“Ponzi scheme” is a specific type of financial fraud and isn’t a synonym for overexposure, excessive leverage, poor management, or even fraud in general. I do not think labeling things as Ponzi schemes which are not Ponzi schemes is helpful. Nor do I understand how that would help with effecting “real consequences.” The consequences faced by company personnel should be consequent to any wrongdoing.
In the legal sense, a 'Ponzi Scheme' has a specific meaning. In conversation, the definition is a bit looser. Sorta like how expressive has a different definition when you say 'that is an expressive programming language' and 'that is an expressive face'.
Crypto, as a whole, is about early adopters trying to convince newcomers that crypto has value. If the early adopters can't convince anyone that crypto has value, it's just a bunch of math and wasted electricity.
Early adopters try to convince laymen to 'invest' in crypto (i.e. buy crypto from the early adopters). Then the second generation crypto adopters have to find new marks to buy their crypto. Ad infinitum, until someone is left holding the bag. Then you sprinkle in some jpgs that people purchase despite anyone being able to right click and save it, rug pulls, and overall idiocy that happens when you give people billions of dollars without checking to see if they're observing basic organizational principles (i.e. are they running payroll out of a Slack room?).
Mingle it all together and you get a house of cards that's remarkably similar to a Ponzi scheme, yet doesn't exactly fit the bill. Sort of like how MLMs are legally distinct from Ponzi schemes for... reasons, I guess.
Saying that crypto shouldn't be considered a Ponzi scheme is a bit pedantic when the outcome is the same (i.e. the last person is always holding the bag, so you have to keep trying to convince someone to buy into your idea).
And they hate being told that they're a pyramid scheme. They'll claim that pyramid schemes are illegal. They're not. Pyramid schemes in which the only thing being moved is money are illegal, but as long as you offer a real good or service, you can pyramid it up.
They'll claim "everything is technically a pyramid scheme" trying to conflate a hierarchy with a pyramid scheme. But in a typical corporate hierarchy, money flows downward. I don't buy stock, I don't rent space, I don't etc. I am not responsible for any of the assets. I get paid for the value of my labor (in an ideal world, let's not get into that discussion here). In a pyramid scheme/MLM/network marketing bullshit, money flows up. I have to buy the stock I'm responsible for selling. I need to find/rent space to do so, I have to get customer contacts, etc. And on top of that, I have to recruit, train, and manage people under me. And for this privilege, I owe some percentage of my sales to someone higher up.
Never join a company where the first thing they ask you for is a check.
Technically everything is a ponzi scheme based on the assumption that it correlates with world GDP growth.
Land, Homes, Gold, Stocks are all Ponzi. It's just that the duration of the scheme is longer. If an asteroid hits and kill all humans tomorrow except 100 people, those 100 people can get all the above 'assets' for $0.
E.g The Gold Scheme has lasted over 5,000 years. Who is to say that BTC will not last at least 50. As an investor, it's not whether something is a ponzi or not, but how long the scheme will last.
For something like land, it could well be till the population peaks or Metaverse makes land less valuable or we find another amazing planet where we can all instantly migrate to. But eventually the land that you own will have no value. When is the question, till then you'll keep buying land in the hope of selling it to someone else for a higher value
With the small exception that homes, land and stocks (at least some of them) can pay you rent.
I personally like to think of Gold as of Babylonians Bitcoin, it has very little value of its own - but it has a long history of being a store of value (like 5k years vs Bitcoin's 5k days). So at least in this case we have a lot of track record that Gold works.
Beside Gold, silver was also used for monetary purposes, but with time it lose its role - as more and more silver was produced as e.g. side product of copper mining. Countries that were relying on silver as the store of value (China) where hit very hard by silver inflation.
Time will show if Bitcoin is a bubble, cyber silver or cyber gold. I personally would be interested in having stable coin based on Gold, that would basically mean return of the gold standard. But in that case we have to trust some institution to keep all that gold safe...
I can understand wanting a term for the specific kind of grift we see with crypto.
Making it such that "crypto scheme" or something like that is the new term for this chicanery would be nice. Clean, obvious, and appropriately stigmatory.
Labeling them as Ponzi schemes affords people in the US who lost money special tax benefits. It’s treated more similarly to theft than a bad investment. I am not sure about other countries, but in the US the label has real consequences.
I did not know this. Very interesting thank you. So is there some group responsible for officially determining if something is a Ponzi scheme or not? Perhaps in court?
Offering unrealistic returns paid from the fresh influx of cash based on advertising about the unrealistic returns until the whole house of cards collapses is EXACTLY what a Ponzi scheme is. How *isn't* this a Ponzi scheme?
People conflate ponzi schemes and pyramid schemes as well.
However, I'm having trouble finding where it is not. Money paid out must come from new investors. If I buy crypto for $1, I need someone willing to buy it for $2 to make money. My returns come not from any utility, but from more people investing in it.
If I buy a baseball card for $1, I need someone to buy it for $2 to make money. If I trade lumber on a commodities market, I need someone to buy it at a higher price to make money.
The new entrants condition does not qualify anything as ponzi scheme. Words should have meaning, or else what are we even talking about?
A ponzi is a specific form of fraud where the promoter misrepresents where the profits are coming from. Instead of managing a profitable enterprise, the promoter pays out current investors with the money of new investors.
Collectibles are their own thing. I'll allow that there is some value in the preservation of the item itself. But the reality is that with collectibles, it's the scarcity that's the thing. And with digital goods, scarcity is artificial.
Your lumber comparison is vastly over-simplifying an issue to make it look similar. Lumber is useful. It has value as a building material.
I've yet to see a cryptocurrency/NFT/whatever that has any value outside of its own ecosystem. I also like how you say the "new entrants condition does not qualify anything as a ponzi scheme" before pasting the definition which says "the promoter pays out current investors with the money of new investors".
Which is how crypto works. That's the only source of increased value, new investors. The only quibble is that there's not a single promoter. In which case, fine. Crypto is not a ponzi scheme. Crypto is a vehicle by which people can easily create a whole bunch of ponzi schemes.
For baseball card I basically agree, with the main difference being you won't reliably make money on a given card. Some will go up and make you money, but realistically it's a collectible.
For lumber, there is an end user who wants the lumber to e.g. make a house. There might be some middlemen who buy it and then resell it, but they are also generally providing value in some way: storing it to smooth over demand variance, doing arbitrage to improve pricing, moving it from one location to another, etc. There's never just an infinite chain of middlemen selling it for ever increasing prices.
> For lumber, there is an end user who wants the lumber to e.g. make a house. There might be some middlemen who buy it and then resell it, but they are also generally providing value in some way: storing it to smooth over demand variance, doing arbitrage to improve pricing, moving it from one location to another, etc. There's never just an infinite chain of middlemen selling it for ever increasing prices.
What about something like Ethereum? There is an end user who wants the Ethereum in order to pay network fees so they can register a domain name, move a stable coin, etc. I realize this isn't the primary use, but people are betting that it will be. Is that really any different than speculating on a startup that isn't yet profitable, but could be in the future?
And since something like Bitcoin is fundamentally trying to be a currency.. Why is this any different than something like the Russian Ruble? People want it because other people want it (medium of exchange). The differences are that:
1. You're required to use it to pay taxes, or people with guns will put you in jail
2. A central party can issue unlimited amounts of the currency and give it to whoever they want
Fundamentally, why is it so crazy to have a native digital currency that isn't owned by any one entity, has a set issuance schedule, and can be used as a medium of exchange. Governments have been doing this for centuries, and now we have the technology to make an arguably "better" version. Why not at least try? The real arguments against it seem to be: people are speculating on it.
The additional context here would be that easy money policies and cheap credit create the atmosphere for speculative bubbles. These are the products of financial central planning and regulation. Consumers have negative real rates on their savings accounts. There's nowhere to go, thus they are forced into riskier scenarios to preserve their wealth, much less achieve a yield.
Just as lumber has value as a construction material or baseball cards have value as a collectible, cryptocurrencies have utility for those of us willing to transact or create dapps. This may not be the majority of users, but there are some of us who perceive value here.
While I don't personally value baseball cards, I don't malign those who do. Value is subjective. Even if baseball cards enter into a tulip bubble, nobody is forcing me to buy them. Similarly, if people want regulated financial products there are plenty of options available.
There's no need to malign cryptocurrency or cryptocurrency users with wild generalizations. Different strokes for different folks. Live and let live. Not sure why this should be controversial in a liberal society. The demands for regulation are paternalistic and authoritarian. They are a few steps away from demanding that we, "Think of the children". See the posts elsewhere lamenting the average Joe, who can't be bothered to write a key phrase on a piece of paper. Just too technical for him.
In that context, the ponzi accusations are better understood as scaremongering. Deliberate misrepresentations comparable to "Reefer Madness" hysteria.
