Topic: Is Bitcoin a Pyramid or Ponzi scheme & what are the ramifications? - page 6. (Read 16967 times)

Do you even stock bro?

My trading account gives me a total balance of all the securities I hold using their current market value rather than an amount I could actually get for all of them. OMG YOU'RE RIGHT THEY MUST ALL BE PONZI SCHEMES!

It would be better described as a Pyramid scheme, which is similar to but distinct from a Ponzi scheme.

The main distinction is that Pryamid schemes are normally decentralized or at least the 'center' is constantly in motion, were as as Ponzi scheme always has it's money flowing through one individual which is the linch-pin of the whole thing.  In a sense the rebuttal that BTC is not a Ponzi because it is decentralized it true, but this not mean it is not a scam, it's just a different kind of scam.  Believe it or not humans invented decentralization before Peer-2-Peer software and have used it for scams for a long long time, but naivete people always thinks that anything with the glow of Technology on it is new and revolutionary and none of the obvious lessons of history apply.

Most Pryamid schemes involve a recruitment quota for each new member both directly and indirectly as their recruits recruit more in an exponential growth.  Eventually people who reach the quota are automatically cashed out and the Pyramid they were in fissions as the 2nd Tier members become the next in line to be cashed out when their pyramids reach completion.  Another key distinction is that while a Ponzi scheme always involves the ringleader lieing about what they are doing, a Pyramid scheme often WILL disclose EXACTLY how it works to everyone involved, after all in a decentralized system everyone needs to know the 'DNA' of the scam to perpetuate it.  The problem is that  greed and a lack of 'categorical imperative' (aka failure to think about the systemic effects of everyone acting some way) in most people moral thinking allow them to blithe-fully engage in the Pyramid activity without actually believing it is fraudulent.  You would be appalled at the simplicity of some of the pyramids people will engage in, shit like "recruit 10 people each of which gives you $100 then they recruit 10 people each", literally it can be that simple on it's face.  So the overall attitude of 'it's not fraud because I understand it' that comes from BTC folks is very much like what we would expect in a Pryamid scheme.

BTC modifies the Pryamid scheme by allowing early adopters to never cash out, but instead keep watching their unrealized gains pile up as long as they can delay their gratification.  It even has a way to move up in a sense, if you buy more BTCs you can feel like one of thouse early adopters too.  The real key here is the mining model of exponential decay that guaranteed early adopters would always have the most coins and later adopters (mining or buying) would face a shortage.  The speculative bubbles have just been the icing on the whole thing, even without them the long term trend reflects the pyramid growth as more people are recruited and thouse already in ante up more money so as not to be 'left behind'.

Lastly this was all wrapped in an incredibly slick marketing package by Satoshi, the combination of cryptographic anonymity, libertarianism and gold-buggery was the perfect sell to a generation of disgruntled internet mouth breathers.  More then all the technical details the way it was sold as 'digital gold' was the most fraudulent part.  Satoshi even claimed the declining mining curve was 'like gold' which is a complete lie, annual gold production as been climbing for centuries not declining, so the choice of a decay curve is for one thing only to make a guaranteed profit for early adopters.

Gold and silver are a legal means of exchange, yet they are not currencies as evident by the fact that you pay capital gains in the USA and VAT in Europe. You better be paying your capital gains on Bitcoin spends in the USA and VAT in the UK.

You do not pay capital gains nor VAT any where in the world (on a gain in the value of the currency) when you spend the legal tender currency.

So they have not declared Bitcoin to be a currency. The "virtual currencies" is a euphemism for "we are trying to decide what the f$ck this is, but it seems like virtual and some of the users think it is a currency".

See points #4 and #12 in my prior long post. You are comparing apples-to-oranges.

I refuted the transparency point in my prior post. It is quite long but well worth the read I think.

The fraudulence is those who cash out are not myopic and are aware of the end game outcome, that is why they cash out and forsake more "astronomical gains", because they realize what the end game is.

I can only process your posts so fast, this one takes more time because I have to watch a 23 minute long video and pause it to write down his points, because you did not.

Thanks for sharing that, because it helped me refine all the reasons why Bitcoin is undeniably a pyramid+ponzi scheme. Slam dunk!


Points made:

1. Bitcoin is not owned by anyone.
2. Not being advertised by an owner.
3. Panic crashes in price are bankruns because Bitcoin is a currency
4. Crashes are less likely to happen in future because liquidity will increase
5. Ponzi schemes require con men and secrets
6. Ponzi schemes require complete lack of transparency
7. Ponzi scheme is a zero-sum game with mostly losers
8. Those who cash-out often end up in jail
9. Direct investment not through a con man is not ponzi
10. The early investors are so excited they don't cash out soon
11. The early investors spread the word to later investors
12. Con man shows fake certificates (truth is secret) of account balances
13. Some bad news causes a stampede
14. Con man has run away with the money
15. Bitcoin is 100% transparent
16. Early adopters cashing out is not a zero-sum game, Satoshi selling would just cause temporary drop in price

If the man who produced that video owns Bitcoin then he is a con man as follows.

Follows are my rebuttals correspondingly numbered.

1. This is not a required in the definition of a ponzi scheme.
2. It is being promoted by the early adopters.

3. Bitcoin is not a currency because it is not accepted every where that currencies are. You don't say pesos are a currency in the USA. You convert to dollars because dollars are a currency, even though perhaps a few places in the USA might accept your pesos. Yet this is irrelevant, because panics have nothing to do with doubt about reserves in a bank's vault. Panics are because there is no intrinsic value and everyone is looking at everyone else to see who will be the first one to stampede. Subconsciously everyone knows the value is dependent on not many people selling and many more people buying, because if the momentum of the price gains slowdown, the reason to invest is gone. Some of the owners are misinformed and think there is way Bitcoin could become a currency, because they haven't though deeply about the concentration of the distribution of the coins as I documented in the OP. Thus the price doesn't drop to 0, because the uninformed owners believe in something that doesn't exist. But one day they will become wiser as they see that Bitcoin isn't close to being a currency even many years from now. This myopia is equivalent in effect to the secrets a con man hides from the investors.

4. As the price rises higher and higher the early adopters have more and more incentive to exit, because the larger their holdings become in fiat value, the more impossible it is for them to ever cash out. Also as I explained in #3, more and more of the investors will realize it is not becoming a currency, meaning inability to divest by investing the BTC directly in a business instead of converting to fiat. OTOH, more and more later investors will rush in, thus indeed liquidity could increase and it must else the price gains can't continue. But one day, there simply won't be enough later investors to come in, either because many have realized what the end game is, or because there aren't any more out there in the world with sufficient wealth to invest in it. In either case, then the price can't continue growing, so then the stampede must ensue. And then there will be no reason to buy low, because everyone was already in. And the masses will lose everything in this stampede to those few who cash out. And so who will buy it low? The few won't buy it low, because they know no one else can buy it, because they are all bankrupted. If Bitcoin will be owned by most investors in the world, then this will destroy the world. This is why ponzi schemes are so incredibly evil and dangerous. This is different from a stock, because a stock has intrinsic value to due earnings, profit, cash-on-hand, talent of management, talent of employees, contracts, etc..

5. It is apparent from #4 that all the destructive effects of a ponzi scheme doesn't require a centralized con man, neither do the definitions I quoted in the OP. And in effect the early adopters who are promoting this system are con men. The secrecy in Bitcoin is the myopia the gullible later investors have when they are told certain buzzwords, e.g. "decentralized", "anti-government", "better than gold because supply is limited 21M coins", etc.. These buzzwords along with the lack of aptitude among most people, cause their brains to feel good and they love the price gains, so they don't pay attention to the facts of this thread. The con man relies on the same gullibility when he gets the investors to believe certain buzzwords, e.g. "international postage stamps arbitrage" as Charles Ponzi did and the investors did not verify it is no different than spinning buzzwords at the Bitcoin investors and they don't verify the logic.

6. Transparency is not required, rather Ponzi schemes only require the investors are too lazy or gullible to check on whether there is an intrinsic value or not.

7. Bitcoin is zero-sum at the terminal velocity as explained in #4. It is important to understand that those who cash out take out more than they put in, due to the illusion of price gains. See #12 for why price gains are an illusion.

8. Indeed they do end up in jail. And Bitcoiners who cash out will also in my opinion end up in jail, because so many people will be wiped out by Bitcoin. Note this hinges on Bitcoin not becoming a currency which I explained why it can't in the OP and I reiterated in #3 why it is not a currency. But I am sure we will debate this more downthread.

9. Handing your money to an earlier adopter instead of handing to a centralized con man, does not change any of the dynamics of the ponzi outcome described in #4. I have refuted the secrecy and transparency points above. I will also address the fake accounting in #12.

10. Ditto in Bitcoin.

11. Ditto in Bitcoin.

12. Bitcoin exchanges lie about your balance. They seem to imply that you can sell for a certain price, but the float is only about 0.1% of the market cap, meaning only about 0.1% of the money in Bitcoin can get out any where near the current price. Slam dunk!

That proves this is not a currency and it is no where nearly similar to a bank account!

You can't argue that is okay for stocks so it should be okay for a currency, because as I explained in #4, stocks have an intrinsic value. Bitcoin has no intrinsic value because it is not a currency. Yet if it were a currency, then exchanges wouldn't lie about your account balance. It can't be both ways. If 90+% of Bitcoin wasn't concentrated in a few hands, then the exchange markets would have orders-of-magnitude higher float and liquidity, and thus it could be both a currency and an investment. I suggest a fix in the OP.

13. Ditto in Bitcoin.

14. As explained in #4, those who cash out run away with all the money. It is important to understand that those who cash out take out more than they put in, due to the illusion of price gains. See #12 for why price gains are an illusion.

15. I have explained above why it is not effectively 100% transparent. For example in #12, there is no way to know what your balance is. And in #5 how the psychology of later investors is manipulated causing the truth to be opaque to them. Also this point is irrelevant because in #6, I explained why transparency is not required for a ponzi scheme. The definitions of a ponzi scheme in the OP don't require transparency.

16. Refuted in #4.

"no intrinsic value if is not a currency"


The Department of Justice said Bitcoins can be “legal means of exchange” at a U.S. Senate committee hearing, boosting prospects for wider acceptance of the virtual currency.


Nov. 18 (Bloomberg) -- The Senate Committee on Homeland Security and Government Affairs meets on virutal currencies in Washington. U.S. Senator Tom Carper, a Democrat from Delaware, the Treasury Department's Jennifer Calvery, the Justice Department's Mythili Raman, and Bitcoin Foundation Inc.'s Patrick Murck comment. (Excerpts. Source: Bloomberg)
Enlarge image Bitcoins

“We all recognize that virtual currencies, in and of themselves, are not illegal,” Mythili Raman, acting assistant attorney general at the Justice Department’s criminal division, said at the hearing.


Seems the assistant attorney general believes it is a currency,  therefore can not be part a ponzi scheme by definition.

Is the stock market a ponzi scheme then?

And by that I don't mean the dividends paid by the companies. But the notion of ever increasing value based on possible future performance. Which is often much higher than the value of companies holdings...

as listed on https://bitcointalksearch.org/topic/documentary-on-bitcoin-summary-thread-268955
Bitcoin 101 Blackboard - Why Bitcoin is Not a Ponzi Scheme - Debunking Bitcoin Myths
http://www.youtube.com/watch?v=7u4F8cpzqao&list=PLzctEq7iZD-7-DgJM604zsndMapn9ff6q&index=2

As far as I can see, you did not refute the definition of a ponzi scheme.

There is no tangible commodity. It has no intrinsic value if it is not a currency. The only value it has is the value from later investors following earlier investors. Thus it fits the definition of a ponzi scheme.

The definition doesn't say the operators or organizers must be centralized.

The system clearly moves value from later investors to earlier investors.

Dividends are paid the miners. Mining is somewhat monopolized by large capital somewhat due to ASICs requirement and pools. But any way this point is irrelevant, as it is not required by the definition of a ponzi scheme. I quoted two definitions in the OP.

Ponzi scheme is a certain kind of fraud/scam... I limit the use of term for certain group of investment operations. Bitcoin just doesn't fall under these.

I'm not saying that early adopters don't have possibly unfair and unreasonable advantage in bitcoin. Which might be it's downfall...
Point is that everyone knows how much there is currency out there and can make judgements based on this knowledge.

Logic fail.

It is not objectively correct to claim that everything in nature fits the definition of a ponzi scheme.

You're basically just pointing at nature and saying everything is a ponzi scheme.

It's not guilty until proven innocent, if you're begging for rebuttal then at least argue why it's fraudulent beyond empty circular logic.

Bitcoins can be compared to commodity, or any real word objects which have increased in value. It's openly and freely traded inside the technical limitations. No dividends are paid by any authority. All the profits come from appreciating perception of market value.

For it to be ponzi I would require there to central authority  or a system which clearly moves money from new investors to old investors. This is not the case.

Refute the definition of a Ponzi scheme objectively. Otherwise you have not presented an objective argument, just a subjective opinion.

If you want to be taken seriously, you must argue it as a lawyer would, focusing on the legal definition of it.

Because only the legal definition is going to save your arse when it comes to prosecution time.

Remember that every ponzi schemes impoverishes most of the investors and only a few escape. Thus either you lose everything, or if you are one of the unlucky few to cash out then you gain a very big legal culpability if this is a ponzi scheme.

No, mania/bubble yes... Ponzi scheme not really...

reserved

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I would really like to get to the bottom of this question in an objective debate.

I have added a poll so that readers can express their subjective opinion without my censorship. The objective answer to this question is in the objective logic debated in this thread. Objectively the poll is a measurement of the level of delusion and mania, as to whether it agrees with the objective arguments made in the thread. Those who can't make objective arguments will vote only. This level of measured delusion and mania can serve as further evidence of the ponzi scheme, e.g. for the authorities.

Since this is a self-moderated thread, please review what I think it is the objective difference between objectivity and subjectivity.

http://en.wikipedia.org/wiki/Ponzi_scheme


If we equate "organizers" with "operators", the characteristics added by the SEC definition are "with little or no risk". I can cite numerous comments throughout the bitcointalk threads where owners of Bitcoin claim the infallibility of the Bitcoin model for growth.

Bitcoin is amalgamation of some characteristics of a pyramid aka multi-level marketing scheme and all characteristics of a ponzi scheme. Specifically the earlier owners of the Bitcoin, promote the low-risk or no-risk and high-gains benefits to later investors.

I don't objectively see how this can possibly be refuted. I am interested to see what others can say.

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I have presented some detailed logic for why for as long as Bitcoin is not widespread in the population, it can not function effectively as a currency. And the chicken-and-egg dilemma conclusion of that presented logic is that it will be ponzi scheme for as long as it is not a currency, and it will not be a currency for as long as it is a ponzi scheme.

We all love the concept of a decentralized currency and we all want it to succeed.

So what is the actual problem here?

If you work out the above linked logic in your mind, then objectively the problem is that in order for investors to exit without converting to fiat and thus driving the exchange price down in a stampede, the coin needs to be a widespread currency so that the investor can exit by investing the coin directly without ever converting it to a fiat.

See the problem is that when you invest in a company, that company needs to pay its costs in a currency and people in general can only use a currency that is accepted by all merchants. And I am not just talking about esoteric merchants applicable to our current demographics, but everything down to the fish vendor carrying a bucket outside my nipa hut in the mountain in this third world country where I reside. Okay maybe actually we would be fine if our coin was merely accepted by a significant minority or simple majority of developed country merchants, assuming most investors in bitcoin reside or invest only in developed markets.

The problem is that in order for merchants to accept bitcoin, there needs to be a demand from their customers. And thus we need our coin to be distributed to significant portion of the world's population.

But Bitcoin is highly concentrated among the wealthy investors, probably controlling 90+% of the coins. Note when analyzing the linked data, please don't argue that offchain services storing everything in one coin distorts the data, because I see for example that localbitcoins provides a separate address for each user and some users have wallets with 100s or 1000s of addresses, so if anything the data is skewed towards making the concentration appear to be less worse than it is.


How can that concentration possibly be resolved. If the investors sell for fiat it plummets in price, and if they try to use it as a currency, they can't possibly get enough economy-of-scale to divest more than a sprinkling of coins, because Bitcoin is not a widespread currency. But it can't become a widespread currency until it is widely distribution. Again another catch-22 or chicken-and-egg dilemma.

The only way I see for a coin to solve this dilemma is to be widely distributed from mining. And Bitcoin can't do this, because it is dominated by ASICs (no one with a PC can mine effectively) and it stops asymptotically at 21M coins. In fact, half the coins were awarded in the first 4 years, and 75% in the first 8 years, and 87.5% in the first 12 years, and 93.75% in the first 16 years.

Let the discussion begin.

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Edit: Not limiting the supply of coins to 21M has no downsides and has other benefits too: