Unfortunately, once one looks behind the curtain of the system, one conclusion seems inevitable: it was deliberately designed as a pyramid scheme to enrich early adopters, not as a currency to trade goods and services. This Quora discussion explains it at some length, but basically, because a) the total currency supply is limited, b) it gets harder and harder to mine bitcoins over time, there’s now a small elite of bitcoin owners. The wealthiest own hundreds of thousands of bitcoins. Nobody will match them in wealth at this point without a prohibitive investment of money and time, and the gap between rich and poor will continue to widen indefinitely as a new bitcoin owner must spend dollars to purchase mere fractions of a coin (or contribute to its growing ecological footprint by becoming a “miner” who wastes computing cycles on the generation of coins).
I would not, personally, attribute malice to the founders and say that it was deliberately a pyramid scheme. Though functionally being one may not be good.
The side effect of making early adopters rich like a pyramid scheme (or e.g. a startup) doesn’t prove that it isn’t a currency. They are logically separate matters.
Competition for mining power could a good thing, as it would drive the market for more energy-efficient computing equipment.
In a pyramid scheme, the early adopters are immediately given wealth as the new adopters adopt it. In bitcoin, this wealth is notional unless the early adopters sell their bitcoins.
The idea is that the early adopters shepherded the system by holding and mining bitcoin when it was very risky to do so. How risky is it now? With more merchants and more knowledge in the wealth preservation community, it is a smaller risk and its price is reflecting the same.
Bitcoin’s present status is similar to that of an asset bubble, and as Mencius Moldbug said, Money is the only bubble that does not pop.
If bitcoin pops, it pops, if it doesn’t, then well, anyone who sold at an earlier stage will end up feeling regret.
If I understand correctly, a pyramid scheme is something like when you try to convince me that 2 people will send me a dollar if I agree to send you a dollar. Is bitcoin really like that? In what sense do I have to send someone “already enrolled” in the scheme a dollar to get my two dollars?
It’s not a pyramid scheme in the exact sense, but Bitcoin’s more valuable with a wide subscriber base, and early adopters have a large advantage in terms of acquiring portions of the Bitcoin space cheaply. The changes in the investment-to-returns ratio over time that these pressures produce do end up looking a lot like a pyramid scheme’s in the case where Bitcoin fails as a currency, even though you can make that investment in GPU cycles rather than dollars.
If it succeeds as a currency, of course, that curve ends up looking more like what you’d see in a gold rush or another emerging market. So some of this looks like dueling prognostications to me, or even just different levels of cynicism regarding the concept.
(By way of disclaimer, I don’t currently own any Bitcoins.)
Looks like one of those instances where pyramid scheme is used as a catch all term for scams which aim to look like a franchise or investment. Could be that they are thinking of the miners as franchisees but that would only make sense if the founders were selling graphics cards.
I believe the technical term for what the bitcoin founders are making the right moves to be doing is a pump-and-dump.
http://intelligentdesigns.net/blog/?p=108 - blog of Erik Moeller of Wikimedia (personal blog, not official).
I would not, personally, attribute malice to the founders and say that it was deliberately a pyramid scheme. Though functionally being one may not be good.
The side effect of making early adopters rich like a pyramid scheme (or e.g. a startup) doesn’t prove that it isn’t a currency. They are logically separate matters.
Competition for mining power could a good thing, as it would drive the market for more energy-efficient computing equipment.
In a pyramid scheme, the early adopters are immediately given wealth as the new adopters adopt it. In bitcoin, this wealth is notional unless the early adopters sell their bitcoins.
The idea is that the early adopters shepherded the system by holding and mining bitcoin when it was very risky to do so. How risky is it now? With more merchants and more knowledge in the wealth preservation community, it is a smaller risk and its price is reflecting the same.
Bitcoin’s present status is similar to that of an asset bubble, and as Mencius Moldbug said, Money is the only bubble that does not pop.
If bitcoin pops, it pops, if it doesn’t, then well, anyone who sold at an earlier stage will end up feeling regret.
If I understand correctly, a pyramid scheme is something like when you try to convince me that 2 people will send me a dollar if I agree to send you a dollar. Is bitcoin really like that? In what sense do I have to send someone “already enrolled” in the scheme a dollar to get my two dollars?
It’s not a pyramid scheme in the exact sense, but Bitcoin’s more valuable with a wide subscriber base, and early adopters have a large advantage in terms of acquiring portions of the Bitcoin space cheaply. The changes in the investment-to-returns ratio over time that these pressures produce do end up looking a lot like a pyramid scheme’s in the case where Bitcoin fails as a currency, even though you can make that investment in GPU cycles rather than dollars.
If it succeeds as a currency, of course, that curve ends up looking more like what you’d see in a gold rush or another emerging market. So some of this looks like dueling prognostications to me, or even just different levels of cynicism regarding the concept.
(By way of disclaimer, I don’t currently own any Bitcoins.)
Looks like one of those instances where pyramid scheme is used as a catch all term for scams which aim to look like a franchise or investment. Could be that they are thinking of the miners as franchisees but that would only make sense if the founders were selling graphics cards.
I believe the technical term for what the bitcoin founders are making the right moves to be doing is a pump-and-dump.