Bitcoin a Ponzi Scheme?

[discocrisco01]

Here is an interesting read on bitcoins

I hereby make a prediction: Bitcoins will go down in history as the most spectacular private Ponzi scheme in history. It will dwarf anything dreamed of by Bernard Madoff. (It will never rival Social Security, however.)

To explain my position, I must do two things. First, I will describe the economics of every Ponzi scheme. Second, I will explain the Austrian school of economics' theory of the origin of money. My analysis is strictly economic. As far as I know, it is a legal scheme -- and should be.

PONZI ECONOMICS

First, someone who no one has ever heard of before announces that he has discovered a way to make money. In the case of Bitcoins, the claim is literal. The creator literally made what he says is money, or will be money. He made this money out of digits. He made it out of nothing. Think "Federal Reserve wanna-be."

Second, the individual claims that a particular market provides unexploited arbitrage opportunities. Something is selling too low. If you buy into the program now, the person running the scheme will be able to sell it high on your behalf. So, you will take advantage of the arbitrage opportunity.

Today, with high-speed trading, arbitrage opportunities last only for a few milliseconds seconds in widely traded markets. Arbitrage opportunities in the commodity futures market last for very short periods. But in the most leveraged and sophisticated of all the futures markets, namely, the currency futures markets, arbitrage opportunities last for so brief a period of time that only high-speed computer programs can take advantage of them.

The question of the week is whether Bitcoins will become a sustainable private currency used by the black market as currency of trade or just another huge investment bubble that will soon inevitably collapse. At this time, only time can tell what direction the Bitcoin market will go.

[arcane1]

1. Perhaps, perhaps not, but the author of that piece is an idiot.

Claiming Social Security is the biggest Ponzi scheme ever?

[Aerows]

4. Author is a butthead

and I'm trying to be kind.

[DanTex]

5. This.

Anyone associated with the Austrian school of economics is a nutcase.

[dipsydoodle]

2. No.

Try a search on "Biggest Ponzi Scheme In The History Of The World" to find the real one.

[Aerows]

3. Not really

it's a system of a set amount of a commodity, and an experiment to see how they are traded without being fiat currency.

Note: I own none, and am not involved in it, but it's a fascinating experiment in currency.

[sendero]

6. "Federal Reserve wanna-be"...

... why wouldn't they wanna be. The Federal Reserve (not affiliated with the Federal Government in any way) creates money out of thin air also.

Who wouldn't want to be in on that action?

[madinmaryland]

7. "It will never rival Social Security, however." What the fuck are you talking about???

Is that what you believe, that Social Security is a Ponzi Scheme?

[Lasher]

10. Don't blame him, it's probably just something he's heard or read.

Social Security Is Not A Ponzi Scheme

September 8, 2011

Right-wing media outlets have rushed to defend Gov. Rick Perry's false claim that Social Security is a "Ponzi scheme." In fact, experts agree that Social Security's "structure, logic, and mode of operation have nothing in common with Ponzi schemes."

http://mediamatters.org/research/2011/09/08/social-security-is-not-a-ponzi-scheme/182872

[NightWatcher]

14. little clues like this give you a good idea where the article is coming from

When I see flags like this, I don't even bother clicking on the link.

I realize that the poster was just quoting the piece, but these same flags can let you know when a poster might be full of it.

[DanTex]

8. It's not a Ponzi scheme. It might be a bubble.

A Ponzi scheme involves deceiving investors by using the money from newer investors to pay the returns of older investors. Bitcoins don't pay any kind of dividends, nor do they promise to, so it cannot possibly be a Ponzi scheme.

It could be a bubble, meaning that at some point bitcoins will become useless and whoever is holding them when they do will lose money. That's no different from any other kind of bubble. There are pretty good arguments that bitcoins will not survive as a currency, but Austrian economic theory is not one of them.

Right now bitcoins are not really serving as currency, they are serving as a speculative investment vehicle. Most likely, in order for them to survive, at some point in the future they will have to actually become a viable currency. I'm skeptical as to whether that is going to happen. But that doesn't make them a Ponzi scheme.

[Ichingcarpenter]

9. i worry about a dead switch

govt or banks would do on the internet.

[Aerows]

13. Same as any market

always a dead switch. You think Wall Street and micro trading couldn't shut down in a second if there was a chance that the big daddy's would lose money? They won't hesitate to take the market out with them. See: 2008

[jmowreader]

11. Bitcoin isn't a ponzi scheme

It is more like the Stock Market.

A long time ago, during Shrub's bull market, I told someone you could create a stock in a company that didn't exist, put it on the market with full disclosure that the company the stock represented didn't exist, and people would trade the hell out of it. Bitcoin is that stock, made real.

As of now the two things you can most commonly buy with BTC are hard drugs and the contents of your hard drive back from the CyberLocker assholes, and that will probably prove its undoing: most people don't want hard drugs. They also don't want to associate with people who do.

[Aerows]

12. "Bitcoin isn't a ponzi scheme"

"It is more like the Stock Market."

Uh, same difference?

Not sure what market you have been following for the last 15 years ..

[jmowreader]

15. The stock market isn't a ponzi scheme. Nor is Social Security.

A ponzi scheme is a very specific kind of swindle: one where payouts to older investors come exclusively from the money paid in by new ones. The stock market doesn't work that way, so it's not a ponzi scheme. The stock market's profits over the last few years have come from the place stock market profits have always come from: you buy stocks with the intention of selling them for more money, and sell them to people who plan to do the same thing. Or you borrow stocks you think are going to lose money, sell them now, wait till they lose money and buy them back.

Alan Greenspan summed up the problem with the stock market in two words: Irrational exuberance. That's not illegal. Dumb as hell, but not illegal.

[Aerows]

18. Anyone that places their financial faith

in Alan Greenspan is a bucket that doesn't hold much water. No offense intended, but listening to Alan Greenspan on finance is about as intelligent as listening to Marie Curie on what nuclear science can do for you on a personal level.

[JNelson6563]

16. I don't think that word means

what the idiot author thinks it means.

not sure why this right wing author was posted here...

Julie

[Nye Bevan]

17. Anyone who claims that Bitcoin is a Ponzi scheme does not understand what a Ponzi scheme is.

I'm not going to explain the definition of "Ponzi scheme" here because it has a perfectly good Wikipedia page.

It is quite likely that it is a bubble, however.

[derby378]

19. Does anyone on DU even HAVE Bitcoins?

From what I know, the only things you can buy with Bitcoins are ketamine and kiddy-porn videos from those "dark net" sites.