[joecot]

As soon as it was clear that Bitcoin was going to be a commodity instead of a currency (why use it as a currency to buy a pizza this week when it could buy you a car next week?), it was clear it was now a pyramid scheme. That's why I didn't invest in it. What I hadn't counted on was how gullible people were for pyramid schemes.

[TameAntelope]

I wish we had a better phrase than "pyramid scheme", because IMO anything that's a "scheme" has people who know better at one end, and I really don't think there's anyone involved in crypto that is deliberately "winning". What's a phrase for when everyone is getting scammed, and not by any one person, but by an idea? Where there are no winners, only lucky and unlucky.

Pyramid trap? Pyramid quagmire? IDK, but "scheme" implies something I don't think is there - control.

[ogogmad]

Speculative bubble. Or just bubble.

People buy it because they expect the price to go up. The price goes up so more people buy it expecting further gains. The fundamentals arguably don't justify such a high price, and so you have a speculative bubble. Eventually, the bubble will pop and most investors will lose money.

I suspect BTC is a bubble because everything it does can be done better by other things. I also suspect that Lightning is fundamentally insecure. If you analyse the true intentions of the people who use it, there's no sober purpose; they just want it because they expect the price to go up. It's not about helping the developing world; because if it was, then there are better but more boring ways of doing it. Hence, it's a bubble built from speculation.

[wongarsu]

I agree that BTC has little inherent value, it hasn't turned out all that useful. Even if you believe the advantages of crypto are worth all the disadvantages there are blockchains that are much better.

But similar things can be said about many things, and some commodities are able to sustain their bubbles for decades or centuries. Gold is going strong for millennia, with a price far exceeding its practical value. BTC probably won't last that long, but unless it's disrupted by legislation it might still have decades left in it.

[eric_cc]

> I agree that BTC has little inherent value

The bitcoin network is extremely valuable. Trustless money is important in a world where all other currencies are created, controlled, and manipulated by governments. We know humans are prone to make poor choices, commit crimes, etc. Especially governments. Why do we allow them to create money when and how they want?

[eric_cc]

> People buy it because they expect the price to go up.

Some* people buy it because they expect the price to go up.

Other people are switching to bitcoin because it is better money than their local currency.

> everything it does can be done better by other things

Like what? Trustless transfer of money governed by a protocol that is highly decentralized and secure.

[ogogmad]

> Other people are switching to bitcoin because it is better money than their local currency.

USD, EUR, GBP and CHF are less volatile. The countries that manage them all have good credit ratings. Compare to BTC which has lost >55% of its value in the last 6 months. And you're calling that a currency?

Using safe fiat, or even gold, would be the "boring" solution because it doesn't go up in value much. If anything, it slowly loses value, but nothing among those 4 beats the >55% / 6mo drop of BTC.

If you're concerned about inflation, a finance expert might give you a "boring" lecture on how to counter it.

Maybe there should be a guide to the "boring" solutions to the problem that crypto supposedly solves in an "exciting" and (for now) lucrative way.

[eric_cc]

Who said anything about boring vs exciting? You’re projecting.

[zeven7]

> What's a phrase for when everyone is getting scammed, and not by any one person, but by an idea? Where there are no winners, only lucky and unlucky.

The phrase is "financial market"

[Ekaros]

Mania or bubble. I don't consider crypto market overall to be any type of scam or scheme. Just like I don't consider stock, or housing market to be one. Even if there is insanity, scams, schemes and fraud inside all of them.

[InitialLastName]

At least in theory, stocks and housing are underpinned by intrinsic assets (i.e. things that exist in the real world and/or intersubjective agreements whose value and status are enforced by people with guns). Crypto doesn't have that quality even hypothetically (except to the extent that people insist it does), which pushes it toward the same category as many of the well-known financial scams (which were characterized by people obscuring the lack of assets propping up the value of the scheme).

Edit: I was being overly general with the term "pyramid scheme"

[Ekaros]

I would only use pyramid scheme to mean rather specific structures. Like many MLMs are, where revenue and profit for individuals is generated by their recruitment activities and so-on. Not in general getting more people in a bubble. Just like Ponzi is centralized system where central actor pays out to old investors with new investors money. Not an open market where anyone can enter and leave at any time.

[InitialLastName]

You're right, I've updated to correct the wording.

[eric_cc]

> Crypto doesn't have that quality even hypothetically

And does paper fiat have intrinsic value?

Bitcoin is trustless money. It's mindblowingly amazing that we now have trustless money. We've never ever had that before. That is the value.

[InitialLastName]

> And does paper fiat have intrinsic value?

Yes, to the extent that people with guns will enforce its value (as I mentioned above).

> Bitcoin is trustless money. It's mindblowingly amazing that we now have trustless money. We've never ever had that before. That is the value.

You'll have to forgive me if I disagree that "mindblowingly amazing" constitutes "intrinsic value".

[eric_cc]

> You'll have to forgive me if I disagree that "mindblowingly amazing" constitutes "intrinsic value".

100% agree. I did not mean to argue that the value is in the fact that it is amazing. The value is in the trustless money network.

[joecot]

I would call it something besides a pyramid scheme if the people who got in at the bottom didn't then turn around and endlessly proselytize for crypto -- not because they think it's actually great, but because they can't take their money out unless some other poor sucker buys in. At the point where crypto bros are paying Matt Damon to say you're not a real man unless you buy their crypto, it's a pyramid scheme.

[amirhirsch]

crypto mania, similar to tulip mania.

[naravara]

I guarantee you all the institutional investors and big finance invested in crypto absolutely do know better, and they know they have better quality information and the ability to respond to it faster than the masses of "retail" investors. So they will be on the winning end of the bubble burst at the expense of the schmucks on Twitter.

[gcheong]

Greater Fool Theory maybe: https://en.m.wikipedia.org/wiki/Greater_fool_theory

[ChikkaChiChi]

I think "crypto meme scheme" or something to that effect

[acka]

A fad basically, fits the dictionary definition pretty well IMO.

[oceanghost]

The phrase is I think, "Greater Fool Theory".

[vannevar]

>...I really don't think there's anyone involved in crypto that is deliberately "winning".

I believe that bitcoin began as a straightforward "pump and dump" scheme, dressed up in a techno-libertarian narrative to appeal to its intended marks, young tech males with disposable income. As the size of the market has grown, I suspect the original cartel holds a smaller percentage of the outstanding supply, but I'll bet it's still enough to move the market deliberately when they choose.

[Ekaros]

I don't think it began as such, but as idealistic toy or proof of concept project where no one actually run the numbers to end goal. Then at some time it went to get rich quick loop, with some ideologues in mix.

[eric_cc]

Late stage bitcoin is:

It's trustless, sound money and therefore better than my bullshit fiat.

[frogpelt]

A house of cards?

[pmcp]

Betting?

[Ekaros]

I could have made relatively decent chunk of money if I had just kept the little I had... But I'm really just too risk averse and believe in sanity that the things wouldn't actually go anywhere. Specially not to the 100x from point where I was.

Then again, I also think most tech stocks are just stupid. Especially Tesla, but thankfully I'm not either betting against them. Let's see if I'm proven correct in long run.

[noxer]

People with this kind of "risk tolerance" usually dont take a risk even tho it would probably be totally "sane".

If you think about it, many people make several million dollars over their life time but see it as to high of a risk to put 10k into something that could go to zero but it also could go to 100k or even more. That does not make much sense. The question should not be "should I risk the 10k? The question should be "am I in a financial position that allows me to lose 10k?" If the answer is "Yes" then consider doing it, you will not miss the 10k at the end of you life but you will remember what you did with the 100k if it happens.

[giaour]

> many people make several million dollars over their life time but see it as to high of a risk to put 10k into something that could go to zero but it also could go to 100k or even more. That does not make much sense. The question should not be "should I risk the 10k? The question should be "am I in a financial position that allows me to lose 10k?"

I see where you're trying to go by framing a loss against lifetime earnings, but I think that could lead some investors to mislead themselves. Someone who is willing to bet 10K on black at the roulette table is almost certainly going to gamble more than once in their lives. The question should be, "am I in a financial position that allows me to lose 10k right now, and can I trust myself to walk away from the table if I do lose?"

[noxer]

Obviously I didn't not attempt to cover ever possible case and personality you can think of that wasn't the goal anyway. Someone who gambles doesn't fall in the category of "risk intolerant" anyway. Beside that in "traditional" gambling the odds are against you so the whole risk/reward ration is out the window and "only a small lose over your whole lifetime" doesn't change this.

I would never encourage anyone to just trow money any anything that could potentially somehow give you more back. Roulette, lottery etc. are all statistically against you and you have zero way to choose clever or otherwise affect the outcome in your favor. Buying something with speculative value is completely different and it certainly is a good idea to actually inform yourself first about what yo buy. If you subjectively think the chance of loosing everything is over 50% I would look for something else after all the goal is to not lose so it should not be a blind throw it should just be something with high risk AND high reward.

I know someone who intentionally bough some rare apple device for like 1.1k. Fully aware that it might be worthless soon or break and loose most of its value. But it had a realist chance to gain value and it did, he sold it for over 10k 5 years later. Thats about +800% a risk/reward ration that does make sense.

[giaour]

"Betting 10K on black" was meant to be a metaphor for buying 10K of cryptocurrency. Just like there are professional cryptocurrency traders, there are professional gamblers, but everyone else playing the game is expected to lose money to the sharks.

The example you provide of purchasing a fragile collectible is similar; almost all collectibles (be they fine art, beanie babies, or NFTs) lose value, so purchasing one is very much a bet.

[noxer]

You can not professionally bet on black. What you think of as professional gamblers is probably something like poker that has nothing to do with a high risk/reward investment/speculation. Anyway you try really hard to not understand what I said so if you insist that high risk/reward means it must be gambling and the risk to loose everything must so much higher than winning anything then you simply dont know of any good opportunity. Might be side effect of dismissing everything at first sight. Either way I wont reply any further.

[logifail]

> but see it as to high of a risk to put 10k into something that could go to zero but it also could go to 100k or even more. That does not make much sense

You could walk into a betting shop and put 10k on all kinds of things that will most likely go to zero but have a finite probability of going to 100k or even more.

Q: How do you suggest determining the odds of success? Most of us can't invest in every 10k opportunity (and even if we did, we might not win out in the long run)

[noxer]

If the odds are obviously against you its not useful ofc. If you think there is a 50% chance you lose everything then you should also see a 50% chance that you make over 100% profit if that is not realistic its probably not the right thing.

[logifail]

> If the odds are obviously against you

Can you define "obviously"?

Spoiler, but for financial investments, there are no [genuine] odds. That's kind of my point about the efficient markets hypothesis.

For example, Tesla was at $88.60 on January 3, 2020. It's at $728 now (and peaked[?] at $1222-ish in November 2021].

Presumably there were not very many people who, in January 2020, thought Tesla would increase in value, or it wouldn't have been at $88.60 for very long.

[noxer]

Roulette is an example where the odds are against you and its obvious. Your chance to win in statistically lower than 50% and it should be higher than 50%.

[logifail]

> if I had just kept the little I had... But I'm really just too risk averse

I don't think it's about risk, it's that if you hold stocks or crypto or many other kinds of investment, and your holding is worth $x right now, if you're a believer in the efficient markets hypothesis, you have no real idea whether it's going to go up or indeed down in the future.

I bought a house because it's a place for our family to live, not because I belive it's going to appreciate in value. If you buy ten houses, you need to have information - or sheer belief - that your investment is going to pay off.

[nobodyandproud]

There is a different interpretation: Crypto enabled tax dodgers and black markets.

It’s a use case I didn’t consider a decade ago.

[joecot]

There is also this, and it's one of the things that propped up Bitcoin at the beginning. A large chunk of the Chinese drug black market ran on bitcoin. In many ways the cryptocurrency boom was the 21st century's opium war.

[Ekaros]

Black markets are also interesting question. How high coin value you actually need for them to operate? Certainly not tens of thousand, probably a few hundred would still be enough. If crypto was token for exchange.

[nobodyandproud]

I don’t know.

If you’re exchanging weapons or illicit drugs (nation state) it can easily be millions.

As a run-of-the-mill software engineer, its a world I only have a passing knowledge on.

[nwiswell]

I'm not clear on the logic here to be perfectly honest, even if I broadly agree that the real innovation with Bitcoin died when it was clear it would never be a currency.

But gold is also a commodity, and I don't think I've ever heard it called a pyramid scheme.

[dionidium]

"Buffett calls gold an “unproductive” asset, which, as defined in his 2011 letter to shareholders, means “assets that will never produce anything, but that are purchased in the buyer's hope that someone else — who also knows that these assets will be forever unproductive — will pay more for them in the future.”"

Source: https://grow.acorns.com/warren-buffett-why-gold-is-an-unprod...

[tshaddox]

Doesn't that apply just as well to public stocks, at least at the scale of most retail investors? Like sure, you "own part of the company" and the company might produce things, but I'm pretty sure everyone knows deep down that they're just purchasing in the hope that someone else with the same mindset will pay more for them in the future.

[dTal]

In theory, stocks can produce dividends. If a stock does not currently yield dividends, presumably the company is reinvesting that money so that the stock might yield higher dividends in the future. So stocks are a productive asset, at least in theory. Of course, in reality, speculative investment does contribute to the value of the stock, but at least it's notionally backed by something.

[brazzy]

https://en.wikipedia.org/wiki/Dividend

[antisthenes]

At least gold has a certain amount of practical, physical uses.

Connector plating, jewelry, dentistry, optics plating for [james webb].

[cko]

And treatment of rheumatoid arthritis.

[nwiswell]

Yes, that's true of commodities generally. They are worth what people will pay for them; they do not produce cash flows. A pile of copper is not productive either.

The fair criticism, I suppose, is that the "compelling reasons" a person might pay for a pile of copper are much more numerous than for gold (or bitcoin).

But, OK: think of fine art for a moment... it is also an unproductive asset, the value of which depends wholly on what other people feel like paying, since there is no immediately profitable economic activity in which you can engage with a Monet (unlike the pile of copper). Are you therefore calling fine art a pyramid scheme? I think we are watering down the definition into meaninglessness.

[theptip]

I don’t think that’s the point. Copper and most other commodities are productive under Buffet’s definition because you put them into pipes and other things. They are manufacturing inputs. Their price is set by the demand for the things that you make with them. Housing demand goes up => copper price goes up.

Gold is used in manufacturing but not as much as it could be, because the price is set much higher by speculation/hoarding. So Buffet’s point is that the price is set not by its productive use but by its unproductive use.

Bitcoin is the same as gold but without the productive use to set a price floor. If the speculative market for gold tanked you’d settle on something like 5-10% IIRC as the imputed value based on manufacturing uses. Bitcoin has zero value for manufacturing uses. Maybe there is a price floor for smart contract usages if the speculative market evaporated but I think it’s much lower than 5%.

[nwiswell]

So I suppose when Buffett purchased 130 million ounces of silver in 1998 he was thinking about the manufacturing inputs?

I do think there is in fact a "productive use" for cyptocurrency, which is transacting on the dark web. It has been earnestly used as a currency in that context for a very long time... it's just that bitcoin boosters would rather not talk about it.

[throwit1q2e3r]

Not sure why believing that silver is an unproductive asset would have precluded Buffet from believing that "someone else — who also knows that these assets will be forever unproductive — will pay more for them in the future." Like, yes, he phrased that in a deprecating way, but that doesn't mean he wouldn't shrug and play along.

[theptip]

I… don’t really see how Buffet’s purchases in ‘98 bear on the discussion at hand? You can read his 2011 investor note and see what his definition is about. I don’t know if he classified silver as productive or unproductive at that time.

I strongly agree that dark-web transactions were the largest “productive” component of BTC, but I think the “BTC as payment mechanism” has a much lower equilibrium price than asset-based usages because you essentially buy to make a purchase, and then sell on the other side. So for $1B of transactions in a year you might only need $1M of currency (maybe it’s an order of magnitude higher if you don’t immediately sell your BTC on the receiving side) which would give a price of $0.05/BTC (assuming 21M BTC total). Fermi calculation here, I think this is a lower bound for $1B transactions. The real calc is a bit more involved and I wouldn’t be surprised if it was one or two OOM higher.

As you can see the dark web usecase settles on a much, much lower value for BTC than the current market price. You need $T/yr to be transacting in BTC, or folks to be holding a float in BTC because they are getting paid and plan to pay for things, to get a valuation in the $1000s. Which is fine, but supports the point I made above about the “productive use prices” being a much smaller fraction of current price than even gold’s.

[jjeaff]

You can charge admission to view fine art in person.

[nwiswell]

I'm not sure if you are serious.

Are there any for-profit museums focused on fine art?

[jreese]

The Louvre charges 17€ per person, and I'm pretty sure they're focused on fine art. How much they're profit focused versus just reinvesting profits is up for debate.

[slv77]

A commodity is a raw material that has a wide amount of utility in creating different products. Corn become corn oil, ethanol, cornstarch, etc. Gold becomes jewelry, computer chips, electrical connectors.

Crypto isn’t so much a commodity as a collectible like a stamp or a beanie baby.

[eric_cc]

> when it was clear it would never be a currency

But it IS a currency.. It is uses for daily payments and legally considered a currency in multiple countries today. I fully expect that list to balloon up over time.

You're talking about USA in 2022 and not the rest of the world or the future.

[nwiswell]

Turns out it doesn't matter if the currency is trustless if you still have to trust your counterparty anyhow. In fact it's worse in most cases, since you can't seek recourse from trusted financial intermediaries (chargeback, etc).

For 99.9% of daily cash-equivalent transactions it is significantly clunkier than the new "FinTech" solutions: Venmo, CashApp, Zelle, etc. For purchases, credit cards generally actually offer a kickback so it's not even a contest.

El Salvador gave everyone $30 of free bitcoin. What happened afterward speaks volumes.

[eric_cc]

> Venmo, CashApp, Zelle, etc.

These are layers on top of the dollar. I agree they’re a great consumer experience.

Why not equally nice layer on top of bitcoin?

[marcosdumay]

People buy gold on the expectation that it won't lose to inflation. That's why it isn't a pyramid, an exponential curve is well contained if the exponent is exactly 1.

[noxer]

Gold is a worse inflation hedge than stocks. Gold is actually bought to have quick liquidity when there is a market opportunity. It functions as cash but with less inflation but its not to evade inflation its just better than directly holding cash.

And yes it is a pyramid, almost all of the value come from the fact that central banks hold most of it and almost never sell to the open market and most of the rest is in jewelry with 2-3 generation turnaround time so essentially removed from the gold market.

[jjeaff]

Also, gold has actual utility as a product that is needed to manufacture certain things and is also desirable for cultural reasons like jewelry for enjoyment and social signaling.

[eric_cc]

> Bitcoin ... to be a commodity instead of a currency

According to current (May 2022) regulatory framework in the USA. In other countries it is currently a currency.

[strangattractor]

No one ever lost money underestimating the intelligence of the American public.

- Donald Trump

Not really but I am sure he is a practitioner of the philosophy. The actual quote is from H. L. Mencken and applies to both money and politics (which might be the same thing:)

No one in this world, so far as I know—and I have searched the records for years, and employed agents to help me—has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby. The mistake that is made always runs the other way. Because the plain people are able to speak and understand, and even, in many cases, to read and write, it is assumed that they have ideas in their heads, and an appetite for more. This assumption is a folly.

[wonderwonder]

stocks are a pyramid scheme as well, just an accepted one. To profit in stocks, new investor funds are required same as crypto. Truly the only non pyramid schemes are income producing assets such as a business or real estate.

[eloff]

A stock (specifically the company behind it) is also an income producing asset. That income will eventually be returned as dividends or through stock buybacks.

I know there are stocks that don't do either of those things (although rare) but the idea is they will one day in the future. You're still paying now for a piece of future profits. That's very different from a pyramid scheme.

[vikramkr]

Stocks are income producing assets, specifically a portion of a business. Dividends and stock buybacks are a thing.

[moultano]

Look up what a dividend is.

[wonderwonder]

Amazon is one of the largest companies on earth. How much has it paid in dividends?

Netflix? Alibaba?

[kasey_junk]

Amazon is doing a big stick buyback this year. Currently that’s a more tax efficient way to accomplish income production for most of its shareholders. Alibaba is doing the same.

Netflix has done buybacks in the past but their financials aren’t great right now.

[moultano]

Once Amazon decides that the prospects for continuing to invest in growing their business are lower, they will start paying dividends. In the meantime Microsoft and Apple already do.

[wonderwonder]

So the hope that eventually the powers that be at Amazon will feel magnanimous at an undetermined date in the future is what makes it not a pyramid scheme at the moment?

[moultano]

What makes it not a pyramid scheme is that by owning the stock you own part of Amazon, and Amazon makes money by providing a service to users. The inflow of money comes from the users of its product, not future suckers.

[InitialLastName]

> powers that be at Amazon

You mean "a large enough contingent of shareholders", right?

[mattwilsonn888]

You don't understand what a commodity is - or you don't understand what Bitcoin is.

[arcticbull]

Ah the classic coiner refrain. Thanks bud. We do. We really, really do.

We've spent many years learning exactly what those things are thanks to all this insufferable nonsense. I know more about crypto than practically 90% of the crypto community. I know all the personalities, the history, the fraud, the crime, the grift. I've read countless whitepapers. I've learned about 'traditional' finance.

All because of the brigading army of the insufferable.

[FabHK]

While I dislike the coiners' "oh, you just don't get it" as much as you, I think a more charitable interpretation of GP is possible that rests on the fact that there are two interpretations of the word "commodity":

1. something (usually raw material or primary good) that can be bought and sold - Bitcoin sort of fits that definition.

2. something (usually raw material or primary good) that can be processed to produce something useful. Bitcoin is not a commodity in that sense, which might be what GP was trying to highlight.

[timtas]

The thing most anti-coiners don't understand is fiat, how that scam works.

[idea55]

The best scientific explanation for why Musk is rich is our social system requires we implicitly believe and repeat that idea due to political training which is hand me down gossip from parents.

He’s even said he’s propped up by others.

You are being annoyed with people when they’re not reciting the right semantics? Some form of just stick to the script?

The entire internet is full of insufferable bullshit brigading of opinions because that’s what it’s for.

I’ve been online since the 80s for the weird. Now it’s full of insufferable normies.

Maybe it’s outlived it’s usefulness as a social engagement tool.

[arcticbull]

> You are being annoyed with people when they’re not reciting the right semantics? Some form of just stick to the script?

Not at all, I'm sick and tired of being told to "do my own research" in response to thoughtful and measured criticism by people who clearly have no idea what they're talking about.