
Bitcoins: The Second Biggest Ponzi Scheme in History - pearjuice
http://www.garynorth.com/public/11828.cfm
======
paulgb
Is this the same Gary North who predicted the collapse of society from the Y2K
bug?

> North predicted a Y2K catastrophe in print and online,[31] and predicted
> that a Y2K date-rollover failure of the global Information Technology (IT)
> infrastructure would precipitate severe disruption and the complete collapse
> of the international economy, leaving American Christians to restore society
> following the collapse.

[http://en.m.wikipedia.org/wiki/Gary_North_(economist)#Y2K_ca...](http://en.m.wikipedia.org/wiki/Gary_North_\(economist\)#Y2K_catastrophe_prediction)

Edit: looks like he has a long history of claiming the sky is falling:

[http://www.wired.com/culture/lifestyle/news/1999/01/17193](http://www.wired.com/culture/lifestyle/news/1999/01/17193)

~~~
blahbl4hblahtoo
An Austrian economist predicting the end of the world? I'm shocked!

~~~
rookonaut
Gary North is Austrian?

~~~
jswinghammer
Yes. Sometimes he's good but definitely not on this topic.

~~~
rookonaut
This is maybe a stupid question but what does it mean to be Austrian in this
context? Is he born in Austria or is this a reference to the Austrian School
of Economics?

~~~
iso-8859-1
School of Economics

~~~
rookonaut
Thank you guys for the clarification.

------
ashray
The analysis in this article is so flawed that it's hard to take it seriously.
A more balanced analysis might have helped. Sure, bitcoin has several terrible
characteristics that have been exposed over the past few weeks (volatility,
tons of speculation, new users don't understand wallet security, etc.)

But to insinuate with absolutely zero understanding that the creators of
bitcoin did this to get rich is just plain nasty. Maybe they did want to get
rich (in dollar terms) but there is nothing obvious on the block chain that
proves that they cashed out. The argument seems to be that they can't cash it
all out so they are waiting for something. Well, they haven't cashed anything
out yet as far as anyone who looks at the block chain can tell. It's already
possible to cash out $5-$10MM easily over bitstamp which would represent a
fraction of their holdings. Why not do that and make sure your future is taken
care of? At least that?

Furthermore, for several years it did not look like bitcoins were going
anywhere. However, the people behind it continued to work on it, and still
continue to do so, but under much new pressure because suddenly they are evil
ponzi dealers.

Applying old school economics and psychology is great, but I must ask this
question. What kind of value appreciation did gold see when people suddenly
for no reason decided that it was worth a lot? Following this value
appreciation did people not use it as a means of exchange as well as a store
of value? Why can't bitcoin be thought of as gold 2.0? We started valuing
dollars, pounds, euros, airplanes, cars, oil, and those didn't exist for much
of human history.

Bitcoin isn't like something we've ever seen before and that includes Ponzi
schemes. It may end up crashing and burning and it may end up doing really
awesome stuff.

I just wish the naysayers would come up with better researched arguments
instead of this crazy witch hunt.

~~~
corresation
_But to insinuate with absolutely zero understanding that the creators of
bitcoin did this to get rich is just plain nasty. Maybe they did want to get
rich (in dollar terms) but there is nothing obvious on the block chain that
proves that they cashed out._

Why is that "nasty"? Why even debate or get so defensive about this point?

For very strong reasons it does _absolutely_ seem that the creator of Bitcoins
did an early and heavy accumulation of the currency. The fact that they didn't
"cash out" (which is rather irrelevant to whether it is "wealth" or not, as an
aside) doesn't justify their mining, but actually makes it significantly
_more_ questionable -- they added no liquidity, instead actually _restricting_
liquidity by doing a land grab of the easily mined coins. That is not
altruistic.

Having a single, mystery figure holding a substantial quantity of a currency
is absolutely worthy of debate.

Personally I think Bitcoin will be a v0.1 to something similar in the future.
But I do absolutely believe it is effectively a pyramid scheme right now, and
the rise in the currency is a combination of limited liquidity coupled with
mainstream news and a gold rush mentality.

~~~
trekky1700
I agree with this. People are concerned with wealth distribution in the
physical world, while in the bitcoin world one man owns nearly 10% of all
money. The fact that this man is its creator is even more dubious.

This is the equivalent of one American, someone like the head of the federal
reserve owning 1.05 trillion US dollars. Even if one day we'll have 21 million
Bitcoins out there, that's still around 5% of all wealth being owned by one
man, the currencies creator. Sounds crazy to me.

------
berberous
This article is unfortunately mostly right. Bitcoin's are 95% a ponzi scheme
investment, and will at some point crash spectacularly. The question remains,
however, whether from the ashes of that crash a useful product can remain,
that can still succeed as a currency, or whether the psychological damage will
prove to be too much to move past. If it can survive, it may even eventually
return to the same high prices, but this time, based on its frequent use as a
currency, and not based on rampant speculation.

Right now, the truth is that a negligible percentage of Bitcoin users care
about its use as a currency (with the biggest exception being silk road type
illegal uses). Almost everyone is focused on the price appreciation, and when
that finally falters, it will collapse.

~~~
pilker09
Bitcoin is only a Ponzi to those that don't actually understand Ponzis.

Which scammer is paying me for my bitcoins out of someone else's promised
profits?

~~~
berberous
You are correct. I was using the article's language, which I agree is not
right. It should be called a bubble, not a ponzi scheme.

They are similar in that the price rise is being sustained by many new
speculators/investors, and at some point, that will inevitably collapse.

I am reminded of the story that Joseph Kennedy predicted the 1920's stock
market crash after receiving stock tips from his shoe-shine boy. He realized
that if his shoe shiner was also partaking in the rampant speculation, there
were probably few fools left to join in.

~~~
dgregd
> It should be called a bubble, not a ponzi scheme.

This is a first bubble which is popular mainly among tech geeks :)

What is strange, nobody is asking what problem Bitcoin really solves. As far I
know it failed as a protection for silk road types. Silk road was compromised
and Bitcoin didn't helped them.

~~~
mike_esspe
It solves 2% credit card fee. It's enough for success at the level of at least
Visa & MC. (And as a bonus it solves a lot of other problems too).

~~~
yen223
Does it? When mining becomes unprofitable, Bitcoin servers will have to tack
on transaction fees to speed up the verification process.

~~~
gnaritas
That presumes bitcoin is the only crypto currency, it isn't, and they don't
all rely on mining like this. Secondly, as miners drop out because they can't
profit, those who stay in see profitability return. It's self adjusting, there
will always be profitable mining for those with the best mining rigs.

------
theboywho
Important to note:

The author of the article, Gary North, is the same guy who predicted a
"failure of the global Information Technology (IT) infrastructure and that it
would precipitate severe disruption and the complete collapse of the
international economy, leaving American Christians to restore society
following the collapse."

Also, he "favors capital punishment for a range of offenders; these include
women who lie about their virginity, blasphemers, nonbelievers, children who
curse their parents, male homosexuals, and other people who commit acts deemed
capital offenses in the Old Testament. He also favors capital punishment for
women who have abortions."

Everybody reading his article should take this into account.

~~~
sz4kerto
I just don't see how is one's view on abortion validate or invalidate his
views on Bitcoins. Care to explain?

~~~
theboywho
His views on other topics do not necessarly validate or invalidate his views
on Bitcoin, but these views can not be ignored and as I said in my comment,
they should be taken into account while forming your own opinion about his
article.

~~~
kleiba
I still don't understand why they should.

~~~
ceejayoz
If someone's clearly a lunatic in certain areas, I'm going to have a little
less faith in their rationality in others.

------
girvo
I truly don't get this "BTC is a Ponzi scheme" thing. And "Social Security is
a Ponzi Scheme" in the third sentence really doesn't endear me to this
writer...

I don't buy it. Yeah, Satoshi owns a stack. But if he sold out, the price
would drop so hard it'd make your head spin... and I doubt Satoshi would be
able to be rid of all of them in time before they bottom out. The market isn't
large enough yet to pull that sort of scheme off.

Now, Bitcoin still seems like a good idea, with an implementation that seems
to have some issues, and rampant speculation is going to stop the better ideas
that it could embody from happening for a while. But a "Ponzi scheme"? Done
deliberately for that reason? You're telling me that Satoshi knew it'd hit $1k
per BTC? Pfft.

~~~
bmelton
I agree that BTC is not, but I thought it was fairly well understood that
social security was a mandatory Ponzi scheme.

From Wikipedia: "A Ponzi scheme is a fraudulent investment operation that pays
returns to its investors from existing capital or new capital paid by new
investors, rather than from profit earned by the individual or organization
running the operation."

Social security does exactly that, and its recent failure predictions by the
CBO are caused by the population failing to grow at rates that could sustain
it. If more people aren't paying into it than those withdrawing from it, and
it fails as a result, does that not match the definition of a Ponzi scheme?

~~~
empthought
Social security is a mandatory insurance program, not a mandatory investment
program. Like any other insurance program, the solution to shortfall is to
increase premiums or decrease payouts.

Since there isn't yet a shortfall that can't be covered by existing funding
sources, these solutions have not yet been implemented. Just like a private
insurance company.

~~~
iterative
Social Security is a ponzi scheme. Insurance companies have assets the can
fall back on to pay claims, they don't just pay them out of insurance payments
as they come in.

[http://www.forbes.com/sites/richardsalsman/2011/09/27/social...](http://www.forbes.com/sites/richardsalsman/2011/09/27/social-
security-is-much-worse-than-a-ponzi-scheme/)

~~~
empthought
What? Insurance companies primarily finance the payment of claims from premium
payments. Doing anything else would indicate an unacceptably high loss ratio
and a failing business.

------
braum
Something hit me while I was reading this article. Anytime you have seen a
bitcoin article, usually on HN, but also elsewhere, it almost always shows a
US Dollar figure for the amount and never the bitcoin amount. Why, because as
this article suggests. Bitcoins are a commodity and not a currency and when we
want to try and relate to bitcoins we use what we know which is Dollars. Good
luck to all of you techies who read this story and are now trying to convert
your bitcoins to dollars today.

~~~
a_bonobo
>relate to bitcoins we use what we know which is Dollars.

I don't think this says anything about Bitcoins as a currency. When the Euro
was introduced in Germany, most restaurants, newspapers, politicians etc. kept
on listing the Mark price alongside with the Euro price as a point of
reference. After a few years this practice stopped when people got used to
estimating the worth in Euros (my parents still translate everything into
Mark).

I think that if Bitcoins ever become stable (who knows when - maybe once all
coins are mined?) people might stop comparing USD to Bitcoins once they're
used to the Bitcoin "worth", who knows.

~~~
icebraining
Same here in Portugal. Many people over ~50 still convert to our old currency
whenever we're talking about larger amounts. It's really hard to reset your
frame of reference after so many years.

------
CJefferson
This is as good a place as any to ask this question.

Do we actually know how many large mining groups we need to make up 51% of the
processing power of the block chain (hopefully that make sense, from my
understanding of bitcoin).

There has been a number of changes to the bitcoin protocol, which have been
made in a short amount of time and unanimously, from what I can see. That
implies to me that bitcoin is in practice much more centralised than we are
sometimes lead to believe, and that moving to bitcoin is just switching from
one shadowy control group to another.

I would be happy to hear evidence that I am vastly overestimating this
problem.

~~~
nwh
> _Do we actually know how many large mining groups we need to make up 51% of
> the processing power of the block chain_

Two. GHash.io and BTCguild make up 27% each, for a total of 54%.

[https://blockchain.info/pools](https://blockchain.info/pools)

GHash.io had actually been acting maliciously according to some users on
Bitcointalk, but the operator claims that was a rogue actor inside that has
been dealt with. Double spends against betting sites in particular were
involved with this one.

~~~
salient
We need digital currencies that can only ever be mined efficiently with a CPU,
and there need to be many more blocks with lower rewards so that people don't
need to join pools if they don't want to. They need to be able to earn
"something" (not zero) even with a low-end CPU or when the difficulty gets too
great, and close to the point of reaching the maximum number of coins. I think
there weren't even 10 percent Bitcoins on the market, and CPU's already became
obsolete.

Yes, I know about the scrypt-based ones, but unfortunately they can still be
mined 10x faster with a GPU, and I don't think that's much more preferable
either. It needs to be CPU-only, because most people get as fast CPU's as they
can, usually, but they don't really care about the GPU performance, other than
needing it to support HD playback, which is a very low standard for a GPU
these days.

I'm not sure how it can be done, but some of the ones that claim to be CPU-
only are using multiple hashing algorithms and ciphers at once, presumably to
ensure that the task is too complex for anything less "general purpose" than a
CPU (at least until they start making chips with accelerators for each and
every one of those hashing algorithms?! Maybe something to prevent that could
be built-in).

The point is to make mining as decentralized as possible. I realize the danger
of botnets, too, but I think the trade-off is worth it. I'd rather have that,
than a few groups of people or governments owning a ton of ASIC's, or perhaps
a few very expensive quantum computers in the future, that they can use to
manipulate the currencies. At least if it's CPU only, everyone can have a say
in it, in aggregate, which is really the whole point of decentralization, and
empowering the individual in the Internet world.

~~~
grey-area
Why is mining necessary in a digital currency? There are plenty of other
solutions to creation/distribution of tokens.

~~~
nwh
_A purely peer-to-peer version of electronic cash would allow online payments
to be sent directly from one party to another without going through a
financial institution. Digital signatures provide part of the solution, but
the main benefits are lost if a trusted third party is still required to
prevent double-spending. We propose a solution to the double-spending problem
using a peer-to-peer network. The network timestamps transactions by hashing
them into an ongoing chain of hash-based proof-of-work, forming a record that
cannot be changed without redoing the proof-of-work. The longest chain not
only serves as proof of the sequence of events witnessed, but proof that it
came from the largest pool of CPU power. As long as a majority of CPU power is
controlled by nodes that are not cooperating to attack the network, they 'll
generate the longest chain and outpace attackers._

[http://bitcoin.org/bitcoin.pdf](http://bitcoin.org/bitcoin.pdf)

~~~
grey-area
I don't need a description of how the one true digital currency works thanks,
bitcoin is not the only way to produce a currency.

~~~
nwh
You asked why mining was necessary. I provided an explanation.

~~~
grey-area
A digital currency requires arbitrary tokens as a medium of exchange.

It does not require peer-to-peer creation and verification of tokens. It does
not require mining, it does not require pseudo-anonymous transactions and a
distributed public ledger of all past transactions. Those are all properties
of Bitcoin but not of currencies in general.

Bitcoin has some interesting ideas, but it's hardly the only type of digital
currency which can exist and mining is a concept particular to Bitcoin (and
spin-offs) - it has the effect of enriching the devs and early adopters and
transforming it into an appreciating asset rather than a currency.

------
oleganza
All these arguments apply equally to gold. Also, gold was becoming a money
slower because millions of market participants were not one click away from
each other to figure out why is this new metal is any good and whether they
should make a bet that it will become more and more useful as money.

The truth about USD vs Bitcoin is that Bitcoins you can own and USD you
cannot. [http://blog.oleganza.com/post/67362431718/you-can-own-
bitcoi...](http://blog.oleganza.com/post/67362431718/you-can-own-bitcoin-you-
cant-own-your-dollars)

When someone "cashes out" into USD he doesn't really want to cash out in a lot
of USD as it's a poor store of value by design. It's controlled, monitored,
expensive and leaks like crazy. You can cash out into Maserati, but it's also
not a good store of value. Therefore we see that more and more investors
remaining with BTC are making a huge bet - a bet on universally accepted
money. People who want to cash out quickly do so already without bringing
price much down.

~~~
GFischer
"You can cash out into Maserati, but it's also not a good store of value"

You should see what crazy things bad monetary policies make possible:

[http://www.bloomberg.com/news/2012-11-08/argentine-
protectio...](http://www.bloomberg.com/news/2012-11-08/argentine-
protectionism-sees-cars-swapped-for-rice-olives-wine.html)

cached version of an Economist article:

[http://webcache.googleusercontent.com/search?q=cache:_MKsBta...](http://webcache.googleusercontent.com/search?q=cache:_MKsBtaJZ1AJ:www.eiu.com/index.asp%3Flayout%3Dib3Article%26pubtypeid%3D1112462496%26article_id%3D1490681333+&cd=1&hl=en&ct=clnk&gl=uy)

------
nezumi
Some features of the quoted 'Austrian School's theory' seem remarkably close
to Bitcoin: it "arises out of an unplanned, decentralized process. This takes
time. It takes a lot of time. It spreads slowly, as new people discover it as
a tool of production..." and "becomes widely used as money as a result of
innumerable transactions within the economy".

It's arguable that the 'unplanned' part is not a necessary feature of a
currency. In fact, no fiat currency in circulation today has survived without
a significant amount of planning.

In contrast, the planning which went into Bitcoin seems to have made it
closely fit the theory's description of money. Arguing that its planned nature
negates its 'moneyhood' (to coin a phrase... sorry...) seems a little like
arguing that an artificial organ won't work due to not having been grown
within the host, or that a genetically engineered organism will fail due to
not having gone through an evolutionary process.

------
Aqueous
From the BitCoin FAQ
([http://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F](http://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F)):

 _Is Bitcoin a Ponzi scheme?_

In a Ponzi Scheme, the founders persuade investors that they’ll profit.
Bitcoin does not make such a guarantee. There is no central entity, just
individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the
expense of late adopters. Bitcoin has possible win-win outcomes. Early
adopters profit from the rise in value. Late adopters, and indeed, society as
a whole, benefit from the usefulness of a stable, fast, inexpensive, and
widely accepted p2p currency.

The fact that early adopters benefit more doesn't alone make anything a Ponzi
scheme. All good investments in successful companies have this quality.

~~~
mmcnickle
"The first thing to say is this is definitely not pyramid selling, OK"

Toni - trying to sell Jeremy on a pyramid scheme -- Peep Show, Season 1,
Episode 2; "The Interview"

~~~
phaemon
That's nice. So, develop some balls and actually say "I think Bitcoin is a
pyramid scheme" rather than quoting TV. Or you could learn some maths and
determine for yourself why it's not.

------
pyalot2
> In this sense, Bitcoins is not a Ponzi scheme. It is simply a supermoney
> scheme.

Admits that bitcoin is not a ponzi scheme in his own article.

> The money was siphoned off from the beginning. Somebody owned a good
> percentage of the original digits.

Implies that most bitcoins are owned by satoshi nakamoto, without
substantiating this claim by any number to quantify the impact. The estimated
stash of satoshi is about 1 million bitcoins:
[http://www.theverge.com/2013/5/6/4295028/report-satoshi-
naka...](http://www.theverge.com/2013/5/6/4295028/report-satoshi-nakamoto) .
Today 11 million bitcoins are in existence. There will be an eventual cap at
21 million bitcoins, so satoshis stash is somewhere between 9% to 4% of all
bitcoins. By comparision the winkelvii own about 1% of all bitcoins. I'm not
qualifying the risk this presents, but I think it's important for an accurate
critique to provide quantification.

> Money develops out of market exchanges. Money is the product of the market
> process. It arises out of an unplanned, decentralized process. This takes
> time. It takes a lot of time. It spreads slowly, Money has continuity of
> value. This is not intrinsic value. It is historic value.

These statements are provided by the author to explain the nature of money.
Note that they do not contradict bitcoin, except perhaps in the haphazard and
sometimes too fast adoption. However, the statement about the duration of the
establishment of a monetary system derives largely from theory that was wholly
written before there where computers or the internet. Historical observation
cannot be a good guide when circumstances changed radically.

> Now let us look at bitcoins. The market value of one bitcoin has gone from
> about $2 to $1,000 in a year. This is not money.

Volatility != Money, I find this a weak argument. Substantial volatility can
manifest itself in established currency markets as well.

The remainder of the "critisism" of this author basically boils down to "It
can't be, because I say so. Perhaps best exemplified by this statement:

> In other words, bitcoins cannot possibly fulfill their supposed purpose: to
> serve as an unregulated currency unit.

Author offers scant real critisism beyond the observation that bitcoin is very
volatile. Nobody is debating this fact. Nobody is objecting to the assertion
that bitcoins, due to their volatility, are a difficult medium to use for
exchange.

Sadly, author is missing an opportunity to examine what other prospects and
drawbacks bitcoins have beyond a simple discussion of the nature "it's so
volatile, you're crazy".

I don't think it would be possible to kickstart something entirely new, which
has a massive potential as a technology, and not go trough phases of
substantial volatility (many disruptive tech startups valuation goes trough
phases of massive volatility, for instance like the early history of
Microsoft). Now it's possible that this dooms bitcoin. However, it could be
argued that if bitcoin didn't reward early adopters, and if it didn't had
massive potential, which would invite the eventual hypes and busts and massive
volatility, then it would linger forver in an obscure niche appreciated in
it's abstract beauty by crypto and math geeks alone.

I think it's laudable to try, even if you don't succeed. But if you don't try,
you're guaranteed to not succeed.

~~~
lmg643
there's no question that the author of this article wrote it with linkbait in
mind - calling bitcoin a ponzi scheme.

having thought about it - the argument that bitcoin is going to be worth a lot
"because there are only 21 million" \- we have to consider that bitcoin is
just one of "n" virtual currencies.

while bitcoin may be limited, we already have 37 alternatives (at least) and
there's no reason another hundred can't be started up within a year.

So, i see there will be a lot of virtual currency flying around, all of it as
qualified as bitcoin (sharing similar source code) and the idea that it will
all be worth 1,000 a unit (or more) forever just doesn't make sense.

~~~
pyalot2
> So, i see there will be a lot of virtual currency flying around, all of it
> as qualified as bitcoin (sharing similar source code) and the idea that it
> will all be worth 1,000 a unit (or more) forever just doesn't make sense.

Do you remember the time when twitter was the new hotness? And like everybody
and his aunt where building a twitter clone. I mean, it's so simple, just a
list of teensy messages, how hard can it be. And we joked how the operators of
twitter had like a couple servers and some louse PHP scripts to glue it all
together, it was just so laughable from the outset. And most laughable of all,
people where flocking to it like mad.

Twitter is the remaining "twitter like" website, all the clones quietly shut
their doors again and twitter went public with market cap valuation of $22
billion...

I could now ask: Are you kidding me? A website where people can post 140
character messages is now worth $22 billion.

Ah but the wonders of the network effect. You see the value isn't in twitter.
The value is in who uses twitter. Because everybody uses it, it's valuable,
and because nobody used the clones, they're not valuable.

~~~
fat0wl
i don't think network effect applies here the way many have been claiming.
twitter & the like 1) were not open source 2) kept a significant user base
early on

while bitcoin does have a big user base, currency is a more personal thing and
if people see too much volatility they'll just pick the one that is _most
stable_ , meaning without this flawed crazy dispersement scheme

i, for one, do think Bitcoin is a ponzi scheme but it's a more complex one
with a lot of Game Theory involved. That's whats unique about the scheme -- it
guarantees the founder and early adopters a ridiculous amount of wealth, while
still having the ability to satiate the greed/hope of new buyers

Also people need to stop comparing this to company/stock valuations. Those are
more like an estimate of a company's worth whereas in Bitcoin the figures
given are always a supposed value of currency unit.

Consider this -- when companies sell stock it is to fuel more work and
production within the company. When a Bitcoin is sold for $600, it is so some
dude can by a Playstation 4. It's not attached to lifestyle in the same way as
stock/investment in companies.

------
gokhan
_The individual who sells the Ponzi scheme makes money by siphoning off a
large share of the money coming in. In other words, he does not make the
investment. But Bitcoins are unique. The money was siphoned off from the
beginning._

Only true if we see Satoshi spending his Bitcoins.

We have an online store selling baby products and really want to accept
Bitcoins but we can't at the moment since Bitcoin is not widespread and price
fluctuates madly. Once everybody got some and price is predictable in the
short run, we'll show the finger to the bank, the real one siphoning from our
pocket as commissions without actually providing any reasonable service.

~~~
ashray
Hi,

I suggest that you check out bitpay.com

They will bill your customers in bitcoin and will transfer out USD to you so
that you don't have to worry about the exchange rate at all. You setup your
items in USD as well and they handle the price fluctuations.

They do daily payouts to 30 countries in several currencies. I've been using
them since April and it's amazing!

Sincerely, A happy bitpay customer :)

Edit: oh and I must add! They used to take 1% commission but have introduced
new packages that have 0% commission from $30/month! Also, the daily bank
withdrawals are free.

~~~
gokhan
I'll check out Bitpay, thanks a lot.

------
chris_wot
Should I read past "It will never rival Social Security, however"?

------
EGreg
While there is a great deal of insight in the Austrian definition of money,
that does not disprove that Bitcoin is, or will be used as, money.

After all, the market may price bitcoins high today but even if they drop
tomorrow, as long as they stabilize, they can be used as money.

Although it is true that whatever is the most liquid asset in the system
becomes money, often that asset is liquid because of local law enforcement.
Which is the case with fiat currencies.

Most money today is credit money. Bitcoin is not credit-money. The "underlying
value" of bitcoins is not what's relevant. What's relevant in decentralized
situation is the value TO SOMEONE of an asset is what they can trade it for of
genuine use to them. So the value of a bitcoin today may be limited to
speculating with it. But as more merchants accept bitcoin and the market is
saturated and brings diminishing returns, the value of the bitcoin will
stabilize.

Similar things happened with rapidly growing social networks, like Skype or
Facebook. Those are the economics at play here. Initially maybe Facebook was a
way to just put up your profile, because not all of your friends were on it.
But eventually it became the way to stay in touch and update your friends on
what's happening, because enough of your friends used it that it became
useful.

When enough people trust bitcoin to accept it as money, then it will become
money. Until then, the jury is out. But the network effect only grows stronger
with the number of users...

------
pelle
Bitcoin is not an investment scheme. It's a payment system. Unfortunately
people are looking at it as an investment scheme.

Even if it was an investment scheme it hardly fits the definition of a ponzi
scheme. In any new investment whether it's a startup or bitcoin the early
investors make out better than later investors. That is not the definition of
a ponzi scheme.

~~~
jljljl
The problem is that the heavily restricted money supply and inherent
deflationary pressure built into the currency make it a poor medium of
exchange, since they provide an incentive to hoard Bitcoin rather than spend
it.

Something that is scarce, restricted in future supply, and of high demand will
tend to serve as a magnet for speculation.

~~~
DennisP
Assuming you have dollars that you spend on things, the easy solution it to
keep hoarding your bitcoin stash, but also convert dollars to bitcoins just
before spending them.

Given easy convertibility, bitcoin's deflationary effect is spread over the
whole economy, not just bitcoin. So far, bitcoin's not big enough for that to
be noticeable.

------
orenbarzilai
"Companies will not sell goods and services based on Bitcoins. Bitcoins have
to have stable purchasing power if they are to serve as money, and they will
never, ever achieve stable purchasing power."

More & more companies announce that they accept Bitcoins on a daily basis,
thus it has purchasing power & it creates value to the end consumer.

~~~
nkuttler
He's right though that very few accept bitcoin. Almost all use payment
gateways that accept bitcoin but pay currency to the merchant.

~~~
orenbarzilai
True. But some ppl are paying with Bitcoins & more websites adding this
payment option, and recently it became a trend so it brings Bitcoin few steps
further to become "real money".

------
simbolit
I might have read too quickly but from what I get the argument boils down too:
too much volatility is bad, so it won't be used as money, so it isn't money. I
don't think that is a good argument. There are many examples were currencies
are highly volatile yet still function as money. On the oder side, after the
2011 crash, bitcoin hovered around 2-3dollar for months.

I don't know if bitcoin will succeed. I don't know if it will be used as
everyday money. I know quite a few people who use it to buy drugs or takeout
food. I know vast amounts of people who have never heard of it.

I don't think you can say anything about bitcoins future as money at the
moment. Just that (as I explained in an earlier post) national governments
might at some point have an incentive to restrict bitcoin, if it gets so
successful it might make their financial policy ineffective. But this point
(if it ever comes) is still far in the future.

------
oznathan
A very emotional article IMO.

Volatility is not permanent characteristic of bitcoin. It's like saying that a
newborn child will never be able to walk, because now it's only crawling.

At a certain point Bitcoin will stabilize. Whether that will be at 0 or 1
million, no one knows. Not the haters nor the fanboys.

~~~
gnaritas
Bitcoin can't stabilize, the economy is not fixed in size and neither can a
currency that represents it be and remain stable in value. Every time demand
for liquidity spikes due to a growing economy bitcoin will deflate.

------
scotty79
Bitcoin is not a Ponzi Scheme because those rely on deception. If you'd set up
an enterprise and clearly advertised that gains come from money later entrants
contribute (as long as new entrants come) it wouldn't be Ponzi Scheme. Ponzi
Scheme promises returns to everybody, and lies about where they come from.

Bitcoin is as open, transparent and honest as anything can be. Everything from
the protocol, through the implementation to the all the transactions
themselves are public. No one hides the fact that the gains in bitcoin price
come from people wanting to buy bitcoins more and more. No one promises that
this will always be the case.

------
wereHamster
He focuses on one usecase of bitcoins, while completely ignoring the other.
Yes, bitcoins are being bought with the expectation that their price is going
to raise in the future, and this clearly is not sustainable. But they are also
being used to transfer money between individuals. There the price fluctuation
doesn't matter that much (if the merchant immediately converts into USD).

Lately there have been many people saying bad things about bitcoin. I think
those are people who had bitcoin on their radar a few months ago but didn't
invest. And now they are just grumpy because they missed the opportunity.

~~~
no_wave
So who's buying it in the case that the provider immediately converts it into
USD?

The people who set the price will be those who are interested in holding
bitcoin. People who hold bitcoin instantaneously do not affect the value
almost by definition.

------
mschuster91
The author completely omits the two main advantages of Bitcoin over
traditional currencies/banking:

1) it's blazing fast. Ten minutes and someone deep in African desert can wire
money to a researcher on one of those scientific outposts. Try to do that with
a bank.

2) If done right, Bitcoins are anonymous like cash. In light of the recent NSA
scandal, I don't believe a second that the NSA/other governments will reduce
their programs. If I wire a thousand dollars to Pakistan, I bet I'll land on
some no-fly list, even if the money was support for my family. With Bitcoin,
this would not be possible.

~~~
parasubvert
1) With a telephone and a banker, all it takes is 10 minutes to do the same
wire transfer. At worst, it would require a fax machine to sign the paperwork.

2) This is wishful thinking. Large currency transfers by law need to be
reported by most states, whether Bitcoin or not. A thousand dollars is not
large ($10k is typical).

Your scenario here is effectively saying it's easier to break the law with
bitcoin. All you are doing is putting the legal burden on the exchange.

~~~
bmelton
I think that casts the action in an unnecessarily negative light.

Is BTC considered 'currency' by the US government? Do its transfers
necessitate reporting to the government? If I sent a thousand dog biscuits to
my home land, does the government need to be involved? Under what law?

~~~
ceejayoz
> Is BTC considered 'currency' by the US government? Do its transfers
> necessitate reporting to the government? If I sent a thousand dog biscuits
> to my home land, does the government need to be involved? Under what law?

Almost certainly, under a variety of money laundering laws. You can't just
convert cash into diamonds/gold/Bitcoins and thumb your nose at the
authorities saying "look, no currency!"

~~~
bmelton
Sending money back home is a far different scenario than laundering, and the
assertion that it is assumes bad faith from the beginning.

I'm not suggesting you don't have a point, but the idea that BTC has value is,
I think, arbitrary at this point. There are thousands of leaves littering the
lawn in my back yard right now -- surely I could send _those_ to a foreign
land without having to declare it, right?

An argument could be made that they have more actual value than a crypto-
currency at this point, as they're a tangible good.

Similarly, if I send $10,000 worth of virtual roses to friends on Facebook,
the government is not interested, and I haven't seen anything that convinces
me, at the moment, that BTC should be treated differently than any other all-
digital good.

~~~
ceejayoz
> Sending money back home is a far different scenario than laundering, and the
> assertion that it is assumes bad faith from the beginning.

The government can and will assume bad faith in any transfer involving large
amounts of money and/or items of value.

> Similarly, if I send $10,000 worth of virtual roses to friends on Facebook,
> the government is not interested, and I haven't seen anything that convinces
> me, at the moment, that BTC should be treated differently than any other
> all-digital good.

Actually, I believe Facebook would be required to report that transfer to the
IRS.

~~~
bmelton
> Actually, I believe Facebook would be required to report that transfer to
> the IRS.

I believe you're right, because there's a cash transaction there, and cash has
intrinsic value.

But if I 'bought' LTC with BTC that I mined at a cost of idle CPU cycles,
where's the intrinsic value? The market rate for CPU cycles is far less than
the value of the equivalent BTC (or, at least was initially).

If I'm holding $1 million dollars in a bank, I would be subject to capital
gains taxes on its interest earnings. If I'm holding 1 million BTC on my hard
drive, I'm not. If I paid for those BTC, that's a bit different than if I
mined them early.

I'm not trying to be difficult, so much as point out that there's still a long
way to go before you can actually say that BTC is currency, and that even if
we do determine that it _is_ currency, that it's subject to the same rules and
regulations as actual currency or commodities. If I paid capital gains taxes
on BTC holdings yesterday, vs waiting til today, I'd have 'saved'
approximately 15% due to market fluctuation.

As there's no real 'anchor' to the value of BTC at the moment, I think there
are just more questions than answers, really.

------
ck2
I am a big skeptic of a lot of things but not Bitcoin.

Because even if you take away the bitcoin to dollar conversion, you still have
a huge number of people who would be willing to trade bitcoin for goods and
services because they have a huge investment in the hardware and power it took
to make their bitcoins.

I was curious if Bitcoin would become a good solution to the quest for a
micropayment system but it has been a victim of its own success and has become
too valuable. However if its value dropped but still held some value, it would
then return to a valid micropayment system.

~~~
notahacker
> Because even if you take away the bitcoin to dollar conversion, you still
> have a huge number of people who would be willing to trade bitcoin for goods
> and services because they have a huge investment in the hardware and power
> it took to make their bitcoins.

Just because people made a huge investment in hardware or power to make
Bitcoins doesn't mean _anyone else_ has the remotest bit of interest in
accepting Bitcoins for goods and services they provided. The average
Zimbabwean worked a _lot_ harder for their Zimbabwean dollars before being
forced to switch to other currencies that other people would actually accept.

Right now, some people will accept Bitcoins for real goods and services
because they believe the chances of currency appreciation in future are
greater than the lack of liquidity and threat of price crashes. Since Bitcoin
isn't reliably convertible into anything else, people's willingness to accept
it depends on it remaining that way in future (here, it's "deflationary"
tendencies are actually a big advantage). People _need_ dollars to meet
certain financial obligations, whereas they merely _want_ Bitcoins because
they seem like an investment. Take away that anticipated growth in value and
suddenly the risk to accepting BTC seems like far more of a downside than the
transaction costs of conventional currency.

------
SCAQTony
F.A. Hayek would adore the concept of competing, globalized, & unregulated
currencies (unregulated save for it's own algorithm). And that "Bitcoins,
Peercoins, Litecoins and other competing crypto-currencies may be as
significant today as the first minted coins of the ancients.

If crypto-currencies are bullshit because, as the author puts it: "...He made
this money out of digits. He made it out of nothing...."Then all fiat
currencies are bullshits.

What makes crypto-currency worthwhile is that the algorithm keeps it honest
and it encourages saving

------
terranstyler
I see all these people calling themselves libertarians arguing against BTC but
I have yet to see why BTC would fail.

I hate this "BTC is not money" argument because the core foundation of
liberalism states basically "money is what people voluntarily choose to use as
money". So if they are convinced that BTC works (works at least better than
some alternative) , why shouldn't they use it as money?

Volatility is not an argument. Before "adoption" of USD and gold as money,
they most probably were volatile as well...

~~~
joezydeco
This is a fun NPR "Planet Money" podcast where they travel to a libertarian
summer festival dedicated to trading goods and services strictly in gold and
silver. It's...awkward.

[http://www.npr.org/blogs/money/2013/07/05/198413086/episode-...](http://www.npr.org/blogs/money/2013/07/05/198413086/episode-286-libertarian-
summer-camp)

One of the biggest problems is that the rate is constantly changing just like
Bitcoin. And that rate is in US Dollars, the currency they're trying to
abandon.

------
theboywho
What the author seems to miss is that while the features of Bitcoin might seem
close to a Ponzi Scheme, Bitcoin was never meant to be a commodity to invest
in. Bitcoin is useful and solves a real problem, and even if 1 Bitcoin goes
down to $1, there will always be people using it as payment method for its
features.

Also unlike a Ponzi Scheme, there's no single person that has the power to
stop the whole operation. It's more like a drug than a Ponzi Scheme. And
Bitcoin just hit the streets.

------
nkuttler
Yet again somebody writing about bitcoin who hasn't even read the FAQ,
[https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F](https://en.bitcoin.it/wiki/FAQ#Is_Bitcoin_a_Ponzi_scheme.3F)
in particular:

"In a Ponzi Scheme, the founders persuade investors that they’ll profit.
Bitcoin does not make such a guarantee. There is no central entity, just
individuals building an economy. A ponzi scheme is a zero sum game. Early
adopters can only profit at the expense of late adopters. Bitcoin has possible
win-win outcomes. Early adopters profit from the rise in value. Late adopters,
and indeed, society as a whole, benefit from the usefulness of a stable, fast,
inexpensive, and widely accepted p2p currency. The fact that early adopters
benefit more doesn't alone make anything a Ponzi scheme. All good investments
in successful companies have this quality."

Back to the article:

> somebody owned a good percentage of the original digits.

Ok, this sounds just like bitterness from somebody who didn't buy in early.
See also
[https://en.bitcoin.it/wiki/FAQ#Doesn.27t_Bitcoin_unfairly_be...](https://en.bitcoin.it/wiki/FAQ#Doesn.27t_Bitcoin_unfairly_benefit_early_adopters.3F)

~~~
ceejayoz
Next up: why Bing is better than Google, from the unbiased folks at
[http://www.bing.com/](http://www.bing.com/)!

------
nivertech
Many naive people will be hurt by Bitcoin, yet people who promote it will not
be punished.

------
mtkd
Whilst history is punctuated with previous ponzi schemes, it is also
punctuated with periods that required a store of wealth outside of a national
currency.

I shared the author's view when BTC == $30, I'm tempering that now and
starting to view it as a maturing alternative wealth store.

It may always be extremely volatile. However, now it has achieved a level of
confidence, it will likely become another safe harbour in times of local
currency disruption.

------
Tycho
It's really annoying how the term Ponzi scheme is thrown about so carelessly.

------
macspoofing
He's right, sort of, about some things. Bitcoin is absolutely in a speculative
bubble right now. People are buying it not to use as currency but to sit on it
and watch its value appreciate. That's not good. Lots of people will be hurt
when the inevitable crash occurs.

The bigger problem is that Bitcoin has intrinsically a deflationary nature.
That's not a great property for a currency to have. Currency is meant to be
spent. It's not meant to be buried in a backyard so that you can watch its
value grow.

His points around the development of currencies are bunk. The fact that in the
old days it took any currency decades or centuries to take a hold, is purely a
function of that time. Bitcoin also does solve some big problems with the
current financial system. Specifically today it's pretty friggen hard to move
money around because of the insanely strict regulations around transfers. In
an era of the internet and all that it enables, there is a huge pent-up demand
for something compatible with "the internet way of thinking".

------
eof
Everything you need to know about this author and article can be summed up by
this:

> In other words, bitcoins cannot possibly fulfill their supposed purpose: to
> serve as an unregulated currency unit.

Oh that's funny, because for many years they have been doing exactly that with
no end in site. Again , I say, the mental dissonance of bitcoin's naysayers is
becoming more comedic by the blog post.

------
bedhead
Bitcoin is the biggest prank of my lifetime. Hats off to Satoshi for figuring
out the most remarkable get-rich-quick scheme in the history of the world.

Make no mistake, it will one day go down in flames, and 10 years from now
people will write stories about bitcoin the same way they do today about how
insane Iceland's banking system got, or Pets.com being worth $20 billion or
whatever.

------
VLM
Betteridge's law of headlines: any headline asking a question, the answer is
"no".

[http://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines](http://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines)

VLM's law of economics commentary: anyone describing something as a Ponzi
Scheme has no idea what a Ponzi Scheme is and is just trying to
baffle/intimidate the reader.

(It might very well be a fraud / scam / ripoff / whatever but it sure as heck
isn't a Ponzi Scheme)

This is a disease finance is unusually susceptible to. For a good laugh try to
ask any joe 6 pack what a junk bond is, and all you'll get is babble about
some hollywood actor said they're bad, or some vaguely anti-capitalist
blather. You'll never, ever, get to hear what they actually were or how they
fit into the context of finance during that era.

~~~
fyolnish
This headline doesn't ask any question.

~~~
VLM
Yes, and much as that specific "law of headlines" exists, I'm proposing
another unrelated "law of headlines" which is also almost universally true.

~~~
fyolnish
Ah yes, I should have read more carefully.

------
brianmcconnell
The biggest argument for not investing in Bitcoin is that anyone who is
familiar with technology history can see that it is too early to pick a
winner. Bitcoin is better compared to something like TCP/IP. The winner is
likely to be something derived from it, probably something that hasn't been
invented yet.

~~~
kolev
A better twitter than Twitter, a better facebook than Facebook? In technology,
it's not always the better technology that wins. Bitcoin is more than good
enough.

------
xanth
Bitcoin always makes me think of the tulip bubble of 1637[1] where tulips
became more expensive than gold, and people purchased them as a speculative
commodity.
[1][http://en.wikipedia.org/wiki/Tulip_mania](http://en.wikipedia.org/wiki/Tulip_mania)

------
julien
Going gtom "interesting" to "bullcrap" in 2 sentences:

(It will never rival Social Security, however.)

------
jonsleet
No, the whole economic system is the biggest Ponzi scheme.

------
aestra
I think bitcoin will succeed when there are insured bitcoin banks in which to
keep your money. Right now the wallet system is really too confusing for non-
technical users and it is risky to keep your money in a fly by night wallet
service. Keeping your money in a bank is easy.

------
talles
Calling a 'Ponzi Scheme' it's just too simple or judgmental IMO, but despite
the articles flaws, finally someone started questioning "What's backing all
that money?".

Our _real_ money is created out of thin air, backed by nothing for a long
time. There is a lot of fantasy and conspiracy theories behind it, but it is a
problem in the end of the day. When the money started to be electronic things
got even harder to find out what exactly is backing up that money value.
Humongous amount simply floats from bank to bank.

While with the existing money is difficult to get to it's primary root of
source, with bitcoin this applies pretty much to every penny going around. In
theory it's beautiful, but it's an utopia.

------
DennisP
All these people talking about Ponzi schemes are ignoring a few things.

Bitcoin is a useful technology.

It's is in limited supply, as money pretty much has to be.

It's not backed by commodities, and can't be, if you want to avoid
vulnerability to the sort of government attack that shut down E-gold.

When you're starting out with an intrinsic value of zero, and you have limited
supply, there's no way for a currency to gain substantial real-world
usefulness without a large price increase along the way.

People hoping for gain still spend bitcoins, they just replace them right
away.

~~~
parasubvert
"It's is in limited supply, as money pretty much has to be."

An adjustable and growing money supply is much more the norm.

~~~
ashray
True, and bitcoin does stick to this norm. The rate of bitcoin production is
predictable for the next 100+ years. More can be produced with more effort,
it's just not as easy as printing notes.

So it is adjustable and it is growing. The price rise is caused by speculation
and demand, not because new bitcoins aren't being produced.

~~~
parasubvert
Bitcoin does not stick to that norm. The supply is completely inelastic.

Whereas a money supply typically requires different rates of creation or even
destruction to respond to the market demand, partiularly in a time of currency
hoarding (such as we are experiencing now in the real global economy).

There is also a strong argument for multiple currencies with different
supplies of money rather than a single global supply, so there can be mutual
adjustment of prices and wages without the social wreckage of a deflationary
spiral (such as Southern Europe is currently experiencing because of the
Euro).

~~~
ashray
How many of those 'requirements' are because of powerful entities abusing the
system?

What are the forces that have caused those requirements to arise with
traditional currencies?

Did you mean inflationary spiral for Southern Europe? Or are prices for things
dropping there right now? Not sure.. But again, a lot of what happens is
because of constantly 'hacking' the system (raise the debt ceiling, print more
money, etc.). Using that as the norm and presenting an argument against the
'hack ability' of the new system seems flawed. Maybe there needs to be better
research into what happens, why it happens, and how it can be prevented.
Inflationary currency most likely isn't the right answer considering the
issues it has caused so far... Deflationary may not be either.

~~~
parasubvert
No one can realistically claim they truly understand the current system. The
Austrian economists seductively claim this, but that's because they reject
empiricism as a way of challenging their axioms. Keynes seems to have hit upon
the most predictive model we have for how economies operate at scale with
currency, especially how we can get into depression-like circumstances when
internet rates are 0% like they have been these past 5 years. But we are still
debating whether he was a genius, villain, or charlatan, because people refuse
to look at the data and arguments with fresh eyes.

So what constitutes a "hack", vs "bug", vs "works as designed" is a matter for
debate. You point to the debt ceiling - that's a non-economic political
enomaly unique to the USA (and interestingly, iirc, Denmark). It's not so much
a hack as a periodic configuration change.

You also mention inflation. Currently there's very little inflation anywhere
in the world. We are printing money everywhere, and yet there is no real
inflation, not a peep, completely contrary to over 5 years of dire warnings
from inflation hawks. Why is that? You'd think there may be a lesson here.

Southern Europe had massive capital inflows from the North during the past 10
years, leading to wage and price inflation. Private excesses led to a massive
crash in demand when the financial crisis hit, and a major outflow of capital.
So now the South is uncompetitive relative to their Northern neighbors. The
typical tool to get more competitive is to drop their exchange rates relative
to their peers to bring export prices inline. but with the Euro, they can't do
that. So they're stuck in a deflationary spiral - difficult (high
unemployment, lowered workforce participation) and destructive (business and
livelihoods destroyed and permananent damage to the country's wealth
generating capacity) considering prices and wages tend to be sticky downwards
and thus don't trend in a nice linear manner.

The above situation doesn't occur quite as suddenly and badly in the USA among
its member states because they have fiscal integration, which enables Federal
transfers to poorer states to shore them up relative to their peers. Decay and
deflation still eventually happens if the underlying reason is structural (see
the Detroit area). But Southern Europe itself was a growth story, not a case
of mismanagement but rather a victim of reckless investment with no EU system
to soften the blow when there is a crisis.

As for the requirements on the money supply, there is plenty of history out
there discussing the trouble with previous eras of the gold standard (see the
Great Depression), or decentralized free money (the USA had hundreds of
currencies in the 18th century- the civil war reparations was the onus to
coalesce into a standard Federal reserve currency).

We have switched between predominantly commodity (deflationary) currency and
debt-issuance (inflationary) currency for thousands of years. There's dangers
on both sides.

~~~
iterative
If Keynes's predictive model was so good then why has every application of his
theory, whether in the US in the 30's, 70's and now, Japan in the past couple
of decades, etc. failed so miserably? On what basis are you claiming that
Detroit's collapse was structural, rather than being caused by bad governance?
Other areas of the US, and other countries for that matter, have seen their
main industries decline, but they've managed to replace them with others
without suffering the total disaster that Detroit as.

~~~
parasubvert
Re: Keynes. It's hard to be a failure when no major nation adopted Keynes'
approach in the 1930s. It was far too new, though he was certainly trying to
convince people.

Keep in mind General Theory wasn't published until 1936. FDR didn't become a
convert until 1938 -- after his attempt to balance the budget in 1937 led to a
disastrous recession that undid a lot of the prior gains from the depression
(the US government had a budget surplus!). WW2 spending was what wound up
being the stimulus that dragged the world out of the recession.

Liaquat Ahamed's _Lords of Finance: The Bankers Who Broke the World_ goes into
great detail as to why the great depression occurred (the Gold standard), and
why it lingered.

I also think you may want to read more into Japan's economic policy and
financial history. Japan's troubles started with a financial crisis and asset
bubble bust twice - in the late 80's and late 90's, similar to the global 2008
crisis, Except Japan had a much, much weaker institutional response than the
USA and even the UK did. They shuffled almost annually through a series of
milquetoast PMs. Their central bank governors wouldn't commit to anything.
Japan had to nationalize a lot of the private losses and bank bankruptcies
that were occurring while contending with no growth and a deflationary spiral.
Japan's debt was not the result of Keynesian stimulus (that would have
required sudden and massive expenditure, given the size of Japan's economy),
it was the result of "keeping the lights on" in an era of almost no growth.

Now, in 2013, Abe and Kuroda are finally attempting what looks like a quasi-
Keynesian approach -- massive quantitative easing to drive inflation
expectations skyward. I say "quasi" because it's not a fiscal stimulus (people
are too nervous to try given their debt-to-GDP ratio). And this approach is
more Krugman than Keynes. It will be interesting to watch.

Detroit was a case of structural problems combined with bad governance. Sorry
if that was not clear. It was a side point to basically say that Southern
Europe is not Detroit. They were a victim of private excesses fed by capital
flows from the North and a lack of EU-wide fiscal integration to cushion their
economy after the crisis.

------
steveplace
>It will dwarf anything dreamed of by Bernard Madoff.

Madoff's fraud was to the tune of >60 billion.

Bitcoin's cap is at round 10 billion.

So the author expects btc to rise in value by at least 600%

~~~
ceejayoz
It's gone up 1,000% since October, so that's hardly a wild prediction.

------
emilga
What can a bitcoin be used for, other than as a medium of exchange, which also
increases demand for the remaining bitcoins?

To (unqualified) me, this seems the crucial question. If your money is not
propped up by government fiat, it better have some non-monetary uses to
succeed in the long run. (And it should not be possible to satisfy that non-
monetary use by an arbitrarily small amount of "money".)

------
orenbarzilai
Not directly related to the article, but recently I have heard few complaints
about limitations of converting Bitcoins to us dollars (or any other official
currency). If these complaints are true, how come these limitations exists? it
affects the true value of the coin and works against logic & advantage that
Bitcoins has to offer.

Anyone can share some information about the Bitcoin selling limitations?

~~~
ashray
There are limitations because the exchanges are not that liquid. There are no
hard limitations as such. People have been converting $2-3MM from bitcoins
easily but larger numbers will still be hard to convert at the current price.

This conversion limitation however should not affect the average joe.

------
kolev
If Bitcoin's market cap is a scheme, what is then Apple's market cap?! USD is
the biggest scheme there is, when you think about it. Bitcoin was born out of
demand, not as a scheme. The only negative side is the speculators who move
the price up and down by tens percent daily, but when more money get into
Bitcoin, their job will only get harder.

------
puppetmaster3
Wow, what a poorly reasoned article.

------
ezstar
My only counterargument for now; Bitpay [https://bitpay.com/bitcoin-exchange-
rates](https://bitpay.com/bitcoin-exchange-rates)

I've recent been using bitcoin as money for lots of things. easiest way to
cash them out

------
mmphosis
Money is created as debt out of nothing. The money to pay interest on this
debt does not exist. Bitcoin is valuable because it facilitates exchange over
the internet. I'm looking forward to the "great winter."

------
kolev
There's so much envy towards those who made money from Bitcoin, it's not even
funny. Many try desperately to manipulate the market. Others greedy by nature
live in denial as a self-preservation.

------
scotty79
tl;dr: Bitcoin wouldn't be Ponzi Scheme if it could become money. It can't be
because its price is too volatile. Therefore bitcoin is Ponzi Scheme.

My answer: Volatility is inversely proportional to the wealth that has been
exchanged into bitcoin. At the moment individual with few hundred million $
could swing bitcoin market up and down as he pleases. It will be much harder
if people stuff trillion dollars or so into bitcoins.

------
kelvin0
I thought the biggest Ponzi scheme was the current monetary system, whereby a
few organizations can create money out of nothing?

------
em70
Even if Bitcoins may very well crash as some point (even soon), this point is
so poorly argued that it was a pain to read.

------
jordhy
Bitcoin is just another social network. It's Facebook for money or the
Internet of money. It's not a ponzu scheme. Get over it. I'm sorry you didn't
buy when they were cheap. Know the utility of bitcoins is real and they're
everywhere.

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chris123
Someone is going to be eating their hat in a few years (or less).

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insertnickname
It should be noted that not

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blahbl4hblahtoo
Austrian economics are so painful. Its amazing to me how impervious to
contrary evidence its adherents are... their blind faith in their core beliefs
are so unshakable. Every time I read one of them say that money arose from
markets I wonder why they don't sponsor a bill that sets up an agency like
NOAA that watches for dangerous conditions in this primeval force called "the
market" so that people can be warned when "the market" is angry and another
virgin needs to be tossed into its going maw in an act of propitiation.

Just the idea that markets pre-date states is so ingrained.

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mason240
Are you saying that you don't believe that people can buy, sell, or trade with
each other unless government is involved?

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blahbl4hblahtoo
of course not.

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iterative
I have extra kidney to sell if anyone's interested. Payment will only be
accepted in Bitcoins.

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basyt
I think the most important lesson is that traditional economists are just
going to have to learn to live with the fact that their theories don't explain
bitcoins.

or they might just be kicking themselves for not buying coins sooner. lol.

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ceejayoz
Why would Bitcoins be exempt from standard economics? We're not talking about
quantum physics where everything starts acting wonky.

Claiming Bitcoins won't follow economic theories is like claiming plastic
money will work differently than paper money and coins.

