torn region without being local themselves? And if they are local...why are they selling their Bitcoin?
Remember - this is an area presumably in some form of collapse. How is a refugee going to transact their savings to another party who can accept them safely in the first place (rather then say, just being robbed - presumably why they're fleeing).
Generally people participating in a Ponzi scheme do not view it as such. The tactics deployed by truly oppressive regimes make anything easy to confiscate including bitcoin.
well you had to have something of value that you had to trade for bitcoin. Also in oppressive regimes the act of attempting to leave the country already makes you a suspect.
They aren't going to immediately execute everyone who is crossing the border. Even in authoritarian regimes, some people may be able to leave, and borders are not completely shutdown.
And in that situation, for those people, it is useful to be able to carry money, in a way where they do not know that you have it.
I mean sure, some people make it out of North Korea. A lot are publicly executed to be made an example of too.
I think you fail to understand the power of a true authoritarian government, particularly if they can monitor and limit your access to the outside world.
* Use a VPN, you're guilty of Treason.
* Use a currency other than the North Korean won, you're guilty of treason.
* Use an electronic device other than state sponsored devices, you're guilty of treason.
All executions will be recorded for posterity and broadcast to the people as a reminder of the power of the state.
True, sufficiently oppressive regimes can confiscate bitcoin in a lot of situations.
However, as soon as they start doing that to the first few people, what's going to stop everyone else from instantly sending their bitcoin to family and friends across the border for safe keeping?
So you or you child is being tortured but you are "happy" that your bitcoins are safe ? This whole thing omits the question of how a person under oppressive regime came into possession of bitcoin in the first place
With wealth like gold, land, oil, or any other physical resources, an oppressive regime can just kill all dissenters and take control of everything. The payoff to violence is huge.
But with a digital wealth like bitcoin, which can flee the country at the speed of light, even if the owners can't go with it, the payoff to violence evaporates. The oppressive regime that spends a lot of time and energy torturing and killing people will have no spoils to show for it.
The only wealth people could offer for Bitcoin is wealth in a country with an oppressive regime. Who internationally can even take possession of that to cover their expenses?
The only plausible option would be to actually just setup a mining rig and mine the Bitcoin, since presumably for a while their might be an electricity grid their and the BTC network ascribes value to that activity...except you can't mine on commodity hardware to anymore either.
Thanks for pointing this out. People have different reasons why they believe in bitcoin (and other cryptos). Where I live the government has in the past 20 years wiped out citizens' savings at least 3 times, arbitrarily, without any notice. In such a situation using bitcoin, regardless of the risk/skepticism, is a far better alternative than having all your money disappear on the whims and or experiments of politicians. Once I get sufficiently knowledgeable about cryptos I will happily take my chances, and I'm sure many in my situation will see it that way.
It's sad to hear this. Is there no way for you to buy foreign currency like dollars instead? Bitcoin might be an attractive asset to speculate in, but I'm not sure if it's the safest way to hold onto your wealth, because of its inefficiency, volatility, the need for endless mining to sustain it, and so on. It might multiply your wealth by 10 or reduce it to zero -- do you really want to take the risk? I understand that what I'm saying might be boring, but foreign currency is tried and truer.
You could buy US dollars of course, but you'd have to keep them under your mattress. The banks can convert foreign currency into local currency with a decree. I see your point though, and ideally I'd have some in something tangible, say real estate, but cryptos make sense to a lot of people dealing with crazy regimes.
The only thing fiat currency across the world has proven is that it's subject to the whims of bureaucrats and has the theft of inflation built-in. Even the "best" fiat in the world like GBP and USD have seen their purchasing reduced drastically over the decades.
I don't trust politicians to manage their money or economy well. But I do trust code and math that enforces decentralised consensus that can't be manipulated by a handful of powerful people. Some have tried in Bitcoin's short 12 year history, and they've all failed.
You say Bitcoin is inefficient. In comparison to what? By what measures? If you compare Bitcoin to gold mining it uses less energy. https://cbeci.org/index/comparisons
You say Bitcoin is volatile, but that is to be expected for a new form of money that people are still trying to figure out the value of. How long do you think it took for gold to reach a stable point of perceived value over its long history? Bitcoin is only 12 years old.
Need for endless mining? Of course it's endless, it's a vital part of network security in an adversarial environment. As the network stores more value the energy expenditure will need to go up to secure it. This is true of any other store of value. Gold is not only incredibly expensive to mine, it's expensive to secure in large facilities.
The more Bitcoin integrates into the economy and the more wealth it secures, the more energy expenditure it should use. This is by design and a good thing. And if you compare it to other industries (linked above), it is far more efficient than current systems.
Forget "crypto". Most of them are varying degrees of scam or cargo-culting around "blockchain technology" (including Ethereum). Bitcoin is the only one that matters because it's truly neutral and decentralised. It wasn't founded by any company, there's no marketing team or CEO. It's just an open network protocol that people choose to opt-in to because they understand its value proposition to the world. In the same way that there's a separation of church and state, there needs to be a separation of money and state.
Stolfi was my professor at Unicamp and has become a somewhat famous buttcoiner. His laundry list of arguments always depend in this "let them have cake" mentality of people living in a world of functioning institutions. It is almost ironic how someone who lived through all the economic instability in Brazil never bothered to look at the practical reasons that lead to people holding BTC.
With that said, each day that goes by I am more inclined to agree with him in relation to Bitcoin and all projects that tout "fixed supply", "store of value", PoW crap.
I agree that the unbanked and people that fear persecution or censorship can benefit from crypttocurrencies. The part where I don't agree anymore is these people have BTC as their best alternative to protect their wealth or to be sovereign over their finances.
Bitcoin is not private. It's probably even easier to trace than traditional bank accounts. There are better projects focused on privacy. Monero, for example.
I invested in BTC years ago because of those 2, I expected the value to grow as adoption grows. And BTC seems to me back then that it was a great way to store my hard earned money and I can bring it with me anywhere safely.
> The properties of it being difficult/impossible to confiscate and its privacy make it valuable in oppressive regimes. A refugee could store their wealth in Bitcoin, leave their country, settle somewhere else, and access their Bitcoin without the risk of it being confiscated during the journey, because they can simply memorise the seed phrase (24 words).
LOL, who in those countries would sell them bitcoin?
You've pulled out an argument I see all the time about the utility of bitcoin, but you can always just tell that it's made by someone who's never lived under an oppressive regime.
It's a first-worlders idea of what thirdworlders can do.
He works for the Human Rights Foundation and advocates Bitcoin for its humanitarian use cases. He has spoken to many people in these types of countries to get their take on it. See for yourself...
I live in one of those countries. Nobody will accept my currency in exchange for bitcoin. I can't send money offshore to buy bitcoin.
I mean, just ask the Chinese how easy it is to get bitcoin today. The billionaires, millionaires, and political elite can get their hands on bitcoin sure no matter where in the world they are, but not the common man (the actual oppressed in those regimes).
To begin with this assumes a refugee with substantial enough assets to transmit abroad. Before Bitcoin such people paid a bribe to get those assets out. Now they pay some broker a purchase fee and withstand the market volatility. A big loss either way.
> Nevertheless, investing in gold at the current price seems unwise, since its price is many times its "natural" price as commodity and so it is more likely to go down than up.
This is a misconception and a fundamental misunderstanding of gold's primary utility for thousands of years.
While it is true that gold's price reflects a significant premium beyond the "natural" market price, this has been the case for millennia. Since ancient times, most demand for gold has not been for industrial uses or jewelry, but rather as a store of a value. This results in gold having a "monetary premium".
It's also worth mentioning that it is no coincidence that humans happened to chose gold as money. Among all chemical elements, gold has a favorable combination of chemical properties and rarity in the earth's crust that make it a suitable choice for storing value over long periods of time. In fact, nearly all gold mined in human history is still around today. We've been hoarding it since the time of the pharaohs.
I'm sympathetic to crypto skepticism, but I'm afraid many people are missing the forest for the trees. I'm curious for those that still truly believe Bitcoin is a ponzi scheme or a bubble - at what price point and time would you start to consider that you may be tragically wrong?
> at what price point and time would you start to consider that you may be tragically wrong?
In theory Bitcoin can keep growing as long as people believe in it.
It has a strictly negative EV though.
* it returns no revenue
* At current mining levels, it burns about 1.8% of its market cap annually. By burns I mean literally burns energy and ASICs. (About $18 billion at current market prices)
* That’s just for mining costs. There are other costs associated with bitcoin such as costs associated with running exchanges, etc. won’t venture to guess here but it’s all in the billions. Coinbase alone had costs of about $1.1 billion in Q1
No market price changes this fundamental math. People could bid up the price to $1 million per coin and burn $360 billion per year on mining and the dynamics would be the same.
Now, what would change my mind would be some kind of use case. Currently we have money laundering, avoiding governments, etc. thin gruel
There is some interesting stuff happening with Ethereum. I don’t know if it will take off, but I at least see ways in which it could (Chainlink etc)
If bitcoin develops some kind of use case, then I’d change my view.
Right now bitcoin in economic is more akin to tourism or a church or something. It takes a bunch of economic resources to run it, but it also makes people happy, and that’s the benefit.
But don’t be mistaken: money goes in to bitcoin to be burnt (like tourism). It doesn’t generate money. That there is a number going up doesn’t change any of the dynamics laid out above. That’s just shuffling around between participants, not revenue or a use case.
Many of these same arguments apply to gold. Do you think gold is (mostly) useless today? If yes, when did it stop becoming useful? Do you think it was always useless?
When you mine gold, you get gold, and gold is nice. If we could magically make 100x the gold, that would be great! Current gold investors would be sad but it would be a win for the world.
Bitcoin mining produces heat, and maintains the bitcoin network. It doesn’t actually increase the supply of anything: the total number of bitcoins is arbitrary. The real value is whatever the network produces (happiness in its hodlers, money laundering, some future use case)
Gold’s utility is: some industrial uses, it looks pretty and has special properties, and if you had to bury some treasure for some descendants in 500 years you could reasonable figure some gold coins would probably be worth something comparable in the future, no maintenance required
That’s about it. Never been a big gold fan but those three uses seem pretty indisputable.
The people arguing for bitcoin present it as a store of value but you need a hell of a lot of costly ongoing maintenance for that. Gold would still have those uses even if all mining stopped. Without mining, bitcoin is defunct, conversely.
Edit: oh yeah, I suppose gold lets you keep some value anonymously and take it with you across borders. I think Bitcoin wins on that count but since I’m listing the uses of gold I shouldn’t omit that. There may be others I’m forgetting
Edit: Yes, you're also forgetting how cumbersome it is to transport gold, how to verify that it's real, how we live in a digital era and yet we're still being bogged down by a physical artifact to store/transport value and how if we'd have a futuristic mindset we would want something immaterial that may be future proof.
Also about the 500years thing, no i wouldn't actually trust that. Sorry to burst the bubble but gold hasn't been here that long in our hands compared to humans, and before gold we used other store of values or currencies. Many other civilizations held their value in their (then rare) tokens (see shell money, see Rai stones, (...), and all of them eventually lost all their value.
In this day and age, in 500 years i would be extremely surprised if humans, or super-humans, or human-AI hybrid, whatever, hadn't figure out how to make gold like we make a sandwich for breakfast. Gold (if still useful, and other much better materials haven't been developed by then) will be as common as Rai stones became when some cunning explorers decided to use their higher technology to transport them and make them total valueless to the tribes that used them to store value.
Gold will see it's "store of value" fate fade in not too long. It's just a matter of when. And don't get me wrong, BTC might too. I also can't imagine that in 500 years the encryption we have today won't be child's play for the future hyper-computers. But anyway, my point is that gold is nothing special in terms of store of value. We're just being bogged down right now for lack of technology, but that will come, just like it came to all the other tokens which eventually turned their value to almost 0.
Gold is bitcoin minus all the bullshit. If you'd offer me some amount of money today and would pay me in either gold or bc I'd choose gold every time. Downside is, you need to physically store it somewhere safe and accessible, but that somehow applies to your bc wallet too. Exchanges with people's money getting hacked or disappearing, people forgetting their passwords, hard drive failure, the failure modes of bc are endless. And in that scenario of the apocalypse where the government collapses and a civil war breaks loose i wanna see that idiot with his mining rig trying to power it with a solar cell, or the idiot trying to get on some form of network (let alone the internet as we know it today) to start a transaction.
Bitcoin has and only ever will have a practical use for criminals.
On the contrary, we actually need them. The people who refuse to believe Bitcoin is real are the ones whose continued drive for fiat currency will fund the UBI for everyone else. It's win-win.
Probably true. On another note, I see Impervious.ai in your post history. I've never been able to wrap my head around what they're building. If you're willing, I'd love if you could point me to any good learning resources.
I'm curious for those that still truly believe Bitcoin is a ponzi scheme or a bubble - at what price point and time would you start to consider that you may be tragically wrong?
What price would tulips have had to have attained for them to be proved "not a mania"? [1] "At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled artisan."
Which is to say a high price by itself is not a proof of bitcoin not being bubble. I do have a criteria - bitcoin will not be a ponzi scheme if it genuinely winds up being used as currency. Of course, this wouldn't solve its other noxious problems.
Its useful to read the Social Mania & Legacy section [1] as a more modern look at 'Tulip Mania' tends to see the "historical" record of it as a post-event reaction. A recent book actually suggest that the entire thing might be BS [2]
You are correct that bitcoin is heavily dependent on miners. That said, I don't think you can simply "take away the Bitcoin miners". An excellent example of this is China's recent ban on bitcoin mining, which quickly dropped the network hash rate by >50%. Today, only a few months later, the hash rate has returned[1], and those miners are back online on the other side of the world. Don't underestimate the power of incentives.
I also think investing in gold compared to let's say stocks is a sort of ponzi scheme in the sense of OPs article. So no price point. Until bitcoin intrinsically generates value I'm not putting money in it.
I understand your concern over the lack of "intrinsic value" in the sense that it is not a productive asset generating economic value (like a business). That said, I'd really encourage you to consider that monetary value is real. I don't necessarily recommend investing in it, but there's a reason humans have valued gold for so long.
And literal cash doesn't rely upon internet connectivity to a massive global network of millions of computers in order to transfer a store of value to the dude standing next to me. As methods of payments go, it's possibly the greatest Rube Goldberg machine ever conceived.
> First, few if any gold investors have expectations of profits. They generally invest in gold as a hedge -- a "store of value" -- that they hope will retain its value in case other assets go sour.
Lol. Bitcoin is exactly comparable to gold. Plenty of people buy gold expecting it to appreciate...because other people use it as a hedge. Even if it were true originally that Gold's only purpose was as a hedge (protip: it's not), its very utility as a hedge would make it useful as a source of alpha for those wanting to bet on the demand for hedges.
This article is just stupid and pointless. It's attempting to take a label that has a strong negative valence, deconstruct its attributes and apply them to something else, and then port that valence over to the new thing. The negative valence ascribed to "ponzi scheme" is because it is a scam intended to defraud its investors. A ponzi scheme that is not an attempt to defraud its investors, even if it fits some "technical" description of a ponzi scheme, does not deserve to have the valence of "ponzi scheme" assigned to it.
I certainly don't believe Bitcoin meets the technical definition of a Ponzi scheme. But even if it did, this article would still be a stupid and pointless attempt at valence hijacking. An activity that the world already has far too much of.
> Plenty of people buy gold expecting it to appreciate...because other people use it as a hedge.
Long run? I think not. Gold hasn’t really risen over millenia, just stayed in a certain band.
Buffett made a good argument that you could either buy a giant gold cube and fondle it, or a large number of productive assets in the states and collect the revenues. He’d bet on the assets being worth more over the decades, and over the long run he was right.
Bitcoin proponents expect bitcoin to soar long run, unlike gold, which doesn’t.
> Long run? I think not. Gold hasn’t really risen over millenia, just stayed in a certain band.
I said they expected it, not that it did. I know plenty of people who buy gold expecting it to appreciate. Whether or not it does appreciate is irrelevant.
> Buffett made a good argument that you could either buy a giant gold cube and fondle it, or a large number of productive assets in the states and collect the revenues. He’d bet on the assets being worth more over the decades, and over the long run he was right.
No he wasn't. If you invested all your money in the medieval equivalent of an index fund, it'd be worth far less today than if you had invested in gold. You can't just cherry pick the last century.
> No he wasn't. If you invested all your money in the medieval equivalent of an index fund, it'd be worth far less today than if you had invested in gold. You can't just cherry pick the last century.
This isn’t true. Gold has about kept the same value, adjusted for inflation.
The economy grew enormously since medieval times. Anyone managing to keep reinvesting since then would be enormously rich.
> This isn’t true. Gold has about kept the same value, adjusted for inflation.
Yes, and how is the equity in your local shoemaker or blacksmith doing?
> The economy grew enormously since medieval times. Anyone managing to keep reinvesting since then would be enormously rich.
By "keep reinvesting" do you mean "always correctly escaping the industries that died into the ones that kept growing all the way up to the present"? Because if so, you're right. But that's not a particularly good way to think about how returns compound.
> You said the medieval equivalent of an index fund, which tracks the economy. The economy grew faster than gold.
Yes, but they still own shares in specific companies. Investing in an index fund is not the same thing as investing in GDP.
> Obviously there was no index fund, but no one in medieval times tried to get rich by buying gold and sitting on it. They used other methods.
The point is that simply maintaining your wealth from pre-modern times to the present would be an incredible feat, that someone who simply hoarded gold would have achieved.
Bitcoin isn't really a scheme either. Its creator does not access or use his coins, and may no longer even have access to them. If this was a get rich quick scheme for him, it sure doesn't seem like he's making much use of his success.
Anyways, i'm sure there was a first person to discover gold. And i'm sure that person had the most gold when the discovery was made. That doesn't really have much bearing on whether gold is a ponzi scheme, though.
"By that definition the USD is a ponzi. No, national currencies too fail to fit the definition, because people do not "invest" in them with the expectation of gain" <-- The 6.6trillion/day forex market begs to differ.
Well, insurance industry is a negative sum game (zero sum minus costs of running it) in which all the buyers expect to lose money and all the sellers make it. Still, it's a good idea to buy insurance in some circumstances as utility of money curve is different different for the insurance buyer and insurance company. Such transactions are good for both sides (as they maximize their utility even though the buyer losses in pure money terms).
Now apply that to Forex. There are players who needs to hedge against target currency devaluing and others who are willing to take the risk premium. That you can gamble on it if another matter but then again, you can gamble on many different otherwise useful financial instruments.
Nobody "invest" in USD. You invest in assets which you expect to appreciate. People investing in Bitcoin do so expecting to control a portion of a finite supply, which defeats its purpose of liquidity.
People absolutely invest in USD, in expectation of appreciation. South Korean banks sell saving accounts denominated in USD as an investment product. Money flows into it when USD appreciates and flows out when it depreciates.
Also it is not true that "governments make their currencies slightly inflationary precisely to discourage hoarding." In fact, this is done so that there can be economic expansion. It is true that some economists have advocated for deliberately trying to increase inflation to spur spending, but it turns out that actually forcing inflation is not easy (see also: Japan for the past two decades).
Gross daily trading volumes are a poor gauge of how much capital investors have deployed in a particular market, seeking returns. A single international transaction may induce several forex trades, such as when the sale price of goods is denominated in USD or some other non-local currency. Combine that with the complex, usually leveraged hedging strategies employed by banks and multinational firms, and it’s easy to see whence such a massive figure comes.
There are a lot of people who are "investing" in Bitcoin right now not out of expectation of real gains, but as a way to maintain assets against an inflating dollar... nominal gains, but not real ones.
Haha, yes if you're just a "weekly" investor. But for me who invested years ago, my assets begs to differ. Back then there were people I know personally that like you who also said that it's a bad idea to invest in crypto, I'm very glad I didn't listen to them haha. Now I just tell them it is not yet too late before global adoption.
People don't use cryptocurrency "in exchange for goods" to any significant extent. Major merchant adoption of Bitcoin peaked years ago. And at least in my area, the same goes for local merchants; Bitcoin here is extinct.
Bitcoin is doing what, 100m transactions per year? Most of which are not for physical goods. Venmo, which started around the same time, does over 2 billion. M-Pesa, a "digital money" solution the same age does 15 billion. US credit transactions? 45 billion. Debit? 75 billion per year. And unlike Bitcoin, most of those are what people would call real transactions. Bitcoin's real use is a rounding error.
Cryptocurrency can be here to stay and also be driven by scams. Set up a Google News alert for "Ponzi scheme". Ponzi was active 100 years ago, but his approach is more popular than ever. As they say, there's a sucker born every minute.
Can confirm this. I offer some crypto options to pay for my service online. Not BTC because the transaction costs are too high, but Bitcoin Cash and the like.
After about a year, only about 0.3% of checkouts were done with crypto. Even manual bank transfer is used magnitudes more often.
Thanks, that's good to know. Another confirmation: thanks to the Epik leak, we know the same is true there. Their Bitcoin transactions table is much, much smaller than their other ones.
A very very minute percentage of bitcoin is used in transactions. The vast bulk of it is seen by its users as an investment. And historically there have been Ponzi schemes that allowed people to cash out before the scheme fell apart — but it was always a small minority cashing out.
Go to Coinbase and try to figure out how to use Bitcoin to buy something with. All they talk about is Bitcoin as an investment.
A currency can’t be an investment as the expectation that it will rise in value undermines the main quality of a currency, which is to maintain a stable value, so it can be used as intermediary.
>Go to a gold exchange and try to figure out how to use it for microchips.
The idea that gold is useful as a store of value is ridiculous. You have painted the picture perfectly with your comment. It is not easily moved. It is not easily utilized. It is worthless to the average person and it’s price is heavily inflated.
Most Ponzis and pyramid schemes are built on something that has a legitimate use.
After all, the eponymous scheme by Charles Ponzi was built on legitimate postal reply coupons.
So a list of non-monetary uses for gold is not evidence that its monetary uses are not Ponzis.
Most financial instruments are at least Ponzi-adjacent in that their value is derived from the expectation that other market participants will pay more for them than you did.
Whether it's real estate or equities, precious metals or cryptocurrency, profit requires an infinite cycle of growth that must collapse at some point.
As of June 30, 2012, the $100 bill comprised 77% of all US currency in circulation. Federal Reserve data from 2017 showed that the number of $100 bills exceeded the number of $1 bills. However, a 2018 research paper by the Federal Reserve Bank of Chicago estimated that 80 percent of $100 bills were in other countries. Possible reasons included economic instability that affected other currencies, and use of the bills for criminal activities.
Seems to fluctuate quarterly and I was saying the article addresses the point and makes an argument that BTC is not “like gold” in this way because the majority of demand for gold comes from non-investors (which appears to be the case in I think most quarters but perhaps not most recently). Jewelry is its own category but it does have “utility” if viewed through the lens of human behavior across civilizations over time.
>the majority of demand for gold comes from non-investors (which appears to be the case in I think most quarters but perhaps not most recently)
There's actually been far more industrial usage proportionally recently than any prior year. Prior to 2020, the highest industrial usage year was 2016, at ~7%. The article is wrong; the VAST majority of the demand for gold does indeed come from investors. This is ignoring gold's historical status, of course. Before the advent of modern computing, there was extraordinarily little "practical" use for gold beyond use as tooth fillings. And yet, it is during this time that gold was most coveted. Why is this? Economists have been debating that for a century! :o)
>Jewelry is its own category but it does have “utility” if viewed through the lens of human behavior across civilizations over time.
Jewelry does have utility yes, but gold jewelry has no marginal utility over, say, brass jewelry, other than the material composition. And yet, gold jewelry commands a far higher price, and despite even this, it is still in higher demand. This is because buyers place a premium on the metal itself, hence why I referred to it as a para-investment.
Gold's coveted status is fairly easy to identify. It's one of the few physical elements that is (a) somewhat rare and difficult to mine (b) has an exceptionally long shelf life, even under harsh conditions e.g. under ocean water and (c) can be authenticated with simple tests e.g. nitric acid.
(A) applies to a number of metals, including ruthenium, iridium, rhodium, and osmium, all of which are less abundant than gold. Although industrial demand has caused the price of those to rise in recent years, the difficulty of extracting them gave them essentially no value historically. Production difficulty may cause the production cost of a given asset to rise, but in a market that must also be met with equivalent demand lest the effort be in vain. For example, I could go outside, pick up a large rock, and spend the next several days crushing it into a fine powder. This would be a fairly difficult process, and yet the end product would be worthless. Rarity does not automatically equate to value.
(B) is perhaps gold's most unique physical property, but given the historical prominence of silver (a metal that corrodes rather easily), I seriously doubt that this alone justifies a single ounce of gold historically having been worth an average person's months of wages.
(C) is true of many metals, and has only come into existence as a method for verifying gold in more recent years, which again belies its historical value.
We don’t have data and what if they convert back into fiat? Would you say that foreign workers who get paid in USD and send money back home only use USD as a ponzi?
You don’t need data to see plainly that the vast majority of goods are obtained with fiat. As such, someone selling goods for crypto has no choice but to use fiat as well.
I don't follow? They are saying that in order to run a business in which one sells goods or services for cryptocoins, that in order to pay for one's business costs, one must spend fiat,
and that therefore, someone selling goods for cryptocoins, must, in addition to using cryptocoins, also use fiat currencies (because most of their business expenses can only be paid in fiat currencies).
I think bitcoin is a ponzi scheme, but the article (and so far I haven't seen it mentioned in the discussion) doesn't mention the following reasons which capture value in bitcoin:
As long as you don't steal the electricity you need to pay for it in fiat. And you not only need electricity to mine new coins, but also for transactions
Ransomware creates demand in bitcoin and this demand keeps the value up.
People in the crypto debate have very short memories. BTC is up like 1000% in the past 18 months and everyone is so quick to point at the current price declaring that "crypto is here to stay!" I mean christ in what world is 18 months long enough to declare that crypto is eating the world?
It's clear as day from my perspective that everyone is jumping on the speculative mania bandwagon. It used to have some utility in facilitating cheap illicit transactions, but those days are long gone.
For the record I believe that enabling criminal activity is REAL utility, whether one agrees with the moral implications or not.
Almost nobody is using bitcoin as a currency. It's all speculative investment. This is coming from someone who has made quite a bit of money off crypto and has actually used it countless times as a currency to buy physical goods.
To those of you pointing out that other markets like equities are also detached from reality, I agree with you and don't think it means bitcoin is any less bullshit. At least ETH has some utility as gas for distributed applications.
El Salvador’s recent decision is a Hail Mary attempt at solving a tiny impoverished country’s crippling financial situation. They make their citizens use a government approved wallet where they process transactions off chain. This is the antithesis of what crypto used to stand for.
The worlds largest country just banned Bitcoin too. I don’t think either event is indicative of btc’s intrinsic value.
I meant to say it is not a major economy, so thank you for not being pedantic on that point.
But, can you give me a source on how their transactions are being processed off chain. I know that they use a government backed wallet. It was my understanding that any transactions handled in this way eventually have to be settled back into the main chain.
> It was my understanding that any transactions handled in this way eventually have to be settled back into the main chain.
I'm unaware of the exact details, but the govt approved wallet uses a proprietary payment processing system in addition to the LN. Yes eventually in theory those transactions should make it back to the main chain when tokens exit the system (requiring El Salvador's permission).
At any rate, we've gone in a big circle and reinvented settlement banking on top of bitcoin.
Bitcoin is a lot of different things to a lot of different people. The fact that it satisfies a certain set of conditions of a Ponzi scheme does not invalidate the myriad current and future applications of crypto. The social security administration could also be considered a Ponzi scheme, but it still provides tremendous value to a lot of people.
>The social security administration could also be considered a Ponzi scheme, but it still provides tremendous value to a lot of people.
The Social Security Administration is entirely solvent by itself. The only "ponzi scheme" comes from congress using it like a piggy bank. And despite all that, SSA is backed by the US government. Bitcoin is backed by... nothing. So it's basically the equivalent of the zimbabwe dollar, not SSA.
You think zimbabwe tax service cared much about taxes when they had 6 digits inflation per year? why bother collecting if you can just print money?
(also, such cases is precisely the reason people may believe that they have more trust in bitcoin, as flimsy as it may be, than to their national government issued fiat)
Pseudonymous, censorship-resistent, permissionless, peer-to-peer. Many people in authoritarian or monetarily irresponsible countries use these features to protect, store, and transfer their wealth[0].
Yet trying to set up crypto as a person in a developed country in 2021 is kind of a pain in the ass. It's not too hard to exchange between types of crypto, but getting real money that I can buy a pizza with in and out of an exchange? Not too easy. There are requirements for credit cards or confirmed bank accounts for payment, scans of an ID card or driver's license to prove I'm a human, the possibility banks can at any point determine it's a scam and block transfers to any exchange, and so on.
If it's that hard for me, a person in a developed and ostensibly free country to do it, how the hell is some average person--not a government official or wealthy person with connections--in North Korea or Eritrea going to set it up and secure their financial future to any degree better than a pocket full of cash and old jewelry?
So Bitcoin uses more energy than an entire country of 110 million people (the Philippines).
That's absolutely nuts. If you said you could reduce an entire country's CO2 emissions to zero overnight, and you had a valid plan to do so, you'd be on the cover of every newspaper for your revolutionary plan to help save the earth.
But say you want to flip a switch and turn off a single cryptocurrency in order to do it, and you'll have floods of people trivializing it, saying "well, let me tell you why 110 million people's CO2 emissions aren't that big of a deal..."
Scroll down to the bar chart showing the country rankings.
Look at the top 3 countries (China, US, India).
Compare those to Bitcoin... can you honestly tell me that Bitcoin constitutes a significant amount of energy consumption in that context?
And it's also worth noting that energy consumption isn't necessarily bad for climate change. You're conflating "energy consumption" with "CO2 emissions". It's CO2 emissions that are the problem, and Bitcoin energy consumption is far more green than most other industries.
So we have a monetary network that consumes a globally insignificant amount of energy and is more green than many other industries... is it really a significant problem?
America, India, and China? Those are fully functioning, massive economies that power the entire world and have people commuting, working, eating, farming, manufacturing, and doing all the normal processes that life entails.
Are you saying we should compare a digital coin with very niche usage to the collective impact of all of those actions taking place in the most massively populated and economically significant nations to ever exist?
And you're saying it's an insignificant amount of power, yet it consumes more power than an entire nation of 110,000,000 people? There are 110,000,000 people in the Philippines using cash every single day to drive their economy and live. Are there even 100 million people using bitcoin for daily business and consumer transactions involving physical goods? Or even 10 million? Or 1 million?
Is there a reason you're pretty serious about downplaying the impact of electricity equivalent to 110 million people and saying it's not globally significant? Because it's pretty significant. If that many people stopped using all electricity overnight, the impact would be pretty significant. Wiping out the entire Philippine economy would absolutely send shockwaves around the world. That'd be a huge hit to manufacturing and food industries on every corner of earth.
Would Bitcoin suddenly vanishing be more impactful than the Philippines vanishing overnight? Or, to choose a different country from that previous site, The Netherlands?
Before addressing this comment I want to pick up a point from your previous post.
>But say you want to flip a switch and turn off a single cryptocurrency in order to do it, and you'll have floods of people trivializing it, saying "well, let me tell you why 110 million people's CO2 emissions aren't that big of a deal..."
Well, with Bitcoin, you can't "flip a switch" to turn it off. There's literally no one on the planet with that power, which is kind of the point. As long as people see value in the asset and the network, it will always be there.
Moving onto your latest post, everything you said depends entirely on whether you believe the value proposition of Bitcoin separating money and state.
As said by Satoshi Nakamoto, "The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible."
It's worth a lot to me and many other people not to see their wealth melted away by inflation, which is basically a hidden tax that disproportionally effects the people at the lower end of the socio-economic scale. And that's just one use case for it (i.e. store of value). There are other important features of Bitcoin that people value.
A sound money with decreasing inflation, absolute scarcity, that is difficult (if not impossible) to manipulate is very valuable to ~8 billion people on this planet. At the moment only a small percent of people understand that (maybe hundreds of millions?), but that may change over the coming decades.
Looked at it in that way, it's current energy expenditure is incredibly small and for the amount of wealth it secures and transfer globally... also incredibly efficient.
Nobody has a switch to just turn off all power in the Philippines either. That wasn't the point. The point is that it's a massive energy waste that grew the same exact way a cancer does--out of virtually nowhere and uncontrollably. If it never would've existed, that's a huge amount of waste that simply wouldn't exist either.
Bitcoin is anything but efficient. It takes massive amounts of energy to make a simple transaction. Far more than any current currency transfer network. If it continues to grow, and if it would horrifically become mainstream, energy usage would be several magnitudes higher than it is now.
Right now its primary uses are for bringing more people into the scheme to eventually dump for cash, and to exchange for illicit materials online. It's a very niche case used by a tiny, tiny fraction of the total population, and it already consumes more energy than many entire countries. Extrapolate that energy usage to 1000x the current population and 1000x the current usage to assume everyone is in on it and using it regularly for normal transactions--at a minimum, we're hitting 1000x energy usage rates.
That's energy usage exceeding China and America's total energy usage combined. Just to send bits on a network. You'd be more efficient carting blocks of gold manually across the world for every transaction.
Lots of people disagree with you about that. Sorry you see it as a waste, but we're going to keep using it and dedicating more energy towards it because we understand its value.
Just because there are a large number of market participants involved purely for speculation does not mean we can just ignore those who are there for genuine commercial transactions. What percent of people who buy oil futures contracts intend to take delivery of thousands of gallons of oil?
Among whom, and for what? Average transaction fees were substantially above $5 - $10 for nearly a year, and have now settled around $2 - $3. No one was looking to transact in BTC before that spike, and that goes double now.
Is it possible you are not being accurate? That the company is actually receiving cash which has been converted from Bitcoin by a service? Accepting raw Bitcoin would lead to huge problems such as transaction time and price volatility.
Either way, accepting bitcoin is horrifically bad for the environment, and one of the most ecologically destructive things tech companies do. It is not something I would be proud of.
Yes, straight up Bitcoin accepted.
A single digit percentage of revenue.
But I don't think that changes the point much, that it is used for commerce.
And yes, the realisation that it's bad is a brewing thought. I've never invested any of my own money in Bitcoin (€200 in Ethereum) so I excuse (to myself) my involvement because it's passive.
So if you were paid in BTC, would you keep it in BTC or move much of it back to cash in case BTC plummets?
If it's an investment, no more than 30% of your net worth should be wrapped up in one investment. If it's a currency and you're happy if the price takes a plunge.
It seems to me, as long as the price fluctuates, I would prefer cash because I would be able to buy BTC during the dips.
LuLaRoe is a lot of different things to a lot of different people. The fact that it satisfies a certain set of conditions of a pyramid scheme does not invalidate the myriad current and future applications of MLM.
Bitcoin is a store of value. Why is it a store of value? Because people believe it is, much like gold. You can gesture vaguely at the minor utility that gold has, the ability to be made into things of commercial value, but that's a fig leaf as much as it is to point to Bitcoin's potential use for payments.
Hashrate and mining investment is a reflection of that belief.
Don't take this as advice to buy Bitcoin at 50k.
Normal currencies like USD are, in the end, also based on trust. They're just pieces of paper, and the value is in the belief that those pieces of paper will represent approximately the same thing tomorrow. Trillion dollar pieces of paper could be made worthless tomorrow, but everyone trusts that they won't due to the
dire physical consequences.
Even those currencies, that we consider normal today, were bootstrapped over a very long period by originally representing physical metal that could be redeemed.
Possibly. It is an asset, after all. The problem is that people are buying it because they expect it to appreciate significantly, hence "when lambo." There's a difference between believing something will retain its value and believing it will appreciate.
Definitely true, retail trading of all sorts is basically gambling, and crypto has a lot of gamblers. I think this is a really bad thing. However, even the typical lambo-dreamer sustains the effect: it would be rare for them to cash out completely, unless that dream is suddenly dashed. What if they miss out on future growth?
Rephrasing: how much bitcoin do you think the average bitcoin-billionaire owns? It's belief that stops them from selling, and belief that sustains the value. If you think that sounds like a ponzi, you're missing one thing: all else equal, dollar (and equivalent) denominated value will rise, because those currencies slowly devalue by design.
It's the people invested in it that gives it value. Just like fiat, gold, art, stamps, useless antiques, etc. As long as it has value to someone, then it has value. I can't see it disappearing anytime soon. Yes, it might fall and rise in value but to disappear like any other Ponzi scheme? Don't hold your breath. Bitcoin is more than a decade old now. It will be the longest running "Ponzi" scheme. Be back in a decade to say I told you so. Bye!
Brazil also has an instant payments platform that recently went live (Pix) that sees more volume than Zelle in the US with ~110 million users. It’s already ubiquitous in a year of operation.
> They generally invest in gold as a hedge -- a "store of value" -- that they hope will retain its value in case other assets go sour.
I strongly believe bitcoin will be the new gold one day, if it doesn't pan out as a currency. It sounds insane, but I actually believe the Winklevoss twins when they say Elon and SpaceX will be able to mine gold on asteroids within the next 20 years, which would crash the price of gold. Not to mention as everything inevitably moves digital, we need to have a digital store of value.
Mining gold on asteroids will likely be more expensive than mining on this planet. If mining gold on asteroids crash the price of gold, who would mine gold from asteroids?
On the other hand, if one were to buy proven gold reserves stored on an asteroid, then that might make sense. The exploration company could discount the value of the gold by the existing cost of sending it to Earth and the ongoing cost of guarding it which will necessary given an absence of enforceable property rights. As the cost of terrestrializing shrinks and potential value of off-Earth use grows the value of the asteroid stored gold would increase over time.
It’ll be interesting to see the feasibility based on next month’s launch of Double Asteroid Redirection Test (DART).
DART is a planetary defense-driven test of technologies for preventing an impact of Earth by a hazardous asteroid. DART will be the first demonstration of the kinetic impactor technique to change the motion of an asteroid in space.
> I strongly believe bitcoin will be the new gold one day, if it doesn't pan out as a currency. It sounds insane, but I actually believe the Winklevoss twins when they say Elon and SpaceX will be able to mine gold on asteroids within the next 20 years, which would crash the price of gold. Not to mention as everything inevitably moves digital, we need to have a digital store of value.
What is the energy cost to get a refined kilo of gold back to Earth?
Seems to be trending downward... Who knows if it'll be enough.
I was curious if a similar downward trend existed for solar panels...
"In 1956, solar panels cost roughly $300 per watt. By 1975, that figure had dropped to just over $100 a watt. Today, a solar panel can cost as little as $0.50 a watt."
So, that's a factor of 600 to get to present costs. Gold currently costs $56,500 per kg. So, $33,900,000/kg. So, who knows where we could be in 50-70 years. Plenty of time to switch the entire global economy to Bitcoin, I suppose!
My bank account is a digital store of value, in US dollars. I never visit the bank (was impossible during the lockdown), rarely handle cash, and when I do, it's inconvenient.
Indeed, and I don't keep a lot of money for that reason. It's designed to be a relatively temporary store of value. There's no such thing as a guaranteed permanent store of value, because value is driven by markets.
The value of a bitcoin will always be one bitcoin, just like the value of a dollar will always be one dollar. But you mentioned purchasing power, which can certainly change for both dollars and bitcoins. The "value" of a financial asset, of any practical importance, is its value relative to the value of other things.
The crucial difference that excludes Bitcoin (and any other such blockchain currency) is that a Ponzi scheme deceives investors by pretending it is profitable and the profits are derived from legitimate investments. Bitcoin et al. does not do this; there is no deception, no fraud and, therefore, no Ponzi.
That claim has been and is made about all manner of financial instruments and most of that isn't Ponzi either. To be a Ponzi scheme you need the fraud; "it's safe, legitimate, consistently profitable investment backed by high quality equities with little to no risk, and it's going to the moon!" That's a Ponzi Scheme. Bitcoin doesn't claim to be a low risk AAA investment vehicle.
A bit ridiculous simplistic clickbait article... if the author had any intellectual honesty he would realize his arguments on gold NOT being a ponzi could be used exactly the same for Bitcoin:
"First, few if any gold investors have expectations of profits. They generally invest in gold as a hedge -- a "store of value" -- that they hope will retain its value in case other assets go sour."
Actually almost every other point he tries to make on things NOT a Ponzi could be made for Bitcoin too.
Forex trading is zero-sum, your expected gain on a trade is zero minus expenses. The average user of forex is moving money from point A to point B and simply trying to minimize their loss. The ones making money in the market are those the other players are paying for the service, and the odd speculator like George Soros who's big enough to exploit market inefficiencies like currency pegs.
Hey Tupperware makes hella money off Tupperware too! Reusing your customers as your sales force, marketing, and distribution channel is hugely profitable.
I think this is simplistic. It’s viewing Bitcoin through a lens of a traditional Ponzi scheme assuming people that trade their fiat currency for Bitcoin are investing, with a view to one day take profits back into dollars.
What if people are seeing discussion of minting a trillion dollar coin, trillions in QE, 25% of all dollars created in the last 12 months…and concluding that fiat currency is in an endgame and they are permanently trading what fiat they have now for one of a finite number of digital assets that will ever be created.
As Michael Saylor once said in an interview: “It’s the superior asset, Laura”
More seriously, how many people do you know are seeing what you are talking about?
Everyone I know that invested in crypto did so hoping to trade it back later on for more fiat than they paid. Sure, maybe it's a biased sample, but it's a sizeable sample and I do not know even a single person that traded their fiat for crypto definitly.
English tends to describe things as they are. To me the key principle is the constant use of the words "invest", "investing", or "investment" when it comes to crypto assets.
I don't invest in a credit card for spending. I use a credit card, though.
Thank you. I love the idea of cryptocurrency for its utility… but it seems to me that this idea that crypto is an asset will eventually spectacularly collapse.
Well the idea that stocks must go up is a kind of scheme in itself. The whole financialization of our economy is based on constant growth. So you could argue that it’s a Ponzi scheme as well. Our children will likely be caught holding the bag.
The difference is that both stocks and the general economy produces value. This is what separates them from a Ponzi which is only a redistribution of assets.
"Civilization is a Ponzi" is essentially my conclusion. The thing holding up government backing as the standard of real asset is simply its capacity as the just middleman enforcer. Subtract that and currency, real estate, stocks, bonds, contracts, credit ratings and IP rights all go poof. You're left with clothes-on-your-back and local community trust.
That's why I see crypto tokenization as an important step towards having another "financial material" to work with. It doesn't commandeer enforcement at a global level, so it doesn't compete with governments on their own terms, but it can help build trust at scale by being designed around the trustless scenario, which reduces reliance on enforcement and bureaucratic methodology in many applications. Crypto projects with a focus on achieving good governance are some of the most promising out there, even as they are hidden in the endless waves of scams.
First off, you're hand waving over every person who has ever used bitcoin to purchase anything, which is a lot of people buying a lot of stuff.
When I started mining bitcoin no one was talking about it every have a USD value. It was just silly internet points that you could pass around to friends. I also know a lot of people who hold as a store of value believing that it will easily outlast the US dollar.
Just because all your friends are clowns doesn't mean that those are the only people that exist.
If it's not about cashing out then why is the primary hype mechanism talking about the dollar-equivalent value of anything crypto related? Why does it matter if an NFT was sold for $300k worth of ether?
Blame financial news media, things like Fortune magazine's list of new crypto billionaires.
The author of this blog post's claim that 99.99% of people in crypto are only participating because of expectations of future profit is unsourced and a fiction that he has created based on preconceived notions.
Don't participate if you don't want - I like participating in a system that isn't being tracked by agencies especially with news of Treasury actively building out systematic functionality to investigate any bank accounts with transactions exceeding $600
I'd bet that cryptocurrencies are much more vigorously tracked than US dollars. The fraction of cryptocurrency transactions related to scams, fraud, money laundering, tax evasion, and other financial crime must be at least a couple orders of magnitude higher than that for real money.
This gets to the heart of the issue with these discussions - people like yourself asserting non-factual statements based on the equally (if not more so) incorrect assertions they hear from others. Where are your sources? Why do you feel like you need to state things as fact when you just don't like something?
You are exactly incorrect.
Cash represents the overwhelming supermajority of laundered funds and ongoing credit extended across criminal elements.
Cash is the heart of the criminal economy, crypto is creating a transparency that doesn't exist in traditional peer to peer physical transaction systems like cash or IOUs.
I'm done with this, nothing productive is coming out of this conversation.
I didn't state any facts. I started with "I bet" and included "must be". Those are pretty clear opinion markers.
Your reply is also confused. Is the majority of money laundering denominated in USD and other real currencies? I'd believe it, because that's where the money is. But I'm saying the proportion of Bitcoin transactions that are fincrime-related is surely much higher than that of total USD transactions.
This seems pretty obvious to me given that Bitcoin is much less useful for quotidian transactions, but much more useful to people engaged in assorted financial crime. That's unsurprising given how much cryptocurrency advocates tout privacy/anonymity as features. But if you think otherwise, feel free to show the data that has convinced you otherwise.
Also, it's bad form to read something, go on a rant, and then declare the conversation over. Especially when the rant is incorrect.
> The estimated amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2 trillion in current US dollars. Due to the clandestine nature of money-laundering, it is however difficult to estimate the total amount of money that goes through the laundering cycle.
> The United States continues to estimate that domestic financial crime, excluding tax evasion,
generates approximately $300 billion of proceeds for potential laundering, based on the sources
and analysis cited in the 2015 NMLRA. Criminal prosecutions and law enforcement investigations indicate that most of the money earned from crime in the United States stays in the
United States, but also that the United States is an attractive destination for illicit funds generated
abroad.
You talk about sources but like where in that pdf does it speak to your claim (cash is the majority of laundered funds) or to the parents separate claim (the percentage of crypto that is used for scams, fraud, etc. is higher than the percentage of cash used for the same). It just talks about _how_ the crime works, not the statistics in question.
Stolfi has been around the crypto scene a long time, long enough to have gotten a pretty good idea of what motivates people.
The news media did not create the gold rush mentality around crypto, it has been there almost from the beginning. Go and read the bitcointalk forums for evidence, if you want.
I have been involved in crypto since 2013, I get it. But I have given up engaging in these conversations. You either get the anti-statist thesis and economic liberation angle or you don't. If you don't then OK, best of luck.
I like having spending power that isn't immediately based on CIA organized crime or boomers at the Fed/Treasury
I mean focusing on whether it's a Ponzi scheme in particular vs the entire breadth of reasons to like or not like Bitcoin brings up whether it should attract _more regulation_, the question of free choice to participate or not is moot because it's considered misleading and fraudulent.
Are you claiming that crypto-finnews was not dominated by the crypto community prior to, say, 2018? The same community that complained at every turn that real media/finance is not taking crypto seriously?
More and more, I'm hearing only the ETH value rather than dollar denomination. Personally, when I bid (or receive bids) on any of my NFTs, I'm only considering the ETH price.
It's a new shift, but I think quite profound.
Edit: If you're referring to mainstream media, the dollar value is all that most would be able to put into context. For those deep in the space, we're thinking about dollar values less and less. My primary benchmark on overall portfolio value is the value denominated in ETH, not USD.
But ETH is still tied to the dollar and that's where it gets its value, is in the comparison to the dollar. I don't accept ETH for a used car I'm going to sell. I accept dollars, though.
It's not the whole internet, just you or the company that holds your BTC wallet. Just the other day Facebook was down for hours. Imagine had that been Coinbase.
You can denominate ETH in whatever you want, but come April 15th you’d better exchange enough for dollars to meet your dollar denominated tax obligation.
> But ETH is still tied to the dollar and that's where it gets its value,
For people that look at it like that, sure. That's not how everyone looks at it though. I personally look at it with the aim of acquiring as much ETH as possible because I can see that the future economy will be built on it and eventually things will be priced in ETH.
Just because the transitions are slow and you don't see it happening, doesn't mean that there's not a transition happening.
I agree with your sentiment, however I wouldn't use Michael Saylor's quotes as strong ground to stand on, he also said BTC can scale to millions of transactions per second which is impossible.
IMO he comes off a grifter who needed to save his company and kept buying loads of BTC to start the "institutions are buying" FOMO.
> he also said BTC can scale to millions of transactions per second which is impossible
He's probably referring to the lightning network, which is theoretically capable of handling millions or even someday billions of bitcoin transactions per second.
> One of a finite number of digital assets that will ever be created.
That would have been a plausible explanation, if not for the abundance of digital currencies. There are now many more times crypto assets than there are actual currencies in the world, and new ones seem to be created every day. There is absolutely nothing "finite" about crypto anymore.
It's not finite. The supply of cryptocurrencies is effectively infinite. There's almost no barrier to entry. In the closest historical equivalent, the wildcat banking era, at least you had to have state-chartered bank. [1] But what's it take to launch a cryptocurrency these days? Is it anything beyond a tech guy, a marketing guy, and a a credit card with a little room?
The supply in different cryptos is infinite, but the supply of any particular crypto may or may not be infinite. In the case of bitcoin which was the topic of discussion, it's finite. To say it's not is plainly false. Your (clear) bias is blinding you.
Bitcoin is no longer the only cryptocurrency, and is competing for investor money with all the rest. If all of those were basically unused, I'd say you had a point. But since that's not the case, I stand by my view that "people that trade their fiat currency", as mentioned in the post I'm replying to, are a crucial part of the analysis.
Who cares? Whenever this bull run stalls and crashes, people who don't think this way will sell out thinking the party is over.
Meanwhile, the total number of people who view bitcoin as a permanent allocation in their asset portfolio will have increased drastically, and they'll keep on stacking sats.
Each boom bust cycle operates this way. A minority of new investors become true believers, and the rest of the chaff wash away in the crash.
Ethereum already has quantum resistant algorithms ready to go for each part of the system but they perform worse so it doesn't make sense to start using them until quantum computers are more real. There is no long term threat from quantum computing to Ethereum or other systems like it.
> It’s viewing Bitcoin through a lens of a traditional Ponzi scheme...
And? Should we should look at it through a lens of a non-traditional Ponzi scheme? Ponzi 2.0 is better than Ponzi 1.0?
> What if people are seeing discussion of minting a trillion dollar coin, trillions in QE, 25% of all dollars created in the last 12 months…and concluding that fiat currency is in an endgame and they are permanently trading what fiat they have now for one of a finite number of digital assets that will ever be created.
If the Debt Bubble is nearing its end and fiat currency is in grave jeopardy, what is the mechanism by which the people holding these "digital assets" will save themselves from the economic hell that awaits the world?
I wonder if he invested those days because he would be a millionaire by now. Clearly he really didn't believe in crypto because he wouldn't be talking like this today. He must be a little butthurt to come up with this type of article.
Bitcoin may be a scam on so e level, but it is not a Ponzi scheme. The linked article seems to miss the most important property of such a scheme:
Incoming capital is misrepresented as returns and passed back to investors. Bitcoin does not pay dividends. There are no returns in Bitcoin, only pure capital speculation. As there are no returns, there is no misrepresentation of capital inflow as returns and no Ponzi scheme.
> By that definition, gold too is a ponzi. No, gold clearly fails to satisfy that definition on two counts.
> First, few if any gold investors have expectations of profits. They generally invest in gold as a hedge -- a "store of value" -- that they hope will retain its value in case other assets go sour.
I believe Bitcoin has potential to become the "new" gold. It's better in many ways. Does that mean I can only buy Bitcoin if I want to use it as a hedge? No! I can buy it with the expectation of profit because I expect it to be commonly used as a hedge in the future, at which time it will have a much higher price and I'll have made money.
There are many cryptocurrencies who are nearly identical to Bitcoin, except that most don't have the widespread fame and support. In 2019 alone, 90,000 new crypto-currencies were created. Yes, there will only be 21 million bitcoins, but there are already countless, nearly an infite amount of copycat coins.
There are good reasons why gold and silver became the main medium of exchange for thousands of years. Most other metals failed imported criteria to make them as useful for this purpose.
Just like Bitcoin. Your bias/ignorance is keeping you from understanding that all these things apply to BTC. I highly suggest taking a step back and reflecting on this more objectively.
Just as people have generally centered around gold, people have so far generally centered on Bitcoin. There's a great deal of other metals and a great deal of other cryptocurrencies, but if nobody really cares about them, then they are not relevant to the conversation.
Gold has actual use. At minimum, gold is worth the value of it's conductivity properties, or of it's high malleability, high density, low reactivity and low toxicity, or it's pretty looks. Bitcoin has none of those going for it except maybe the looks (to anyone who has a copy of the "pretty" Blockchain)
Sidenote: Both of them have surpassed gold in terms of pricing for a while recently. Not every cryptocurrency is valuable, but some can be if they can fill a gap like palladium and rhodium, that were mostly useless metals 100 years ago.
Sure you can. Create a new chemical and call it a "rare substance". It will probably get about as little traction as the long tail of 99% of the cryptocurrencies out there.
I can exchange dollars for either other dollars or gold. Neither of which necessarily need the goodness (or greed) of society to constantly care and feed it.
Banks existed long before the internet did, and in a post-apocalyptic crunch we could always go back.
In post-apocalyptic crunch we are likely to go back to food, water and ammo. You and I will likely be long dead before society reverts to something like gold, so I doubt gold as post-apocalyptic hedge.
The whole point of an economy is that something has value if it's valuable to someone, not just the person who's holding it.
I'm not going to use a chunk of gold for anything, but it has intrinsic uses that aren't tied to being an exchange of value. It can be used to make jewelry, electronics, food, and medical devices. In some of those applications, there is no substitute for gold.
Contrast that with Bitcoin, whose only value is speculative (whether people think it will increase in price). It has literally no other use or value. If the internet crashed, you couldn't sell your Bitcoin to someone to make jewelry out of it.
Bitcoin is already valuable to someone, maybe not you, but someone (in fact, quite a lot of people). Many of the people that consider that Bitcoin has value don't care about gold at all, some do, some don't. By the way, these same people that don't care about gold also could give a shit less that gold can be made into jewelry (or anything else). Like you said, something has value because it's valuable to someone. I think what people need to accept is that Bitcoin, right now, is valuable to a lot of people. If the internet crashed, there's going to be much bigger problems, including accessing and transferring fiat currency. What people like about Bitcoin is that you can't print more of it without forking it, or creating your own new crypto with different rules (in contrast to potentially infinite printing and borrowing of USD). To create a viable alternative to Bitcoin (via fork or otherwise), you have to market and create the same level of trust, and convince everyone who trusts Bitcoin now to switch over.
This is arguably the same for a majority of crypto users.
I see crypto as a "digital asset". It's something you store funds in to hedge markets or get around transactional issues (either because you're doing something potentially illegal by some entities definition or because your currency is shot to shit), which basically makes it like golds or precious gems.
I'm not totally sold it'll last long term, but I don't see the comparison as a huge logic leap.
Nope. No one is being deceived. A Ponzi scheme pretends to be based on legitimate equities and value and is therefore a fraud. Bitcoin makes no such claim.
Once the deception is dispelled it ceases to be a Ponzi scheme, the BS spewed by marketers not withstanding. Ponzi is fraud; deception is imperative. Everything is else Not Ponzi.
I'm no crypto currency fanboi, but I feel no need to commit the intellectual fraud of misapplying well understood concepts to denigrate it. Every couple of months, however, someone decides they can score some clicks by yelling 'Ponzi' and we get this headline again.
In addition to being tedious it's also dangerous. Blockchain and cryptocurrency is new phenomena and we don't yet know what value there is here. We can, however, confidently assume that if the false narrative that Bitcoin is a Ponzi Scheme is successfully applied The Great And The Good will suddenly discover the moral obligation to crush it out of existence and criminalize everyone involved.
That possibility worries me far more than whatever part of the status quo bitcoin might disrupt.
Intellectual fraud is somewhat overstating the fact that you disagree with someone else’s definition.
And it puts the blatant “Join the Ponzi scheme early!” stuff I’ve seen on crypto forums into an amusing paradoxical state.
Blockchain and cryptocurrency is over a decade old. Several lifetimes in tech. So far the use appears to be speculation, fraud and burning through electricity as fast as possible.
I hope they do crush it, for that last bit alone if nothing else.
Lol at most of HN thinking Bitcoin is a ponzi and the fractionally reserved US dollar monetary&banking system is not. It's been over a decade guys, try opening your eyes and your minds or you're going to go down with the ship.
The article describes "5 features of a Ponzi scheme" which make it sound like some authoritative rules, but so far as I can tell these were simply made up just for this article. I can't find them referenced anywhere else.
"By that definition, stocks too are ponzis. No. Stocks have an external source of revenue, namely the profit that the company makes by selling its products and services to customers..."
This is a very simplistic view of equities markets and does not explain penny stocks, meme stocks (GME/AMC), TSLA, and other things that seem to escape traditional fundamental analyses.
The average P/E ratio of U.S. stocks is 38, meaning if the value of a stock really is primarily based on its ability to produce an external source of revenue, it would take 38 years for an investor to recoup the cost of a share of a company. When you adjust for 2% inflation, it would take 117 years for someone to recoup the cost.
Since that exceeds the lifespan of well over 99% of the population, it must follow that people are not investing in stocks because they expect the company to produce some external source of revenue that will eventually repay the principle. There are a host of complex reasons why people invest including wealth preservation, a desire to support a company they are interested in, speculation, a belief that investing is smart and the right thing to do... these are all fine reasons, but they have little to do with some kind of fundamental valuation that some people think stocks intrinsically have.
The vast majority of gains from the stock market have next to nothing to do with external sources of revenue.
> if the value of a stock really is primarily based on its ability to produce an external source of revenue, it would take 38 years for an investor to recoup the cost of a share of a company
Since a minority of stocks return a dividend, then the holder of said stock likely never sees a cent of company earnings. Time duration to recoup cost of stock by P/E is NaN.
The vast majority of gains from the stock market have to do with inability to invest in new ideas (on both supply and demand side).
What other ways could you benefit? Imagine that you had no expectation of selling your share for a higher price in the future, then what other way is there to benefit?
You have a shareholder vote, okay but the percentage of shareholders who actually vote is roughly 9%. The only people doing the voting are large institutions, not individuals:
Dividends have no net effect on how much you earn from a share. If a stock is currently priced at X and then pays out a dividend of Y, the price of the stock decreases by Y so that there is no overall effect on the value.
The reason for this can be understood in many different ways, but one way I like to look at it is if paying a dividend had no effect on the price of a stock, then one could in principle buy a share of the stock at a price of X just before the dividend is paid and then sell the stock at a price of X just after the dividend is paid just as you describe, effectively pocketing the dividend and earning an almost risk free return.
Of course in practice we know that on average the price of a stock drops by the exact amount of the dividend paid, and hence collecting a dividend has no overall effect on the value of a stock.
It is exactly what you described and my explanation focuses on a specific scenario to make it very clear why your reasoning is flawed. You can't just assert that it's possible to sell a stock in the future for the same price that you bought it for and that will magically come true, you have to observe what actually happens in reality and whether reality is consistent with your beliefs.
To better familiarize yourself with the literature, perhaps you can start with this seminal paper produced by the Federal Reserve:
It looks at both the short term and long term impact of dividends and shows precisely that the marginal price of a stock drops by the amount of the dividend, meaning your premise that you can simply just sell the stock at a future date for the same price you bought it for is just not supported by the facts.
Whether you hold the stock and collect multiple dividends for 10 years or 10 days, the fundamental principle is the same: a stock with a marginal price of X that pays a dividend of Y will on average decrease in price by Y. Dividends produce no change in the overall net value of a portfolio, all a dividend does is convert one form of value into another, but no increase in value is ever produced.
Please provide an example of a stock that has a price that behaves the way you’ve described. That paper is talking specifically about ex-dividend dates, not long term behavior.
I’ve actually held ibm stock for years, and it has paid dividends and stayed above my initial purchase price nearly the whole time. That seems to fly in the face of your claims.
It doesn't explain which horse wins in the 4th race at Churchill Downs, either. Major financial markets do attract scams and gambling-like behavior the same way picnics attract flies. The reputable exchanges work to shut that a lot of that out, of course, because it's bad business.
Tesla unfortunately undermines your argument. Has it been hyped to the moon? Definitely. Is there a good chance people will lose a lot of money on it? That too. But they make actual cars that get actual people actual places. That is the kind of actual value creation that underlies most stocks.
Not sure about Ponzi (which it probably is) - but I am looking at crypto as a "24/7 world-wide semi-legal horse-races". It is absolutely useless for 1st/2nd/3rd worlds. I can see its benefit for illegal activities - fair enough - but it's standing apart from the gambling potential.
But by understanding that it is a gambling machine - I can make a "reasonable" choice, buy some token, sell it at a "small" profit of 10-25% and move on.
The crypto is here, it's fact. It's not going anywhere soon. No one loud is out there with an agenda to deliver the message of its uselessness. Most people don't understand how crypto works - and not even trying - and I personally got over screaming "the emperor has no clothes" and now just quietly do some trades from time to time.
Just a bit of reality to the "lens of someone living in a wealthy" blah-blah-blah.
I did a SWIFT transfer of 30k USD from an eastern European country to a 1st world country. It cost me 20 USD to send and 10 USD to accept the cash within 3 working days. Yes I had to go the bank and it took some time - fair enough - BUT the fees were much lower than I would've paid to the exchanges. I had an ability to reverse the transaction (to an extent), it was an open and legal non-commercial transaction (and I don't have to explain it later to the tax man).
C'mon crypto, try to beat that :)
"Bank the unbanked", "inflation", "poor immigrants" - you know it's all BS.
We lived through crazy inflation periods - basically you either convert your local cash to USD/EU as soon as you can or buy some local products (that you can resell) if the currency is not available. Thus people buy fridges/TVs, etc. There is probably a local village smart-ass who would use crypto for it, sure. But it's just an exception. These people have zero trust in anything, including their governments, so crypto is even lower in this chain of trust.
Immigrants and refugees have 101 ways to transfer their money. There are so many companies/networks that it makes your head spin. And their amounts are so small so very often it all goes under the radar anyways.
Basically all the crypto-mania as is is a big joke AND a great opportunity to make a quick buck :)
I was just now seeing the first video of https://a16z.com/crypto-startup-school/ . Whole video is about how blockchain is awesome because Computer, Internet and Mobile were awesome. Followed by some answers about how we don't know of any use case right now.
DeFi (Beyond a currency, a whole trustless financial system where no one can cheat)
NFTs (Not just art but concert tickets like GET protocol, gaming like Axie Infinity, collectibles like Crypto Punks, etc)
DAOs (Internet scale corporations/governments)
Identity systems (ENS, BrightID, Proof of Humanity, etc which allow for supranational products that build on top of reputation and uniqueness. The Sign-In With Ethereum standard is bringing self-custody OAuth authentication to Web 2.0 applications)
Enterprise interoperability (Baseline)
There's a ton of stuff going on and it's almost impossible for any one person to keep up with everything. It's easy to write everything off as a scam but there's hundreds of thousands of really smart and high integrity developers working in this space and it's worth keeping an eye on.
Urbit for starters (which technically you could say isn't NOT about money, since entities are de facto tradeable. But the main purpose for identity being on the Blockchain is reliability and decentralization, with the inherent benefit of them being in effect utilitarian NFT's). I use it every day, and it's one of the technologies I'm most excited about seeing evolve in the future. I'm not trying to evangelize or proselytize Urbit--just being frank.
There's also interesting things going on in the NFT space towards MMORPGs based around an economy of in game items being themselves NFT's. It's not all stuff and nonsense and jpeg millionaires lol :)
Some of it is, surely, but as time goes on more and more technologies will use it to greater effect with more utility beyond merely, "prices go up".
Why specify non-currency? Doesn't Bitcoin provide a more convenient/less expensive way to send money between countries (or both). Those are pretty powerful uses. (I don't know money laundering and drug dealing are still more convenient in Bitcoin)
A bitcoin transaction and a bank transaction are very different things.
A bitcoin transaction is settled as soon as the block is mined. Without any third parties or trust involved, and no way to reverse the transaction. While a bank transaction could settle in days and always with some trusted third party.
Try making a transaction over the lightning network (layer 2 tech of bitcoin), it’s instantly settled and almost for free. The whole country of El Salvador is making transactions within the country using this technology and they’re getting remittance from outside the country far cheaper than banks.
It boggles my mind that people genuinely believe this is a good thing, especially in an ecosystem so rife with scammers.
I get that it's rather integral to the primary use cases of bitcoin, but that doesn't mean you have to pretend it's a good thing when marketing the currency to the average joe as a PayPal replacement.
How’s it bad? You have to accept responsibility when making transactions. This is tremendously beneficial for businesses and end users when making peer to peer transactions.
Because there's absolutely no protection against fraud. This is somewhat of a problem when there's such a gigantic amount of fraud going on.
> You have to accept responsibility when making transactions
Yes, and so does the other party.
What irreversible transactions do is give the receiving party the ability to shirk all responsibilities, because it's significantly more difficult (if not impossible) to hold them to account.
Yes, when you need certainty that data hasn't been tempered with. Logistics, being able to trace back where a certain item came from. How about trading cards, be certain that the trading card you are possessing is the only one and it is genuine. (NFTs)
Bitcoin isn’t exciting because it doesn’t solve very many problems relative to the massive energy expenditure needed to create it. It’s like a fire at an oil well or a gas pipeline break. The arguments for why we should use it remind me a lot of arguments for why this year is the year of the Linux desktop. Bitcoin may be eating a lot of speculation but I can’t buy beans with it.
it's as old as android with like 5 orders of magnitude less societal impact and worse societal impact when there is societal impact than android. it's eaten a material amount of all gains in renewable energy basically using cycles to heat the world for what ends up being an O(n) database insert.
I did do the reading. It's an O(n) db insert. The blockchain's the DB and the insert needs PoW.
throughput of a blockchain is contingent upon tweaking but for the original bitcoin, still used, it's 6 mb/hour. electricity consumption is 14 gigawatts. if i were given 14 gigawatts of electricity i think i could do better than 6 megabytes/hour.
Do you understand the tradeoffs of why it works that way?
That for an open and fully accessible, decentralised system that exists in an adversarial environment there has to be a large cost to any attacks?
Of course there are much more efficient ways to store data, but those are centralised and vulnerable to the problems of centralisation. The blockchain's and proof-of-work's purpose is to be decentralised.
Someone was telling me that the general problem with HN is that they're all very technically capable, so they look at Bitcoin, understand it from a technical perspective (not always true) and deem it as inferior to other technical solutions, like a centralised database.
The bit that's lacking is an understanding of money, and what makes certain types of money sound or unsound. It's easy to overlook the problems of fiat money because its all we've ever known.
What was it about gold that made it the dominant form of money for literally thousands of years? Why was it abandoned? How does Bitcoin solve the problems of gold and fiat?
Vijay Boyapati (ex-Google engineer) does a pretty good job of outlining this in his article.
Something can be overvalued without being a Ponzi scheme.
The repeated bashing of cryptocurrency on HN of all places is tiring. There is a lot of innovation in the space outside of BTC. What about DAOs? What about lending products? The space is booming in interesting ideas and all I ever see on HN are posts about BTC being some kind of scam. Where did the 'hacker' mindset go on this site?
I haven't met a single human buying bitcoin or crypto just for "technology" and believing in it. Everyone wants to make quick cash and that's the only reason. Maybe 0.001% uses it for some reasons that are plausible but I haven't met that one person really uses bitcoin for daily expenses.
I think the author misses one service that Bitcoin provides (that is referenced many times) which is to transact. The movement of transactions on the ledger is the value that Bitcoin (and others like it) provide.
Now it is absolutely shit at that job. Cost per transaction, transaction throughput, time to assurance a transaction won't be rolled back, all make Visa/Mastercard look amazing except for certain business domains. As such people offer it up as an investment, and that is the reality the average person engages. Like the gold rush, the people making money are the ones selling shovels (as pointed out in the article).
Does that make it a Ponzi scheme? I am not an economist, but I don't think so.
A horrible investment? I refuse to deal with crypto, volatility and environmental concerns are my primary reasons.
> By that definition, real estate too is a ponzi. No. Like stocks, real estate creates value while it is being owned, namely the sheltering service it provides to those who live in it. That value returns to the investor (owner) either by him living in the property, or by renting it to others.
Actually holding land out of use so you can speculate on its increased value, which comes from the activity of the community around you (and not any actual hard work or investment you yourself did), is an unproductive speculative activity that is a drag on the whole economy and the cause of our housing crises. I'm not sure if I'd call it a ponzi specifically, but it's bad and we shouldn't encourage it.
Looking which country mined most coins and who purchased them, it's a big money transfer from the USA to China. And the US buyers fool themselves that it's a good investment by driving the price up.
So basically he believes bitcoin is a ponzi because bitcoin investors "expect good profits" yet also believes "few if any gold investors have expectations of profits".
I laughed a little, but then I realized he was serious.
>> People invest into it because they expect good profits
OK yeah that's called an investment. Most people don't invest in stuff they think will be unprofitable. Maybe you're different?
>> that expectation is sustained by such profits being paid to those who choose to cash out
Profits aren't paid out from Bitcoin. There are no profits being paid out. That's sort of the key difference. Bitcoin doesn't send you a check if you own it.
>> the operators take away a large portion of this money
If there were "operators" of the Bitcoin scheme, they left billions of dollars on the table. Which...I hope they did!
> Profits aren't paid out from Bitcoin. There are no profits being paid out. That's sort of the key difference. Bitcoin doesn't send you a check if you own it.
That's a pedantic evasion. You're conflating profit ("making net money") with dividends or other rent mechanisms. Selling an investment is colloquially "profit taking" too. And you can only sell, on balance, to those entering the bitcoin system.
Still pedantry. You're arguing that it's not a Ponzi scheme NOT because it funds promises to existing players with money coming in from new players (which is pretty much the standard definition), but because TECHNICALLY they have to "sell" their coins to get paid.
That technicality doesn't change the direction the money is flowing. It's just not relevant.
Bitcoin doesn't fund anything. There are no promises. What you are describing is just speculative investment in general. There is a difference between speculative investment in general and a Ponzi scheme, what is it?
https://en.wikipedia.org/wiki/Ponzi_scheme
"A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[1] The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most of the investors do not demand full repayment and still believe in the non-existent assets they are purported to own."
While I agree that crypto[speculation] generally seems to have the structure of a Ponzi scheme, I don't see any problem with that, as I assume everyone participating has the same idea.
It's just a matter of who has the guts to stay on for long enough to cash out big, who gives up too early, and who does not get off before the train crashes into the mountain.
A first definition of gambling, is games of pure chance.
The second definition is taking a risk in hope of a future reward.
No investment has ever been made that was not a gamble. Sure, some are better than others, and the mechanism for providing wealth differs, but they are all gambles in either the first or second sense.
Crypto speculation is not a first-example gamble, it is not pure chance what happens, there is not an explicit randomness component. The market may be hard or impossible to understand, it may be undeterministic (I don't claim to know either way), but so is all other markets, every other stock.. Sure, it is probably more risky to speculate crypto than EUR, it may be more risky to buy bitcoin than Microsoft stock, but in the end, you're doing the same thing, you're making some more or less informed gamble that the market do whatever you need it to do.
In fact, while bitcoins are created in a fixed amount only when the miners have expended a large amount of work, the creation of those bitcoins costs nothing. The reward per block is defined by two lines of code in a program. By changing those lines, the reward could be sixty or six million bitcoins per block, with no extra work being required from the miners.
This sentence is proof enough that this person doesn't get bitcoin.
You're welcome to change those two lines, start mining and then see what happens.
Your mined blocks will be rejected by other nodes in the network and you'll be spending energy costs without getting anything in return.
The whole point of bitcoin is that you can't just change the source code and thereby the properties of the emergent network. You need to get a majority of nodes (not just miners) to support your change. This is not easy to do, and won't happen if your change is detrimental to the majority of network participants.
Its a self-feeding system since it prints its own money which is used to buy "real money" which is then destroyed.
This might be questionable and thankfully we have non-PoW/PoS systems that dont do this but the whole Ponzi thing is just nonsense. Its entirely irrelevant if it matches some (your/anyones) definition of a Ponzi or not. Just to usual click-bait "bitcoin very bad" title that gets the HN people all existed to up-vote it.
Yes, bitcoin is garbage tech, but all the hate posts will only push it further. People should focus on systems that do the same as bitcoin but without the "bad". There is a multi billion dollar demand that does not go away. A little bit education about FBA systems would reduce the resource wasting from PoW by a lot and all without taking away the peoples freedom to gamble with "digital money".
No, it’s not possible. All mining, for probably the past 4 or 5 years, is done on ASICs, typically in places selected for favorable energy or climate reasons.
You can still mine ETH on a (high-end) GPU and make a profit. BTC mining is way too advanced for that, it's done with mining-specific chips. Mining with a GPU gives you too little hash rate for it to be profitable.
Going a bit more in-depth: Mining is a competitive activity. Your chance of being the person to mine a block is proportional to the fraction of the hash rate of all miners you hold. Therefore, if everyone is using super advanced mining hardware and you go in with a GPU, you hold an insignificant fraction of the hash rate and have next to no chance of actually mining a block, while you still spend on power and hardware maintenance - which will probably make mining a net negative for you.
Nowadays BTC mining is advanced enough that the only way to make a profit is with big specially-designed rigs located in places with access to very cheap energy sources.
Bitcoin? No. Not even a little bit. Bitcoin mining has been dominated by ASICs since 2012 or so. Some other cryptocurrencies can still be mined on GPUs, but the profit margins are rather narrow.
Currency evolved from barter > to bartering with set mediums of exchange > to coins representing exchangeable goods > to coins stamped in precious metal > to paper representing coins > to notes representing gold or silver > to being redeemable exclusively for gold > to the end of the gold standard.
Money’s value has been dictated by how much of something a currency can buy – which is dependent on inflation and economic performance.
I would love to have seen/heard the conversations that were had around the changes that people had to go through and if the conversations were similar to this day. Because I would imagine that back then, considering that money is just an agreed upon invisible force a la Bitcoin, people probably hard a very hard time understanding the intrinsic value of this metal coin/paper money.
I’ve discouraged friends from investing in CC as I could never see a material basis for value, present or future. I wonder what if anything exists that is similar that is not a Ponzi scheme.
Ask yourself this: if you woke up in the morning to find BCs value had zeroed out, how surprised would you be
I would be absolutely shocked if Bitcoin's value ever dropped to zero.
I can't see any conceivable way that happens at this point. Even a coordinated effort by the world's governments to "ban" it (they can't really ban it) would not drive its price to zero... if anything it might even have the inverse effect.
Can you provide any conceivable way this would actually happen? Maybe an asteroid hitting Earth and wiping out all human life on the planet?
2. People panic and sell at whatever price they can get. Let's say Bitcoin drops to $10k.
3. All miners that don't make a profit at $10k shut down.
4. With most miner's shut down, block times go from 10 minutes to 1 hour.
5. The fees to transact Bitcoin go up exponentially as people rush to get out. 10 Bitcoin to make it into a block, sure!
6. The price drops further.
7. More miners stop mining.
8. Block times go up so much that it will take the miners YEARS to reach the difficulty adjustment point that normally hits every 2 weeks.
9. Blocks stop being created, and the price is essentially 0.
With China shutting down a lot of their mining, this is less likely than in May. The higher it goes, the more likely that a sudden shock can destroy it all. Eth has shorter block times and would be able to stabilize better. The block fees going up might actually save the system to keep enough miners mining, but I also think they will scare users away from buying at cheaper prices.
I think some of these are a stretch. I think some of these would definitely happen if the things up to them happened.
I'm with you here, but anytime you have code changes of this magnitude you get political splits and people pushing for more than just fixing the issue to give power to their position.
I have no idea how that would end up, how quickly they could organize, and what would happen in the mean time.
I got in to crypto years ago, I'm still holding a bag of BTCs right now, but not that much anymore, from 100% back then, now down to 20%ish, majority of my assets right now is in altcoins. Why? Aside from the waining market dominance, there is this nagging feeling of fear that it might signifficantly drop in value.
I am little bit paranoid of holding 100% in BTC, the reason for this is because of Satoshi Nakamoto still holding 1 million BTCs. Nobody knows who this guy is, if he's going to spend all his bag, that's a sure fire way of bringing down BTC significantly.
Anyway, I'm still in to BTC, it significantly changed my life. I wish Nakamoto would publicly burn most of what it is in his bag.
Bitcoin is usually represented by a yellow coin with a b in it, and it starts with B, therefore bitcoin is a banana.
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The article just redefine the word Ponzi so it loosely fit Bitcoin. But it is missing one key feature of the common interpretation of a Ponzi scheme: the fraudulent part.
>By that definition, stocks too are ponzis. No. Stocks have an external source of revenue, namely the profit that the company makes by selling its products and services to customers (not investors); and these profits eventually return to the investors through dividends or cash buybacks.
There are companies that never made any profit yet their shares increased in value. There are companies who made some small profits but their shared increased much more because there are high expectations.
By the definition in the article any asset which can be speculated is part of a Ponzi scheme: land, stocks, bonds.
If you buy and sell land, increasing its price, without other means to derive value of that land, such as agriculture or rent, it fits the definition of a Ponzi scheme.
> bitcoins can be earned and spent, not just bought and sold. That makes no difference for the purpose of this discussion. If you buy a $2000 laptop directly with bitcoin, for financial analysis it is the same as if you had sold the coins for $2000 and bought the laptop with that.
The core of the post seems to be a claim that demand for Bitcoin is a recursion with no base case. But then this passage gets to the base case and just dismisses it as irrelevant -- since it could counterfactually transit through dollars. If you think a state currency is the only logically possible currency, that needs an argument (and an difficult one, given history).
People do not invest in USD because they expect a gain? Anyone holding cash is doing exactly this. Because the only rational reason to hold USD instead of spending it or converting it to some other asset/investment is because you think it's value is going to either hold or grow more than other options.
If people expected no gain in USD (or inflation) then they would not hold USD and instead choose assets or other investments.
If one does expect profits they can achieve that not just by BTC going up in value, but other currencies being inflated.
I myself hold bitcoin as a store of value and do not necessarily expect profits. I simply feel that it will hold it's value better than other things. I could be wrong, but that doesn't mean it is a Ponzi.
No, people hold cash because they can get things done on short notice. Like if a storm blows over your fence, you can write a check and have it replaced. If you held stocks, bonds, or real estate, you’d have to sell that asset and withdraw cash to get your fence back up which is pretty unacceptable.
I hold cash knowing full well that I’m bleeding due to inflation, but the versatility is well worth it. That’s pretty much everyone who is holding cash other than a small handful of forex traders speculating on USD vs euros or whatever
A credit card or some other line of credit is the best form of liquidity, more widely accepted than cash (I can easily use it internationally or online).
The reason to hold cash is its low volatility. You can store it in a savings account and even with inflation potentially driving your return negative when risk adjusted it may beat other assets and you don't even have to speculate on forex!
Twice in my life I've had to hire a lawyer. One took wire transfers and the other took checks/money orders.
The vast majority of attorneys require the establishment of a retainer account (and in most jurisdictions it's one of the criteria to tell if the guy is officially 'your lawyer' or not yet)
And yet a lawyer is exactly one of those things where you say "oh shit I need one right now".
Nope, people do not hold USD because they expect a gain.
They are willing to pay the inflation penalty because holding the dollars in question provides them something. Generally that means either a sense of security or liquidity on short notice.
Does it really make sense to hold USD if your only goal is liquidity? Maybe if you need it immediately, but honestly stocks and some other investments can usually be sold with the money accessible in seconds (or you can use credit). Really what I feel the value prop is for cash is low volatility (aka security as you mentioned).
With low inflation like we have seen in the past, risk adjusted it might be a better spot to hold that money relative to other investments. So yes, I hold a small portion of my portfolio in USD for that gain.
If it was not providing that low volatility (inflation spikes like crazy), then I'd be much less inclined to keep my money in USD outside of the minimum I'd need for immediate spending. Because returns are low. So the "gain" is in the risk adjusted return relative to other assets (which could ultimately be slightly negative).
I don't think you can sell traditional investments like stocks in seconds unless it is within designated trading hours. Crypto you can trade 24/7, although fiat wires out to traditional bank accounts still operate within certain hours (at least in the US, maybe this is different elsewhere). I still hold a small amount of my portfolio in USD, even considering inflation, but this is because it's less volatile than crypto, and I think holding actual cash is better than holding a stablecoin.
Stablecoins have counter-party risk. USDT is run by folks under investigation by the DOJ for bank fraud and was at various times not actually backed (sometimes by anything). And the scuttlebutt is USDC is currently under investigation by the SEC. [1]
I agree. I intentionally don't hold stablecoins. As I mentioned I'd rather hold actual cash. One nice thing about stablecoins is they can be transferred around the world 24/7, and there are various high APRs for lending out stablecoins (not without risk, of course, there's nothing like FDIC insurance on those). Anyway, I'm surprised how much trust the crypto community puts in Tether.
This isn't correct. People hold cash for its liquidity. They generally expect USD to lose a small amount of its value over short periods of time, and that is the price one pays for keeping a portion of one's assets liquid.
The reason to hold USD is that it is one of the most accepted forms of payment around, and the cost/benefit of any other way to store wealth is likely to eat more than the slow rot of inflation.
It doesn't matter if it's a Ponzi or not. Cryptocurrencies will live as long as people put trust in them. The same as the currency of country X, stocks of company Y and works of artist Z.
The question is: how long is the public going to place trust in cryptocurrencies?
It is an interesting read and I want to go back and read it a bit more carefully (now that the server is finally back up) but one factor in a ponzi scheme is that there is ultimately a limit on suggestible investors. This isn't part of the definition of a scheme but seems to be an obvious limitation of them. Seems the smart operator plans for that drop in ability to pay out. Most long-term MLMs work out this revenue drop as well.
There is an upper cap to the ability to generate bitcoins [1] which acts as a similar cap on the long-term viability of the system.
If we go by this logic some could claim that the "Dollar" is a Ponzi scheme
1. People invest thier time/effort for "Dollars"
2. When someone "buys" something they are effectively cashing out the worth of the "Dollar" through trade (someone else's time/effort)
3. "Dollars" do not nessarily create more labor (time/effort)
4. "Dollars" are just effectively pieces of paper or digital bits if people stop actually working. It is worth something because people are willing to work, invest time/effort, for "Dollars".
5. Printing money effectly dilutes the existing pool of labor, etc. "taking away money".
No one view a dollar as a speculative investment asset they expect to rise in value though. That’s the whole point of a ponzi scheme, and also why most people buy bitcoin: they expect it to go up.
You can reliably expect a dollar to decrease in value, by contrast. People may hold it as a hedge but no one expects a dollar to 10x.
You have hit on something useful: dollars are just a claim on the real economy, but if the economy stops dollars are worthless. But this isn’t the same as the dollar (or any type of savings) being a ponzi
It's not a Ponzi. It's a speculative asset and one that people are buying hard into, some because they think they can avoid being the bigger sucker and some because they genuinely believe it will be useful in the future either as a store of value against inflation or a possible usable currency (right now I somewhat believe that certain properties of certain crypto currencies fundamentally make them bad in the long term). However, a Ponzi is very different from a speculative bubble.
Silver or gold in a speculative bubble behaves just the same as crypto right now but they are not Ponzi schemes. They are simply a property of how markets work when speculation gets over energized
I think many people in these comments are bound to talk past each other when the real answer is:
Yes, Bitcoin is a Ponzi scheme (by virtue of people making it so), but that does not, nor should it, imply that the only thing Bitcoin is, is a Ponzi scheme.
It's part of the ethos but does not describe the whole ethos, and trivializing Bitcoin to a Ponzi scheme is the wrong answer. As, honestly, is trying to defend that Bitcoin is not a Ponzi scheme.
Irrespective of how value is in practice (or volume) making its way through the system is different from the system itself.
There are several promising elements of Bitcoin which contribute to its value. One is sheer access and connectedness (e.g. Metcalfe's law). People use facebook (its valuation reflects this) or pay for a phone plan because connecting to the Internet is a synecdoche for ubiquitous access. Creating a fabric where people in any country may work for a company, irrespective of its location, is a paradigm shift from what we had previously. Today, working for a US company from Taiwan is a legitimate challenge & deterrent.
There are many such examples, where transparent ledgers for instance may increase trust between parties and give people more confidence in financial robustness. All of these things have intrinsic value, just as the architecture which is PageRank has value for Google.
A common mistake I hear is for people to point to these advantages as if to suggest that it is without flaws or incapable of flaws, when we -- the people using the system -- are quite fallible and driven by prisoner's dilemma-type incentives which may by no means be long-term efficient or equitable (given we're all in the same boat). And I think these social challenges should be noted and not discounted on behalf of "technology being good enough".
You are not going to convince people who already dumped billions dollar into this thing. You better invent a bitcoin killer or ask governments to shut it down. Ponzi as a concept is unaware to most bitcoin holder.
Bitcoin would have remained the obscure crypto-economic experiment it was 10 years ago if it weren't for the rotten monetary system we have creating strong incentives to look for alternatives.
I'm holding some Bitcoin for quite a while now - in terms of value it has overtaken all my Fiat holdings - yet I would actually welcome if it became worthless. That's because I believe that it can become worthless only if we get back to a sound monetary system, something I'd value more than individually "winning" in an alternative scenario.
>A Ponzi scheme, or "ponzi" for short, is a type of investment fraud with these five features:
>People invest into it because they expect good profits, and
>that expectation is sustained by such profits being paid to those who choose to cash out. However,
>there is no external source of revenue for those payoffs. Instead,
>the payoffs come entirely from new investment money, while
>the operators take away a large portion of this money.
By the authors definition, fiat currency, art and gold are pretty much Ponzis. With fiat I guess you don't expect good profits but when you sell any that comes from new money buying it off you. The 'operators' in each of these - artists, governments, gold miners take a chunk of the money.
The type of scheme operated my Mr Ponzi was characterised by fraud and the money going to Mr Ponzi and so was different.
Yeah... if Bitcoin is a Ponzi scheme, then any investment bubble where stocks etc. rise to values which have nothing to do with reality is a Ponzi scheme too. There too the inverstors who have held the stocks the longest and who sell before the bubble bursts will get the most profits, while the ones who got in late will lose money. Which is also unfair of course, but not fraudulent per se...
A Ponzi scheme is when someone gave you money and you gave them back more because someone else came and gave you money, and now you need to give money to this new person so then you get another person and their money and so on. This is absolutely not in any way similar to Bitcoin. These "five features" author suggests are completely random and have little to do with a Ponzi scheme.
By that definition US Treasury bonds will be a ponzi.
Currently, the US Treasury pays old bond holders by a combination of tax revenue and by issuing new bonds. However, each year, a bigger fraction of old bonds are paid by issuing new bonds. Over time, this will lead to almost 100% of old bonds being paid by issuing new bonds, and then they will be a true ponzi.
What are the differences between Ponzi schemes and gambling? Both are negative sum games. In both someone is going to profit from people's greed and stupidity and take part of their cash. Both casinos and Ponzi schemes operators create high expectations in some people's minds.
This comment section is a classic case of engineers who think they understand crypto because it's digital, not realizing that Crypto is primarily an economic innovation. It's ok to admit you don't fully understand something sometimes.
In the "guns don't kill people" category of arguments, it's the pump and dump influencers that are literally everywhere hyping it so they can sell theirs.
> By that definition, real estate too is a ponzi. No. Like stocks, real estate creates value while it is being owned, namely the sheltering service it provides to those who live in it.
Bitcoin is money which provides sheltering services for wealth.
That’s incorrect. One btc = One btc. Its value relative to fiat or usd is irrelevant. No one takes your btc away from you to give to another when you have custody of it.
Since not a single comment agrees with the premise, I'll say: yes. Heck yes & obviously. A limited supply of increasingly hard to miner tokens is a clear & obvious indicator of a ridiculous scheme. There's very few examples in the world of the utility of a thing continually decreasing while the valuation ascends, yet Bitcoin has ascended pointlessly to a tens-of-thousands-of-dollars price-point.
There was a time when bitcoin was a possible way to either encode data into the blockchain, or to make financial transactions. These uses are still possible but at vastly less available price points.
No, its not. Amending the definition to make Ponzi Scheme merely a slur will get ones nowhere. And also can possible bite back on eg Brazilian Rupees as well ;)
Were seashells a Ponzi? What about glass beads? These were used as “currency” in our history, but nobody uses them as such anymore.
Let’s say Bitcoin is a Ponzi. What or who will do the inevitable rug pull that comes with those scams? What if the rug pull never comes (or does 1000 years from now)? Is it still a Ponzi? Was it a Ponzi for those people who benefited from it in that 1000 years?
It's been more than a decade of innovation. Gary Gensler (SEC Chairman) has acknowledged the value of Bitcoin. Lets ignore idiots like Jorge Stolfi. He's no different from the BSV characters...
Why are such articles constantly popping up on HN?
It's clear that the HN crowd does not like Bitcoin. So why keep reiterating similar arguments all over?
There is zero utility in the article shared. It states some anti crypto views and that's it. Even the author concedes that this is according to his own definition and not based on real life legal tests (which have of course shown that Bitcoin is not a ponzi).
Just let Crypto users be. I get it. You don't like Crypto, but at this point it's not like an opinion piece can change the their views.
Users transacted in the trillions of USD over last month. Crypto got institutions, countries, wealthy individuals, poor individuals using it every day. It's clear it has some utility to them.
It's time to reflect and consider that your anti Crypto position might be wrong.
There's great reasons not to. Unless we nip this in the bud, we face a potential repeat of the 1997 Albanian Ponzi crisis that brought about the total collapse of their economy. Everyone in Albania jumped in and started participating in a number of big Ponzi schemes. Their finance minister tried to stop them, so they threw him in jail. They then had a civil war about it, and the IMF had to drop in big bags of money. [1]
This is what the maxis are after.
If we don't cut this off ASAP, we all stand to lose.
When you find yourself saying that the people you disagree with are deliberately seeking catastrophic outcomes, it's time to take a step back and reconsider. I don't think anyone wants to destroy the global economy and cause a global war. Maybe the Bitcoin maxis are wrong about the long-term viability of Bitcoin, but I doubt very much they are some kind of nihilistic death cult bent on destroying civilization. Maybe dial it back a notch.
That's fair, and I walk that back. I don't think they're intentionally taking us into a Mad Max future, but I don't think their intent changes much if they get their way.
China vs crypto has been going on since 2013 [1]. Open source, decentralized crypto is a direct competitor to China's CBDC, which they have already developed and are trying to distribute [2]. Of course China would want to squash all competition. Jerome Powell from the Federal Reserve said in a video from 9/30/21 that he has no intention to ban crypto like China did, although it sounds like stablecoins may be regulated [3]. Jerome Powell has also said that the US is considering a CBDC [4]. The SEC has also already said in 2018 that Bitcoin and Ethereum are not securities [5]. The current head of the SEC, Gary Gensler, taught a course on blockchain for several years at MIT, and here is a set of his videos [6]. How do you think this technology is going to be completely banned, or that everyone will forget about it and it will totally go away? The seeds are already planted, and as I said, there's no nipping this in the bud now.
> China vs crypto has been going on since 2013 [1].
True, the saga went on for a while, and I suspect their recent kibosh had more to do with domestic financial instability and a shaky power grid than ideology.
> Jerome Powell from the Federal Reserve has said from a video from 9/30/21 that he has no intention to ban crypto like China did, although it sounds like stablecoins may be regulated [2]
Yeah, and frankly, that may be enough to pop the bubble. I have long maintained the position that most price action in crypto is driven by rampant manipulation and un-backed stablecoin issuance. Once number stops going up, I don't think people will care at all anymore.
> The SEC has also already said in 2018 that Bitcoin and Ethereum are not securities [3].
Yes, Bitcoin is not a security because it's distributed solely by mining. Etherium is and always was a security, as it plainly fails the Howey test like every other ICO, in line with the formal guidance issued by the SEC. The SEC elected not to treat it as one, however. They have also indicated that every other ICO is at risk of being treated as a security.
> The head of the SEC, Gary Gensler, taught a course on blockchain for several years at MIT [4].
Yep, he's super smart, and I have a lot of respect for him.
> How do you think this technology is going to be completely banned, or everyone will forget about it and it will totally go away? The seeds are already planted, and as I said, there's no nipping this in the bud now.
I think stablecoins will be regulated, price action will subside and nobody will care anymore as we were on track to seeing before the printing spree of 2020. And I think most ICOs are going to get smacked down as unregistered securities offerings.
The China model of removing the bandaid would be much better though.
That's a best case though, and you could totally be right.
The initial post is literally the flip side of the same coin.
We've had romantic Bitcoin maxis in the beginning, saying Crypto will change the world, we now have luddists screaming to stop the crypto as it will destroy the world.
Only a small portion of users are the Crypto maxis. And they truly can't care less about such posts. They might have been wrong about what Crypto means, but you cannot deny the use. BC is a reserve currency of a nation. EU is contemplating digital euro. People invented a way and are exchanging ownership of IP daily with various block chains.
Crypto is here. I highly doubt it its going away. Too much value and utility.
Perhaps it would be best to simply create a HN News policy to ban crypto related stuff as it really boils down to maxi-haters reiterating their views over and over.
But I do understand that is great for Karma farming.
People should learn about how much money the Fed is printing these days.
Bitcoin is getting a lot of attention from a lot of very smart financial people around the world because they see that with so much USD being printed, inflation is bound to happen and Bitcoin is one of many ways they can hedge against it.
HN is where you can find great commentary about tech related stuff. But outside of that eg. financial matters .. no.
A few years ago I was upvoting such articles myself, probably out of annoyance that I had known about Bitcoin since 2010 but had no financial interest in it. What got me into it was the open source aspect.
I expect that many users on HN have known about Bitcoins since the beginning and are upset that they didn't look into it years ago. Many will find their niche in it(smart contracts, NFTs..), younger people more so.
Stateless P2P open source currency is an incredibly powerful combination of words.
> It's clear that the HN crowd does not like Bitcoin. So why keep reiterating similar arguments all over?
When we take a closer look at crypto it appears to be as corrupt or even more as the institutions it was trying to replace. Tether, of course, is the poster child of crypto corruption.
The article literally covers each of those cases and explains exactly why those are not Ponzi schemes while Bitcoin is ([edit] under "Common Objections" - which should really read "Common Whataboutisms").
> By that definition, stocks too are ponzis. No. Stocks have an external source of revenue, namely the profit that the company makes by selling its products and services to customers (not investors); and these profits eventually return to the investors through dividends or cash buybacks. In time, those profits are expected to exceed the amount invested, with a significant profit for all investors -- that is, they are expected to be positive-sum games. The market value of stocks reflects these expectations among investors. While some companies fail to achieve this goal, enough of them succeed to make stocks the favorite option of savvy investors.
> By that definition, real estate too is a ponzi. No. Like stocks, real estate creates value while it is being owned, namely the sheltering service it provides to those who live in it. That value returns to the investor (owner) either by him living in the property, or by renting it to others.
> By that definition, gold too is a ponzi. No, gold clearly fails to satisfy that definition on two counts...
As per gold: I agree with that common objection. If bitcoin is a ponzi, so is gold.
> First, few if any gold investors have expectations of profits. They generally invest in gold as a hedge -- a "store of value" -- that they hope will retain its value in case other assets go sour.
First, this does not negate the comparison. Bitcoin could also be like that, and therefore not a ponzi. Second, I know a long of gold investors who would disagree with this opinion. Third, the market cap of gold is over 4x bitcoin, indicating that gold has already reached saturation, whereas bitcoin has space to grow.
> Second, as a commodity, gold HAS a source of revenue besides the investors; namely, the purchases by consumers like jewelers and industry,
This is a point that always gets brought up in discussions of gold. It is wrong and practically dishonest. Gold as jewelry does NOT drive the value of gold, by and large. And even if it DOES, the valuing of gold as jewelry material over any other similar-colored material is itself non-intrinsic/socially constructed. People like to own gold jewelry for the same reason people like to own bitcoin.
Yeah, I think you have a point regarding gold. I think the same way the author treats Bitcoin in regards to the way 'most people are using it' when defending its categorization should apply to gold as well.
Once we accept that the price is defined by speculators, the industrial and decorative applications of gold set a floor price rather than necessarily redefining the category.
There are a few key differences.
(1) Gold is zero-sum. Once out of the earth, it simply continues to exist. It produces nothing, consumes nothing, reacts with nothing, and doesn't really get lost or destroyed.
(2) On the other hand, if Bitcoin miners are turned off, 100% of the value evaporates instantly.
(3) Bitcoin therefore is negative-sum because miners require a steady influx of new capital in order to purchase coal to burn to 'secure' the network. This new capital is raised in the form of block rewards which are sold, exerting negative price pressure in the amount of ~$60M USD per day. If new capital stops coming in, Bitcoin bleeds value slowly, and then drops to zero all of a sudden.
The difference between a zero-sum vehicle and a negative-sum vehicle is enormous at the limit.
> People like to own gold jewelry for the same reason people like to own bitcoin.
I do disagree with this however, most people buy gold because it's shiny and a status symbol. They want others to see it. People buy bitcoin because number go up.
(Nevertheless, investing in gold at the current price seems unwise, since its price is many times its "natural" price as commodity...)
You left out the most important and contentious part. It is not surprising because the author of the article itself made the single, most important point a fine print because it hurts their argument.
Oh, sorry, I didn't want my post to get long, however I also agree that investing in gold is unwise generally speaking. I don't believe in investing in unproductive assets period. Unintentional miss, and totally relevant, so thanks for adding that color.
Yup, but that explanation is not satisfactory IMHO. Of course stocks, real estate etc. have an "underlying value", but in case of a market bubble, these values lose all connection with reality, and some will profit while others (typically the late comers) will lose out when the bubble bursts. And Bitcoin's value is currenty overinflated in the same way...
The argument is that as a commodity that is consumed to produce jewelry (52%) and industrial (12%) that there is baseline demand for it, and thus it does have intrinsic value. I don't consider it a worthwhile investment, however.
Using this dumb definition of a ponzi scheme, every stock IPO that doesn't pay a dividend is a ponzi scheme. Bitcoin is valuable because people agree on using it as a form of money, and it is limited in supply. Nobody is making more bitcoins from nowhere to pay out existing bitcoin holders.
Idiotic definition of a ponzi scheme crafted intentionally to include bitcoin, fails to include bitcoin, but does cover many valid economic activities.
> every stock IPO that doesn't pay a dividend is a ponzi scheme
I agree with you in spirit. Stocks that will never pay a dividend (if you can see the future) are worth $0. Most stocks are effectively speculative assets.
The difference is that a stock has a real, legal value: ownership of a company that has cashflows. If that company is liquidated, you have rights as a shareholder. You may also be able to vote on important decisions that the company makes.
Bitcoin is an asset that, by definition, never will pay a dividend. It is a stock that we know with certainty is worth $0. Its only value is speculative.
In that sense, Bitcoin is very much like fiat currency: its value is imaginary and based on how other people value it.
But if we're comparing Bitcoin and, say, USD, then Bitcoin is by far the worse currency because it's deflationary and unbelievably expensive to transact.
That's why, in places with unstable currencies, people mostly shelter their money in USD. If cryptocurrencies factor into it, it's because those currencies are seen as easier ways to transact USD. People who need their assets to be spendable on a daily basis don't hold them in Bitcoin.
What do you even mean when you say something is worth 0? How can a share of stock that you can sell at any time for an amount much larger than 0 be 'worth 0'? Things are worth what you can sell them for, and that is the only definition of value that isn't nonsense.
You want currency you hold to be deflationary. Deflation is a systemic problem for economies, not individuals with cash in hand. Its not expensive to transact, it is extremely cheap. You go find a provider to let you accept payments from anyone in the world for a smaller % of the transaction and that will cover chargebacks. It doesn't exist, and you are not doing an honest analysis when you compare the transaction cost of walmart instead of yourself, or the cost of exchanging cash without the costs of moving people to the same location to exchange it.
You have no practical legal right to anything as a shareholder. If a company is liquidated the shareholders get nothing in practice. Management controls the finances and expenditures of a company, and a majority of shareholders control management. This control is usually only given to special classes of stock that is for the most part impossible to buy. Why do you think people fight over control of companies? Management routinely steal huge sums by allocating it for the direct benefit of some shareholders over others.
Judging by the attitude on HN, cryptocurrency should be worth $0 and written off years ago. Instead it's bigger than ever and the most important people on earth are focusing on it. Somehow it's simultaneously an incredible, useless scam but is so powerful that we must ban it at all costs!
HN doesn't know everything, do your own research, use your own logic.
Shrug whether or not they've missed the boat or are sanguine on the future of crypto and it's all a house-of-cards filled with hucksters doesn't matter. I just don't see why we need to beat this on the head over and over and over and over again, despite no new news. The anti-greenwashing is the one that really gets my blood boiling because of what a large distraction it is to real climate change issues.
This whole thing is just bringing the level of discourse here down, and I've been on HN for a long time.
"missed the boat" somewhat implies that blockchain technology is already being used for anything except the backing for pump-and-dump schemes and the punchline for jokes.
Unless you mean specifically "missed the opportunity to make lots of money", in which case sure, that's absolutely accurate, but if I wanted to gamble I'd just go to a casino.
It's funny how people on HN which are likely some of the first people in the world to know about bitcoin (eg. since it was only at $100 or less) keep upvoting articles like this for years now.
I think these people deep down know that they missed an amazing chance by not investing in bitcoin (and other cryptocurrencies) years ago, so articles like this make them feel better about it and lets them justify not investing in bitcoin to themselves.
But then in a few years bitcoin 5xs again and then they realize if they bought it at todays price would still have made them massive profit.
But then they see a new article saying bitcoin is a ponzi and upvote it and feel good about themselves again.
Oh but they have to downvote any comments like yours too.
With a decentralized digital asset there is no sole person or company that profits from just lying to you about where your Dollar goes in exchange for digitals. Sure, miners and exchanges make profits based on fees when Bitcoin is created or sold, respectively — but they are only being rewarded for their legitimate efforts required to maintain and sell a digital currency. They do not pretend making your money work for you by some magical scheme.
This whole confusion stems from a rather vague understanding of what the subjective theory of value means: Goods and services provided by humans have no intrinsic value but become precious simply there being demand by other humans. Gold can become worthless if nobody wants or needs it anymore. A stupid trading card may cost thousands of dollars costing pennies to make but is sought after by enough collectors. Edit: Yes, Bitcoins are just numbers stored in a computer memory around the world but so is software. And software ain’t cheap.
While Bitcoin‘s value might be grossly overestimated due to rampant speculation but even then, these speculators are no victims in an investment fraud but they truly believe that Bitcoin will become much more useful in the future. They may be wrong but, currently, nobody knows. Only the future will show.
Edit: Typos.