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Ask HN: Is Bitcoin really a Ponzi scheme?

7 points by awt ↗ HN
I've seen many comments in recent discussions of Bitcoin links charging that Bitcoin is a Ponzi scheme. I had a look at the definition of a Ponzi scheme on Wikipedia. It's not entirely clear to me that Bitcoin is a Ponzi scheme.

For example, one requirement of a Ponzi scheme is that victims give their money to an individual or organization that then claims ( likely fraudulently ) to invest their money in such a way as to provide a high return. This allows the fraudulent party to disappear with the investor's money at any time - such as when too many investors demand their money back.

With Bitcoin, when someone buys a bitcoin, they actually receive delivery of the bitcoin. No one can take that bitcoin away. It is possible that in the future the bitcoin buyer may not be able to sell their bitcoin for what they paid for it. However, that would be the result of a market consisting of thousands of participants jointly deciding how much a bitcoin is worth.

This of course assumes that the Bitcoin algorithm works as advertised and can not be practically manipulated by a single malicious individual or organisation.

8 comments

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ggchappell
No, bitcoin is not a Ponzi scheme. It may very well be in a speculative bubble right now, however. And the long-term stable value of a bitcoin may end up being very low indeed.

The trouble is that, over the long term, there is nothing to give a bitcoin value. If some group of large organizations were to promise that, over the long term, they would give some particular amount of some other stable currency, in exchange for a bitcoin, or exchange some particular worthwhile goods/services for it, then it would have something backing it up.

As it is, there is nothing. The algorithmically enforced limited supply of bitcoins is a start, but only a start, I think.

(BTW, for those who want to claim that nothing backs up the USD, for example: I disagree. The U.S. govt. accepts it in payment of taxes. Thus, for those who owe taxes, the govt. will, in exchange for some dollars, refrain from pointing a gun at you and marching you off to prison. Quite a valuable thing, for some of us.)

michael_dorfman
It's not a Ponzi scheme, it's a "pump and dump". The early adopters of Bitcoin have presumably amassed large quantities of Bitcoins, which means they have a vested interest in keeping the perceived value of Bitcoins high.

It's not a matter of a single malicious individual or organisation manipulating the price-- it's that each person holding Bitcoins has an interest in furthering the belief that they are actually worth something.

awt
So if the early adopters attempt to sell a large quantity of bitcoins, won't that move the market (down), severely limiting the amount of fiat currency they can get for their dump?
sgornick
Or has an interest in furthering the increase in demand for bitcoins (and thus the value of them) by offering goods and services in exchange for bitcoins.

There's a gold bug that believes: Fiat currency is sovereign equity In other words, when you hold Euros, you are "investing" in and holding equity in the Euro countries.

Similarly, perhaps when you hold Bitcoins, you are "investing" in and holding equity in [cyberspace ?].

richardw
It's definitely not a Ponzi, but it's nice and easy to slap the label on it, so people do. It's not backed by a government, but neither is gold. It only has value because we attach value to it - there is no intrinsic value to a bitcoin. But that's just like many other things where the intrinsic value has little relationship to the 'value' we give it. And 'we' doesn't have to mean everybody - just the people who choose to attach value to it. So if most of the world ignores bitcoin but ten thousand stamp collectors decide it's the best way to shuffle money between them, it'll have value for those people. Similar to the stamps they'll be trading.

What bitcoin is, is a "greater fool" asset. Because it has no intrinsic value, you're hoping that a greater fool than you will come and buy your bitcoin at some point in the future. In this way it's similar to investing in stamps, gold, art or 80's vintage shoes.

tobylane
Nature backs gold, there is a limit and we love it. If you find a brick of gold in your great-grandfather's chest, he will have stored away something worth 5-20% of his yearly salary, but you could sell it for twice yours. If you stored your bitcoin wallet somewhere, left bitcoin, and came back when they had changed the algorithim to add more money, your money might be worth less (because there's more supply, not less demand which is all that can happen with gold).
richardw
Platinum should be shooting the lights out, then. There's only about 130 tons of the stuff mined each year (6% of the gold mined), it has more uses than gold (which increase the demand and reduce the supply as it's used up over time) as 50% of it is used for industrial uses, and it's sexier than gold - ask your girlfriend/wife if she'd prefer a platinum or gold ring. So if you really want a long-term store and one that is comparatively undervalued to gold, choose platinum.