All existing cryptocurrencies are designed around a math problem that gets exponentially harder to solve as time goes on. However, the number of “coins” you achieve for solving it is fixed irrespective of where on the curve you solve it. This is a Ponzi scheme by definition since the first people obtain a given reward for little effort yet later people must expend exponentially greater effort for the same reward, and the laws of mathematics say that eventually the reward cannot be had for any rational (or even possible) expenditure.
…Ponzi scheme. They are thus all illegal — every one of them — under said laws, and are designed to funnel money from later adopters to earlier adopters.
Sounds as though he agrees with my chain-letter analogy. But to be honest, I do not follow the substance of what he is saying.
He is one of 21 alleged experts interviewed on that page, and most of them are reluctant even to call “bubble,” much less “scam.”
Pointer from Miles Kimball.
Merry Christmas.
He is, for better or for worse, completely wrong.
Many economic systems are based upon diminishing returns.
Malthus noted it in agricultural lands. Most resource extraction
problems are structured that way – by nature, not by man.
So are all sorts of value capture problems.
That bitcoin does not adjust against the diminishing returns
causes people to come in ‘early’ which compensates them partially
for risk. How well depends on your perspective on risk.
Pyramid schemes directly compensate for recruitment. Whether
they should or should not be illegal is a matter of reasonable
debate; but just because a system has diminishing returns to
effort doesn’t make it a pyramid scheme or illegal.
By definition, a Ponzi scheme pays out earlier subscribers out of the money invested by later subscribers. Bitcoin block mining reward consists of brand-new bitcoins. If one considers outstanding bitcoins as shares in the total capitalization of Bitcoin, one might argue that these new bitcoins constitute pro rata dilution of all other bitcoin-holders. However, normal companies and especially startups regularly issue new stock and dilute existing stockholders. Dilution per se is not considered fraud, as long a majority of existing shareholders vote for it or are informed and don’t block the decision. In Bitcoin, the rate and ultimate amount of dilution are fixed by protocol and publicly known, so it’s difficult to see how it is fraudulent. In any case, Satoshi created block rewards as a temporary measure to encourage adoption, to be gradually phased out. Therefore rewards diminish with time (Denninger ought to know such basic stuff if he’s writing about Bitcoin), and miners are expected to switch over to collecting transaction fees, determined by the market, as the source of their income. Block rewards have halved twice already (from 50BTC to 25BTC and to 12.5BTC last summer), and transaction fees currently constitute around 20% of the miners’ income, peaking above 40% during the flurries of trading generated by recent events (SegWit2x etc.)
Mostly I see cryptocurrencies as a medium of exchange independent of governments, which has value in and of itself. There are similarities to other things, but for me those are all secondary.
https://news.bitcoin.com/hit-btc-introduces-deposit-charges-to-deal-with-high-bitcoin-fees/
The cryptocurrency exchange Hit BTC has notified its clients that they need to pay a new fee to deposit bitcoin into the platform. This move might be replicated by more exchanges in time as they try to find ways to cope with the high fees on the network other than not accepting new clients or advising their existing ones to use litecoin or bitcoin cash instead.
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Sounds like a negative yield to me. Bitcoin transactions under $100 are not cost justified. It is cheaper to hold a derivative, then the derivative broker buys bitcoin in large lots. The derivative broker don’t need a block chain, it has other secure methods to insure asses and liabilities mostly match. Thus, not a ponzi, it self corrects.
Ugh, every minable natural resource (e.g. oil) gets harder to discover and extract on a unit basis over time. Low hanging fruits do not a ponzi scheme make, though sour grapes are painfully abundant.
I would hesitate to read anything that includes someone that ignorant, let alone bother to quote the person himself. It’s so wrong as to be embarrassing.
Arnold, you seem to know what you don’t know on crypto, but you keep posting on it anyway. Why not take the time to read some of the great explanations out there, get educated, and then write about it? There is a much neglected macroeconomic money supply aspect to token valuation which few of the crypto people understand, I’m sure you’d have interesting things to say once you got up to speed.
Go read things by Vitalik, for example. He gets economics.
I second Patri’s recommendation. Once media hype, shameless boosterism, and popular over-enthusiasm build up to a certain point, it’s very, very easy to start hating on the strange aspects of a new technology and to reflexively conclude we’re in for yet another round of cultish echo-chambers feeding a speculative madness disconnected from fundamentals.
But with Bitcoin and blockchain tech in general, reading the original papers and examining the architecture and mechanism really does reveal a very clever and elegant design which solves several key problems in a genuinely innovative way. The key problem – which many analysts pointed out at the very beginning – is the limited scalability of the approach, which lowers speed and increases transaction costs. Satoshi Nakamoto (or one of the engineers in the ‘artel’ using that name) conceeded as much early on, and said that people would fix that later when it became an issue. Which seems to be happening.
In practical terms, it’s easier to understand the basis of the system’s value if one takes the perspective of an individual who really wants to remain reasonably secure against state scrutiny and authority (e.g., a state cannot merely seize funds at will, or order a bank to freeze ones accounts). Obviously that includes a lot of criminals of one kind or another, and the demand for law-evading payment systems and stores of wealth will always be high enough to prop up any system which can deliver those benefits. Obviously criminals like to deal in cash, and are famously willing to pay very high fees to launder their proceeds, which make Bitcoin transaction costs pale in comparison.
As pointed out, the “bitcoin” ecosystem has intrinsic value and this may endure after it becomes uneconomical to mine new coins. Also, someone who bought a Bitcoin at $1 many years ago had no guarantee it would be valued later at a much higher price. So I don’t see the Ponzi label as being an appropriate criticism of crypto-currency in general, notwithstanding new coin issues satisfy the definition more closely.
What is really going on is wild speculation and humans are very good at it.
There appears to be a problem with this link. It claims to go to an article with information from experts. But instead it has someone who does not understand the subject matter he is opining on. Or, it seems, economics.
Sure, Bitcoin is/was a Bubble but after watching the Marx Brothers Cocoanuts, let us quote about 1920s Florida land boom:
“You can have any kind of a home you want to; you can even get stucco! Oh, how you can get stuck-oh!”
There are a lot issues with Bitcoin but again it is like .1% of the global investment market which brings in the Goldbugs and people getting money out of the political state.
If that analogy would be correct, then arent all mineral commodities ponzi schemes?
Gold also is ever harder to mine & early adopter had a good chance to easily get some coins. Yet, it is not like the usual ponzi schemes (direct marketing etc.) and works quite well as a value-storing asset.