Comment by beefield | Hacker News Reader

Comment by beefield | Hacker News Reader

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In my view bitcoin's challenges are a bit deeper than just the implementation. What these challenges are, depends a bit what you think bitcoin is:

-as an investment, bitcoin is fundamentally a ponzi scheme. someone may argue that it is a challenge only if you are too late in the game, but for me, that is a reason I am not touching it as an investment.

-as a money (store of value and measure of value), there is a fundamental issue that there exists no mechanism whatsoever that would stabilize it's value (against neither a typical consumption basket, nor USD or any other currency)

-as a currency (means to make transactions). You might argue that it is only about implementation that the network can handle a couple of transactions a second. But a widely used currency should handle _lot_ more than that. Assuming one billion transactions a day means roughly one transaction per person per ten days globally. Every single byte you need to store a transaction implies a gigabyte of data per day into the however implemented network. I would call that a challenge beyond just implementation.

> -as an investment, bitcoin is fundamentally a ponzi scheme.

I don't believe you know what a ponzi scheme is if you think this because it's not remotely true. From google:

    a form of fraud in which belief in the success of a nonexistent 
    enterprise is fostered by the payment of quick 
    returns to the first investors from money invested by later 
    investors.

There is no fraud in bitcoin, no phony investment with lying and paying out returns from later investor money. Absent fraud and a nonexistent fake "investment", something isn't a ponzi scheme. Early investors making money from the rise in value of something does not make something a ponzi scheme, that's how all investments work. There is nothing fraudulent about bitcoin and thus it is not remotely a ponzi scheme.

> s a money (store of value and measure of value), there is a fundamental issue that there exists no mechanism whatsoever that would stabilize it's value (against neither a typical consumption basket, nor USD or any other currency)

Absolutely true, but by design, they don't want a stable value, they want a fixed amount of currency and want value to fluctuate via supply and demand. Bitcoin is inherently anti-keynesian by design. This is why it'll never be more than a commodity.

> There is no fraud in bitcoin, no phony investment with lying and paying out returns from later investor money.

Say what?

There are so many ponzi schemes in Bitcoin many of them actually advertise that they are ponzi schemes.

> There are so many ponzi schemes in Bitcoin many of them actually advertise that they are ponzi schemes.

I think you misinterpreted what I'm saying. Of course people run schemes using bitcoin just as they run schemes using USD; when I said "no fraud in bitcoin", I mean in bitcoin itself, the blockchain, the protocol, the currency. Bitcoin is a currency, and like any currency, fraudsters can and will use it, that doesn't make bitcoin fraudulent.

Maybe I should have used "essentially" instead of "fundamentally". What I meant was that the only way your investment in bitcoin will return a profit, is if there are more people after you willing to invest in the scheme. This is identical to a ponzi scheme.

Now, you can argue that this is true for all commodities. But all other commodities have some other utility backing the value of the commodity. Bitcoin has practically none, as discussed in my other points of the challenges of bitcoin as money.

And even that bitcoin as fixed amount of currency theory is a bit questionable. There is no reason why a fractional reserve bitcoin bank could not pop up and create bitcoin-as-payment-money out of thin air, as the current financial sector does with fiat money. (This would obviously allow a mechanism to regulate the total bitcoin money supply, but then bitcoin would lose it's whole raison d'etre. Catch-22.)

> the only way your investment in bitcoin will return a profit, is if there are more people after you willing to invest in the scheme

Think of bitcoins as tokens or as tulip bulbs - it can be used for something - but the prices is not the main idea. If you buy them for the price rise you are creating your own "ponzi scheme"

> bitcoin as fixed amount of currency theory is a bit questionable.

The total amount ot bitcoins is not questionable.

> There is no reason why a fractional reserve bitcoin bank could not pop up and create bitcoin-as-payment-money out of thin air

If a bank lend out x times the value of the bitcoin deposited, they will not be able to pay them out as bitcoins.

If you dont have access to your bitcoins as bitcoins, but only as a bank statement about how much they owe you, you effectivly traded your bitcoins to an IOU.

> Think of bitcoins as tokens or as tulip bulbs - it can be used for something

I do not see what that "something" is, which makes it a ponzi in my eyes. (An open, honest ponzi, but a ponzi nevertheless)

> If a bank lend out x times the value of the bitcoin you deposited, they will not be able to pay them out as bitcoins.

But of course, if x < 1 (as is in fractional reserve banking), the bank can pay out bitcoins.

> If you dont have access to your bitcoins as bitcoins, but only as a bank statement about how much they owe you, you effectivly traded your bitcoins to an IOU.

Exactly. And if that IOU is from a credible enough institution, there is no reason[1] why I would differentiate taking a payment in that IOU or bitcoin. In which case that IOU is bitcoin-denominated currency and the amount of bitcoin-denominated currency in circulation is no more constant.

[1]Well, actually there may be at least two reasons to differentiate. First, the IOU may pay interest unlike bitcoin. Second, the practicalities in transacting bitcoins or IOU's may differ, which in all probability dictate that I prefer the IOU...)

I think the confusion in this discussion lies in different interpretations of the word "Ponzi". You're using an interpretation that defines as Ponzi any investment where the value is solely anchored on the collective confidence of the holders. In the interpretation I have (and which I think is the standard one), a Ponzi scheme is something else entirely: a scheme where old investors are paid from the arrival of new ones in such a way that is mathematically unsustainable.

Note that by this standard definition, Bitcoin is not a Ponzi scheme. You may doubt whether Bitcoin is a wise investment, but calling it a Ponzi is bound to cause confusion.

I agree that there are many definitions by which bitcoin is not a ponzi, most clearly it is not fraudulent. But we can have a look how Wikipedia[1] defines a ponzi:

"a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources."

Now, with the obvious note that bitcoin is not fraudulent, you must agree that "bitcoin (as an investment) pays returns to its investors from new capital paid to the network by new investors, rather than from profit earned through any other source"

And any claim that bitcoin offers sustainable positive returns is precisely as mathematically unsustainable than any ponzi scheme. That holds as long as there is new money flowing in. Not longer. That is very similar to a ponzi.

(And of course, any commodity bubble has this same property.)

Overall, I think there are so many similarities between the investment logic between bitcoin and a ponzi, that the comparison is justifiable.

[1]https://en.wikipedia.org/wiki/Ponzi_scheme

> Now, with the obvious note that bitcoin is not fraudulent

Which makes it not a ponzi, really that's all there is too it; fraud is a necessary pre-condition to call something a ponzi. No fraud, no ponzi.

If you remove the fraud element as you are attempting to do, then virtually every investment counts as a ponzi, all insurance counts as a ponzi, because paying investors with money from newcomers is a thing common to a lot more than just ponzi schemes. The world is Ponzi SCHEME, the scheme means fraudulent, scam, etc. If something isn't fraudulent it is not a ponzi no matter how many other traits it shares with ponzi schemes. The comparison is thus not justifiable.

>What I meant was that the only way your investment in bitcoin will return a profit, is if there are more people after you willing to invest in the scheme. This is identical to a ponzi scheme.

That is not what makes a ponzi scheme a ponzi scheme, that is one element of a ponzi scheme but it's no different than any investment in a company that takes off. This is insufficient to call something a ponzi scheme. There MUST BE FRAUD, or it's not a ponzi scheme.

> Bitcoin has practically none, as discussed in my other points of the challenges of bitcoin as money.

Absolutely wrong, bitcoin has utility, trust-less exchanges of value, that's a valuable service to provide and the reason bitcoin maintains value.

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