AMA: Long-time DU lurker and democratic supporter, know everything there is to know about bitcoin

[Rassah]

21. Bitcoin is not a Ponzi

Last edited Fri Nov 1, 2013, 09:26 AM - Edit history (2)

Ponzi: Set up and run by an individual or group that control it in secret
Bitcoin: Set up and run by everyone participating in the Bitcoin network, and everything is completely open and verifiable (open source software, transactions all public)

Ponzi: Promises returns on investment, sometime using some explanation of where money will come from
Bitcoin: No promises of profit from anyone (no one in control to make such promises), and no money making system involved (other than basically accountant salary to miners)

Ponzi: Uses new investor money to pay the old investors
Bitcoin: Old investor balances don't change, and new investor value doesn't decrease. If you are new, and you buy $100 worth of Bitcoin, you still own that $100 worth. None went to anyone else

Ponzi: Balances exist only on paper, and are fake. Your $1,000 balance may consist of $100 actual dollars, and $900 fake IOUs
Bitcoin: balances are exactly what they say they are. If you have 100 bitcoins, you have 100 bitcoins. There are no IOUs waiting to be filled by new investors

Ponzi: If there is a run on the bank, where everyone tries to pull out their money, very quickly all the real money runs out, and the only thing that's left is worthless IUOs, so the ponzi collapses
Bitcoin: If there is a run on the bank, someone selling their bitcoins means someone else is buying their bitcoins, so instead of a collapse with most of the value disappearing, you just end up with different people holding bitcoins. Since those people were willing to buy those bitcoins from the runners, those bitcoins still technically have value. The price might crash, as it did a few times, but it won't collapse.

Bitcoin is marginally similar to a pyramid scheme, where old investors become richer by getting new investors in, but it is actually closer to company stock shares, where the company is the Bitcoin economy as a whole. When bad news comes out, price tumbles. When new Bitcoin services come out, making the ecosystem more useful and valuable, price goes up.