At this point Ethereum has a bunch of applications on top with quite a bit of demand, and you need ETH to pay the transaction fees, a portion of which are burned. Once proof-of-work is discarded early next year, the supply will start shrinking, and it'll be possible to value ETH like shares in a company doing stock buybacks. So I'd say that doesn't look much like a Ponzi scheme.
"The only winning move is not to play". I guess you might miss out on something, or miss out on making a tidy profit off a Greater Fool, but the peace of mind is worth it.
I mean you could say the same things about any sort of investment that isn't risk-free (which is basically all investments that earn a return nowadays). I don't see anything fundamentally different about crypto than any other asset really.
I can be pretty sure that a diversified set of stocks, bonds, and maybe some real estate are not an outright scam, or that someone is going to make off with all of it because the whole thing is completely wild west.
That only works if you have no wealth. If you have any wealth, you should diversify it. Only a fool would dump all their money into crypto, but also only a fool would put all their eggs into the basket of unbacked fiat. You're just picking which game to play, and hoping you play enough games with even enough odds that you don't lose too many at once.
A Ponzi scheme requires creators/beneficiants to actively work on inviting new people by the virtue of simple advertisement. Most of creators/beneficiants of widely used cryptocurrencies do not do that.
Ponzi schemes require returns, and more specifically the source these returns being the newly invested funds rather than actual trading/investing activity that becomes the scam.
A crypto security on its own doesn't guarantee or promise returns, and gaining value because of other people buying in is no different than company stock also rising in price because of demand. That's just how trading works. The potential issue is if people bought in because of misleading or false details rather than public information.
> By definition, Ponzi scheme’s, like musical chairs, do work as long as people keep playing.
This is not correct. You have to maintain a very particular ratio of new investments to redemptions in order for a Ponzi scheme to be stable. (The amount of money invested in a given period must equal or exceed the amount of money redeemed.) If that doesn't happen, which will almost always be true, you will flame out despite the fact that people are still playing.
But if the players of the Ponzi scheme are invested over many years, it’s still a ponzi, e.g. see Madoff. A slow moving ponzi looks different than a bank run.
His schemes lasted longer than crypto had been around for the general public.
> A slow moving ponzi looks different than a bank run.
No it doesn't; the failure of a Ponzi scheme is a bank run. The only difference is that the bank is trying to turn a profit on its deposits and the Ponzi scheme isn't.
Well, that depends on what you're thinking about. Bitcoin does if the assumption is that its value continues to increase. And on the other side of things, a Ponzi scheme has no need for the number of participants to increase at all, or remain stable, if the fund manager is free to just revalue everyone's holdings. The part of the Ponzi scheme that causes it to fail is when I tell you you have more money than you actually have.
If people cannot agree on the definition of a term, they cannot communicate. I'll go with this:
"A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[1] The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most of the investors do not demand full repayment and still believe in the non-existent assets they are purported to own."
> I go with the usual definition of Ponzi rather than thinking up my own
Sorry, what part of your quote differs from what I said? I know what a Ponzi scheme is.
> Bitcoin simply does not fit that.
The part of Bitcoin that doesn't fit that is that Bitcoin doesn't guarantee its own value will rise. If you're analyzing Bitcoin in the context of the idea that its value will rise, then it is a Ponzi scheme.
Crypto is a catch-all term at the moment. Some cryptos will be more useful than others. Some (like BTC) could be the digital equivalent of gold. Some will facilitate decentralized companies (e.g. LINK). Some will likely be Ponzi schemes (e.g. dogecoin).
You are correct that they both work very similarly. In fact doge was heavily inspired by BTC. Both have PoW and coin minting as a result of block resolutions.
Granted I'm not an expert on doge, but one big difference that I know of is the limit of coins that will be minted – bitcoin caps at 21 million, dogecoin is uncapped.
That's a rather important fundamental when talking about a currency.
I would then point to the communities that hover around either BTC or Doge. From personal observation, BTC is more serious about digital currency as a possible store of value future, whereas doge is a joke / meme focused coin.
At the end of the day, a lot of it is marketing, which is why I actually thought Doge would be a possible contender for a 3rd place crypto coin around the time when Elon Musk was tweeting about it. I believe the fact that it is uncapped and that is really is more of a meme coin than anything serious (see the community around it) led to its downfall. It didn't have solid enough legs.
Perceived value. It worths what people are willing to pay for. A lot of things work that way. Skeptics might wonder how long it would last, but less about how much it should be worth. People aren't only buying tech.
We do have a lot of scammers and useless coins, but tech is only one indicator of value, not the ultimate method to predict perceived value.
Whales depend on new money entering to keep the price from plummeting. I used to think of crypto’s as a decentralized ponzi where all the participants are incentivized to bring in as many new participants as possible. They’ve cut this part out and just decided to go with making fake money out of tether to prop up the price.
The problem with this is that even a well meaning and useful piece of technology will be called a scam and ponzi if they have a coin. Look at the layer one chains, ETH, SOL and AVAX. Are these ponzis?
By definition, Ponzi scheme’s, like musical chairs, do work as long as people keep playing.