

Ask HN:  Is Bitcoin really a Ponzi scheme? - awt

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

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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).

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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.

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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.

~~~
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 ?].

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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.)

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bhousel
Oh good, I'm pretty sure we'll get to the bottom of the bitcoin debate this
time around.

Remember to be civil, polite, and follow the guidelines!

<http://ycombinator.com/newsguidelines.html> and
<http://www.paulgraham.com/disagree.html>

