"Comparing Bitcoin to Ponzi Schemes is unfair...

Brendan Burgess

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Why bitcoin is worse than a Madoff-style Ponzi scheme​

and you will get to the article in the FT.



the longstanding sceptical view by many economists and others that what bitcoin really is, in effect, is a Ponzi scheme. Brazilian computer scientist Jorge Stolfi is one voice who has contended this. His view is based on the following observations: Investors buy in the expectation of profits. That expectation is sustained by the profits of those that cash out. But there is no external source for those profits; they come entirely from new investments. And the operators take away a large portion of the money.
 
I was heavily involved in cryptocurrencies back in 2014 and there was a strong argument at the time there was more to it than this. You were seeing the Bitcoin logo showing up on shop windows all around Dublin and I was using it to send money to a few friends. That seems to have all but fizzled out now and the only time I am involved in conversations about it, they are focused on buying it to make a buck when the price rises.

It's now the norm on personal finance forums to see recommendations like - 10% emergency fund, 10% pension, 70% stock market and 10% into crypto :rolleyes:
 
I've argued with Stolfi elsewhere online since 2013. He's been militantly anti-bitcoin since then, and 8 years later he's still wrong.
 
I see Jemima is on her holiers for the Crimbo so they've wheeled in this clown for a guest appearance to continue on with the click-bait/hate . Robert McCauley tells us he doesn't understand bitcoin without telling us he doesn't understand bitcoin. Establishment dinosauric mouthpiece doesn't get it. ...who knew?

Bitcoin is a ponzi apparently and meanwhile, 75% of the entire money supply in the US has been issued in the past 14 years - 40% of it in the last 12 months. Maybe McCauley should ask the FTs Lebanese editor what constitutes a ponzi. Bitcoin is a put option on the fiat ponzi.

A few responses to McCauley's Claim:

Anthony Scaramucci : "Now write about fiat currency. The author fails to recognize that money is just an acceptable global ledger. Bitcoin has perfected that. Not Fiat currency. "

Alex Gladstein ( Human Rights Foundation ) : "Sure, Bitcoin is a “negative-sum phenomenon” if you are a fascist or authoritarian".


But sure - let's talk ponzi schemes...
 
I was heavily involved in cryptocurrencies back in 2014 and there was a strong argument at the time there was more to it than this.
In what capacity? Seems reasonable to me seeing as it has advanced considerably since back then.


You were seeing the Bitcoin logo showing up on shop windows all around Dublin and I was using it to send money to a few friends. That seems to have all but fizzled out now and the only time I am involved in conversations about it, they are focused on buying it to make a buck when the price rises.
It was being used on a limited basis for payments - then transaction fees/times rose which stymied development of that particular use case for a time. More recently, it's made a comeback when it comes to micropayments via Lightning Network - which is seeing growth month on month. It's also been adopted as a sovereign currency in El Salvador and is being used for remittances there and elsewhere. Meanwhile, bitcoin has been establishing itself as a store of value/digital gold/inflation hedge. It's also being used to secure Microsoft's recently developed decentralised digital identity project - along with securing a couple of other blockchains.

It's now the norm on personal finance forums to see recommendations like - 10% emergency fund, 10% pension, 70% stock market and 10% into crypto :rolleyes:
You're so right!...imagine suggesting putting 70% into that casino? You'll find every opinion under the sun on the internet - albeit I've never seen anyone recommend a 10% crypto holding over the course of the last 5 years on AAM.

Tell the folk who bought a month ago. They're down 30%, and that's despite everybody talking about inflation, which is hitting multi year highs. Hey, that is -98% p.a. :eek:
Same old same old. Picking peaks and troughs to meet your narrative.
 
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Somebody hit a nerve apparently. Looking forward to another thread that goes nowhere useful, just as cryptocurrencies.
 
@Brendan Burgess Boss that is a truly damning critique of crypto, that would make even Prof Roubini seem cultist. Typically we get the usual shoot the messenger comments - Stolfi is a militant anti bitcoiner, Nobel guy got his Fax machine analogy wrong, Robert McCauley is a "dinosauric mouthpiece" or simply a "fascist" and "authoritarian". No attempt to address his damning criticisms other than the usual whataboutery of civil war ravaged basket cases.
Your OP did not explain why crypto is worse than Ponzi. Here is the relevant extract,
Robert McCauley in the FT said:
At today’s higher bitcoin prices, the hole is growing faster. About 900 new bitcoin a day require most of $45m a day in electricity. Thus, the negative sum in the bitcoin game is in tens of billions of dollars and rising at over a billion dollars per month. If the price of bitcoin collapses to zero, the gains of those who sold would fall short of the losses of holders by this growing sum. To liken bitcoin to a Ponzi scheme or a pump-and-dump scheme, both basically redistributive, is to flatter the cryptocurrency system.
To conclude, an economic analysis of bitcoin must recognise its uniqueness in the history of manias. As an object of speculation, bitcoin is unprecedented in the degree to which there is no there there. This post-modern mania features big prices for entries on nobody’s spreadsheet. A zero-coupon perpetual has arrived not as a joke but as a trillion dollar asset. Unlike a Ponzi scheme, bitcoin cannot end in a run. In a crash, the holders of bitcoin will collectively have lost what they have paid the miners for their bitcoin. This sum may be not far from the sum originally invested with Madoff, after accounting for inflation. But bitcoin holders will have no one to pursue to recover this sum: it will simply have gone up in smoke, a social loss. The holders of bitcoin would then only wish it had been a Ponzi scheme.
My emphasis
He makes a new point to me. It is about the enormous amounts going down the drain in electricity usage. This is not the usual somewhat hypocritical eco warrior point but a reflection that when this all ends at zero, unlike Madoff, it will not be a question of a zero sum game but a very expensive negative sum endeavour which has poured billions of dollars worth of energy down the tubes.
The other point McCauley makes is that unlike a wholesome Ponzi scheme where the people defrauded have legal recourse (70% successful in the case of Madoff) when the dust settles on this crypto mania those who have lost up to a trillion dollars at these prices will have absolutely no recourse.
 
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@tecate There is so much wrong with that link to Bitcoin magazine (a bit of a clue there) but I will start with only one.
Bitcoin magazine said:
This process leaves almost none of that newly printed money liquidity to trickle down to those at the bottom that are relying on the dollar
If none trickles down that it will not be inflationary. Of course it does not suit a leftist narrative to suggest that there is any of this printing going to ordinary folk.
 
There's no message to shoot, just the same old stuff he was saying 5 years ago and has been covered here on threads already. I'm not interested in doing it again.

The holders of the Turkish Lira have no recourse if Erdogan destroys it, and whatever money was spent minting the currency and running the systems that supported it is a sunk cost that is never coming back either. When a monetary system fails those holding the money will lose out. True of fiat or bitcoin or even commodity money like gold though to a lesser degree because it will probably still have some commodity value. So, yes of course holders of bitcoin will lose out if it fails. This is not news.
 
That another highly respected academic damns bitcoin is, I suppose, not news though he does it even more convincingly than Prof Roubini or the various Nobels.
As Mo Salah says of vaccines he respects the learned doctors, he would no more expect them to be able to tell him when to pass the ball than he would question their learned and professional opinion. Similar to me on crypto, I respect the professional economists. Oh I am sure @tecate can wheel out a maverick just as I am sure there are some anti vaccers in the medical profession.

The bit about being worse than Ponzi was a valid and new angle to me, though again it is probably well trodden terrain in cultist circles.
 
Looking forward to another thread that goes nowhere useful

Nobody is forcing you to read this thread so you have zero cause for complaint.

Just as cryptocurrencies.

The trillion dollar asset in a $2.5 trillion dollar asset class with a growing user base ( currently estimated at 100 million people ) is going nowhere? Okay.


No attempt to address his damning criticisms other than the usual whataboutery of civil war ravaged basket cases.
No attempt to address something that you agreed bitcoin couldn't be classified as? Just for clarity, I don't recall ever giving an example of wayward monetary policy and currency mismanagement relative to a 'civil war ravaged' country. They're simply countries where your Keynesian economists and central bankers have mismanaged the currency. I did refer to this article which describes the 'bank-run ponzi' that has led to the collapse of the Lebanese pound though. Lebanon hasn't seen civil war for over 30 years.


He makes a new point to me. It is about the enormous amounts going down the drain in electricity usage. This is not the usual somewhat hypocritical eco warrior point but a reflection that when this all ends at zero, unlike Madoff, it will not be a question of a zero sum game but a very expensive negative sum endeavour which has poured billions of dollars worth of energy down the tubes.
There is no major revelation here. You were well aware of the fact that miners provide a service and that they are rewarded for providing that service. I've bolded out the word as you have referred to it 22 times in discussing bitcoin mining here over the last few years. The rest is complete nonsense. We've been over this a 1000 times already - earlier this year, you clarified that bitcoin couldn't be a ponzi scheme - so where is there a point in giving oxygen to this bunkum from the lifer from the Bank of Central Banks?

The other point McCauley makes is that unlike a wholesome Ponzi scheme where the people defrauded have legal recourse (70% successful in the case of Madoff) when the dust settles on this crypto mania those who have lost up to a trillion dollars at these prices will have absolutely no recourse.
See above.

@tecate There is so much wrong with that link to Bitcoin magazine (a bit of a clue there) but I will start with only one.
It's Christmas so here's a clue right back at you - the FT is an old world establishment rag that should be embarrassed at what it's churning out. Beyond bitcoin, there are crypto projects that are going to disintermediate the entire industry that it concerns itself with. Up until recently, it was clear that nobody there had a notion. Pieces like this one suggest that now people are beginning to feel a tad uncomfortable. /clue
Otherwise, the 'much wrong' claim is a bit of a nothing burger given that you can't articulate your criticism beyond this one point ->

If none trickles down that it will not be inflationary. Of course it does not suit a leftist narrative to suggest that there is any of this printing going to ordinary folk.
You're the first person I've come across that denies the validity of the Cantillon Effect with regard to Quantitative Easing. As regards the 'leftist' comment, not sure why you've reached that conclusion as just as many folks from the right have been subject to this inequitable policy.

That another highly respected academic damns bitcoin is, I suppose, not news though he does it even more convincingly than Prof Roubini or the various Nobels.
As Mo Salah says of vaccines he respects the learned doctors, he would no more expect them to be able to tell him when to pass the ball than he would question their learned and professional opinion. Similar to me on crypto, I respect the professional economists. Oh I am sure @tecate can wheel out a maverick just as I am sure there are some anti vaccers in the medical profession.
So a bunch of academics whose area of expertise doesn't extend beyond Keynesian economics - an economic model whose flaws bitcoin has been a direct response to - is whom you're depending on? Did I introduce you to Upton Sinclair?:

"It is difficult to get a man to understand something when his salary depends on his not understanding it."


The bit about being worse than Ponzi was a valid and new angle to me, though again it is probably well trodden terrain in cultist circles.
See above - you're contradicting yourself - given that you acknowledged earlier in the year that bitcoin doesn't qualify as a ponzi.
 
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@tecate so your rejection of mainstream economic academia’s damnation of bitcoin revolves around them being indoctrinated in a false Keynesianism with a vested interest in maintaining their own salaries i.e. take a machine gun to the messengers.
By contrast you seem to believe that bitcoin evangelists who predict prices of over $500k are driven by an altruistic desire to free mankind from evil central bankers. I call that cultist.
If I said bitcoin was not Ponzi I was probably referring to it not initially being a deliberate fraud though it has in some ways morphed into that. What the McAuley article highlights is not so much the similarities with Ponzi which are there for all to see but how it is strikingly worse than Ponzi.
Cantillon predicted that QE would result in a decline in population as the poor emigrate. US, the daddy of QE, faces the exact opposite problem with some even wanting to build a wall to keep poor people from flooding in.
Lebanon is a basket case.
 
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@tecate so your rejection of mainstream economic academia’s damnation of bitcoin revolves around them being indoctrinated in a false Keynesianism with a vested interest in maintaining their own salaries i.e. take a machine gun to the messengers.

It's very clear what I stated. Turkeys don't vote for Christmas.

By contrast you seem to believe that bitcoin evangelists who predict prices of over $500k are driven by an altruistic desire to free mankind from evil central bankers. I call that cultist.

And yet I've never stated what you claim that I 'seem to believe'.

If I said bitcoin was not Ponzi I was probably referring to it not initially being a deliberate fraud though it has in some ways morphed into that.

No. You clearly stated that bitcoin doesn't possess the characteristics of a ponzi scheme. There's no confusion. As regards it having 'morphed' into ' a deliberate fraud', please do explain how an open decentralised protocol is a 'deliberate fraud'.


What the McAuley article highlights is not so much the similarities with Ponzi which are there for all to see but how it is strikingly worse than Ponzi.

He's making the claim that its a ponzi with the added twist that there will be no funds left to salvage when it blows up. You're going along with it as its anti-bitcoin - having tripped yourself up in long since acknowledging that bitcoin couldn't possibly be a ponzi.


Lebanon is a basket case.

Always finish your sentences.
Lebanon is a basket case ....because of this bank-run ponzi scheme -> https://www.thenation.com/article/world/lebanon-financial-collapse/
 
...having tripped yourself up in long since acknowledging that bitcoin couldn't possibly be a ponzi.
Can you help me from your comprehensive library of my musings and point to where I made this comment? I am sure it stands up to context. It is not a Ponzi in the same way that a house burglary is not a shop robbery but it certainly shares many attributes.
You mention "open decentralised" as if it were an Immaculate Conception incapable of being used for evil or naughty purposes. I read somewhere that the criminal classes have a particular penchant for this holy of holies.
Anyway you have made it abundantly clear that your rejection of all mainstream academic views on crypto is based on a credo that they are hopelessly compromised by the "Turkeys don't vote for Christmas" syndrome. I admit that it is a lot easier than actually challenging their reasoned and informed arguments.
 
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