While I can see the argument, be careful not to broaden your definition so much to include legitimate financial institutions.
For example, a perfectly ordinary bank may have $1000M in deposits, while loaning out $900M of that. If every depositor comes asking for their money at once, the bank is in trouble. And they are in even more trouble if those loans get defaulted on. They just hope that new depositors will come in at a rate sufficient to cover anyone asking to take money out.
Thankfully, banks have FDIC insurance and so even if the worst happens, most of the depositors are covered. But still: described this way, an ordinary bank is pretty close to a Ponzi-like scheme.
I see you completely ignored the “be careful not to broaden your definition” part of my post which clearly expresses the rest as a hypothetical.
The point is that if you decide to pick a definition that includes anything where early investors receive money from later ones, then a bank clearly qualifies due to the use of fractional reserves. Since a bank is not a Ponzi scheme, a definition like that is insufficient and should be modified.
There’s a reason why Ponzi schemes actually have a clear and specific definition and why it’s an error to simply call anything with seemingly scam-like qualities a Ponzi scheme.
When asked how many legs would a calf have if you called its tail a leg, Lincoln responded that calling a tail a leg doesn’t make it one. (I know it’s usually quoted as about a dog but that doesn’t seem to be the original.) In the same way, banks and other “legitimate financial institutions” are in no way Ponzi schemes. That’s exactly why they are legitimate. You’re misrepresenting how banks work.
The rest of us have been careful to state that the term Ponzi scheme has been applied to crypto because that is what its history shows it to be. You cannot say that about banks. Bank fraud does exist but is not present of 99+% of the history of banking. Crypto is not a “legitimate financial institution.” That has been our point all along. Proponents claim that it can replace “legitimate financial institutions” but it has not and shows no sign of doing so.
My example above was simplified but accurate. Banks do not store all their depositor’s money in a giant vault that anyone can take from at any time. And before FDIC insurance, bank failures were a real thing, and happened for similar reasons to why Ponzi schemes fail: eventually you get more people wanting money than you have people giving you money. And when this starts to happen, there is a runaway effect where people lose trust and so even more people start withdrawing.
Fortunately, FDIC and other mechanisms essentially fixed this problem, but the core mechanic is still there.
What makes real Ponzi schemes different is the promise of guaranteed returns. And so they are absolutely guaranteed to fail, since sustained exponential growth is impossible. That’s in contrast to a bank, where no such growth is promised, and so paying early investors with later investor’s money is sustainable, at least in principle (as long as the bank keeps a reasonable reserve on hand).
I know how banks work, which allows me to say with confidence that a bank run is fundamentally different from any variety of Ponzi scheme and also varieties of speculative bubbles. Again, the difference is between legitimate and illegitimate. Banks were fallible institutions before FDIC but that’s true of all investments. Correctly done, banks are legitimate. Intangibles depending upon inflating values by thousands of percent are inherently not.
Trying to stretch definitions by thousands of percent is equally dubious.
Sure, but if you have shares of stock, you own part of that company. If it does well, you get your specific cut of the profit proportional to how much of the company you own. If it doesn’t, you still have that share of the company, and if they fail, you get some proportion of the liquidation.
When you have a bitcoin you have what? Something that literally represents nothing. It’s only got value because people say it does, but it doesn’t represent anything. It’s not a share of a company, quantity of precious metal, or even backed by the economy of the issuing nation.
That’s I think why people liken it to a Ponzi scheme or a scam; it’s inherently meaningless and worthless, unlike pretty much every other medium of exchange/financial instrument.
The point is that with crypto nobody is paying anyone to lend. The only returns are “line goes up”.
Nobody is investing in anything with crypto, nobody is paying interest. No company is paying dividends.
It is only “line goes up”: and 95% of all bitcoins are held by the people who mined them in the first place. These guys only have one goal: pump, pump, pump (the only way to make real money is of course to dump at the end )
If you put any real money in any “crypto exchange” you are the rube in this story.
How many “exchanges” have to collapse before these idiots get that there is no legitimate business model for an “exchange”? They have to be skimming something to break even.
The only “legitimate” reason to buy crypto is to pay for ransomware attacks. You will have noticed these payments are now largely made by specialist companies- want to bet what % of them are funded/ran by entities holding crypto? Another self-licking ice cream. Pocketing “transaction fees” to do nothing seems like a solid business model.
Any kind of transparency will obliterate the “crypto economy” in short order.
Who decided that FTX was worth billions? Those guys maybe ever saw a couple million in real money. Somehow they reported some “value” of their own shitcoin and people just accepted that statement on face value? How does that shit even work?
Investing would be only one possible reason to hold crypto. Others would be as a store of money or to purchase items.
Of course, Bitcoin et al is terrible at being a “bank” due to the volatility, and also terrible for trade due to the crazy-high transaction cost. But that’s mostly because Bitcoin sucks. Since the transaction cost is so high, it’s impossible to use for day-to-day purchases, which basically means virtually all the transactions are from people trying to make money from the price fluctuations vs. the dollar, etc. That’s obviously not a healthy recipe for a stable currency, which also makes it useless as a bank.
Well, yes. There’s a transaction fee. I think that’s generally pretty transparent.
To be clear, I don’t think crypto has any current legitimate use, and that using any exchange is gambling with your money. But I also think it’s important to know exactly how they work and what went wrong.
Are you claiming that “transaction fees” could realistically sustain companies that like to advertise at the Super Bowl and the World Cup?
There are a few people holding large % of some “coin” they made up. They would like to actually sell some of them. Apparently they already sold enough to pay for excruciating expensive ad campaigns (with enough left over for blow and hookers). I understand why that is an enticing business model for them. I also know that only idiots would see that as an investment opportunity.
Bitcoin volume is $17B/day. If a given exchange can capture 5% of that, and charge 0.5% fees per transaction, that adds up to ~$1.5B/year (my percentages are made up, but seem plausible). That sounds like enough for Superbowl ads.
I find that number highly suspect.
I think that a good part of that is the same dollar going back and forth. I think there are plenty parties in that system (in fact: all of them) that have an interest in padding that number.
You are ignoring the costs they are paying to do the actual transaction.
All this stuff is public record (the whole point of a blockchain) and can’t easily be padded. The last 24 hrs, Bitcoin is up to $20B in transactions. “The same dollar going back and forth” doesn’t mean much, since there is no real currency. Just a ledger.
I’m sure there are other costs, but an exchange doesn’t have to skim all that much of that to be profitable.
All you need to pad the numbers are two wallets.
For every “legitimate” transaction you just add the whole wallet. (That is me coming up with the first thing that comes to mind, I’m sure the likes of SFB are much more creative)
Hell, I suspect there isn’t even a dollar going back and forth.
Real dollars are subject to oversight, taxes, banking regulations.
If you’re shuffling various crypto currencies around you can just do whatever you want, there is no rules.
Ok, that’s fair. What I meant is that the numbers represent real Bitcoin trades (you can’t easily fake that), but as the article mentions, many of these may be “non-economic.” Still, these are pretty big numbers, even if >50% of it is from wash sales.
And yes, many/most of the remaining trades wouldn’t be for a currency exchange anyway. Hence the multiplication by only 5% (partly to account for being just one exchange, partly to account for not all volume even going to an exchange).
While I agree that crypto would be unusable in Nantucket under those circumstances, most modern people carry very little cash on an everyday basis, or none at all. It’s unclear what medium of exchange would work. Probably generators. Maybe petroleum and food, but those tend to disappear after a while. Jewelry? Fur coats? These discussions often end up discussing firearms.
It’s funny that the three attributes you mentioned (durable, countable, impossible to duplicate) also apply to bitcoin. Of course we all want our currency to be stable and effortless to use, and it fails heavily on those fronts.