Topic: Re: [FAQ] Is BitCoin a Ponzi or pyramid scheme? (Newbie-Friendly) (Read 5834 times)

Fate favors the agile.  Get smart or get left behind.

Just like they control everything else on the Internet?

There is no debate about that one.
If it is bitcoin or not depends if the powers to be have control of it or not. since nobody knows how is behind the satoshi entity and what percentage of bitcoins it controls its hard to know the outcome. time will tell.
If anyone would try to establish a "one world currency" the traditional way he would face a revolt and people fighting toe to nail. Yet coming in in a a*se about way from behind it becomes "cool" and people trolling over each other to have a "one world currency".
The powers in charge will be in control of whichever internet money will be used.

Quite possibly so, but only if Bitcoin doesn't ever succeed on a massive scale. And even if it doesn't, there's a good chance that it will pave the way for future crypto-currencies that will.

Perhaps the Internet is something of an analogy. It was grown by for profit companies who were looking to make money. But the net effect of the Internet is that even the most repressive governments in the world can't keep their citizens from reading Western media and blogging about conditions in their country. The people in the early days of the Internet had the idea that they could be changing the world, and there were certainly people telling them that those beliefs were unrealistic. But they did change the world.

In the early days, the Internet's development was filled with both with people who labored tirelessly trying to change the world and people who were just looking for a quick buck, and everything in-between. But they are all moved us in the same direction. There was nothing unholy about the alliance.

If I didn't think there's any chance at all the crypto-currencies will ever create significant value or benefit, then I would agree with you. But I think there's a very good chance that some future or present crypto-currency will change the world in a big way. In fact, I think it's as inevitable as the Internet. Of course, I have no idea which one or when.

Exactly, just like the existing Fiat system. A small group (thousands) get lots and the fast majority (billions) get left over crumbs just enough for the "system" to work.

Even if you're right, you have the identity of the "small group" wrong. It's all the people who bought or mined significant numbers of Bitcoins when they were below $2. And, that's not really any different from people who founded successful companies or bought stock in them early.

The big question is this -- does the ability of Bitcoins to be quickly and cheaply transacted around the world add significant value? If so, then that value is being divided the same way profitable companies divide value -- those who start it and those who invest in it early get lots of it and everyone in the world gets some. It's only if you think Bitcoin -- the product, the system -- is really useless and has no potential to provide real value that your argument makes sense.

If Bitcoin is a Ponzi or Pyramid scheme is debatable, it certainly is a get rich scheme for Satoshi whoever it is, private individual or entity (i believe the later).
I can start to smell a rat.
Lets look at some quick facts. 2009 birth of Bitcoin. Not much happens for 20 months 6 million coins mined. Then slowly some geeks and tech savy persons get involved and start mining and selling the coins too. So now we have about 10 million coins mined until now, about 4 million since 2011. It is fair to say that the Satoshi group has mined way more than 50% (if not all coins) until 2011 and since the have the hardware and means to generate this huge collection of coins in a relative short time its fair to assume that since 2011 they again mined the majority of the coins. So that leaves the Satoshi guy or group with way over 50% of the market and as with control of it. They can "pump and dump" whenever they feel like, which means the gain control of even more coins since they know when to get "out" of a particular direction. Satochi, more than 50% ownership on day one more than 50% ownership as long as bitcoin exists.

This truly "one world" currency is just an updated version of the existing Fiat system. A small group controls a lot, the masses fight for the left overs.   

http://www.youtube.com/watch?v=K5VC58gjnjY&list=UU-7vnmA1Zf1cRyqs9aR77ag

Bitcoin is NOT a Ponzi or pyramid scheme. Its success however will depend on how many merchants accept it as a method of payment. The more merchants that accept it as payment the higher the market capitalization must be to support that level of trade. The best way to support it is to support the merchants that accept it by using BTC to purchase goods from them. It is fine to hold some for investment purposes, but using it is what will ultimately make it succeed and cause it to go up.

There is no periodical payment due in the Bitcoin system. The Bitcoin you hold remains a Bitcoin. Therefore, I think it cannot be deemed a pyramid or a ponzu scheme. It's no other than people holding a fixed amount of rocks whereas the Bitcoin rock happens to be easily transferable over the Internet.

Bitcoin also doesn't meet criteria #5, because #5 should actually read, "Investors are told they are being paid returns from a certain investment, when earlier investors are in fact paid from the investments of later investors."

It is more accurate to claim that Bitcoin is a pyramid scheme (as opposed to a Ponzi scheme), and that has a grain of truth (considering how many are buying bitcoins now, with the sole intention of selling later at a profit).

Bitcoin is more like investing in a patent. The invention of the bitcoin is specifically intended to drive the economy of the internet. There are many other alternate ideas that are for sale, but Bitcoin is the original. It is better than a patent, because it cannot be counterfeited. It is not like buying stock in the company that owns a patent, but rather partial ownership in the entire production chain. Expecting a profit on the investment is not based on hearsay, it is opened sourced and based on the research of some of the greatest minds in math and cryptography. I can understand if you are trying to sell someone on the idea of investing in bitcoin on your say-so, but you don't need to. All the code, whitepapers, and wikis are available for anyone to research.

Perhaps some people interpret terms like Ponzi scheme to mean a risky investment, but I perceive that it's more like investing in a fundamental technology itself. This idea is too difficult for most people to wrap their mind around so they reach for the easiest analogy. Bitcoin requires not only people willing to monetize the tokens, but also requires a form of cooperation that forms every social relationship. Without getting into the woo zone, Bitcoin is more like the discovery of atomic energy and Bitcoin is the Manhattan Project. Sure, you could build your own, but not before Bitcoin is adopted by the majority of socially adjusted people that understand the purpose and usefulness of this tool to benefit the majority.

Normally, paradigm-shifting ideas like this are never fully understood by the masses, but instead they trust the peer reviewed experts that endorse the technology. Bitcoin is not a political tool. Bitcoin is not merely a financial tool. Bitcoin is a social tool for communicating value on a global scale. It can be used for much more and has the potential for becoming a powerful social science tool (because of its anonymity), but for now it can be developed to scale and help humanity break through many of the societal barriers created by nations and globalist powers. Someday Bitcoin will even replace these barriers.

tl;dr Bitcoin is too hard to wrap your head around, like nuclear physics. People use the term Ponzi to describe anything financial they don't understand. Bitcoin doesn't need salesmen, it needs trusted scientists to approve of the technology before it will be adopted by the masses.

I was rebutting your claim that "You cannot have a Ponzi scheme without a Mr. Ponzi type person lying to customers" and using Pirate as an example only to rebut that specific claim. It makes no difference whether Pirate is anything like Bitcoin. All that matters is that Pirate is a Ponzi scheme and would have still been a Ponzi scheme even if all the misrepresentations had been made by investors and none by Pirate himself or any "operator" of the scheme.

If your point was just that someone must make misrepresentations, then I agree with you. There must be misrepresentations and people must invest on the basis of them. That's why whether or not Bitcoin is a Ponzi scheme comes down to whether investors' belief that Bitcoins may get future value from demand for them as a means of exchange is reasonable or the result of a misrepresentation.

Damn people get a thesaurus and at least start misusing some new words. 

Pirate was not selling Bitcoins. He was selling a different product of his own design. Apples and oranges.

As discussed above, you can if the earlier investors make unreasonable representations to later investors in order to get new investors whose investment will wind up in the hands of the earlier investors. The earliest investors in a Ponzi scheme have the same incentive the creator of the scheme does.

Pirate, for example, could have just said "I'm borrowing money and paying x% interest" (which is true). He then could have shut up and let just his investors keep the hype going and make the misrepresentations about where the money was going. It still would have been a Ponzi scheme.

These aren't precise legal distinctions. The term "Ponzi scheme" covers a range of schemes with fuzzy boundaries. Their general attributes are:

1) Investors believing claims that they can get returns way above what legitimate investments provide.

2) Investors believing claims that their investment is very low in risk relative to the expected returns.

3) No reasonable expectation of a source of revenue for investors other than contributions from later investors.

4) No requirement for investor participation to get revenue.

5) Earlier investors are in fact paid from the investments of later investors.

Bitcoin meets all of these criteria except 3.

If someone claims Bitcoin is a Ponzi scheme and you want to address that claim head on and honestly, what you have to argue is that there's a reasonable expectation that Bitcoins will appreciate in value over the long term due to demand for Bitcoins as a means of exchange. If you don't believe that, then Bitcoins as an investment basically *is* a Ponzi scheme.

Is BitCoin a Ponzi or pyramid scheme?
No, not in the traditional sense.
But...
We need a bunch more new bag-holders to take this rocket ship up to $100 next week! 

You cannot have a Ponzi scheme without a Mr. Ponzi type person lying to customers.

This seems to me to be a very good argument. It does seem improbable that a scam could increase and decrease in value, sometimes remaining at a fairly stable point for some time. Either a scam is an amazing investment or people should be abandoning it. A feedback loop seems very difficult to sustain unless it has a significant component that's not speculative. I certainly can't think of any precedent offhand.

Theoretically someone could manipulate a market to do that. For example, Pirate could have made extra money by stalling a payment (claiming he had "difficulties", causing panic selling as people fear the Ponzi is collapsing) and then buying up his own debt at a discount through straw buyers. Then when he makes up the stalled payments with a little extra "to apologize", the price soars and he sells his own debt. Theoretically, a manipulator could do that for a few cycles. But pretty quickly the panic selling will stop. And besides, you can't do that with Bitcoins directly, you'll lose money. The manipulator has to be the counterparty in the majority of transactions (otherwise, anyone else can take all the profit you intended for yourself), and I doubt anyone could do that with Bitcoins.

I'm still wondering.
Is it possible for a ponzi or a piramid scheme to decrease in size in a stable manner?
I mean, is there some mathematical valley of stability that could allow the price of bitcoin to go from $30 to $2 dollars and then grow to $70 through several 'horizontal' periods?
The reason i bring this up is that i think that in a situation where you need new investors to pay off old ones such a balance (the way bitcoin price has changed over time) would be impossible to maintain.
So to me that is the strongest evidence that bitcoin is not composed only of pozi scheme or piramid scheme but in fact has some real financial bottom to it.

If you are talking  about the whole Bitcoin community as a whole I would not argue, but I always find the need to emphasize the neutrality of the infrastructure itself, the narrowed-down definition of Bitcoin, to dispel the FUDs.