Stefan21 (@stefan_21) on getquin

2Mon·

Is Harald right? Is $BTC (+3.75%)
a Ponzi scheme?⛄(866845)

Thanks for your contribution @Madhatter5566 !

With this post I would like to take the opposite position once again and express my opinion. If you missed Harald's post today, you should read it before this post to know what it's about: https://getqu.in/duSdcl/

What is a Ponzi scheme?

Definition according to Harald's Wikipedia article:

"A Ponzi scheme or pyramid scheme is a business model that requires a constantly growing number of participants to function, like a snowball rolling down a slope and constantly growing. Supposed profits or returns, or rather liquidity surpluses, are generated almost exclusively by new participants in the system contributing or generating their own capital. Sometimes there is no product at all or only an overpriced product, making it a fraudulent offense."

The following core elements of a Ponzi scheme can be derived from this definition:

(1) The need for a constantly growing circle of participants: The system only works if new participants are continuously added.

(2) Profits from the capital of new participants: The returns of existing participants are mainly financed by the deposits of new members.

(3) Missing or overpriced product: Often there is no real product or the product offered is overpriced and only serves as a pretext.

In addition, the following characteristics of a Ponzi scheme are mentioned to distinguish it from a Ponzi scheme:

(1) Typical "incentive": High profits through a one-time investment in order to subsequently distribute the product yourself. The Ponzi scheme is often not a genuine product that is usually traded. It is often only permitted to sell the "product" to customers who are also distributors or want to become distributors.

(2) Payments: One-time or recurring participation fees. The profits come from the new customers that you have recruited yourself.

(3) Interaction with the founder: Interaction with the founder sometimes does not take place. New investors are recruited at all levels of the pyramid scheme.

(4) How it works: Fees from new customers finance the success fees of current participants.

(5) Collapse: Fairly quickly, because in order to maintain the system, a multiple of new customers must be acquired at each level.

Now that we have clarified the core elements and characteristics, we can take a step-by-step look at the extent to which Bitcoin fulfills these characteristics.

Applying the core elements of a pyramid scheme to Bitcoin:

(1) Need for a constantly growing pool of participants

Ponzi scheme: The system continuously needs new participants to finance the profits of existing members. Without a constant influx of new members, the system collapses.
Bitcoin: Bitcoin is a decentralized network that functions independently of the number of users. The functionality of Bitcoin does not depend on a constantly growing number of participants. Even if the number of users stagnates or decreases, the network remains functional and does not collapse. This is ensured by the "Bitcoin control loops", which I have already presented in detail in another article. But to explain it very briefly: the miners are service providers. They expend energy to confirm user transactions or to include them in a block. If the number of users and therefore the volume of transactions falls, it will be even more difficult for miners to continue operating their business profitably than it already is. As a result, some unprofitable miners will (have to) take their devices offline, causing the hashrate to fall. As a result, the blocks are confirmed more slowly. After 2016 blocks, the so-called "Difficulty Adjustment" takes place and the difficulty for mining is corrected downwards. As a result, mining becomes more profitable again for all other miners. The network therefore stabilizes itself and does not collapse.

(2) Profits through capital from new participants

Ponzi scheme: The returns of existing participants are mainly financed by the deposits of new members. There is a redistribution of funds from new to existing members.
Bitcoin: When buying Bitcoin, a buyer exchanges his money for a digital good on an open market. There is no central authority that collects deposits and distributes profits. Profits or losses are created by market movements based on supply and demand. There is no direct financial link between new and existing Bitcoin holders, and the gains of some are not necessarily the losses of others. To argue that the previous buyers benefit from the capital of the new buyers is of course indirectly true, but it is the same for any other asset traded on the market.

(3) Missing or overpriced product

Ponzi scheme: Often there is no real product, or the product is just a pretext and is overpriced. The actual value of the product is low or non-existent.
Bitcoin: Bitcoin is a trustless, fair, censorship-resistant, democratically regulated network with a real benefit for many people worldwide. That is a fact. Just because you don't recognize this benefit for yourself doesn't mean you should conclude that everyone else does. Bitcoin enables peer-to-peer transactions without a third party. We here in the western world have an easy time discussing whether we see Bitcoin as an asset or store of value or whether it could be a currency - or a Ponzi scheme after all. Unfortunately, the majority of people live in autocratic/dictatorial regimes - sometimes with high double to triple-digit inflation rates. For these people, Bitcoin is not an alternative, it is a necessity. For anyone who doubts this, I can warmly recommend the book "The Trojan Horse of Freedom" by Alex Gladstein, CEO of the Human Rights Foundation. The whole book, from cover to cover, is about how people around the world are using Bitcoin to protect themselves from oppression and how Bitcoin offers them the chance of a better life.

Applying the additional features to differentiate it from Ponzi schemes:

(1) Typical "incentive"

Ponzi scheme: High profits from a one-time investment to then distribute the product itself. Often products may only be sold to people who also want to become part of the scheme.
Bitcoin: There is no distribution structure or obligation to resell Bitcoin to others or recruit new participants. Anyone can buy or sell Bitcoin without being part of a network or distribution system. There is no compulsion or financial incentive to get others to buy Bitcoin.

(2) Payments

Ponzi scheme: One-time or recurring participation fees. Profits come from the new customers you have recruited yourself.
Bitcoin: There are no participation fees or membership fees to use or purchase Bitcoin. Profits or losses result from the individual decision to buy or sell Bitcoin at a certain price. There is no mechanism to profit directly by recruiting new participants.

(3) Interaction with the founder

Ponzi scheme: Interaction with the founder sometimes does not take place. New investors are recruited at all levels of the system.
Bitcoin: Bitcoin was developed by a person or group under the pseudonym Satoshi Nakamoto, who has not been active since 2011. There is no founder who actively recruits new participants or controls the system. Bitcoin is open source and is further developed by a global community of developers and users. The claim that Satoshi Nakamoto enriched himself as the head of the "Ponzi scheme" remains just that: a claim. In reality, Satoshi's coins have never been moved, which speaks against his intention to enrich himself. Furthermore, there was no premine in Bitcoin, which I tried to explain to Harald - but he obviously misunderstood. Satoshi mined the first Bitcoin block, the Genesis block. However, it was designed in such a way that there was no block reward of 50 Bitcoin at the time. So he didn't "earn" anything with it. He then waited 6! days until other network participants joined in and mined with him. From then on, Satoshi also continued to mine. This means that all Bitcoin was mined in a market-based process. The coins were not created behind closed doors, as is the case with Ethereum, for example. I am also not claiming that ETH is a Ponzi scheme - I just wanted to use this as an example for Harald.

(4) How it works

Ponzi scheme: Fees from new customers fund the success fees of current participants.
Bitcoin: There is no structure in which fees from new participants flow to existing users. Transaction fees are paid to miners who secure the network and not to other Bitcoin holders. The miners provide a real service by verifying transactions and securing the blockchain.

(5) Collapse

Ponzi scheme: The system collapses fairly quickly as multiple new customers must be acquired at each level, requiring exponential growth.
Bitcoin: Bitcoin has now been around since 2009 and has seen numerous ups and downs. It does not depend on the recruitment of new participants to function. The network is robust and dynamically adapts to the number of active miners and users because of the control loops.

Summary and conclusion:

Based on the above points, in my opinion, Bitcoin does not the criteria of a pyramid scheme. Here are the main reasons again:

There is no central authority or organization that recruits new participants or profits from their deposits.
The viability of Bitcoin does not depend on the constant recruitment of new participants.
Bitcoin offers a real benefit as a trustless, fair, censorship-resistant, democratically regulated network
Bitcoin is traded on open markets and the price is determined by supply and demand.
There is no mechanism by which funds are redistributed from new participants to existing ones.

Finally, I would like to briefly address the valuation issue that I think Harald was getting at:

Bitcoin has no intrinsic value. This may come as a surprise to some people, but I agree with Harald. According to the Austrian school, however, this "intrinsic value" does not even exist, as value is ALWAYS subjective. If I subjectively estimate the value of a good to be higher than its market price, I am prepared to buy the good. The seller, in turn, only sells the good if he subjectively estimates its value to be lower than its market price.

Bitcoin does not generate any cash flow, which is why it must have an intrinsic value of exactly 0 from a traditional financial perspective. This is why many economists find it so difficult to attribute a value to Bitcoin.

However, Bitcoin does have intrinsic properties that make it valuable. I have presented some of these in this article, for example: https://getqu.in/G8t0Nm/

I hope I have now been able to give you my view on the subject. This has caused heated discussions between myself, a few others and Harald in various threads here over the last few days.

I think it's great that Harald has written a constructive contribution regarding his views. That deserves recognition - I wouldn't have expected it.

And I didn't want to just clumsily point my finger at a few of his arguments and claim that they are nonsense, but rather consciously try to take a constructive counter-position.

You can and should all form your own opinion on Bitcoin. Under no circumstances should you invest in something like Bitcoin because there are people like me who keep publishing articles about it - instead, you should form your own opinion according to the motto "Do your own research" and make your decisions based on this. To do this, it is also important to listen to controversial opinions from different people.

Conclusion: I also leave it up to the reader :D

Have a nice day!

#bitcoin

153 Comments

DieEnte7@DieEnte7

2Mon

Nice contribution, even as a Bitcoin skeptic I have to acknowledge 👏🏻 And that's exactly what's important, not just blowing your own horn loudly, but also respectfully dealing with opposing opinions and then forming your own opinion 😁 So chapeau 🎩

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Schöbi@schoebi

2Mon

Really, very good rebuttal! Don't you two fancy a podcast? 👌🏼

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Metis@Metis

2Mon

I don't have any Bitcoin and consider most cryptos to be scams or gambling products, but the comparison with a Ponzi scheme also seemed rather strange to me. Sure, you need enough people to fundamentally "participate" in something like this, but not like a Ponzi scheme. You don't gain (directly) from others buying coins and/or generating new customers (new buyers). In a Ponzi scheme, most of the money is earned through commission or participation in the payments of others. Only the top layers of the system win. This is not the case with Bitcoin. Of course, you win or lose with the fluctuations in the value of the coin. But anyone can basically make a profit if they buy at exactly the right time.

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Rafza473@Rafza473

2Mon

Thank you Stefan. Very good, professional rebuttal👏

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Walter S.@Roots

2Mon

Hello stefan_21
Great contribution thanks...
I think it's well presented... I also read Harald's presentation...I read up a bit myself...
Conclusion for me: bitcoin is not a fastball system... riskier by all means...
Thanks for the clarification.

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Charmin@Charmin

2Mon

Both positions have good theses. The question I always ask myself:

What, apart from the high price, is really left of bitcoin in the real world? And because I don't have an answer to this, I continue to see Bitcoin as a gamble that works well for some and very, very badly for many more.

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Fabio Fontanelli@Fontaene

2Mon

Top

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Kate💎 🙌.@Iwanowitsch

2Mon

I can't believe how seriously you take Harald. I wouldn't have expected such a serious contribution from him after reading the original discussion. Your contribution is of course, as always, very informative and interesting.

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Harald@Madhatter5566

2Mon

Hello Stefan,

this time as a comment, because it's too complicated for me to summarize this in a separate post.

Re 1(necessity of a constantly growing circle of participants)
Well, that contradicts the actual purpose of Bitcoin. Of course, the payment system or network can be maintained, but if no one buys your transfer units and thus carries out the actual trade, Bitcoin smoulders in its own soup and is unsuitable as a means of transfer. Putin needs roubles, not a coin he can't do anything else with. Don't forget, the trading partner actually wants money in exchange for its goods. As miners also produce more Bitcoin every day and have the ongoing costs for this, they also have to exchange. Nobody can finance electricity or a GPU with bitcoins. You either need people to hold the Bitcoin, and more every day as more Bitcoins are added. If they were not accepted, Bitcoin would fail to fulfill its transfer property and lose trust. As I said, Bitcoin is somehow trying to prevent the loss of trust with the "you make a profit by holding" method. You can compensate for this with a higher number of hodlers, but this is not done to remove transfer units from the system out of charity, but to exchange more money later (where someone new is then needed to pay for it). You can actually only counter this by explaining how you directly generate value by holding Bitcoin (and then directly contradicting the explanation that Satoshi cannot enrich himself by not moving the coins. Good luck

Re (2) Profits
Market movement, yes, there are also some who realize against loss and some at the level that buy in again. That is also in the definition. There is buying at all levels. And no, profits for each asset does not necessarily come from another buyer. Stocks are companies that make profits and also buy back shares, etc. Again, you are confusing that stocks represent value (namely a share in a company that has value), which is not the case with Bitcoin). As usual, that's why I singled out Bitcoin as a non-product. Unless you want to say that companies don't make money (and thus my share becomes more valuable even without a buyer)

Re 3(Missing product)
Well, as linked in the white paper, Bitcoin was meant for something specific and completely missed the mark. Storing value sounds nice now, but where does Bitcoin hold value? As usual, you're confusing value with price and it's really just an attempt to find repeat users who are greedier. This shift towards the "yield miracle bag" makes Bitcoin even more of an empty product, especially since no one can explain how and why Bitcoin creates value. Because you don't gain any by transferring it.
Re 1(incentive)
Of course there is a distribution structure. That is you. And yes, your incentive is to find someone who will buy the coin from you for more than you made, bought or exchanged it for. What else could it be? Otherwise, again, Bitcoin has zero use if you just want to hold it for all eternity. Bitcoin is the transfer unit, so you have to exchange it again at some point.

Re 2(Payments)
The strangest counter. Of course, you benefit directly if you find new participants who pay more and continue to rate. Especially if you can exchange cheap coins for the current "price". Are you saying that Satoshi doesn't profit with coins in the cent range if he finds someone who buys them for 70k? It doesn't matter whether the money comes directly from new users or goes to you as a bonus.

To (3)
It would have been nice if you had read it. The unmoved ones are assigned to Satoshi, which is correct. Doesn't mean he didn't have more. To call the genesis block with 50 bitcoins with 1 million coins that he has "honesty" is grandiose. The fact is that, as the inventor, he has incorporated the cheapest coins for himself and still has 1/20 of all coins. How the top level receives its product (because even a ping pong ball as a transfer unit has to be made in the end) is completely irrelevant for a pyramid scheme yes/no, as long as the top level has received the "product" more cheaply than the following users. That is the case. To say Satoshi has not enriched himself, even though he is how many billions heavier, can only be a bad joke. Or coping.

Re (4)
No bonus, but a more expensive product. As with an MLM, all sales units would be confronted with the same price range, no hierarchy. Snowballing also works if each level sells the product at a higher price. I had written the same thing....

To (5)
A Ponzi scheme would also be a Ponzi scheme before the collapse. Sorry.
Sorry, as in the articles I linked to, your reasoning deals fairly well with Ponzi for the most part, whereas Bitcoin is more likely to be a Ponzi scheme. The central authority would be important in a Ponzi, not a pyramid scheme. That you can't centrally access an authority is a characteristic of a Ponzi scheme, not a criterion for exclusion.

And no, as explained, Bitcoin is failing in its actual task, as it has degenerated into a pure speculative object. The fact that you hold your coins is exactly what it shouldn't be.

Kind regards
Harald

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gerdgue@gerdgue

2Mon

Certainly not a Ponzi scheme for the reasons mentioned. But it is and remains a hype with a rather immaterial value, which is mainly driven by the hyped demand and, in my opinion, by fantasies of a possible primordial democratic so-called internet currency, which unfortunately will not happen.

In the worst case scenario for the big bitcoin believers, the value will disappear just as quickly as with the Lazy Ape NFTs etc., which were also all very hyped and in the end you end up with 0$ with your bitcoins.

In the next major crisis at the latest, bitcoin will be the first to collapse, and much worse than anything else, because people will pull their money out again.

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