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Thread: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

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    Default Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    FWIW

    Bitcoins: The Second Biggest Ponzi Scheme in History

    Gary North - November 29, 2013

    I hereby make a prediction: Bitcoins will go down in history as the most spectacular private Ponzi scheme in history. It will dwarf anything dreamed of by Bernard Madoff. (It will never rival Social Security, however.)

    To explain my position, I must do two things. First, I will describe the economics of every Ponzi scheme. Second, I will explain the Austrian school of economics' theory of the origin of money. My analysis is strictly economic. As far as I know, it is a legal scheme -- and should be.

    PONZI ECONOMICS
    First, someone who no one has ever heard of before announces that he has discovered a way to make money. In the case of Bitcoins, the claim is literal. The creator literally made what he says is money, or will be money. He made this money out of digits. He made it out of nothing. Think "Federal Reserve wanna-be."

    Second, the individual claims that a particular market provides unexploited arbitrage opportunities. Something is selling too low. If you buy into the program now, the person running the scheme will be able to sell it high on your behalf. So, you will take advantage of the arbitrage opportunity.

    Today, with high-speed trading, arbitrage opportunities last only for a few milliseconds seconds in widely traded markets. Arbitrage opportunities in the commodity futures market last for very short periods. But in the most leveraged and sophisticated of all the futures markets, namely, the currency futures markets, arbitrage opportunities last for so brief a period of time that only high-speed computer programs can take advantage of them.

    The individual who sells the Ponzi scheme makes money by siphoning off a large share of the money coming in. In other words, he does not make the investment. But Bitcoins are unique. The money was siphoned off from the beginning. Somebody owned a good percentage of the original digits. Then, by telling his story, this individual created demand for all of the digits. The dollar-value of his share of the Bitcoins appreciates with the other digits.

    This strategy was described a generation ago by George Goodman, who wrote under the pseudonym of Adam Smith. You can find it in his book, Supermoney. This is done with financial corporations when individuals create a new business, retain a large share of the shares, and then sell the stock to the public. In this sense, Bitcoins is not a Ponzi scheme. It is simply a supermoney scheme.

    The Ponzi aspect of it comes when we look at the justification for Bitcoins. They were sold on the basis that Bitcoins will be an alternative currency. In other words, this will be the money of the future.

    The coins will never be the money of the future. This is my main argument.

    THE AUSTRIAN SCHOOL'S THEORY OF MONEY'S ORIGINS

    The best definition of money was first offered by Austrian economist Carl Menger in 1892. He said that money is the most marketable commodity. This definition was picked up by his disciple, Ludwig von Mises, who presented it in his book, The Theory of Money and Credit, published in 1912.

    In that book, Mises argued, as Menger had before him, that money arises out of market transactions. That which did not function as money before, now functions as money.

    Something that was valuable for its own sake, most likely gold or silver, becomes valuable for another purpose, namely, the facilitation of exchange. People move from barter to a monetary economy. This increases the division of labor. As more and more people use the money commodity in order to facilitate exchanges, the division of labor extends, and as a result, people's productivity increases. They can specialize. This specialization produces increased output per person, and therefore increased income per person.

    In this scenario, something that had independent value becomes the focus of traders, who find that their ability to buy and sell increases as a result of the use of this commodity. Money develops out of market exchanges. Money was not used for its own sake initially, but it becomes widely used as money as a result of innumerable transactions within the economy. (I discuss this in my chapter in Theory of Money and Fiduciary Media, published by the Mises Institute in 2012.)

    Here is the central fact of money. Money is the product of the market process. It arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, as new people discover it as a tool of production, because it increases the size of the market for all goods and services. No one says, "I think I'll invent a new form of money."

    Note: any time you see a proposal of a new form of money, hold on to your old form of money.

    The central benefit of money is its predictable purchasing power. A monetary commodity is not easy to produce. The cost of mining is high. Money is slowly adopted by a large number of participants. These participants use money as a means of exchange. Why? Because it was valuable the day before. They therefore expect it to be valuable the next day. Money has continuity of value. This is not intrinsic value. It is historic value. So, a person can buy money by the sale of goods or services, set this money aside, and re-enter the markets in a different location or in a different time, in the confidence that he will probably be able to buy a similar quantity of goods and services.

    Money is not accumulated for its own sake. It is accumulated to buy future goods and services. It is useful in the facilitation of exchange precisely because its market value varies little over time. It is the predictability of money's market exchange rate that makes it money.

    BITCOINS ARE NOT MONEY

    Now let us look at bitcoins. The market value of one bitcoin has gone from about $2 to $1,000 in a year. This is not money. This commodity is not being bought for its services as money. It is unpredictable to a fault.

    Admittedly, those who got in early on this Ponzi scheme are doing very well. They will probably continue to do well for a time. As more people hear about this investment, which is justified in terms of its future potential as money, more people will buy it. Late-comers are not buying it because they understand its potential as future money, any more than the late investors in Charles Ponzi's scheme thought they were buying into the arbitrage potential of foreign postage stamps. They are buying Bitcoins because we are in the midst of a Ponzi scheme mania. They will continue to buy because they think this time it's different.

    This digital so-called money will not be used to facilitate exchange. Nobody is going to be getting rid of an asset that has moved from $2 to $1,000 in one year in order to buy pizzas. People want to hang onto it, refusing to sell, in the hopes that it will go to $2,000. This is the classic mark of Ponzi scheme psychology. People do not buy the investment for the benefits that the investment provides as an investment, in other words, because it is a capital asset. They buy it only because it has gone up in price. They expect this to continue.
    Here is the Austrian school's theory of money. People buy money because it has not fallen in price. But it has also not gone up in price much, either. It is predictable. Why? Because it is held in reserve by a large number of people over a large geographical area. It has become money through tradition, through experience, and through endless numbers of exchanges on a voluntary basis. It has proven itself in the marketplace as a means of facilitating exchange, and thereby as a means of preserving value over time. This is not the characteristic feature of a Bitcoin. People are not buying it to serve as money; they are buying it because they are in the midst of a mania, and they are gambling that the number of buyers will continue upward forever.

    Here is an economic fact: the number of fools is limited. They are a scarce economic resource. As the price of bitcoins rises, more fools will be lured into the market. But this is a finite market.

    In other words, bitcoins cannot possibly fulfill their supposed purpose: to serve as an unregulated currency unit. Bitcoins are not an alternative currency. They are something you buy in the midst of a mania, and you will sell at some point in order to get back your money. You are thinking of buying Bitcoins, not because Bitcoins will serve as a means of exchange, as originally argued, but because you want to get back lots more money than you paid for them. In other words, Bitcoins are not money; dollars are money. There has been no challenge from Bitcoins to the reign of the dollar.

    JUST SAY NO

    When you see an offer of an investment which inherently cannot possibly exist on its own merit, and yet lots of people are coming into the market to buy the item, you know, without any question, that this is a Ponzi scheme. In other words, people are buying into the program, not because of an arbitrage opportunity, and not because of a capital breakthrough in terms of technology, but because somebody else bought it cheaper yesterday. You buy it today, not because you think it is going to offer a stable value, but because you think you're going to make a bundle of money when more people come into the market. Again, this is the classic mark of a Ponzi scheme.

    In order for Bitcoins to become an alternative currency, there will have to be millions of users of the currency. There will have to be tens of millions of users of the currency. They will have to develop in a market on their merit as money, not as an investment of dollars in order to get more dollars back. It would have to develop through exchange, not bought as an investment. In other words, the free market will have to adopt Bitcoins as a means of increasing the division of labor.

    Bitcoins are not increasing the division of labor. They are bought on the basis that somebody can get into a game of musical chairs. Instead of running out of chairs, leaving one person the great winter, the promoters started with a given number of chairs, and then they hoped that lots would come and bid on the chairs. "If we issue it, they will come." This took place. The promoters creators are now very rich, as measured in dollars.

    The fact of the matter is this: Bitcoins will not increase the division of labor by serving as an alternative currency. Inherently, Bitcoins have made their mark, not on the basis of their stable value in exchange, that is, their value in increasing the division of labor in alternative markets that do not use the dollar. On the contrary, Bitcoins are being purchased for one reason only: to get in on the deal. Buy low; sell high. Buy with what? Dollars. Sell for what? Dollars.

    The mania has destroyed Bitcoins' use as money. Bitcoins are too volatile in price ever to serve as a currency.

    Which is money: dollars or Bitcoins? The answer is obvious: dollars.

    This is a Ponzi scheme.

    WHAT GOES UP COMES DOWN

    This will lead to the ruination of more people than any private Ponzi scheme in history. There will be the poor schnooks to get in at the end, paying perhaps thousands of dollars per Bitcoin. Then the market will unravel. It will unravel for the same reason that all Ponzi schemes have unraveled: not enough new buyers. When the new buyers do not show up in great numbers, the holders will start to dump them. What went up in price, as measured in dollars, the real money, will come down in price.

    This mania is going to be the stuff of best-selling books. This is going to be this stuff of Ph.D. dissertations in economics and psychology. This is going to be the equivalent of Mackay's book, Extraordinary Popular Delusions and the Madness of Crowds.

    The interesting thing is the mania started among the most technologically sophisticated people on earth: computer techies. The techies who got in early are going to be fabulously wealthy . . . if they sell. But the poor schnooks who come in at the and are going to lose money. Collectively, this will be the greatest single scheme for lots of people losing money that we have ever seen. This Ponzi scheme is not illegal . . . yet. It will spread. It has gone viral.

    Any time you buy an investment, you had better have an exit strategy. There is no exit strategy for Bitcoins.

    You must get out at the top, or you lose your shirt.

    CONCLUSION

    Anytime that anybody tries to sell you an investment, you have to look at it on this basis: "What are the future benefits that this investment will give final consumers?" In other words, how does it serve the final consumer? If it does not serve the final consumer, then it is a Ponzi scheme.

    Bitcoins cannot serve the consumer. There is nothing to consume. The only way that Bitcoins can work to the advantage of the consumer is that they provides the consumer with increased opportunities, based on Bitcoins' function as money. But the fundamental characteristic of money is its relatively stable purchasing power.

    Bitcoins will never achieve this. It is a mania going up. It will be a mania coming down. It will not increase the division of labor, because people will recognize it as having been a Ponzi scheme, and they will not again buy it. They will not use it in exchange. Companies will not sell goods and services based on Bitcoins. Bitcoins have to have stable purchasing power if they are to serve as money, and they will never, ever achieve stable purchasing power.
    Whenever somebody tries to sell you an investment that is based on the economic analysis of a market -- an analysis that cannot possibly be true -- do not buy the investment. This is a simple rule. I adhere to this rule.

    There has to be an economic justification for a capital investment, and there is no economic justification of buying Bitcoins as an alternative currency. That was how Bitcoins were initially sold, and it was impossible as an economic concept from the beginning. The Austrian theory of money shows why.

    I do not invest in capital that has no economic justification other than the greater fool theory. There are too few fools to keep the scheme going. Bitcoins are not illegal. They should not be made illegal. They should merely be avoided.

    http://www.garynorth.com/public/11828.cfm
    " 'The problem' is, uh, I'm the president of the United States;
    I'm not, uh, the emperor of the United States."

    -- Barrack Hussein Soetoro Soebarkah Obama Shama-Lama-Ding-Dong the Magnificent! - 02/17/13

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    He's right, there is no exit strategy for bitcoins. They go into use, they stay in use. Next year you'll see bitcoin popping up on more and more web checkout forms. I guess this will be the first ponzi scheme in history that facilitates person to person global exchange, cuts transaction time and cost, obsoletes huge portions of the current financial service sector, etc.?

    I hear that world wide web ponzi scheme from the 90's is gonna collapse any day now too.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    If he doesn't understand what a Ponzi scheme is, why should we listen to what he says about Bitcoin?

    I've found this small test to be a great timesaver.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    +1 Mr. North nails it.

    Cubedface, Zed and mister Mcbiff need to educate themselves as they don't know what a ponzu scheme is if it hit them upside their head.
    The only bear market in history in which demand is rising and prices falling.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by Ahillock View Post
    +1 Mr. North nails it.

    Cubedface, Zed and mister Mcbiff need to educate themselves as they don't know what a ponzu scheme is if it hit them upside their head.
    His entire premise is based on the notion bitcoins won't be used. That will be quite easy to observe if its true or not. At the moment it's quite easy to see bitcoins being used. They are already being used in transactions volumes larger than Western Union and near Discover card volumes. And next year I think will be a breakout year for merchants accepting bitcoin all over the web. So we'll see if Mr North is right or not.

    In the meantime you can watch bitcoins actually being used in real time:
    https://blockchain.info/new-transactions

    Or listen to live bitcoin transactions making music here:
    http://listentobitcoin.com/

    This must be the most active "non-used" ponzi ever.
    Last edited by ds_mustang; 12-01-2013 at 12:18 PM. Reason: Fixed a few facts

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Herbalife and Amway had a lot of "success stories" to offer, also.

    All of them drawing their "earnings" from the chumps at the bottom of the pyramid, "buying" "distributorships" and working like hell to make a few pennies.

    It's interesting that the bitcoin fanatics just airily dismiss the cited histories of money and descriptions of value and of Ponzi schemes.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by JustPassinThru View Post
    Herbalife and Amway had a lot of "success stories" to offer, also.

    All of them drawing their "earnings" from the chumps at the bottom of the pyramid, "buying" "distributorships" and working like hell to make a few pennies.

    It's interesting that the bitcoin fanatics just airily dismiss the cited histories of money and descriptions of value and of Ponzi schemes.
    You'll have to explain to everyone how bitcoin is like Amway or Herbalife because I don't see it.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by JustPassinThru View Post
    Herbalife and Amway had a lot of "success stories" to offer, also.

    All of them drawing their "earnings" from the chumps at the bottom of the pyramid, "buying" "distributorships" and working like hell to make a few pennies.

    It's interesting that the bitcoin fanatics just airily dismiss the cited histories of money and descriptions of value and of Ponzi schemes.

    Bingo. Well said.
    The only bear market in history in which demand is rising and prices falling.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    I'll be the first to admit I'm 'over the hill', and flat don't understand bitcoin, even after reading some on it.

    I do know I don't trust things I can't hold in my hand.
    "Fiat money is the child of the arrogance of human intellect, which has sought to invalidate the laws of human nature which have regarded the precious metals as money for thousands of years, and sought to substitute an intellectual construct for the real thing. Now we are going to pay for that arrogance." Hugo Salinas Price

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Hey, bit-heads!

    What happens when the value of bitcoin vis a vis the dollar, stops rising?

    What happens next?

    Can you guess?











    CLUE: People will move their appreciations out of bitcoin into dollars - because dollars aren't so volatile short-term; and they're easier to spend.

    That means more bitcoins traded. Price starts to FALL.

    MORE people who made gains start getting out of bitcoin. MORE bitcoins to be had by others for less than they had traded.

    The term is "vicious circle." As in, circling the bowl. As Ponzi investors rush to get out, the value falls more and more. Because there IS no intrinsic value in bitcoin.

    And there will be no bank or government there to prop it up. There WILL be a lot of sniggering inside the FBI and Treasury offices.

    Good luck. I'd be making exit plans, like NOW.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by JustPassinThru View Post
    Hey, bit-heads!

    What happens when the value of bitcoin vis a vis the dollar, stops rising?

    What happens next?

    Can you guess?
    Stability? (As long as the FRN holds its stability, that is!)

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by JustPassinThru View Post
    Hey, bit-heads!

    What happens when the value of bitcoin vis a vis the dollar, stops rising?

    What happens next?

    Can you guess?

    Make up your minds. In one thread we're told bitcoin is deflationary and will continue to rise so everyone will hold it and not spend it so it can't be money. Now you're telling us it will eventually stop rising and go into free fall. Make up your minds.

    However to answer your question, I think people will switch into and out of bitcoins, dollars, euros, etc. commonly depending what they need. If you need to pay taxes and/or want to have your money lose value you'll move into fiat. If you need to buy something online at a discount, send money to someone cheaply and quickly, or keep your money in a store of value that isn't being inflated away you'll move into bitcoin. Generally unless you're speculating on price increase it's irrelevant what the price of bitcoin is since you can buy what you need and simply use it.

    Though really you're asking a question for a case that isn't likely to happen. Bitcoins are better than dollars and other fiat and will be used. Look how far they've come in less than a year. In another year or so this whole discussion will just seem silly because bitcoin will just be another way you can buy things anywhere online without having to worry about exchange rates, transaction fees, credit cards authorizations, etc.

    Probably the biggest use at first will be small businesses that either don't have access to credit cards or can't afford the margin hit of credit cards or paypal. Once it becomes widely available EVERY small business out there will jump on it because it gives them more profit in their pocket. It's happening already and I'm surprised there are still doubters. But again I think by next year the whole discussion will be moot.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    I admit I'm too dumb to wrap my head around the bitcoin concept, but I can't see how it's a ponzi. Unless I'm missing something, new investors are not paying off previous investors. I think it's more like the California gold rush, where early panhandlers nabbed the bulk of the easily found nuggets. Social security is a ponzi because it constantly requires new payers to pay prior obligations. Am I right?

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by ds_mustang View Post
    Make up your minds. In one thread we're told bitcoin is deflationary and will continue to rise so everyone will hold it and not spend it so it can't be money. Now you're telling us it will eventually stop rising and go into free fall. Make up your minds.

    However to answer your question, I think people will switch into and out of bitcoins, dollars, euros, etc. commonly depending what they need. If you need to pay taxes and/or want to have your money lose value you'll move into fiat. If you need to buy something online at a discount, send money to someone cheaply and quickly, or keep your money in a store of value that isn't being inflated away you'll move into bitcoin. Generally unless you're speculating on price increase it's irrelevant what the price of bitcoin is since you can buy what you need and simply use it.

    Though really you're asking a question for a case that isn't likely to happen. Bitcoins are better than dollars and other fiat and will be used. Look how far they've come in less than a year. In another year or so this whole discussion will just seem silly because bitcoin will just be another way you can buy things anywhere online without having to worry about exchange rates, transaction fees, credit cards authorizations, etc.

    Probably the biggest use at first will be small businesses that either don't have access to credit cards or can't afford the margin hit of credit cards or paypal. Once it becomes widely available EVERY small business out there will jump on it because it gives them more profit in their pocket. It's happening already and I'm surprised there are still doubters. But again I think by next year the whole discussion will be moot.


    You REALLY BELIEVE that bitcoin will remain priced at $1000-plus.

    Oh-kaaayyyy...

    If you DON'T think it will...then, what happens to it?

    If the value of something doesn't rise and doesn't stay the same, what does it do?

    That's right - it falls.

    And sellers who were in to ride the rise up, bail.

    Accelerating the fall.

    That's my reasoning. Do you have anything better to counter it with, than to say "It WON'T!!"?

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Yep, 'Easy to Spend' is the key, if it dont, it wont last.
    I'll be a Daisy if you do

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by JustPassinThru View Post
    You REALLY BELIEVE that bitcoin will remain priced at $1000-plus.

    Oh-kaaayyyy...

    If you DON'T think it will...then, what happens to it?

    If the value of something doesn't rise and doesn't stay the same, what does it do?

    That's right - it falls.

    And sellers who were in to ride the rise up, bail.

    Accelerating the fall.

    That's my reasoning. Do you have anything better to counter it with, than to say "It WON'T!!"?
    No, I don't believe it will remain priced at $1000. The current price is too low for a global currency. I think it's going over $10,000, possibly within a year or two.

    However if it doesn't get that successful and sticks around $1000 or even falls I don't think it matters. What does it matter what the price is? If you want something that can be had for bitcoins you get some bitcoins and buy that thing. The price of bitcoin didn't matter. People have been using bitcoins that way for a couple years despite the volatility.

    Besides, you keep assuming the only reason bitcoins exist is for speculation and only speculators are in bitcoin. You are wrong. Bitcoin is actually used--by transaction volume they're used around as much Discover card and more than Western Union and is nearing paypal levels. Look at this transaction volume chart and tell me bitcoin just sits around in speculators pockets waiting to be sold:

    Bitcoin Transaction Volume Chart (Note that the transactions on that chart do NOT include all the bitcoin trading happening in the many bitcoin exchanges. It is only transactions actually on the bitcoin blockchain where bitcoin is being used).

    Also that's just the digital currency and transaction system of bitcoin, it's much more than that. Bitcoin is a completely new way of handling trust and property issues digitally online--it impacts many spaces including trusts, wills, escrow, title, stock markets, etc. Here's a video of a guy going off for 40 minutes on all the various aspects of the financial system that can get impacted by what bitcoin is. I doubt you'll watch it but if you did you might start to get a glimpse of how much more than a speculative commodity bitcoin is and how much things will change because of it.
    http://www.youtube.com/watch?v=Cs6F91dFYCs

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Bitcoin has no practical utilization except for as an exchange media.

    It is interesting to see whether something that has no practical usage except for serving as exchange media has value or not. The answer is yes. Paper money carries value as exchange media, although paper money has no intrinsic value.

    As exchange media, BitCoin definitely beats paper on many unique properties. It can not be printed arbitrary like paper money does. It provides the protection and secrecy that paper money can not provide. It is under control of no government or any individual entity. For that, BitCoin is superior than any paper money.

    The only catch is mathematically, you can invent an infinite variety of BitCoin like digital currency. Does that render the value of any individual digital currency to zero? We shall see.

    In principle, BitCoin should not cost more than the cost of mining it, i.e., the cost of running a super computer to find the next BitCoin. But then, it is becoming ever more difficult to discover a new BitCoin as it costs more and more computation power to do that. On that, the price will continue to inflate for the time being.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Getting money out of oppressive regimes or countries with currency controls seems like big potential for bitcoin. What are the options in these situations? Carrying gold - easy to confiscate. Carrying cash - easy to confiscate. Wire transfers - easy to control. Diamonds - hard to sell, etc.

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  29. 12-01-2013, 03:18 PM


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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by ds_mustang View Post
    His entire premise is based on the notion bitcoins won't be used. That will be quite easy to observe if its true or not. At the moment it's quite easy to see bitcoins being used. They are already being used in transactions volumes larger than Western Union and near Discover card volumes. And next year I think will be a breakout year for merchants accepting bitcoin all over the web. So we'll see if Mr North is right or not.

    In the meantime you can watch bitcoins actually being used in real time:
    https://blockchain.info/new-transactions

    Or listen to live bitcoin transactions making music here:
    http://listentobitcoin.com/

    This must be the most active "non-used" ponzi ever.
    The bubbles are a nice touch.


    This link is very interesting...thanks button is takin lunch.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by Silverbach View Post
    Bitcoin has no practical utilization except for as an exchange media.
    The bitcoin protocol is so much more than an exchange media.

    Short video to show the point:
    https://www.youtube.com/watch?v=fmFjmvwPGKU

    Long video to show the point:
    http://www.youtube.com/watch?v=Cs6F91dFYCs

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by Silver View Post
    Getting money out of oppressive regimes or countries with currency controls seems like big potential for bitcoin. What are the options in these situations? Carrying gold - easy to confiscate. Carrying cash - easy to confiscate. Wire transfers - easy to control. Diamonds - hard to sell, etc.

    Think why BitCoin value suddenly exploded up in recent months, as Chinese suddenly discovered BitCoin?

    A lot of Chinese are desperately looking for ways to bring money out of China and into overseas! I suspect that BitCoin has become a newly invented way of getting money out of China.

    They have been very creative in inventing all sorts of ways to transfer money:

    They go to Macao and gamble big in casinos. They could lose a few million dollars in one bid and then bid again and lose again. Some how 90% of their bids were losses but they continue happily and don't care they lose more. You would thought an average gambler would lose and win by a 50%/50% chance? How could they lose 90% of the time. How could they lose their mind to keep losing money if the lucky star is not on their side? Guess what, the money has been transferred.

    And look at all the reports of overseas acquisitions of Chinese corporation. Statistics show that 90% of such acquisition transactions are proven to be money losing disasters. You would thought that when company A wants to acquire company B. They would wait till the stock of company B reach a new all time low, and then take the advantage to buy cheap? But Chinese corporations seem to do the exact opposite. They lift up the acquisition target to all time high and then pay the highest bid price to acquire, and then later they recognize the deal as money losing deal and sell at deep loss. Why are the Chinese so stupid? well, money is transferred.

    And all sorts of ridiculous things like that nature. If you notice the end results are always that money goes out of China and into the pockets of the overseas wives and children of these rich and powerful people in China, then you understand why. It is a corrupt system to the bone.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    The secondary market for digital currency is already taking off. Some of them have had huge gains in the past month. Will this turn into Beta vs Vhs?
    The truth is this: The march of Providence is so slow and our desires so impatient; the work of progress is so immense and our means of aiding it so feeble; the life of humanity is so long, that of the individual so brief, that we often see only the ebb of the advancing wave and are thus discouraged. It is history that teaches us to hope.

    Robert E. Lee

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Just bought groceries at Whole Foods Market with bitcoin.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    I devoted a whole chapter of my novel, The Cadet -- The Adventures of a New World Pioneer in the 17th Century to bitcoins... oop, I mean tulip bulbs.

    The Tulpinwindhandel. (literally: tulip wind trade) Summer of 1636. People were selling each other tulip bulbs... and the price kept going up and up and up, until a "Semper Augustus" tulip bulb would sell for the equivalent of hundreds of thousands of dollars. And on one cold morning in April of 1637, it suddenly became difficult to sell the Super Bulbs like the Semper Augustus and the Viceroy.

    In one single day (the 27th IIRC) the price dropped a bit; a Semper Augustus could still be sold... for a tankard of beer!

    Those who had just barely gotten clear before the bust were fabulously rich. But they amounted to less than a percent of the investors. The rest? They had a rather flat-tasting onion... <-- actually, just like bitcoin, not even that. All they had was a promissory note giving them ownership (think: bitcoin "wallet").

    I wrote the novel a coupla years before bitcoins even became a word. But you could substitute bitcoins for tulip bulbs and you'd have the exact same chapter and the exact same fiduciary concepts explained.

    There's a couple of scenes depicting an actual sale (I used the real bill of sale) -- and the buyer was incredibly self-satisfied and buoyed up because he had gotten his tulip bulb for what he considered a steal. Buy my book, read what made up the bill of sale. Amazing amount of valuables. So like some here, he was... well... vocal and smug.

    Because he was "in" early.

    The Tulpinwindhandel and bitcoins were/are not a Ponzi scheme; that is a different animobile. Tulipbitcoins are just "perceived" to have value. And because the "perception" spread (that is where we get the term "Bourse" to describe a stock market, BTW), the (*AHEM*) "value" rose until one day it didn't.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by QuantumQrack View Post
    Just bought groceries at Whole Foods Market with bitcoin.
    It's going to kill you! You will die from the deadly tulip fungus! All of your Cheerios will be gone overnight! Don't you know that Whole Farms is run by the NSA? Some Italian guy will sneak thru your back door and take your potato chips! You will look like a fool with an empty refrigerator! You'll be wiped out, and I will laugh at you, ha ha ha! because you didn't listen to me. I know all about these things! I heard it on the internet somewhere! You'll be sorry!!!

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Tulips are flowers. We know what they are and what they ever will be. Anyone in the tulip mania could've compared the cost of those bulbs to the cost of similar bulbs/flowers and seen it was a mania.

    If you compare bitcoin to things it is similar to, e.g. gold, credit card transaction networks, global currencies, etc., you discover bitcoin is significantly under priced compared to its peers (for good reason as it's still developing). And yet if you compare the features of bitcoin to the features of its peers, it does things cheaper, faster, without central authority, or simply does thing its peers can't. So does that seem like a bubble, or the market rapidly pricing in value and potential? And keep in mind what will come from the bitcoin protocol isn't even fully known yet. It's not a flower; we don't know exactly what it will be yet. But we do know it's very disruptive to the financial arena.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    They need to come out with a prepaid card for BTCs.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    De Nile...ain't a river in Egypt.

    It's washing away good judgment here, at least in some corners.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by ds_mustang View Post
    Tulips are flowers. We know what they are and what they ever will be. Anyone in the tulip mania could've compared the cost of those bulbs to the cost of similar bulbs/flowers and seen it was a mania.
    I think you need to read Walt's book. The bulbs were initially rare, as they had a virus which caused verigation. Royalty favored them and there were none similar.

    It is not so different from Bitcoin. One of the thing to understand about recognizing a bubble... if it is obvious to the average bloke, it doesn't work. Bitcoin has a simple edge... obscurity. Few people understand Bitcoin in depth. Those who do will take those who don't. It's a simple game really.

    Bitcoin has already paid all the dividends it's creators will ever need, or be able to spend. The masses may continue to prop it for a while, and the owners will maintain the facade, but make no mistake; Bitcoin will crash and the little sheople will be fleeced yet again.

    Such simple games, one must wonder how so few see. It's as though they like being sheared.


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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    This thread is proof we are in the very earliest stages of this movement. No one really understands the implications of what is happening right now. An anonymous global electronic currency and payment system that can't be shut down, taxed, or regulated by any government. That's what bitcoin is.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by Ahillock View Post
    +1 Mr. North nails it.

    Cubedface, Zed and mister Mcbiff need to educate themselves as they don't know what a ponzu scheme is if it hit them upside their head.
    Listen, it can't be a bubble and a Ponzi scheme at the same time. If only Simon Templar were here to help. He'd know what to do!

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by anotherdave View Post
    It's going to kill you! You will die from the deadly tulip fungus! All of your Cheerios will be gone overnight! Don't you know that Whole Farms is run by the NSA? Some Italian guy will sneak thru your back door and take your potato chips! You will look like a fool with an empty refrigerator! You'll be wiped out, and I will laugh at you, ha ha ha! because you didn't listen to me. I know all about these things! I heard it on the internet somewhere! You'll be sorry!!!
    Thanks for the chuckle!

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by Unca Walt View Post
    I devoted a whole chapter of my novel, The Cadet -- The Adventures of a New World Pioneer in the 17th Century to bitcoins... oop, I mean tulip bulbs.

    The Tulpinwindhandel. (literally: tulip wind trade) Summer of 1636. People were selling each other tulip bulbs... and the price kept going up and up and up, until a "Semper Augustus" tulip bulb would sell for the equivalent of hundreds of thousands of dollars. And on one cold morning in April of 1637, it suddenly became difficult to sell the Super Bulbs like the Semper Augustus and the Viceroy.

    In one single day (the 27th IIRC) the price dropped a bit; a Semper Augustus could still be sold... for a tankard of beer!

    Those who had just barely gotten clear before the bust were fabulously rich. But they amounted to less than a percent of the investors. The rest? They had a rather flat-tasting onion... <-- actually, just like bitcoin, not even that. All they had was a promissory note giving them ownership (think: bitcoin "wallet").

    I wrote the novel a coupla years before bitcoins even became a word. But you could substitute bitcoins for tulip bulbs and you'd have the exact same chapter and the exact same fiduciary concepts explained.

    There's a couple of scenes depicting an actual sale (I used the real bill of sale) -- and the buyer was incredibly self-satisfied and buoyed up because he had gotten his tulip bulb for what he considered a steal. Buy my book, read what made up the bill of sale. Amazing amount of valuables. So like some here, he was... well... vocal and smug.

    Because he was "in" early.

    The Tulpinwindhandel and bitcoins were/are not a Ponzi scheme; that is a different animobile. Tulipbitcoins are just "perceived" to have value. And because the "perception" spread (that is where we get the term "Bourse" to describe a stock market, BTW), the (*AHEM*) "value" rose until one day it didn't.
    What differentiates the tulips bulbs from gold but not from Bitcoin? This is where I have trouble understanding. (Please don't simply tell me it's a stupid question I really would like to understand)

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    So you could have exchanged $2USD for 1 Bitcoin a year ago and now you have to exchange $1000USD for that same 1 Bitcoin - - seems like a pretty steep rate of appreciation to me. What would have prompted this skyrocket in "value"?

    And just out of curiousity if an EMP hits tomorrow and wipes out power, what happens to your Bitcoins?

    Maybe the Bitcoin apologists could explain?

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    A ponzi scheme is a specific type of scam. You could make an argument that a lot of investing is similar, where you everyone buys stocks and prices go up, and then whoever is left holding the stock when everyone else leaves gets stuck losing money. However, it isn't very accurate to call that a ponzi scheme though.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    I think the main line to ponder from Mr Norths Writings, which is also a very very popular economics phrase is, "THIS TIME ITS DIFFERENT!"

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    I understand the concept of bitcoin, what I don't understand is- who are the market makers? If I had 1,000 bitcoins and wanted to trade for USD, who would have the cash?

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by Area51 View Post
    So you could have exchanged $2USD for 1 Bitcoin a year ago and now you have to exchange $1000USD for that same 1 Bitcoin - - seems like a pretty steep rate of appreciation to me. What would have prompted this skyrocket in "value"?

    And just out of curiousity if an EMP hits tomorrow and wipes out power, what happens to your Bitcoins?

    Maybe the Bitcoin apologists could explain?
    Are you talking about an EMP on a global scale? That would be quite devastating but I am not relying on Bitcoins for my survival. That being said, I think eventually all would return to normal and the Bitcoin network would resume functioning. The Bitcoins are secured by the power of the network and each set of transactions is inextricably linked to the previous one forming a chain as strong as the network that currently supports it. It could be broken but you need a stronger network to do that so in the EMP scenario, nothing destructive could happen to any Bitcoins already in existence. If the power never came back or it was a sufficiently powerful EMP as to wipe everyone's hard drive, then all would be lost. That seems more a like a doomsday scenario.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Mr. North makes some very good points. He also makes some very bad points. We are NOT moving from a barter economy to a monetary economy. The monetary economy is already deeply entrenched in people's minds all around the world. Division of labor is a non-functional standard by which to judge monetary changes because the division of labor already exists at a level where fewer divisions can be found, are necessary or even practical. At this point I would go so far as to say that the division of labor is a false standard in this context.

    Another point that Mr. North dwelled on is mania and it's attendant instability of monetary value. I have to agree that at some level mania does exist and is definitely in operation. However, there many things Mr. North overlooked when coming to this classifying conclusion of a mania. Chiefly is that Bitcoin is NOT like any other currency on earth.

    The rich who typically fuel such manias simply cannot walk into a broker's office and plunk down a few million or few billion and change the market like they can with dollars or euros or yuan. No, they have to get in line like everyone else and can only buy what their currency will allow them to buy of available bitcoin at the reigning price of the moment. George Soros and ill Gates are SOL. They do NOT get moved to the head of the line when they knock on Bitcoin's door. They have to wait in line as their intended price/quantity target of opportunity passes them by. Awwww...too bad for them.

    So where's the manipulations of the market makers? Where's the special treatment afforded the banksters and their pals? Without such tools their power in the Bitcoin market is greatly reduced if not eliminated. It's time to get it up and they're without their little blue pills. No satisfaction for them tonight!

    So, is it really a mania? If it's not a mania, then what is it? If it is a mania then where are the manipulators and profiteers?

    Yes, Bitcoin appears to be a mania. Certainly there are people buying Bitcoin solely on speculation that they will turn it and make a killing in dollars or euros or yuan. But what of all those buying bitcoin and then using it like money to buy contraband or a car or groceries? Yes, I said groceries. At whole Foods as mentioned in a post above. Even I was amazed that this was happening already. Still, in all of this so-called "mania" I know of no one who has abandoned the dollar or euro or yuan in favor of Bitcoin or any other cryptocurrency. In fact, the people that I know are still in the 99%+ in the dollar. They're basically just dipping their toe in the water as it were. You couldn't even call it dabbling! Most of them are doing it as a form preparation for when the dollar fails which is their #1 financial concern.

    As far as Bitcoin being an imaginary currency, nothing you cn hold in your hand...ummmmm...are not dollars essentially the same thing? Each and every person here at GIM II will readily admit that a dollar is nothing more than a unit of debt. How is that real currency? Each and every person here at GIM II knows that dollars are nothing more than the product of the fed reserve chairman pressing a 1 on his/her keyboard followed by however many zeros chosen to to type in after the 1. Yes, this also means that dollars are digital. Think of all the billions transferred between banks every day over their networks and the internet. How many of you have ever walked into an Amazon store and bought something with cash in fist? Everyone here at GIM II knows that the dollar is backed by nothing. So, tell me again how that is different than Bitcoin.

    Let's face it, no one alive on this planet today has ever worked with a NON-fiat currency that was NOT a product of central banks nor manipulated by banksters and their comrades. We really do not know what free markets look like because outside of an auction we've never lived in free markets. sure, we have historical tales of tulips and Mississippi manias as well as Assignats and continentals and Deutschmarks along with the dreaded Charles Ponzi. All we really know of these things is that everybody involved got screwed royally. The monetary lessons remain quite few and very befuddled.

    Here we are at nearly the 100th anniversary of the federal reserve and IT IS time for a change of currency. Is Bitcoin or some other cryptocurrency the answer? Maybe. Truly only time will tell. We've been at this currency thing for much more than a thousand years and we still have NOT learned our lesson in how to manage it. Perhaps it's time to simply stop trying to manage it and simply let it be as the markets will have it be. Bitcoin may be the first step down this path.
    Make mine a vodka and vicodin latte.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by xhomerx10 View Post
    Listen, it can't be a bubble and a Ponzi scheme at the same time. If only Simon Templar were here to help. He'd know what to do!
    A bubble is where prices rise disproportionate to the underlying value. A Ponzi scheme is where those at the bottom "buy in" to provode "revenue" to those higher up.

    Bitcoin doesn't fit either exactly, but it's closer to a Ponzi scheme. A bubble assumes underlying value. Bitcoin is a construct; it's masquerading as money/currency but it lacks the characteristics.

    It's being pumped right now...get some because their value's gonna increase! A signature characteristic of a Ponzi scheme...pump up the value based on emotion and expectation and larger pools of fools with no underlying value of any sort.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by Kyler View Post
    I think the main line to ponder from Mr Norths Writings, which is also a very very popular economics phrase is,

    "THIS TIME ITS DIFFERENT!"
    Those 4 words crush more silver bugs dreams than any others. I would say it applies here too.............................

    But one of these days I'll be wrong.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by TheMadHatter View Post
    I understand the concept of bitcoin, what I don't understand is- who are the market makers? If I had 1,000 bitcoins and wanted to trade for USD, who would have the cash?
    Connection to fiat is not part of bitcoin. Bitcoins are mined into existence and then exist on their own to be exchanged for whatever, the same as gold.

    However to answer your question, if you had a lot of bitcoin and wanted to exchange for fiat you could open an account at one of several businesses that support bitcoin exchange to various fiat currencies. You could also be your own market maker and sell your bitcoin for fiat cash yourself to people in person.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Here we go with the buzzwords again.

    How much gold is in a bitcoin, again?

    Where is the value that bitcoin represents, stored? Fort Knox? Peking? Zurich?

    Nowhere? So a bitcoin has value because a desktop computer crunched down a meaningless mathematical problem and satisfied gatekeepers that it had done what it needed to do, to have a "bitcoin"? THIS is MONEY?

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by JustPassinThru View Post
    Here we go with the buzzwords again.

    How much gold is in a bitcoin, again?

    Where is the value that bitcoin represents, stored? Fort Knox? Peking? Zurich?

    Nowhere? So a bitcoin has value because a desktop computer crunched down a meaningless mathematical problem and satisfied gatekeepers that it had done what it needed to do, to have a "bitcoin"? THIS is MONEY?
    I remember a buddy of mine getting caught up in a similar "scam" in the 80's. He bought a 400 oz bar of silver @ $49 CDN per ounce. He was gonna buy a house with it one day but the Hunt brothers had other ideas - THEY were gonna buy more houses with it. In the end, the COMEX stepped in and changed the rules midstream - many people lost a fortune and my buddy had the worlds most expensive door stop. The hunt brothers thankfully got theirs too.

    In 1933 the gov't in the USA made it illegal to own gold and gold certificates under executive order #6102. Then they took it for $20.67 per ounce and stored it, gave it a nominal value and pegged their currency to it. One year later, they raised the value to $35 retained the profits in what they termed "Exchange Stabilization Fund" (it was over 2 billion dollars at the time) and thereby reduced the value of the dollars people were holding by 40% - overnight! It was essentially an overnight 40% tax on the US population. It wasn't until 1975 that Americans could freely trade in gold again.

    I might ask the same question THIS is MONEY?! My answer - yes. In fact, I believe that gold is the BEST money. It has had millennia to foster its reputation and it is ever so shiny and pretty.

    Don't discount Bitcoin because it is new and not well understood. It may never gain as wide an acceptance as gold and silver as a store of wealth but at this point, can anyone really say that with certainty?

    Let's give it 1000 years and then have another look

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by xhomerx10 View Post
    What differentiates the tulips bulbs from gold but not from Bitcoin? This is where I have trouble understanding. (Please don't simply tell me it's a stupid question I really would like to understand)
    No prob. Will try. But I yam typing with one fingle... I'd prefer you followed Ishkabibble's advice and get my book. $2.99 Can you afford it?

    Tulip bulbs: non-permanent vegetable matter with value ONLY in the eye of the beholder.

    Gold: A chalice, coin, plate, Radiant heat deflector, computer part, ad infinitum genuinely VALUABLE, MEASUREABLE, REPEATABLE uses... and it lasts forever, through wind, rain, fire, ad infinitum once again.

    Bitcoin: A theory? A thought? A computer result. An absolute known limit to how many can exist. Can evaporate forever from the universe in a millionth of a second with not even the residue of a rotting tulip bulb.

    So I guess technically, I would have to admit that those tulip bulbs could be eaten... or used as fertilizer... making them marginally more intrinsically more valuable than bitcoins. (But still in the same league.)

    Gold is not limited in how much can be found. When the last trillionth part of the last bitcoin is mined... that is it: the theoretical Dead End is here. But go down to Ow-strilia with a metal detector... you may find a 50-pound nugget. Go to Mars and mine that planet -- tons there, right?; ditto the Moon, abd asteroids and... everywhere in the universe you will find more: USEFUL, eternal, intrinsically necessary for our civilization to exist.

    Try this Differential Equations concept: Go to end points, and see what happens.

    CASE I: All Bitcoins suddenly disappear for some reason; several people will be seriously p!ssed, somr financially ruined... most of Humanity would not even notice!

    CASE II: Gold disappears suddenly for some reason; CIVILIZATION COLLAPSES, (bitcoins disappear!!), starvation and disease and death descend upon Humanity -- NOTHING works, d'ysee: ships cannot move, all communication ceases, trucks don't run, infrastructure dissolves to nothing.

    End points enable folks to see reality.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Gotta way with words there unca.
    Truthfulness - Benevolence - Forbearance

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  72. Post #47

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    What people forget though is that the market as a whole is going to decide the price of something, and 98% of people do not give a flying **** about intrinsic value.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by TheMadHatter View Post
    I understand the concept of bitcoin, what I don't understand is- who are the market makers? If I had 1,000 bitcoins and wanted to trade for USD, who would have the cash?
    Funny thing, one of the first Bitcoin traders, back before Mt.Gox even, was a guy named the Mad Hatter. Honest guy, I did a bit of business with him. I was hoping that you were him.

    I just Googled "Bitcoin FAQ" and found http://bitcoin.org/en/faq. Could be something in there.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by ds_mustang View Post
    I hear that world wide web ponzi scheme from the 90's is gonna collapse any day now too.
    Anyone holding google stock had better get out while they still can.
    Last edited by Hope+Change; 12-02-2013 at 12:31 PM.

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    Default Re: Gary North: Bitcoins: The Second Biggest Ponzi Scheme in History

    Quote Originally Posted by Area51 View Post
    And just out of curiousity if an EMP hits tomorrow and wipes out power, what happens to your Bitcoins?
    The largest and strongest EMP outside of a nuclear detonation is a lightning bolt...so...

    Oh, and said EMP would have to destroy every copy of the blockchain (ledger) simultaneously. Currently there are over 200,000 copies distributed worldwide.

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