A Ponzi of Ponzi’s?

I see the word Ponzi bandied about everywhere these days. Real Estate is a ponzi, crypto is a ponzi, fiat is the greatest ponzi of all. The debt ponzi. On and on. This seems to be based on a belief that all these things depend on a greater sucker coming along to pay you more in order to make a profit. Is that a fair assessment? Maybe.

The reality is that any asset you buy is entirely dependent on someone paying you more for it for you to generate a profit. If you buy a house, you have a negative balance until it sells for more. The same with Gold, or anything else.

So is Everything a Ponzi? Possibly, but that then makes it a meaningless assertion. Maybe we need a better definition of Ponzi then? https://www.investopedia.com/ give us this definition:-

A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.

https://www.investopedia.com/terms/p/ponzischeme.asp

The key word in that definition being FRAUDULENT. If you buy a house, you are getting the house you paid for, as agreed. Your expectations of future profit are not what you are being sold, just a house to use and live in. Buying gold, that’s the same. You get your bar of gold in exchange for your cold, hard cash.

So what about crypto? You hand over your hard earned and you get? You get “ownership” of the token you bought, just like you agreed to. Future value of this is unknown in exactly the same way as that of a house, gold, shares or any other asset would be. Someone selling you any of these things with a promise of a future value of X may be committing a fraudulent act but the system itself is not fraudulent. This applies to the crypto’s as much as any of the other assets.

Given the crypto’s are providing that which they promise then they as a whole are not fraudulent and not a ponzi.

The debate of if they are worthless, overvalued, pointless or any other thing is a completely separate one that could be argued another time but they are providing what they claim and not lying about it so therefore not a Ponzi in any meaningful definition.

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Stewie

Agreed – the crypto space is not a fraud in the Ponzi sense. But many or most are, imho, fraudulent in the sense that they are being sold and promoted on the basis of Use Cases which are simply not economic, and are instead just poorly disguised vehicles of financial speculation. But that is quite separate from calling something a Ponzi and is a whole other discussion point.

Much of the crypto space far more closely resemble a game of pass-the-parcel, where take possession of a large wad of cash wrapped around a bomb, and you carefully hold onto it for just long enough to peel off a couple layers of cash, while hoping the bomb does not go off in your hands, before you pass it on to someone else.

The one true fraud in the crypto industry is the bomb that is at the heart of every crypto parcel being passed around – Tether.

Last edited 8 months ago by Stewie
The Traveling Wilbur

I plus-oned for the first two paras.

Re para 2: Pass-the-parcel for a product that cannot be destroyed through consumption IS a Ponzi (if it is being promoted as something that you can profit from growth in value from overtime).

This isn’t new. But most other pyramid schemes use a consumable sales product to provide a sheen of legal protection to their mind-numbingly herarchical sales commission structures.

Selling a utilitarian financial product as a value store to profit on via capital gains is in itself creating a Ponzi. For a normal product, increased demand would cause increasing rates of product creation and the value of the product unit would drop overtime, subject to demand only holding steady of course. E.g. fiat. But Bitcoin being, and this is a product highlight in the spruiking being done, being a product that is by design volume capped doesn’t suffer from that natural balancer. It’s almost as if it was designed solely to be the perfect product to base the mother-of-all-ponzi-schemes on. As if, when you consider ALL that was designed into the product, it could have been created for no other purpose even. Clearly isn’t usuable for an actual daily transaction purpose as originally positioned – not when times are measured in minutes (this was also easily foreseeable by the designers of said scheme).

Bitcoin seems to have been created so that the creators of the underlying blockchain could get some payback for designing that which they knew they’d never see a return from approaching its real value (nor a Nobel). So good on them. But just because the base product at the heart of all this has a value that is measurable and changeable doesn’t stop the system by which that value is set from being a Ponzi… Tulips weren’t a Ponzi for that very reason – unrestrained supply; price set solely through through demand for product and its current availability. And that key difference between the two is why the end game for Bitcoin, by design, is thoroughly predictable – unlike for Tulips, which could very well have become the Safron of the 20th century.

Predictable? you ask. Very. What happens to the value of an asset when it doesn’t serve a utilitarian purpose, they aren’t making any more of it (so no mad scramble to ‘get in’ before a tipping point) and overtime more and more of the issued product is lost, thrown away, inacessible due to faulty USBs, drives, Alzheimers, head injuries and unplanned estates and unexpected death? A: Hodlers (and there will still be lots of those at that time) will slowly and incrementally realise they need to bail before they too become a casualty of lost-redemption. And that’s assuming fiat is still on offer from anyone to facilitate those Hodlers bailing-out that far into a post all-issued future.

Guaranteed the designers saw that too. And laughed. Hard.

Last edited 8 months ago by The Traveling Wilbur
Stewie

BitCoin was designed as a peer to peer payment system, where by it was possible for users to make discrete (as in private) small payments to each other is a decentralised trustless system, at no point in the White Paper were the words ‘Digital Gold’ ever used, although it was mentioned that through use i.e. performing ‘work’ it could be expected to gain some store of value properties.

Certainly BTC as it is now has completely turned that on it’s head, BTC is now not meant to do work merely “HODL” and through that it will achieve a store of value. It has been deliberately hobbled, so that instead of scaling to a ledger capable of recording of doing more ‘work’ and processing millions, if not billions, of tiny transactions per day it is now just limited to 7 or 8 transactions per second.

The purpose of the BitCoin itself was to act as the native currency in what was meant to be a closed economic environment. They were limited in number for a couple reasons, firstly the 21 quadrillion satoshis that make them up were designed to deliver sufficient a sufficient liquidity base for the billions of daily transactions it was originally envisaged to service. Secondly, in order to get around Securities laws they had to be issued as a reward for work done, they couldn’t be pre-mined and then issued to fund work (subtle difference). Finally they were issued as a reward to help reward early miners who defended the network, while it was being bootstrapped into existence.

Ideally as BitCoin was originally envisaged in the White Paper, most people using the Bitcoin blockchain would not even be aware that they were even using BitCoin. The would now been using 2nd layer applications or services built on top of the protocol, in much the same way we use Web pages built ontop of the HTTP protocol. They would be using digital tokens or CBDC to pay for their various goods and services, do their online purchases, etc. However under the hood each of those transactions would have been carried and paid for by a tiny amount of BitCoin.

You would have bought say a Tesla from Elon Musk using a CBDC version of the USD, for $100,000 USD. However that transaction would have been enscribed to the blockchain using a couple satoshi’s of BitCoin amounting to only 1/1000th of a cent.

BitCoin was meant to be nothing more than internal “plumbing”, a hard native currency within a closed economic system, providing those performing the ‘work’ in the system i.e. the miners who process the transactions a transferable unit of economic value to those who need ‘work’ to be done for them. In this case facilitating a $100,000 transaction for a fraction of a cent.

So what is the economic value of BTC? Currently its value is probably best represented by the work it does, which is best estimated by the sum value of individual transaction fee’s for each block.

Here is a recent block, 671501 – it processed 631 transactions for which the miners earned 0.54175678 BTC as a reward, or about $30k in fees. Meaning the average fee for each transaction was $48!

So momentarily ignoring the block reward, economically you can point to BTC and say each coin is worth around $30k because that is how much in fees miners are collecting from it. But is it really worth that? Is a system that charges $48 per transaction and can only process 631 transactions really that great an innovation?

Turn to another blockchain that operates more in terms of the original white paper, say BCH or BSV.

Let’s look at block 675326 on BSV, in comparison to the BTC example BSV processed 22,545 transactions and again ignoring the block reward it earned 0.0426 BSV in fees for doing so – or around $9.38 for the “work” that it performed. Meaning that the average fee for each transaction was 0.041587th of 1 cent.

By this measure BSV is probably worth around $10 per coin vs BTC’s $30k. But which one is actually doing more work and is probably fairer priced?

Had BitCoin scaled as it was originally envisaged it should have by now been doing the work to process 100 million micro transactions a day. So a ‘block’ of transactions was to be mined every 10 minutes there would be around 144 blocks mined each day, meaning that each block should be carrying on average around 694,444 transactions. If the average transaction fee remained 0.041587th of 1 cent then each mined block would be worth around $300 in fees to the miner. If it got to a billion transactions a day that would be up to $3000 a block.

This gives you an idea as to how massively over valued even the most efficient crypto blockchain is regarding its current price, versus the actual work it performs, let alone BTC.

The Traveling Wilbur

Jebus. DLS never reponds in this fashion when I poke him. 😉

But… once I’ve finished reading the whole thing (which will take me ages – I’m 3 paras in and already doing research to catch up) I’ll reply proper.

In the meantime: A) thank you – great points B) I definitely should have spent more time differentiating between the current implementation and its effects and what the original design entailed. Sorry about that. (I was and am on my phone.)

That said, I stand by all the bits where the designers laughed their asses off as I do believe they were so smart they new exactly what would happen on all of the above if their tech took off. Including the darkweb part I didn’t mention.

PS very interesting about the no pre mining part… really? Makes sense, but is there any jurisdiction on the planet smart enough to enforce the distinction?

Stewie

Well it is a personal weakness, geeky technology, a Gordian knot of economic and legal principals, and subversive, anti-authoritarian, not to mention controversial history to boot.

Largely agree with your comments re laughing their asses off and knew what they were doing – certainly in respect of BTC. They transformed the system I outlined theoretically capable of processing 50k or 100k transactions a second, into one capable of only doin 7 or 8 per second. The guys who helped facilitate the transformation, from a IT perspective, were a bunch of nefarious cyber punk ner-do-wells, who knew full well of the potential for its use on the dark web (although they may have initially under estimated authorities ability to ultimately track down those who used it for illegal dark web activities).

They also seriously downgraded the legal status of the coin. The P2P payments system envisaged a chain of signatures, represented by distinct digital hashs – think like a cheque or a bank bill used and endorse with multiple signatures as legal possession is transferred from holder to holder ie signature to signature. The receiver of the signature endorsed coin, or more to the point their wallet, simply checks that the signature or hash in the coin has been previously recognised as valid, if not it checks the next signature back, and so on.

This is where the true IoT potential kicks in with micro-transactions. Basically small micro P2P payments become payable between IoT objects, and you can build up great chains of these signatures, up to 1,000 transactions or more long, that are essentially free between these objects within a particular P2P network, eg an online internet gaming site, or a whole bunch of machines talking and paying each other for services in an IoT network, say at a factory or even within another IT network.

Eventually these coins may need to leave that particular P2P network, so to pay tax or a bill by the business that operates the P2P network needs to pay, and so they will be broadcast to the blockchain network and picked up by a miner, where a fee is eventually paid. The thing is the miner won’t just validate the trade that it picked, but the 1000 or so P2P transactions that make up a Merkel tree of transactions that preceded it, and they will do so for much the same cost as if they’d only processed one transaction.

Last edited 8 months ago by Stewie
The Traveling Wilbur

As *old* IT concepts like a hash are things I’ve had to sit exams on (nuff said, moving on) I actually understood all of the last half of that. Again, thank you, for a second instance and B) yeah, I agree with all of the drawn conclusions. E.g. I was also stunned when the FBI managed to sequester coins off anyone from anywhere (compromised exchange or not). So was Mig (I would assume, given what it cost him).

Given the FBI didn’t get any smarter over the last 10-years I will assume that the content of your comment backs up my theory that some BTC fork went radically wrong somewhere. And if so, that’s interesting. Because whatever the FBI managed to pull, so could Lithuania (*waves at all the Lithuanian commenters*), or Elon. Or Mig.

Freddy

bjw, last week you acknowledged that Bitcoin’s price largely reflects the exponential price inflation built into the algorithm, and that the hardcoded price inflation was required for Bitcoin to be successful. Yesterday you mentioned that you cashed out of Bitcoin.

My question is why did you cash out? Do you believe the price has gone ahead of itself? and if so, do you plan to get back in with the belief it will continue to rise exponentially in price?

Also, when all the bitcoins are mined and there is no exponential price inflation to be chased, what do you think will happen to bitcoin’s price?

Djenka

“Your expectations of future profit are not what you are being sold”

This is the case if one was buying a consumable good, something that hardly has any future value past the consumption date, like a loaf of bread. Even a tin of baked beans has potential to become resold thus could be an asset.

If something is an asset, expectation of future gains is built in and inseparable.
Fraudulence comes from artificial propping of the asset value to attract new entrants.
If there were 2 identical cryptos being released at the same time, the one that is propped artificially will pickup the velocity much quicker and rise much higher. Same applies to houses, if .gov is doing all it can to prop their value, it is manipulated to achieve perpetual gains thus fraudulent.

One can be seemingly passive at ponzi (supposed no expectation of gains at purchase time), that does not deny fraudulence of the system which plays the card of perpetual gains.
Every asset that does not suffer cyclic value, because of undue interference, is having elements of a ponzi.

Bitcoin is just another fiat and the ponzi bit comes from the part where it is subject to unsubstantiated gains by major players (impossible at this extent with .gov fiat).

Every asset flirts massively with expectation of future gains. This is multivectored and it can be other aspects like i.e. liquidity increase. When the only or major reason for value increases is future entrants to the market, you come to a ponzi. AUS houses, BTC (at this stage) etc.

Edit:
Ponzi elements have become prevalent and integral part of almost all trading due to endue interference by major players and I mean major major players like .gov mob. This is why the word is used everywhere. Because it is everywhere to a level where it becomes visible to every Mick and Sheila.

Last edited 8 months ago by DjenkA
Coming

“The reality is that any asset you buy is entirely dependent on someone paying you more for it for you to generate a profit.“

Have you ever heard of dividends ?

What a load of tripe

Coming

There’s no dividend on land ?
Rent doesn’t exist ?

The value of an asset is based on its ability to produce income (or future income)
That’s about as basic as things get
Otherwise it’s not an asset

By the way gold is only slightly less delusional/stupid than Bitcoin

Coming

Why did the company go broke ?

Because it wasn’t making a profit over a prolonged period of time (though apparently it was profitable enough to be paying dividends for 5 years)

Does Bitcoin make a profit ?
No and it never will

Kind of a self-own here

It’s really strange to me that you haven’t thought this through

Last edited 8 months ago by Coming
Coming

The way i see it is crypto is stupid useless and illogical

But so is religion

And yet here we are 2021 splitting atoms and typing out inane comments on a super computer that fits in my hand , but people still believe in this nonsense written by goat fuckers thousands of years ago

Crypto also feels very much like a religion in that it’s very vague
It seizes upon techno-utopian dreams and general frustration with a system that is in fact rigged, as well as appeals to greed and promises the meek shall inherit the earth
An intoxicating, but nonsensical promise to the narcissistic but downtrodden millennial

Bitcoin will always be a delusion
But that hasn’t stopped religion from exerting power for thousands of years

I can’t really predict what morons will do in the future, and probably no one else can either

Last edited 8 months ago by Coming
The Traveling Wilbur

Jinx. Yes, some can. See above.

PS the ‘R’ word is the right one for Bitcoin. But unlike mainstream religion, the faithful will lose theirs when, or just before, they die.

Coming

Is the ‘R’ word Retarded or Religion

Freddy

Many years ago Jim Rickards did a fantastic job of explaining the psychology of money. He explained the monetary system used in a US prison. The inmates decided on canned fish as their monetary base. Due to limited supply expired cans had a purchase value as currency, and fish that could still be eaten had an additional commodity value as well.

It worked brilliantly and was permitted by prison guards until trade of contraband began to rise. The solution to kill the trade of contraband was to back up a truckload of canned fish and allow inmates to stock as much as they wanted.

PS: before anyone shoots me down for quoting Jim Rickards, I know he is a salesmen literally talking his own book(s).

Last edited 8 months ago by Freddy
Djenka

The way i see it is crypto is stupid useless and illogical

But so is religion

To ridicule what one does not even pretend not to understand is a statement of __________.

Religion is to faith what is finance/banking sector to productive industries. A leach. What “goat fackers” wrote “thousands of years ago” is not religion.

As with every fiat, BTC relies on faith, or if you wish: religion, of convertibility and gains. Some faiths are like Peoples Temple Agricultural Project

And yet here we are 2021 splitting atoms and typing out inane comments on a super computer that fits in my hand , but people still believe in this nonsense written by goat fuckers thousands of years ago

I hope you may see one day that the above is a non-sequitur fallacy.
Faith is innate to humans, it creates and feeds hope which is the very key ingredient for any success. If those scientists (and many many more before) did not have faith and hope to achieve splitting atoms, you’d be still fuucking goats today.

Peachy

I find a lot to agree with in what both Djenka and Coming have written.

The Traveling Wilbur

Because you can split the difference between faith and religion?

Choice. Especially if we don’t need an atom splitter. Or a goat. Splitter.

Coming

I don’t think you actually made any point , but I can tell you’re upset because you’re religious

Bitcoin has value because people have belief that it’s valuable, even if it has no use

Fiat has value because governments demand it via taxation, which they enforce through violence
It has utility because it can be used to extinguish tax liabilities

It’s irrelevant whether you “believe” in fiat
Try to not pay your taxes in fiat and you’ll end up with a bat to your face and a boot on your neck

On the other hand , every one could collectively decide that tomorrow Bitcoin is garbage and it becomes worthless

They’re completely different things

Djenka

“I don’t think you actually made any point, I can tell you’re upset because you’re religious”

Need to work on telling skills as I am neither religious nor upset. There are no reasons to be any of either. If I did “not make any point”, it happens. Points just don’t absorb equally by all and some are simply not looked-at at all.

Claim that one fiat can pay taxes and another one cannot (as yet), is hollow. Same for utility: BTC has greaterand direct utility in Aus or US than say Ruble or Sheckel or hundreds soft fiat currencies. Taxes can also be paid in produce, assets (seizures) etc all of which are real (e.g. not .gov issued fiat). It takes 1 line of legislation to flush the taxation argument vs. BTC. It will come soon, no doubt there.

Bottom line, what you stated above for BTC (faith) is no different from every other fiat irrespective of the issuing authority. During times of hyperinflation (.gov controlled QE – that quickly hits the street) there is zero faith. See what happened in countries that went through it (hint: use of alternative fiath and barter). Otherwise during high faith it becomes storage of wealth (history of GBP and USD).
One of the true differences between .gov fiat and BTC-like fiats is that .gov issued fiat has some vested interest in stability in exchange ratios and has seemingly unlimited means to both fight or create exchange volatility and rate.
Another one is whom profits from swings.

BTC is a novelty fiat that has attractive volatility (some fish get fat only in murky waters) and like the next day it is guaranteed to be just another pebble on the beach in due time. Decentralisation and quantity limits are not pillars that can support faith in isolation of other means.
This, however, does not mean that money cannot be transferred from someone else’s pockets into yours (mine) by riding the waves that are made by BTC and the ilk. Or the other way round.

Taxation is prerogative of powers and if they adapt to new trends there are sheetload ways to impose tax liable plebs to taxation – independent of the fiat used.

“On the other hand , every one could collectively decide that tomorrow Bitcoin is garbage and it becomes worthless”

This is where underachievement is in understanding faith and how it is innate to humans – and how it affects decisions.
As much as faith in BTC is collective now, it is a sum of many intricate faiths all based on similar but different irrational reasons (for each BTC “believer”) thus cannot be subject to collective abandoning of faith from inside believers base (short of removal of critical foundations like limited supply etc). Even external factors (criminalisation etc) do not have to play a major role in loss of faith.

There are precedents to crypto models in live world (outside digital) and this sheds light on very likely future for crypto.

It would be interesting to hear what is your view on fringe fiats like special edition 24K mints or us baseball player cards.

I am not trying to prove you wrong (when Dr Smithy comes, he will rightfully assume that trone), what you asserted is essentially not wrong and I do not quite disagree.

Coming

Btc isn’t a fiat currency

It’s backed by sudoku puzzles – not arbitrarily issued

It will never (and I mean never) be accepted for payment of federal taxation

Gold has been around for thousands of years but I can’t pay my tax bill in gold either

Even in zug, the centre of this retardation, the much vaunted ability to pay taxes in Bitcoin simply amounts to the local authorities partnering with a crypto exchange that immediately converts them to chf

Money is the way the state exerts power

Last edited 8 months ago by Coming
Djenka

Gold has been around for thousands of years but I can’t pay my tax bill in gold either

If you were born few 1000 yrs ago you could’ve paid taxes in gold, or crops, or livestock, or blood, or skin…
There is a valid reason why gold and gold coins were abandoned from circulation. History of Roman coins. To be pedantic, gold has longest history of use for tax payment, possibly second only to livestock and crops.

Money is the way the state exerts power

Taxes, in my view.

It’s backed by sudoku puzzles – not arbitrarily issued

I really like the sudoku reference, it is quite apt.
It is baffling when anyone is thinking that cryptos are not arbitrarily issued. BTC may be limited but dothey hold the exclusive right on the printing press? What will stop anyone issuing limited amounts of BitNote, BitCheque, BitToken, Bit_____?

…local authorities partnering with a crypto exchange that immediately converts them to chf

That is one way but it is not the end of possibilities.

Coming

I’m not sure what you’re talking about

Every country who devalued their currency did so deliberately

If Zimbabwe wanted deflation , they could easily (assuming they have a functional police and judicial force) simply raise taxes

That would create a demand for Zimbabwe dollars to extinguish said tax liability

But governments don’t want deflation

This is EZFKA remember

Coming

On second read, you seem to be upset that I am conflating faith and religion

Seems like a pointless semantic argument , but let’s carry on

In your definition, religion would be crypto coins with many “buyers”

While faith would be a coin that is only held and traded by you, thereby worthless as a speculative asset

It’s the shared delusion that is critical to establishing power

And that is where the preachers and missionaries come in

But I agree it seems to be a strong tendency for SOME people
Who are drawn to mysticism and fantasy (others are not)

So Bitcoin could have legs

Why not – Christianity made it a couple thousand years , after incorporating some paganism stuff, despite countless disgraces, hypocrisies, and ongoing outright refutement of the facts claimed by its original texts

Last edited 8 months ago by Coming
Djenka

I can pretend to be upset…
🙂