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Started By
Message
Bitcoin is a Ponzi scheme—the Internet’s favorite currency will collapse.
Posted on 4/12/13 at 4:23 pm
Posted on 4/12/13 at 4:23 pm
LINK
quote:
Felix Salmon and many others have pointed out that a currency cannot succeed with a supply that is fixed, or if it grows too slowly. A currency is used to enter transactions; the more transactions there are, the more of the money you need. As the economy grows, a fixed-supply currency becomes worth more in terms of goods and services, and people begin to hoard it—expecting that if they wait a little longer, they will be able to buy more. Once hoarding takes over, circulation ends, and with it the function of the currency. Hoarding accounts for the large increase in the value of bitcoins; hoarding also sank Krugman’s baby-sitting scrip.
An even more fundamental problem with bitcoins, and indeed any private currency, is that there is no way to limit its supply. True, bitcoins cannot be manufactured beyond the limits set by Nakamoto. But there is no way to prevent future Nakamotos from creating bitcoin substitutes—say, bytecoin, or botcoin. If merchants are willing to accept bitcoins, they will be willing to accept the substitutes, especially as bitcoins become scarce and consumers scramble for substitutes. Nakamoto must have realized this because there are not enough bitcoins to substitute for the currencies around the world. The currency can only succeed if it is expanded or supplemented. But if there are no constraints on substitute digital currencies—and there aren’t—then the value of bitcoins will plummet as the subs begin to circulate. And once it becomes clear that there is no limit, people will realize that their holdings could become worthless at any moment, and demand for bitcoins and the other currencies will collapse, ending the experiment.
Unless a bitcoin has value as a currency, it has no value at all, and its price in dollars will fall to zero. A regular Ponzi scheme collapses when people realize that earlier investors are being paid out of the investments of later investors rather than from the returns on an underlying asset. Bitcoin will collapse when people realize that it can’t survive as a currency because of its built-in deflationary features, or because of the emergence of bytecoins, or both. A real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion.
Given this, why all the enthusiasm for bitcoin? Partly, the technological ingenuity of the scheme, of course. And people have misinterpreted the run-up in price as a sign of success rather than failure. But more fundamentally, bitcoin unites futuristic left-wing Internet anarchism—the fantasy that the Web can provide the conditions for a governmentless society—with the cave-dwelling right-wing libertarianism of goldbugs who think a stable money supply can be established without government involvement. It is proof for both that government is not needed for much, or at all.
Yet history shows that private currencies always end in tears; if central banks sometimes abuse the trust we place in them, the alternatives are worse. The strangest feature of the bitcoin saga is that people who are so suspicious of government put their trust in Satoshi Nakamoto, who could be anyone, or anyones—eccentric academic researchers, mischievous Fed economists, DARPA, U.N. globalizers in black helicopters, a criminal syndicate, a bored 11-year-old Ukrainian genius. If Nakamoto is as amoral as he is ingenious, then he pocketed the early bitcoins and laughed himself to the bank.
Posted on 4/12/13 at 4:29 pm to Vols&Shaft83
You know what one of my favorite parts of bitcoin is? No one is forced to use it.
Posted on 4/12/13 at 4:29 pm to Vols&Shaft83
Well considering BC can be divided almost infinitely, it is not necessarily a fixed supply, therefore his premise is faulty.
Posted on 4/12/13 at 4:30 pm to WikiTiger
quote:
WikiTiger
Hey Wiki, you don't own any bitcoins, what makes you an authority on this subject?
Posted on 4/12/13 at 4:33 pm to Vols&Shaft83
quote:
you don't own any bitcoins
Why are all the bitcoin haters such morons? Do y'all not know how to read or do you intentionally ignore certain posts?
I have stated on multiple occasions that I won't discuss details of my financial life but that I do own somewhere between .00000001 and 21,000,000 bitcoins.
Posted on 4/12/13 at 4:34 pm to WikiTiger
quote:
I have stated on multiple occasions that I won't discuss details of my financial life but that I do own somewhere between .00000001 and 21,000,000 bitcoins.
So you own .000000000000000000000001% or 100% of NOTHING
Posted on 4/12/13 at 4:36 pm to WikiTiger
I currently have $14,485.22 in my checking account. It's still not hard to do.
Posted on 4/12/13 at 4:40 pm to WikiTiger
That doesn't make it any less of a Ponzi scheme.
Most Ponzi schemes were based off of things people weren't forced to use.
Most Ponzi schemes were based off of things people weren't forced to use.
Posted on 4/12/13 at 4:41 pm to memphis tiger
quote:
That doesn't make it any less of a Ponzi scheme.
What is the definition of Ponzi scheme?
Posted on 4/12/13 at 4:42 pm to Broke
Hey Broke, you should invest in ABFS Notes, they're an alternative to low yield CDs, and safe
Posted on 4/12/13 at 4:45 pm to Vols&Shaft83
quote:
Felix Salmon and many others have pointed out that a currency cannot succeed with a supply that is fixed, or if it grows too slowly.
This is false.
An economy might run into inefficiencies if its supply of currency gets too small, particularly its legal tender currency. For an individual currency itself that is just one of many within the wider economy, however, a stable supply is actually beneficial to its value. This is why American colonists loved the thaler and the Spanish pieces of eight so much.
By Gresham's Law, the stable currency will tend to be more for storage and transport, while currencies with higher supply growth rates will tend to be stored only sparingly and used more frequently for common transactions, but this does not make one currency more "successful" than the other. It simply means that the currencies tend to be utilized in different ways.
Posted on 4/12/13 at 4:47 pm to Doc Fenton
quote:
Doc Fenton
First time I've seen you in a bitcoin thread. Looking forward to hearing your thoughts
Posted on 4/12/13 at 4:50 pm to WikiTiger
quote:
What is the definition of Ponzi scheme?
Bitcoins....
Posted on 4/12/13 at 4:50 pm to WikiTiger
My interest in bitcoins is starting to gain momentum.
I think the current price might be in a bubble, and that there may be problems with limited liquidity at the moment, but there are more general principles at play here that should become interesting regardless of where the currency price happens to settle, or even whether or not bitcoins succeed as a currency relative to some other online currency that might supplant it.
I was skeptical at first about how this would change things, but after thinking about the whole Cyprus thing, I am slowly coming to the conclusion that old school Bretton-Woods-style capital controls are going to continue to become harder and harder for governments to implement, in part because of the proliferation of online schemes that will facilitate evasion.
I think the current price might be in a bubble, and that there may be problems with limited liquidity at the moment, but there are more general principles at play here that should become interesting regardless of where the currency price happens to settle, or even whether or not bitcoins succeed as a currency relative to some other online currency that might supplant it.
I was skeptical at first about how this would change things, but after thinking about the whole Cyprus thing, I am slowly coming to the conclusion that old school Bretton-Woods-style capital controls are going to continue to become harder and harder for governments to implement, in part because of the proliferation of online schemes that will facilitate evasion.
Posted on 4/12/13 at 4:51 pm to WikiTiger
Wiki, if you act now, I can get you in on Luvoo.com
This post was edited on 4/12/13 at 4:56 pm
Posted on 4/12/13 at 4:55 pm to LSURussian
quote:
What is the definition of Ponzi scheme?
quote:
Bitcoins....
FAP FAP FAP FAP FAP
Posted on 4/12/13 at 5:16 pm to LSURussian
quote:
LSURussian
You should look into International Postal Coupons
Posted on 4/12/13 at 5:20 pm to Vols&Shaft83
quote:
Wiki, if you act now, I can get you in on Luvoo.com
nice edit. why didn't you leave your original post up?
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