China's blockchain boosters slam crypto as Ponzi scheme Executives at China's Blockchain-based Service Network (BSN) – a state-backed initiative aimed at driving the commercial adoption of blockchain technology – labelled cryptocurrency "the biggest Ponzi scheme in human history" in state-sponsored media on Sunday. "The author of this article believes that virtual currency is …
For all their volatility and other potential hazards, I fail to see how crypto currencies are in principle Ponzi schemes. A Ponzi scheme pays dividends to existing subscribers out of the revenue from new subscriptions - the issue being that there's no real growth, the only revenue being those subscriptions.
Crypto currencies on the other hand are valued by a market (of sorts) and exhibit growth (whether positive or negative) on the basis of the confidence of that market. So they're unstable investments, but nevertheless real ones in market terms.
Re-read the article.
A cryptocurrency has no value until people flock to it. The more people flock to it, the more value it gets, until there aren't any newcomers, some start selling short or somesuch, and the funny money crashes like the dead bird it is.
"Luna, wiped $40 billion off the system when it crashed"
How many more billions lost will you need to understand ?
Not forgetting that they're not currencies either.
Nothing in a normal life is priced in them and you can't buy things directly with them, only cash out of whatever tokens you hold to dirty fiat or have an exchange do that on your behalf.
As they flail around for a real world use it's currently settled on speculative trading based on the Greater Fool theory.
Currency is meant to be spent not hoarded
Who said craptocurrencies are the only ones? Greed people will always try to setup "make me richer quickly" schemes - there was a reason the Steagall-Glass act was there. Just greed politicians were convinced by greed economist and greed bankers to remove it because they couldn't become richer and richer quickly risking someone else's money.
Here my company is trying to pay our productivity bonus in coupons. An Aon idea (there's gotta be a financial company in the plot...) and with politicians help as they obtained to make it look more appealing.
It's better if you accept coupons - you won't pay taxes! You'll have a premium! It looks to be back at least 140 years in time. But executives aren't asked to be paid in coupons, I guess....
Unless your 'coupons' are supplied by the country's bank then you are limited to whoever will accept those tokens in exchange for goods and services
Ideal for Victorian employers who could pay their workers in tokens that were only redeemable at the company shop
https://en.wikipedia.org/wiki/Truck_wages
I think he meant to say, currency is a means of exchange to avoid directly battering.
8 goats for my cow sir?
Which is problematic in many ways, one of which is I can only trade in minimum units of live goats. 7.5 live goats is not a useful thing, as one half is a very dead goat.
A dead goat is not equal to a live goat in value.
And many other problems such as transporting the goods I have bought as a store of value to be exchanged for something else in another place at another time. I now have to feed the sodding cow which is known in the finance as cost of carry.....the cost of maintaining or storing the physical instrument, keeping the cow fed and watered and safe from theft and predators.
A ponzi scheme operates in secret. The organisers lie to investors about how their returns are generated.
You can't say that of crypto, it's right out in the open.
If crypto is a ponzi scheme because it relies on new investors valuing the asset, what does that make gold?
"If crypto is a ponzi scheme because it relies on new investors valuing the asset, what does that make gold?" Well said @veti.
The essence of a Ponzi scheme is that dividend is paid directly out of new investment income (not growth). This is not the case for crypto currencies (not least as there are no dividends).
"If crypto is a ponzi scheme because it relies on new investors valuing the asset, what does that make gold?"
I agree that the crypto world is more like a bubble than a Ponzi scheme. The enthusiasm of the crypto-kiddies talking it up on social media is testament to that. Whether a cryptographic "coin" has the immutability of gold is another debate.
Yeah, I think the people saying Ponzi scheme are more focused on scheme, and the people saying not Ponzi scheme are more focused on Ponzi.
Madoff: "The market goes up R% per year, but there are winners and losers. I am so good at picking winners and avoiding losers that I can make 10*R% per year. Here's your winnings." Meanwhile Madoff's picks (if any) were just average.
Cryptocurrency is not like the way Madoff operated. Bubble is a good description. Those who jump in (too) late can lose everything. Worse, I think a few of the flaws that have caused people to lose money to date have been by design, with the intent to defraud investors. Either way, scammed by a scheme, but again, not a Ponzi scheme.
Crypto is not out in the open. It's unregulated markets doing pump and dump sales of fake assets. None of which the buyer sees. Buying and selling a thing at increasing price to create a false perception of market interest is called a 'mock auction'.
Hence the Chinese guys comment:
'However, this state is actually based on an extremely fragile balance," wrote the duo. "Once there is malicious short-selling, no successor, tight funds, or regulatory policy changes that affect the confidence of participants or the determination of latecomers, it will cause this seemingly exquisite cycle to collapse instantaneously and the value will be zero."'
'Stable' Coins are the first to likely fall. Claimed to be pegged to the dollar by holding dollar assets, but those are not dollar assets. Worse, printing your own coins, to keep the price at ~$1 as you draw in more suckers.
Then NFTs, starting with the "collections", pure mock auctions and laundering:
Melania's NFT's is on her 3rd series BTW.....
https://nypost.com/2022/02/16/did-melania-trump-buy-her-own-nft-at-auction/
I don't for a second think they actually bought her NFT on behalf of a buyer who didn't have the ability to buy crypto (or own an NFT), but yet was connected to the seller of the NFT, and wanted to buy an NFT with crypto.
Except that it generally can, at the point where you cash out.
Yes, I know about coin tumblers. If the coin traces back to a tumbler, it has been involved in some sort of dodgy business, just maybe not that particular dodgy business.
"You can't say that of crypto, it's right out in the open"
I call BS
- how did Celsius (withdrawals halted) make its money?
- how does TETHER (the black hole that will destroy Crypto) make its money?
... why won't it provide a credible audit of its "assets"?
Step right up and get done again!
"A Ponzi scheme pays dividends to existing subscribers out of the revenue from new subscriptions"
Doesn't have to be "dividends", doesn't have to be "subscriptions". Madoffs Ponzi scheme paid prior sellers capital, using the money of new buyers of his 'fund'.
"Crypto currencies on the other hand are valued by a market (of sorts) "
So did Madoff's.
"and exhibit growth"
So did Madoff's, but growth isn't a prerequisite.
"on the basis of the confidence of that market"
Madoff.
"So they're unstable investments, but nevertheless real ones in market terms."
As real as Madoff's fund.... just as long as you don't know there is fook all there of value, and the only thing paying out is the new suckers buying in.
The 9964th crypto "currency" Genopets KI is supposidly worth $4.2 million dollars. Do you imagine there is $4.2 million dollars in an account somewhere, so that when whoever holds it, sell it, there will be a buyer there for it? No, there's no buyers there, it has zero volume. Someone will have made it, made the icon, dreamed up the name, mined some coins, AND (IMHO) quite likely bought a few via friends, at inflated prices, to create a false value. Because who else has any incentive to buy something a guy just made up a few minutes earlier? Bingo "currency" with mined worth of $4.2 million to lure in suckers... erm "investors"..... when he mines some more it'll have a claimed worth of $8.4 million.... does it really have that? No.
You could do it yourself, mine a few thousand of your own crypto, sell one to a friend for $1000, which you refund him, bingo, asset worth millions! Erm, no. Here's I'll buy another for $2000, now its doubled in price, get in quick suckers!
Where do you think the $$$ *trillions* in claimed value exists? Even the "stable coins" are simply backed themselves by crypto ponzi. An extra layer of obsfucation, that ultimately lets them claimed the assets are "stable" and "backed by assets". Perhaps one of those assets is even "Genopets KI"!.
Clearly the Chinese think they've done enough to protect themselves from that collapse, so now they'll start prosecuting.
Where do you think the $$$ *trillions* in claimed value exists? Even the "stable coins" are simply backed themselves by crypto ponzi. An extra layer of obsfucation, that ultimately lets them claimed the assets are "stable" and "backed by assets". Perhaps one of those assets is even "Genopets KI"!.
There are (generally) two classes of stable coins today. There is the fiat-based stable coins who are supposedly backed by real currency. Maybe a fraction thereof, or 100% backed. I somehow doubt the latter. Then there is this new class of stable coins, algorithmic (algo) coins, which are backed by another crypto. They're supposed to be the Holy Grail of crypto in that if the thought-experiment works, then crypto can finally break free from its dependency from fiat currency.
I really don't understand much of the latter group, and to be sure - much of the turmoil in the crypto world - the last 6-8 weeks is around the algo stable coin collapse of Terra and a few hedge funds like Three Arrows Capital who then backed even more risky crypto ventures are collapsing. Plus, it seems that crypto begets crypto. Looks like a lot of crypto bought a lot of other crypto - especially Terra and as these crypto companies continue to unwind their Terra losses, it's squeezing these firm's ability to maintain liquidity. And it doesn't help that ETH and BTC have tanked at the same time.
All of that is feeding into a more general run on crypto right now.
It also doesn't help that there seem to be a decent amount of people who seem to have very little knowledge in what they're investing in, are putting too much of their money into this class of "investments" and losing their shirt in the process.
And seriously - what the fuck is with "smart contracts" and "oracle" issues? If the contract was so smart, how are flash loans a thing. And if an oracle is supposed to know all and see all, why are some cryptos hard-coding them to $1 Terra and then getting absolutely fucked when it depegged?
And finally, yield farming... literally on a Bloomberg interview for an Oddlots podcast in April, Sam Bankman-Fried described yield farming exactly in the terms of a ponzi scheme.
I will admin, I own 50 doge. I'll probably never see that money, but who knows.
I also (somehow) managed to buy about $50US Dollars worth of BTC last year within a few hundreds of its peak. I still toss in a few bucks twice a month just to see what happens.
But my exposures to crypto are minimal. A rounding error to zero in my grand scheme of investments.
> And seriously - what the fuck is with "smart contracts" and "oracle" issues? If the contract was so smart, how are flash loans a thing. And if an oracle is supposed to know all and see all, why are some cryptos hard-coding them to $1 Terra and then getting absolutely fucked when it depegged?
Well you see the people programming these smart contracts aren't exactly qualified programmers, or if they are they qualified very recently. They have no real world experience of designing, writing or running large distributed systems and they don't understand the maths but hey that doesn't matter, they're all in on crypto and hodling their diamond hands to the moon so what could go wrong?
Well you see the people programming these smart contracts aren't exactly qualified programmers
I'm sorry, but WTFF is a "qualified programmer"?
Anyone who can persuade an employer to pay them to spend their time programming is, by definition, as qualified as they need to be.
I'm objectively interested in the reason for all the downvotes. If you read the Wikipedia article linked to, it states that cryptocurrency ICOs have been used to launch Ponzi schemes, not that cryptocurrences are inherently Ponzi schemes, which was my point.
"I'm objectively interested in the reason for all the downvotes."
I've tried to make the same point in the past and while I didn't get a lot of downvotes, I didn't get many upvotes either.
And, in fairness, while Bitcoin and Ethereum seem to be pretty much as advertised -- i.e. monopoly money, but they are up front about it -- some of the other crypto based efforts really do seem to be pretty much 99.98% pure scams. However, IMHO they lack the finess and style of a well done Ponzi scheme. Charles Ponzi's original effort. Or Bernie Madoff who managed to become chairman of the NASDAQ in the early 1990s at a time when I believe he was doing little or no actual trading in securities.
(It is remarkably unclear how much money Madoff disappeared. Billions for sure. But somehow, no one seems to know how many billions).
"...not that cryptocurrences are inherently Ponzi schemes..."
But they are for the security reasons of block-chain. It's impossible to put any trust in block-chain without its Ponzi style nature, the trust comes from the piers; a.k.a. subscribers. Forget the words "crypto" and "currency, using the term "subscription" with block-chain is dead on and subscriptions are happening.
Assuming X0 is predefined, X1 waits for Y subscribers, once X1 is satisfied, X2 opens waiting for Y^2 subscribers, then X4, X8, X... so and so on. Since X0 was the only contributed value by a non-pier, all other values are dependent upon piers to subscribe. Ponzi himself envisioned something very close if not identical to block-chain to run his scam.
Block-chain is a scheme, but like all and any schemes when they're tied to intangible things, the scheme becomes a scam. Note I'm not saying that block-chain derived values are worthless, but in the form of currency the value can only be: $crypto_value = $cost_of_resources_to_generate + $human_fiction
"Cryptocurrency exchange CoinFlex on Tuesday issued a new token to raise funds in a bid to restart withdrawals for its customers, after one client failed to repay a massive debt.
CoinFlex said it would issue $47 million worth of a digital coin, offering 20% interest, which it’s calling Recovery Value USD, or rvUSD."
CNBC.com
Seems like they are looking for revenue from new to pay off old investors. Pretty Ponziesque.
I thought the biggest Ponzi scheme are pension funds.
You are unlikely going to see the money you put in and they constantly need new sheep to stay afloat.
It's probably the only Ponzi scheme that is legal.
Another detrimental effect of Pension funds is that they tend to compete with people on the residential property market driving the prices up and making it more difficult for people to afford their own place.
People often end up paying good chunk of their salary for their pension and then additionally pay rent to the company operated by a pension fund.
The (UK) State Pension "fund" is only a kind of Ponzi in that pensions are paid out the tax revenue from those currently working. If you have a personal pension then that is *your* pot of money ready for when *you* start to draw it down. Hence the advice to view the State Pension as a potential safety net, in case for some reason your personal arrangements go pear-shaped.
that is *your* pot of money ready for when *you* start to draw it down.
This is quite interesting scam. Basically pension funds get to use your before tax money to speculate on the markets, but if you wanted to do it yourself, you get hammered by tax first.
For instance, the pension fund decides to invest your money into residential property they can do that using the whole amount you paid in, but if you wanted to use the money to invest yourself, then you have to pay income tax first and your purchasing power is automatically reduced - plus you have to compete with the funds anyway.
You can only invest pension money in a residential REIT.
As far as I am aware, there aren't any residential REITs that invest in normal residential property. You can find ones that invest in things like student accommodation, homeless shelters, asylum seeker accommodation, specialist housing for people with drug additions and similar. Those have a very different risk profile to normal buy to let, not saying it is better or worse, just different.
any free-market economy.
I suspect the real panic over cryptocurrencies is more to do with the fact that you can't pick too many holes in them before people suddenly realise that all currencies are a scam.
Not dissimilar to the "war on drugs" that makes the odd spliff a jail term, whilst heroin is on prescription.
Smart Contracts... Yea, that's working out well for the crypto industry today. Lots of crypto companies are losing their shirts because they have "bugs" in contracts. Should have been called dumb contracts.
Also, do you really want to cite something from IBM towards this audience?
Blockchains have no use that could not be better served by a database.
Databases are faster, more efficient, more reliable, can be distributed, have a smaller environmental impact, don't over inflate the price of graphics cards and you don't need to worry about 51% of the nodes deciding to change your data on you.
The old adage about hammers and nails rings true.
What the databasistas miss, is not the database functionality of blockchain. It's the fact that it's not intrinsically owned by any individual actor. Which has nothing to do with being distributed.
However, in any discussion of more than 3 people, the meaning of "intrinsic" and "inherent" slowly fade to nothing and people haven't a fucking clue what they are talking about.
Once you remove the requirement "had to make a fucktonne of money" from the blockchain specification, it has it's uses.
The fundamental issue(s) are trust and how we create and use it. Fundamental because the history of trust predates the history of writing.
I mean outside of China who actually trusts that 'China's Blockchain-based Service Network' not tot have some ulterior motive to their statement against cryptocurrency?
Personally i wouldn't be investing in crypto myself as I can see that although I don't believe the major players like bitcoin are operating a ponzi scheme, I can see that the market will eventually crash as people are investing in made up fun buck, which no one is actually spending on anything.
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