Topic: Wall Observer BTC/USD - Bitcoin price movement tracking & discussion - page 29520. (Read 26608566 times)

Why don't people play this circle game in real life, if it makes everybody rich?

OK, in my parable, after the two swindlers leave, those who remain have less than they had invested.  Each invested 50 or 100 dollars, the scoundrels have taken out 150 net.  But the losers think that they have more than they invested, because they own a highly "valuable asset" -- their place in the circle.  Let's say that they believe that their place is now worth 300 dollars.

A new "customer" comes in and wishes to buy a place in the line.  He pays 300 dollars to one of the original investors, who walks out with that money.  That first "customer" then immediately sells his place in the line to a second "customer" and walks out with 300 dollars.

So the "old investor" made a fat profit (invested 100, walked out with 300) and the "first customer" got in and out with no net profit or loss. Where did the profit of the old investor come from?

Why don't people play this circle game in real life, if it makes everybody rich?

Good question. Imagine the "money circle" game, except you are handing around those $50 bills in a circle of friends in 10 different countries. Using fiat and paying exorbitant fees this game would obviously not last long.

Next, imagine that there was some magical, mystical way that you could track the money as it floats from friend to friend and that as soon as one person tries to "pocket" the cash all the other participants would know instantly that the money did not go where it should have because they were all auditing everyone else's transactions in real time...

Technically bitcoin works however you value it but its utility increases as its value increases because that determines how much
value you can transfer through it. Think of it as the "bandwidth".

so, what happens if the price levels out and the unit of exchange is used for the exchange of goods and services? who has lost? I'm geniunely curious.

The negativity surrounding bitcoin is only relevant if it declines in price. What happens if it sits still, for example

Well Bitcoin would  alsowork  if the price for 1 Bitcoin would only be 1-100$.
What´s the problem? I thought you all love the technic/philosophy and not the actual $ value of Bitcoin.

First a greeting to Jorge from Venezia  

Then a question: actually moving money around has a high cost and friction due to fees applied by banks and entities like paypal and so. How do you explain this in relation to the basic physic you named?
Could it be that we already have been made poor (thus engaged in a worldwide ponzi scheme driven by inflation) and bitcoin, being technologically superior, is giving us back a part of what has been taken (if not stolen)?

p.s. apologies for the bad grammar!

I do not want to bring more discord here.  You all know my views and arguments, if you don't agree with them I do not know what to add.

But let me clarify a couple of misunderstandings:

* Investment in stocks is not a zero-sum game.  A long-term stock investment is a loan to the company, who hopefully uses that money to create new real wealth (goods or services) that is worth more than the money invested in it.  Part of that extra wealth is returned to the long-term investor as dividends, part is returned through the increase in stock price related to increase in the assets of the company (e.g. new factories built with money from profits that was not distributed as dividends).  Thus investing in stocks can make people richer without making anyone poorer.

* Money that is invested into bitcoins is not being given to the "company" -- that is, the bitcoin network -- for it to build the infrastructure and paying the costs of doing its service (which is the "new wealth" that the bitcoin project is meant to create). Most of it goes into the pockets of other traders, some into the pockets of exchange operators.  The "company" does not pay dividends to bitcoin investors, and these do not own a single chip from that "company".  So, investing into bitcoins is not at all like investing in Google or Apple stock.

* By simply moving a fixed amount of money and bitcoins around, bitcoin trading cannot make everybody rich, not even in the average sense.  That is something that a college education may help understand: in basic physics you learn that you cannot create mass, charge, or energy by smartly moving those things around.

Of course it is. Where do you think the money to pay these people is coming from?

The same is true for stocks. Your money only goes to the company if you buy the IPO.

But it does the equivalent of buybacks. In order for "customers" to use the service, they must buy bitcoins from investors.

* Money that is invested into bitcoins is not being given to the "company" -- that is, the bitcoin network -- for it to build the infrastructure and paying the costs of doing its service (which is the "new wealth" that the bitcoin project is meant to create).

Most of it goes into the pockets of other traders, some into the pockets of exchange operators. 

The "company" does not pay dividends to bitcoin investors

I do not want to bring more discord here.  You all know my views and arguments, if you don't agree with them I do not know what to add.

But let me clarify a couple of misunderstandings:

* Investment in stocks is not a zero-sum game.  A long-term stock investment is a loan to the company, who hopefully uses that money to create new real wealth (goods or services) that is worth more than the money invested in it.  Part of that extra wealth is returned to the long-term investor as dividends, part is returned through the increase in stock price related to increase in the assets of the company (e.g. new factories built with money from profits that was not distributed as dividends).  Thus investing in stocks can make people richer without making anyone poorer.

* Money that is invested into bitcoins is not being given to the "company" -- that is, the bitcoin network -- for it to build the infrastructure and paying the costs of doing its service (which is the "new wealth" that the bitcoin project is meant to create). Most of it goes into the pockets of other traders, some into the pockets of exchange operators.  The "company" does not pay dividends to bitcoin investors, and these do not own a single chip from that "company".  So, investing into bitcoins is not at all like investing in Google or Apple stock.

* By simply moving a fixed amount of money and bitcoins around, bitcoin trading cannot make everybody rich, not even in the average sense.  That is something that a college education may help understand: in basic physics you learn that you cannot create mass, charge, or energy by smartly moving those things around.

@KeyserSoze,

I have promised to keep my negative views to myself in this forum, but you insist asking for them...

Is what I wrote on twitter and put on my homepage any different from what I already wrote here?

(You missed my last tweet, "One day bitcoins will be worth their weight in gold".)

Even if bitcoin ultmately succeeds (which I wish it will, but doubt it) and bitcoins becomes extremely valuable (which I very much doubt they will), bitcoin trading is ultimately a zero-sum game.  Any profit that one makes from it is someone else's loss.  In order for @Goat (or someone else) to buy his Lamborghini, @windjc (or someone else) must lose his house.

I believe that adults have the right to gamble their money and property any way they want.  They even have the right to play at this crazy roulette-by-phone where the casinos may not have money to pay off, and the dealers are know to be liars, cheaters, and thieves.

So I have no objections to bitcoin trade and speculation --- as long as the people who come into the game are aware that it is a form of gambling, and that their expected profit is slightly negative (because of fees and other losses). 

However, this particular game will be profitable for its current players only if the price goes up; and that is not likely to happen if the "market" consists of the same guys trading the same bitcoins and the same dollars back and forth among themselves.  In order for the price to go up, and the old players to make substantial profits, new players must come in and bring new money.

So, in that aspect bitcoin trading is indeed a classical Ponzi schema: the money invested by new members is used to pay the large profits of the early joiners -- if these are smart enough cash out while the price is higher than what they paid for their coins.  The net effect of the game is to shift money from the late entrant' pockets to those of the early entrants.

And that is when the game stops being OK.  That is because in order to lure new players, some of the bitcoin "evangelists" are resorting to plain lies, painting bitcoin as a "good investment", an hedge against "rampaging inflation", etc.  They keep showing that false arithmetic of total e-commerce divided by 21 million.  Some still claim that bitcoin payments are untraceable and un-seizeable. (You may have seen my tweets a couple of weeks ago where I argue with someone who claimed just that.)  And the bitcoin salesmen conveniently forget to mention the growing legal barriers, the dozens of exchange failures that ate millions from their clients, and the many other things that would turn sensible people, even uneducated ones, away from the bitcoin game.

One feature of Ponzi schemes is that most people who join feel the urge to become salesmen and convince others to join too.  You do not see long-term stock investors doing that; that's because those people know that other smart investors will look at what the company does, and will not be impressed by sales hype.

It was the opening of the Chinese market that lifted the bitcoin price from the low tens to 1200, and it is the Chinese who are holding it at the present levels.  But that market is no longer growing. So, where will the necessary new suckers come from?

I have seen people here and elsewhere saying that the only hope left now is Latin America.  Well, I cannot sit and watch fellow countrymen being conned, can I?

Several times I felt the urge to end my posts here with a friendly "I wish you all get filthy rich".  But I cannot honestly say that: if some of you do, others necessarily will become filthy poor.  I thought of writing "may you all get back most of what you invested", which is the fairest outcome one could wish for in a zero-sum game.  But I cannot honestly even wish you that, because many people have already walked out of this game with millions of profits or stolen money --- so you all are, like those guys in my parable above, spinning around only a fraction of the money that you all put in.  Sorry, folks.

No that is wrong, the test for dishonesty is not dependant on the recipients understanding, it is dependant on the perpetrators intent. (or an objective test - by the 'man in the street')

The Ponzi case has a very specific legal meaning, blurring this meaning,  invalidates the comparison.

oh no. not the ponzi thing again.  

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