In a ponzi scheme, there is a fictitious business model that's purported to be turning a profit, and its lack of profit is hidden by secretly using new inflows to pay off old investors.
In crypto, none of that is hidden. It's widely known that dollars cashed out by earlier investors come from the coffers of later investors. Since e.g. Bitcoin doesn't deceive people about being a profitable company, it's by definition not a ponzi scheme. It's important to use this terminology correctly.
Literally only a paradox in places like Hacker News by people who are motivated to question calling crypto a Ponzi.
I've got bad news. It is still a Ponzi if people are "honest" about it being a Ponzi, it is still a Ponzi if it started out as an investment idea and it went Ponzi as losses added up. Arguing that clear Ponzis aren't really Ponzis due to some kind of semantic rules is a gigantic display of "copium".
The only real difference is the distributed and decentralized nature of the scams. And the CEO of JPMorgan has described crypto coins exactly as a "distributed Ponzi scheme" before Congress.
If you wind up paying out redemptions with new deposits as fast as you can, right before you fail hard, then it was a Ponzi all along. That's it. That's the definition.
> It is still a Ponzi if people are "honest" about it being a Ponzi
It literally isn't. Please go back to the definition, which requires a specific type of deception. If you wished, perhaps you could call crypto some kind of gamble, confidence game, or other category of scam.
> Arguing that clear Ponzis aren't really Ponzis due to some kind of semantic rules is a gigantic display of "copium".
From your tone it seems like you think I'm trying to defend crypto in this thread. I'm not. I'm trying to defend the meaning of a precise and descriptive term so that it doesn't get watered down to the point of being synonymous with "scam". Because if that were to happen, we would lose a useful phrase in the English language.
It really ticks me off when people knowingly use terminology incorrectly like this out of anger. Just call crypto a scam or a con if you want. There's no need to let your anger leave a mark on the English language itself.
> And the CEO of JPMorgan has described crypto coins exactly as a "distributed Ponzi scheme" before Congress.
Well he was using the term "ponzi scheme" incorrectly then, and should have used a more general term like "scam". Really, this isn't hard. Just read the definition.
It's also worth noting that JPMorgan executed their first trade on a public ("crypto coin") blockchain last week, so maybe he ended up changing his mind? Or maybe there's some internal consistency with JPMorgan investing effort in things they believe to be ponzi schemes - I'm not one to try to make that distinction.
> If you wind up paying out redemptions with new deposits as fast as you can, right before you fail hard, then it was a Ponzi all along. That's it. That's the definition.
That's not even how cryptocurrency works. Not even beanie babies or tulips worked like that.
And that is how cryptocurrencies work. There's net inflows of currency, and net outflows of currency and there is a systemic bank balance at any one time of currency. If outflows exceed inflows for long enough then the balance is drained to zero and the music stops. That is a Ponzi. Madoff's Ponzi worked up until the 2008 recession hit him with redemptions and outflows and his bank balance got drained.
> A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, 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.
Key phrases:
* the scheme leads victims to believe that profits are coming from legitimate business activity
AND
* they remain unaware that other investors are the source of funds.
Neither of those apply to cryptocurrencies. Nobody believes that Bitcoin conducts business activity, and everyone is transparently aware that other investors are the source of cash-out funds.
> There's net inflows of currency, and net outflows of currency
Commodities (fungible property of market value, like cryptocurrencies) don't have net inflows or outflows. Commodity prices are determined by order books which are in turn determined by supply and demand, not by capital flow. When a buyer and seller meet and exchange money for a piece of property (like a bitcoin), there is no "inflow" or "outflow", property just changes hands.
> there is a systemic bank balance at any one time of currency.
There is no "systemic bank balance at any one time of currency". That's not how cryptocurrency works. Where is Bitcoin's bank account, and what is Bitcoin's bank account balance?
> If outflows exceed inflows for long enough then the balance is drained to zero and the music stops.
Cryptocurrencies have no such inflows, outflows, or "balance". They aren't like investment funds or companies - they behave like physical objects, like beanie babies if you will. The beanie baby crash wasn't caused by any kind of beanie baby "balance" being drained to zero, it was caused by people collectively deciding that beanie babies were no longer worth a premium price.
> Madoff's Ponzi worked up until the 2008 recession hit him with redemptions and outflows and his bank balance got drained.
Bitcoin does not have redemptions, outflows, or a bank account. It's a series of rocks that people trade between themselves, sometimes at a higher price, sometimes at a lower price.
You seem to be confused about the definition of cryptocurrency. Should we go over that next?
> From your tone it seems like you think I'm trying to defend crypto in this thread.
Yes I got ranted at for suggesting "fools racing towards a cliff" as a better description. These threads appear to have attracted a lot of people looking for a fight and will jump on any nuanced post as a "pro" side.
I've noticed this phenomenon a lot, and I'm not exactly sure what causes it. If you correct someone's understanding of the software, half the time they'll try to pick a fight with you over being a supporter of it. I haven't experienced that while discussing any other type of software project.
Perhaps it results from the human tendency to try to separate "good guys" from "bad guys". Whatever it is, I find it really gets in the way of productive discussion.
Do you consider social security, or for that matter all government tax and welfare systems which depend on growth via immigration to be ponzi schemes too?
Why do you believe it is bad news to me? It's just semantics.
Ponzi schemes by definition use opaque ledgers. Ponzi schemes are custodial. Ponzi schemes guarantee returns.
There exist Ponzi schemes which have disguised themselves as cryptocurrencies, but the idea that all cryptocurrencies are Ponzi schemes demonstrates a complete ignorance of what a Ponzi scheme is.
Why? To me a ponzi scheme is where the earlier "investors" get paid out with the money of later "investors". That's it. By that definition it's quite the "decentralized", somewhat stochastic ponzi.
Ponzi victims are told on paper that their "investments" are increasing in value, and that they can withdraw at any time, when in reality, the assets don't actually exist. Also a key aspect is that their balance only ever goes up.
they weren't back when the reason people bought them were dividends, now the only real exit is if the company goes bankrupt or is purchased. The intervening time is hard to describe as anything other than pure speculation and piling dupes on top of each other
