Topic: Why people think Bitcoin is a ponzi scheme? - page 2. (Read 5112 times)

The cult-like attitude of bitcoin proponents also plays an important role here. Thanks. Case in point. ↑

The proper response when bitcoin and Ponzi are mention in the same sentence is: Provide reassurance that bitcoin is not a ponzi scheme.

Members of the cult are expected to produce certain pat responses. Even when these responses are unrelated to the question asked.

Observing such cult-like behavior, outsiders are distrustful and suspect a ponzi. As they should.

Let's not.


If you know what a ponzi scheme is then you can quite easily determine what is not a ponzi scheme. If the OP understood what a ponzi scheme actually is then he probably would not have started this thread in the first place.

Do I need to hold your hand and walk you through anything else?

I think the simple reason people think of Bitcoin as a ponzi scheme is it is that for people who are either against Bitcoin or, who out of concern for we brainwashed want to warn us against Bitcoin, 'ponzi' is a great FUD term and repeating it, using it in headlines etc. perpetuates its association with Bitcoin.

I never participated in pyramid/ponzi/mlm schemes but have been attracted to them and not believing the legal/illegal differentiation is what counts, wanted to get to the bottom of the difference between such a scheme that is beneficial and one that is detrimental to its participants.

My reasoning went like this:  If the benefit to participants is solely profits from those further down the chain it will sooner or later collapse - and when it does, by necessity the vast vast majority of participants will lose.

If there is a product or service being sold along with the promise of profits from those further down the chain and the product or service is one that is not (without the potential profits) worth the money paid then it will sooner or later collapse - and when it does, by necessity the vast majority of participants will lose - although they will at least have something to show for it!

However, if there is a product or service being sold (with or without a promise) and it is a product or service that would be of value at the asking price regardless of potential profits from marketing then every buyer as well as every seller, regardless of where in the chain, have gained.  So why would it collapse?

Granted there are many who hate the idea of those towards the top of MLM schemes making so much more money from doing basically the same thing as what the last-in-chain seller is doing.  Many people also still believe if someone has made a heap of money by necessity there is someone else who has suffered as a consequence.  This can't be helped.  But I think it is helpful to tease apart the elements making up the varied interpretation of what makes a ponzi because it then gives us the conceptual tools to see which aspects may be relevant to Bitcoin and which aren't.

Nice restatement of the myth.

There is no 'needed capacity'. One CPU worth is completely adequate. Or do you believe that double-spending is otherwise impossible to prevent in a decentralized system? [Hint: it isn't at all impossible or even very hard.] If not, then what do you mean by 'needed capacity'? What is the capacity 'needed' for exactly?

Lets look at the first part of the OP's post.

Why would you think that explaining what a ponzi scheme is answers the OP's question?

The better answer to the OP's question is to explain what a ponzi scheme is. A ponzi scheme is essentially an investment scam that promises high returns in short time frames. It accomplishes this by using money from new investors to pay current investors, but the money is never actually invested in anything and so the fund has no way to gain value.

Ponzi schemes fail once they reach critical mass - the point where there are more current investors than there are new investors - making the "investment" scheme insolvent. This is when the operator of the scheme (scam) takes the remaining balance of whatever was invested and runs for the hills.

This has nothing to do with long term viability. You can string a ponzi scheme along for years, if not decades, if you do some basic number crunching to manage the rates and policies of your scam...but it does not change the fact that ponzi scheme investments have no opportunity growth and rely solely on new investments to exist.

Bitcoins are not an investment scheme and do not rely on newcomers to sustain themselves. Do do rely on community participation, however they can be thought of as freelancers rather than investors. As long as there is interest in bitcoins they will be able to exist.

I think that distributing bitcoins that a Skittles the unicorn farts out would be more effective marketing than the existing method where a dollar's worth of bitcoin is spent on "marketing" yet the recipient, the miner, only gets a few cents of that (after subtracting costs for electricity and capital costs).

Bitcoin needed a system to subsidize the mining function until the currency has enough traction where it can be self-sustaining with transaction fees.  Now once the bitcoin subsidy drops in half, there will still be enough mining capacity remaining to provide the needed service (preventing double spending).  And in four years when it drops again, the number of transactions fess will be higher so there will be even less need then for the higher subsidy.  And four years after that, even more transaction fees and thus less subsidy is needed.  And on and on.

There's currently way more capacity than is needed, but there is not yet enough from the transaction fees to meet the needed level.  So the subsidy is doing its jobs, and it dropping in half next week won't hurt the security of bitcoin.

Sure, there will be about 2.5 million BTC paid to miners this year. That is a lot. Say we wanted raise that with fees. At current rates there are about 7300 BTC raised per year. Thus the fees would need to be raised by 340-fold. Such fees would be salient. You would see them leave your wallet everytime you make a txn. Rather than...


It would be
This difference is what I mean by salient vs. hidden. Opting for hidden fees, 'free money', and 'no fees' is a clever marketing scheme. But it is an illusion.

I see what you mean, though this is a bit of a loose analogy. Payment by devaluation, again a bit of loose usage with the term payment. Well that is fair, though I don't know that people are unaware of this fact, or at least not as unaware as you say. If it is known that X coins are generated every day, at a specific rate, it is fairly clear that this needs be made up for in some way.

Okay, an analogy may help. Who pays for the money the FED lends to banks? The discount rate is completely transparent. What do people holding USD have to do with this?

[I'm reluctant to go into to more detail here because the issue should be obvious. The details are distracting.]

To what end? People should not in their own self-interest see the coming technology as a way to profit? Should they avoid ASIC altogether? It is something that has been a long time coming, and there really is no way of stopping it (whether it is now, or if it's a scam, in the future). Ideally there would be tons of kick-ass services, and easy to use mining for everyone, but the system has to grow organically, and as always happens that means inefficiently at best, and crazily at worst. I'm glad that there are people working towards the best interest of bitcoin as a whole, by providing services for BTC, and programs to help make the network more accessible, but I certainly don't expect everyone to stop themselves from any venture if it could be at all potentially harmful to BTC.


To be fair, I do have a problem with paypal, and also need to send money halfway around the world, and there are no good options for me, sadly bitcoin is not really a good solution for me here either. If it were to grow however I would certainly be quite happy to use it in this manner, and it would be a great legitimate service. I see many others, who would be interested as such.
Mining does matter, but it is separate from the use of bitcoin, and the two need not be considered together.

As regards Ponzi schemes, people will be people and will always mislabel things, because they don't bother to learn the proper terminology, so it goes. Doesn't help that Ponzi schemes have been on peoples minds lately in larger news, what with Madoff and whatnot.


This one I'm not sure I follow. How are mining proceeds paid for by anyone simply holding currency? Do you mean that people who support the current valuation of BTC are paying miners? Or is it something separate? As it stands, mining is not hidden anything, they generate X coins per day which are then either held or dumped into the system, very transparently.

Mining does matter. Mining proceeds are paid for by anyone who uses bitcoin as a payment medium or store of value. Right now you pay people to mine just by holding currency. People do not understand that they are paying miners by agreeing to hold currency. Just like people don't understand that they are giving the government revenue by holding dollars. It is a hidden tax. Mining just seems like free money. The future 'necessity' of mining justifies the distribution of free money today.

You also pay people to mine when you send currency. And the plan is to make you pay more and more over time. This is a salient tax on the user base. The myth is that this tax is necessary. People are happy to accept this myth. Right now, mining means 'free money' and the tax is some vague thing people will pay in the future.

In the future, mining will just mean straight tax. That sort of myth is quite hard to swallow. People will vote with their feet. Opting for almost free transactions instead of txns with salient fees.

This makes bitcoin very much like a ponzi. It closer to multi-level marketing, but ponzi is a more familiar term.

The frustrating thing is that it is hard as hell to break the myth right now. A lot of monetary myths are like this. Thus the famous saying about monetary crises: "The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought"

I also believe bitcoin mining should be used as a marketing tool to get people interested, it should be easy to use, like bitminters client with easily available hardware, not asic devices which will probably be backordered until they are no longer profitable. Then when people have them we need great services to spend them with, but people are unlikely to buy bitcoins when they can use cash or credit card instead. At least until vendors provide discount for bitcoin or only sell via bitcoin. Amazon could start accepting bitcoin tomorrow, and little increase of demand for bitcoin would occur, other than purely speculation based.

What I'm trying to do with this thread is warn people that this thought "ASIC is going to make me filthy rich in just months" does not make our endeavors look more legitimate to the general public, in fact it does just the opposite. Its obvious to me that bitcoin is attracted many more fraudsters and thieves based on this idea of getting rich, than would exist in other circles.


yes but those people who power down are more likely to be small time miners, who once they stop won't look back at bitcoin any time soon.


I understand what your saying here, that mining doesn't matter. But realistically I think it is a very idealistic answer. Its like saying the fed only exists to keep the economy more stable and prevent bubbles/recessions. People do not have a good reason right now to use bitcoin. Most people don't have a problem with paypal/credit cards. Most people do not notice inflation of their fiat currencies. Most do not need to send money half way around the world, and if they do will probably do it at walmart.



I should have clarified I was speaking about price/difficulty not the price directly

What are the miners for? It is a marketing scheme. An extremely clever one, I admit. However, mining has become weaker and weaker as a marketing tool over time. June 2011 bubble. That is the power of marketing.
We can't expect mining to help deliver anything like that again. Mining is becoming a pure liability.

Last month Bitcoin miners received a little over 200K BTC, or about 2% of all bitcoins that have been issued.   Next month Bitcoin miners will receive just 100K BTC, or less than 1% of all bitcoins that have been issued.  

This alone will cause many miners to power down their GPU hardware and quit mining.    This should not be a surprise to anyone.  

Here's from March of this year:

Bring Out Your Dead (GPUs)
 - http://bitcoinminer.com/post/20028732430



But Bitcoin doesn't exist for the benefit of miners.  Bitcoin exists because there was the need for a type of money that will not be devalued by political influences and a type of money that has no prejudice as far as how it is used.

It doesn't matter a hill of beans to Bitcoin gaining traction if those who are mining are making any money from it.   It only matters that there be sufficient mining capacity to ensure the blockchain is protected, and it is currently (and will continue to be) protected at a level that is way more than currently necessary.


When you stated "we are heading for another several bad months like the end of last year", I assumed you were referring to the exchange rate.  If you weren't referring to the exchange rate then I'm confused as that has a huge role in determining a miner's profit.

Thanks. Case in point. ↑

Kind of a chicken and an egg thing here, without mining you don't have bitcoin but without bitcoin you can't have mining.  Ponzi is a bit harsh if you ask me and so trying to compare this to that is not a very easy thing to do.

Right. That is why everyone defends mining even though it is obvious that mining is extremely expensive and unnecessary. People like "free money" so much, that they convince themselves that the distribution of "free money" via mining is essential in some way. It is like pirate's essential secrecy.

Mining is a very important reason why bitcoin looks so similar to a ponzi.

In many ponzis, participants are asked to do some kind of useless work to make rewards seem justified (see Zeek rewards or whatever it was).

I think the average person is less interested in the exchange rate and don't think any of my post referred to that. More people are interested in the "free money" idea. Right now the general public is mostly blind to the inflation going on in this and many countries. When we see more hyperinflation, which won't surprise me, more people will care about the exchange rate.

I don't think you understood me at all. I think it will be almost impossible for anyone to mine at a reasonable profit. The hardware is too much of a jump that after the people who "know someone" profit (didn't mean to single out Inaba was using him as an example) the difficulty will be too high for me and you to make our investment back in a reasonable time. Most people are not attracted to bitcoin because of making anonymous low fee transactions. When bitcoin falls again to almost break even mining rates, like November of last year, its bad news. Bad mining returns equals less people learning about bitcoin which is in the end bad for bitcoin. People then think the free money is over, therefore bitcoin is over. Just like they were saying when profitability rates were low last year