

Ask HN: Isn't Bitcoin similar to a Ponzi scheme? - machilin

I would hate to say this but either it is one, or looks just like one. There will be losers and winners in this case. People who bought them early cash out and earn a huge profit. So where does the profits come from? Thin air? From people who buy them at a higher price. And how do they cash out without making a loss? By cashing out at a higher prices when other people are buying.<p>It's almost like a never ending cycle until maybe bitcoin prices reaches infinity and beyond. Someone has to win and someone will lose. You can't have everyone becoming bitcoin millionaires. Big issue now is bitcoin prices are dropping fast. So good luck to those still holding on to those hot potatoes. Cheers.
======
blacksqr
There must be some sort of financial equivalent to Godwin's Law that requires
everything eventually to be compared to a Ponzi scheme.

A Ponzi scheme involves someone guaranteeing a return, then using new deposits
to satisfy older guarantees when the return doesn't materialize.

Nobody's guaranteeing any valuations in the Bitcoin market. People are simply
speculating and creating an old-fashioned bubble.

~~~
machilin
Not that I'm saying bitcoin in general is bad, but speculators are making it
look bad by diving in hoping to make a quick buck. And the limelight of these
so-called bitcoin millionaires give everyone the impression of making a quick
return on bitcoins. You are definitely right in saying no one is guaranteeing
a return, but almost everyone is expecting to make some quick returns on it.
That itself can't be good.

~~~
blacksqr
The bottom line is the answer to your original post is "no", because
speculation != Ponzi scheme.

------
trevelyan
No it isn't. I use bitcoin for currency exchange and it saves me about a
hundred dollars each month by lowering my transaction costs. Rather than pay a
percentage to the banks and often another percentage to VISA, I pay a flat fee
to transfer assets into bitcoin, and then another flat fee to transfer them
out. Total costs end up being something like 1 percent instead of 3-5 percent.
And the exchange rate typically ends up being better too.

So I am bullish on bitcoin, although I think it will be less a currency than
an asset store for many early adopters. The way to deal with volatility if you
are worried about market fluctuations is simply to buy and sell on multiple
exchanges simultaneously, ideally holding a small float so the exchanges are
near-simultaneous and you aren't exposed to downside risk.

On a side note, I pay for server hosting using a credit card now and am
interested in saving the 3 percent VISA fee, since that adds up to almost a
thousand dollars a year at this point. So if anyone can recommend a
professional server colocation and leasing company that accepts bitcoin and is
based in California (ideally the Wilshire facility) I would be interested in
hearing about your experiences. Please note that I'm not looking for shared
hosting or VPS provision -- I need to lease actual hardware.

~~~
machilin
Agreed on how it helps lowers transaction fees. Can be a real life-saver. Good
to know that it's always good to diversify. But I really wish people could
focus more on it be an actual currency for transactions rather than as an
'assest'. Thank you.

------
machilin
Sure you may buy stuffs with your coins but with the current outlook, it looks
like a bomb that may explode in your face. the value of bitcoin is almost
predictable as you rolling a dice. You won't want to be holding any.

------
6thSigma
That's pretty much how all financial markets work.

------
lifeisstillgood
Bit coin has a cryptographically limited supply - there are only so many coins
possible, and only so many can be made at a time per unit of computing power

In theory you would have a clear relationship between real world production
(CPU, power) and a stable exchange rate.

This is not happening because either a speculative bubble (likely) or the real
level of pricing is not yet priced in (not sure, that should be a known
number)

Anyway, in theory there is a clear fixed relationship between electrical power
costs and bitcoins - and as there is transparent accounting of transactions,
it's either impossible or really hard to commit the central fraud of a ponzi
scheme.

Edit: actually bit coin could be the new gold standard.
[http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyscheme...](http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf)

~~~
machilin
Great read. Bitcoin can be a new gold standard. Probable. But that means
someone has got to regulate it. To keep the prices stable so that it can be a
standard for other currency. But bitcoin is unregulated and that's the main
advantage of it. So either it can be a gold standard by being regulated, which
defeats its whole purpose or remain as it is. You can't have your cake and eat
it too.

Edit: I highly doubt it can be stable. With so many people holding significant
shares of bitcoins, any actions take by them can affect the prices
significantly, since the market cap is so small. Plus someone has to step in
to make sure prices don't go out of hand. If all it takes is for mtgox to have
a few DOOS to drop prices by more than half, I don't see how bitcoin can be a
gold standard without regulation.

~~~
lifeisstillgood
It is regulated - the number of coins is a function of computing power on the
problem. That makes it similar to gold - there is a finite amount on earth and
we can mine more or less as our efforts dictate

The fact that coins are allocated to miners is no different than good
allocated to miners

I am not saying _now_ is a good time to peg the dollar to the bitcoin. I doubt
it would ever be - but the concept is viable I think - and that makes it
feasible - a government could set its own algorithms, and peg to its own
mathematically deflationary currency. That would be an interesting step
forward

