Indeed this is a new form of Ponzi scheme, and I agree with the authors use of the "quacks-like-a-duck" model.

> But if one wants to know whether bitcoin is a good investment, or just an old type of investment fraud with a new coat of paint, the legal definition is irrelevant. One must use a quacks-like-a-duck definition, that describes the mechanism through which fools and money are separated and the reasons why it is a fraud.

It's the world's first decentralized Ponzi scheme, where each participant cell need not understand the whole picture to achieve the end result. It's a financial cancer.

>No. They instead take your money, buy coal, and burn it. Nothing is left.

Yes, miners “take your money” but only a portion of every transaction as a service fee for processing your transaction. This is a payment for a service, the value of which is predicated on a service immediately provided rather than a promise for future value.

Also “nothing is left” is also a false statement as most of the bitcoin/money processed by miner’s isn’t going to them.

Also, every time a miner processes a block of transactions they receive newly minted bitcoin from something called a Coinbase transaction. This transaction will not keep getting doled out since the protocol enforces that there can only be 21 milllion bitcoin minted, but it provides extra incentive for the money poured in for the time being.

In other words, money is not “burned” it’s being exchanged into a different commodity. If this commodity fails to hold value over the long run then sure there’s nothing left in terms of value but I’d say the same risks exist and have been realized by government issued currencies. Look at countries like Venezuela for example.

I have a lot more reasons on why it’s improbable Bitcoin will ever plunge to 0 in value but in the spirit of clearing up some misconceptions I’ll leave that for another comment.

The bulk of miner income is mining new bitcoins. And the money received from that goes to burning energy mostly.

So if someone new buys a miner btc at $54,000 today, that represents money paying for coal that was burnt. It isn’t profits and the money is gone. Effectively you are transforming $54,000 into burnt coal and a bitcoin.

Eg:

1. Miner expects $54,000 bitcoin sale. Takes $53,000 loan, buys coal, burns it. Gets bitcoin

2. Received $54,000, gives 1 BTC. Pays back loan

If you ask for your $54,000 back, it isn’t there. It’s gone.

(I know mining doesn’t work so precisely but that’s just a thought experiment to illustrate the dynamic)

So unless you burn cash in a fire or counterfeit money, the only entity that can create and destroy money is the Federal Reserve.

Everyone else can only create "value". So I can combine two widgets together to make a third widget and sell it for less than you could do it. That's "value" in a nutshell.

So on an exchange balance sheet (stockmarket, coinbase, etc), dollars aren't created or destroyed, just transferred for something of perceived value. So I trade one dollar for a fraction of AMD Stock, e.g. But the dollar goes to whoever sold me AMD. The price of AMD stock can go up and down ("value") but the total dollars created or destroyed is always zero. Same is true with BTC.

Right, makes sense? Good.

So every transaction in BTC has a "cost" associated with it, where some "value" of BTC is transferred to miners. The miners spend money burning energy which removes "value" from the economy as a whole. Basically that means we had "X" many tons of fossil fuels left on Earth, but now we have slightly less because energy was "burned" for the transaction.

If I give you a ton of coal you can burn that for heat. But that removes the coal permanently from the world. OTOH, if I want to make a cryptocurrency with 10^86 coins and if I do that a billion times over, well, I have a limitless supply of cryptocurrency.

If you look at the situation as a flow of dollars you see an equation that looks like this:

BTC bought in dollars = BTC Sold in dollars + Mining Costs in dollars.

So while dollars flow back and forth, some have to go to the miners to burn physical energy. That incurs real world costs. So "value" has to be extracted and transferred to the energy companies to "burn" energy. Even if dollars aren't exchanged in the transaction, "value" has to be extracted regardless for confirmation. That value is "burned" by consuming non-renewable energy.

You might say that's exactly what credit card transactions are, (which is not incorrect) but the burn rate of Visa per transaction is much less than BTC.

This shows the cost of 1 BTC transaction vs 100K Visa transactions.

https://www.statista.com/statistics/881541/bitcoin-energy-co...

What this means is that if you reduce the "burning" cost per transaction in BTC, you can keep the value in BTC, and I'll be less cranky about it, since you're not hurting the environment.

> So unless you burn cash in a fire or counterfeit money, the only entity that can create and destroy money is the Federal Reserve.

I think this is generally false as a premise depending on your definition of “money”. If your definition of money is equivalent to US dollars then I guess this could be interpreted as correct, but other countries have “money” that isn’t issued by the Federal Reserve (the Federal Reserve being what we refer to as the US banking system)

> The price of AMD stock can go up and down ("value") but the total dollars created or destroyed is always zero. Same is true with BTC.

I don’t understand why you’re comparing the “value” of a stock or bitcoin with the “amount” of dollars. A fair comparison would involve the value of the US dollar, which is subject to change (take a look at the Forex market to see people capitalizing on that every day).

> The miners spend money burning energy which removes "value" from the economy as a whole

“Burning energy” is not removing value, it’s providing value by means of strengthening a proof of work blockchain. Whether that’s worth something to you is irrelevant to it being valuable to others.

> If I give you a ton of coal you can burn that for heat. But that removes the coal permanently from the world. OTOH, if I want to make a cryptocurrency with 10^86 coins and if I do that a billion times over, well, I have a limitless supply of cryptocurrency.

It seems like you’re saying scarcity implies value here. If that is what you’re implying, this arguments starts to take the form of a “straw man”. Bitcoin is not unlimited. Part of Bitcoin’s whole appeal is that there is a limited quantity of it to go around. Grouping Bitcoin with any other random cryptocurrency without that limitation will make any argument related to it a moot point.

> You might say that's exactly what credit card transactions are, (which is not incorrect) but the burn rate of Visa per transaction is much less than BTC.

I will agree that the amount of electricity to process a transaction on the Visa network is a lot lower than the energy required to run the Bitcoin infrastructure, but that energy just happens to be the price needed to pay for a decentralized proof of work blockchain. Even if you subjectively don’t believe Bitcoin is worth the value that’s spent to maintain its infrastructure, other people do and that’s reflected in the current economy.

> I think this is generally false as a premise depending on your definition of “money”.

Banks, exchanges (BTC or stock), and markets in the US all use dollars. So dollars it is.

"Value" can be represented by "money", but also by widgets, hay bales, labor, corporate stock, etc. AMD stock has "value" but is not "money".

> I don’t understand why you’re comparing the “value” of a stock or bitcoin with the “amount” of dollars

Dollars are transferred, but never created (unless you're the Fed). You "make money" by creating, or holding something of value and selling it. But you are not actually printing dollars -- really you're exchanging dollars for value.

Money doesn't have to be dollars it could be the North Korean Won, the Iraqi Dinar, Russian Rubles, etc, but it helps to have a stable currency to measure value. You could, yes, pay in Gold if you so desired.

> “Burning energy” is not removing value, it’s providing value by means of strengthening a proof of work blockchain. Whether that’s worth something to you is irrelevant to it being valuable to others.

That's where the disagreement is, right? I'll get to this in a minute.

> Bitcoin is not unlimited.

Today it is limited. It may change in the future. But more to the point, the original 21 million BTC came from thin air in the first place. There's only an "artificial" limitation in that people agree there will only be 21 million, and not a physical limitation.

People can't just code more coal or copper out of thin air.

So now the question is, how do you measure value?

> Even if you subjectively don’t believe Bitcoin is worth the value that’s spent to maintain its infrastructure, other people do and that’s reflected in the current economy.

Therein lies the problem.

All for-profit corporations want cash inflows that are greater than cash outflows. Corporations create things of value that other people or corporations want.

Profits must be objective, not subjective. "Value" can be subjective, sure, but profits must be objective.

So where do we find objective value in BTC? What about BTC drives economic efficiency?

Visa provides a bunch of services to merchants and customers. Yes they take a percentage of the transaction, but corporations realize the fee has value, since they don't have to do billing, fraud management in the VISA system, reconciliation, dealing with multiple banks, bad checks, etc etc etc. Those things have a direct measurable impact to a business, because they're cash outflows.

When we look at BTC we see money exchanging hands for BTC plus some money going to miners.

But what's more interesting is when money doesn't exchange hands, but when BTC is just transferred (like a gift). In that value must be extracted out of BTC in order to confirm the transaction because this needs to be converted to dollars to pay the electric bills.

Today most corporations that supported BTC have shut off BTC as a means of payment. The barriers of entry are high, and pricing BTC to the value of your goods and services is a hard issue since BTC fluctuates. That makes BTC hard to trust.

> but that energy just happens to be the price needed to pay for a decentralized proof of work blockchain.

No argument there, but I fail to see what huge advantage it has for businesses and the economy over Visa, say. The economic advantage for criminals OTOH is easy to see -- it just has to be less expensive than traditional money laundering.

But if crime is like 1% of all BTC use, and using it to pay for services is like 4% (numbers are pulled out of my ass to make the point) of BTC, then 95% of the perceived value of BTC right now is for speculation. E.g. Elon Musk isn't buying $1bn dollars worth of goods on BTC or Dogecoin.

The only way to make money on BTC then would be to create more demand for BTC. And that's certainly what it looks like from my viewpoint.

But in the end, if it's only purpose is speculation, well then we're burning a lot of real world resources for it -- hence "burning value".

> No. They instead take your money, buy coal, and burn it. Nothing is left.

Interesting, I never thought of it that way, and it makes sense.

Since money is not created or destroyed the balance sheet on inflows and outflows of BTC to dollars must be zero at all times. And some x% (which is variable) of it is transferred to miners which is the so-called "transaction" cost.

I guess there must be a point at which the bubble bursts, and that's when a run on BTC happens. At which point it should go swiftly down as the value of BTC has been taken out by the miners.

Yeah pretty much. Except the miners don’t take the money, they burn the money. Mining has low barriers to entry (more or less) so you’d expect low profit margins. And the major costs are energy (lost forever) and ASICs (unfit for other purpose)

So while most industries have costs that feed back into economy, mining costs are just burnt.

But yeah beyond that it’s just musical chairs. Depends entirely on inflows.

And those aren’t too high. Coinbase’s USD volume is $300,000,000-$1,500,000,000. And that’s buying and selling. You couldn’t sell the whole $1,500,000 and exit without crashing price. 2% depth negative is a bit over a million.

So with an apparent $1 trillion in value in the btc market, the exit door is thin.

I was looking for a graph that describes total transaction fees for the life of BTC in USD last night. Couldn't find one.

> Since money is not created

Isn't USD created? Thus BTC functions as a USD sink. As the USD economy expands BTC represents some claims on it. It's a store of value that automatically appreciates (by design basically).

If you're so certain short it. The amount of wealth you would gain by being correct is immense. You should be spending every waking moment attempting to predict it.

Something about anti btcers I don't get you'll wax how smart you are and how everyone else is dumb. Just put your money where your mouth is.

This is dreadful advice that nobody should follow.

(1) Shorting has a completely different risk profile than going long. If you're short, you can lose an infinite amount of money. If you're long, the most you can lose is what you put in. Unless you're familiar with what it means to take a short position in traditional markets, for the love of God don't do it in crypto.

(2) The market can remain irrational longer than you can remain solvent, and Herbalife has been chugging along since 1980 - in spite of the widely publicized 5-year-long short Bill Ackman took. Even if the shorts are right, timing it is extremely hard, and chances are you'll lose your shirt before then.

(3) Most exchanges that permit short positions are criminal enterprises, all the major non-US ones are under investigation. Binance is under investigation by every major world financial authority including the Cayman Islands. They'll require you post collateral in crypto as well, which adds yet another layer of counter-party risk. Even if you're right, and you time it right, a collapse would likely wipe out Binance (or your collateral) - or it wouldn't and they just wouldn't pay you out, SFYL.

(4) All exchanges have a huge interest in seeing the game continue, and are more than likely colluding to keep the price up.

Most of us bears believe that Bitcoin exchanges are crooked Mob casinos - entirely in isolation of the fundamental Ponzi nature of the underlying asset. What you're suggesting amounts to telling someone who believes the casino is crooked to bet on red instead of black. The only way to win is not to play.

[edit] Yes, you can short CME futures (with massive 200% collateral requirements), yes I've done it, yes I've made money, not you shouldn't. Nobody should.

WOOOSH The point is that it's terrible advice. My point is people who espouse how smart they are about something should put up or shut up.

1.) there are a multitude of ways to you can do this on a decentralized exchange DYDX as well. Or a Mercantile exchange like BITMEX.

2.) Funny you should bring up Bill Akman he publicized his short position, and another investor took a counter bet to him. That investor so happened to do it out of (speculated) spite. So not really a good example but since we're here Herbalife was investigated and not found to be an MLM, although I'll grant you that the SEC came RIGHT up to the line in calling them an MLM scheme.

3.) I'll move past the criminal enterprise portion as that's for courts to decide. With respect to binance specifically there are multiple ways to go short I'll post the straight forward versions. Cash settled perpetual swaps, Coin settled perpetual swaps, Put option contracts, Margin shorting. The way I would recommend people short bitcoin is cash settled perpetual swaps, you will be paid out as there are insurance funds that are VERY LARGE you can see what they are, that will pay out winners should losers positions can't be sold to the market.

4.) So does every exchange with respect to the market they serve, the smart exchanges actually want to be price neutral as they view as a business, both FTX and Binance CEO go on the record about this.

So you don't want to short BTC but you still think it's a ponzi scheme ... report it as such to the SEC. Accept that's a loss cause because bitcoin is deemed as property, furthermore a commodity and thus regulated by the CFTC.

I'll finish about the crooked casino portion... you can do this in a decentralized fashion with DYDX or another de centralized exchange. EVEN IF you didn't want to take the time to do that. RIGHT NOW you can go to IBKR and take a short position on the greyscale trust which is essence a short position on BTC. FURTHERMORE if you think these exchanges are crooked and are doomed to fail. Take a short position on the exchange it self. Binance and FTX have their own coins (which are probably securities) that you can take short positions out on.

Final words, how long must a market remain irrational before your prospectus is wrong about the market being irrational? The paradox is if you answer infinity, you may be "right" but you're still wrong.

> WOOOSH The point is that it's terrible advice. My point is people who espouse how smart they are about something should put up or shut up.

I get your point, and I'm telling you that the thing they should do is nothing, not take a short position.

Your argument that "if you're so smart you should short it" is BS. If you're smart, you'd stay the heck away.

(1) Decentralized exchanges have all sorts of their own issues, from contract bugs to flashbots, to requiring crypto collateral that may also get nuked in the event of a systemic collapse due to Tether or Bitcoin.

(2) Herbalife is an MLM, but MLMs are not illegal. In fact it says so on their wikpedia page [1]

(3) Anything at any crypto exchange is subject to massive systemic risk.

> So you don't want to short BTC but you still think it's a ponzi scheme ... report it as such to the SEC. Accept that's a loss cause because bitcoin is deemed as property, furthermore a commodity and thus regulated by the CFTC.

The SEC is well aware of its structure, as is the CFTC. They'll act as they deem appropriate in due course, or they won't. But that's a non sequitur. It's actually the first item listed under common misconceptions.

>> That is not the legal definition of ponzi in country X. The legal definition is relevant to understanding the legal implications: can anyone in Crypto Space be prosecuted for running/promoting/aiding that scheme in country X? But if one wants to know whether bitcoin is a good investment, or just an old type of investment fraud with a new coat of paint, the legal definition is irrelevant. One must use a quacks-like-a-duck definition, that describes the mechanism through which fools and money are separated and the reasons why it is a fraud.

> FURTHERMORE if you think these exchanges are crooked and are doomed to fail. Take a short position on the exchange it self. Binance and FTX have their own coins (which are probably securities) that you can take short positions out on.

At the same casino, taking a short against the casino at the casino is the worst plan I've ever heard. If they go under they won't pay you out. The entire crypto ecosystem is one giant distributed casino. Why would you say crooked exchanges are doomed to fail - and on any particular time horizon?

> Final words, how long must a market remain irrational before your prospectus is wrong about the market being irrational? The paradox is if you answer infinity, you may be "right" but you're still wrong.

This is a total non sequitur.

Nothing you've said is representative of the way markets actually operate here in reality, and you've provided incorrect and dangerous advice.

[1] https://en.wikipedia.org/wiki/Herbalife_Nutrition

> Something about anti btcers I don't get you'll wax how smart you are and how everyone else is dumb. Just put your money where your mouth is.

I don't have infinite money to keep propping up my short positions until this thing collapses. That's the reason, not because I don't want to put my money where my mouth is, it's because I don't have enough money to see the pay off.

It's not that hard of a concept to grasp, I believe...

"Markets can remain irrational a lot longer than you and I can remain solvent." -- A. Gary Shilling

Nassim Taleb pointed out that if you have no 'skin in the game' your opinion is actually less than worthless.

Worth considering...

If you are long bitcoin, you hold bitcoin. If you are for some other asset vs bitcoin, you hold that asset and not bitcoin.

Some things are simply tradeable, and his advice is not “throw money at the owners of a fraudulent casino to say you are short”

Nassim Taleb himself wrote a paper arguing Bitcoin’s value is zero and sold all his Bitcoin. I do not believe he believes it is his moral duty to open a Binance account and make a short on a Tether Exchange

That's true and technically anyone that doesn't have bitcoin (or a bitcoin owning entity) in their portfolio has a short position open.

So far, that 12 year short position has been a disaster for all of the people (literally every single person) on the planet.

> Whereas virtually 100% of all money invested into crypto has been burned by miners. This is pretty easy to model.

People like Bitcoin's provable global ledger and this is where the value lies. The value is not burned, it's embedded into this ledger.

In some religious rituals, devotees offer luxury items to gods to appease them. These are items like new clothes, food, maybe even non-metallic jewelry. These are subsequently burned on a pyre by the way of offering them to the gods. Bitcoin is like that, only now you have a receipt on the blockchain. I like it.

The value is not embedded in the ledger. Miners need to keep mining for all of eternity to maintain the security of the ledger. The featured article explains this point quite well. Ask yourself what would happen if miners stop mining?

If miners were to stop mining the difficulty (the computing power needed to mine blocks of transactions) would drop and people like me would start mining. So where did all the existing work go? It went into improving the security of the chain that my mining program is adding blocks to. That basically means that for someone to completely rewrite the provenance of all the bitcoin before the point where miners stopped mining, they’d have to replicate the same amount of work that was originally put into making that history. With less people of ordinary means working on the chain, the security of the blocks generated will be decreased. This is because it would then be easier to launch attacks on the chain and erase history and double spend, but the community could easily be rebuilt to a point where it is no longer feasible for a malicious actor to compete with the miners again.

> People like Bitcoin's provable global ledger and this is where the value lies.

What real world value has this brought?

The ability for the Chinese rich to get money out of their country. For one.

And for another, it allows ransomware gangs to much more easily extract payments from their victims as well.

> People like Bitcoin's provable global ledger and this is where the value lies. The value is not burned, it's embedded into this ledger.

Aren't you just stating that Bitcoin has absolutely no intrinsic value?

What is "intrinsic"? Nothing has intrinsic value.

Gold has inherently good conductivity, extreme malleability and pretty good chemical resistance. I would call those intrinsically valuable traits.

Likewise a whole slew of physical goods, who have built-in traits due to what they are that make them (on some level) valuable.

Bitcoin only has value due to a shared hallucination.

Most of the value of gold is not due to those properties. Yet even for those properties, if you look close enough, it is shared hallucinations all the way down.

I think you'll also have a hard time explaining how "good conductivity" is fundamentally different from e.g. "resistance to tampering of historical records".

Bitcoin is only resistant to tampering of historical records if you have a continuous expenditure of compute to maintain that tamper-proofness.

In the absence of substantial compute resources dedicated to maintaining the longest fork, there is in principle nothing stopping anyone from changing a historic blok and rolling forwards from that.

The good conductivity is a base physical property, not really requiring any external investment of anything to be maintained.

By this definition, isn't for example USD a ponzi? Afterall, it is a Fiat currency now and not backed by a commodity. If I received wampum back that would offset it no? How does taxes/gdp protect you if taxes are of their self made up of USD.

Where people choose to throw their own money should be left to them.

However, I wish governments would ban regulated institutions from throwing peoples real money into non-governmental/undemocratic cryptocurrency.

If banks/govts want to get in on the action, they should perhaps start their own cryptocurrency/blockchain.

> ... Where people choose to throw their own money should be left to them.

Yes, unless it causes harm to the broader economy.

I explained this in a different reply lower down, but when enough people participate it can destabilize the entire financial system in the country. And if it takes down the USD, globally. Pardon the pasta, but in 1997, the entire economy of Albania collapsed because everyone started participating in Ponzi schemes. They even jailed their finance minister for trying to stop it, and it led to a civil war. The IMF had to air drop in big bags of money to bail the country out. [1] This is what is at stake.

[edit] > At their peak, the nominal value of the pyramid schemes' liabilities amounted to almost half of the country's GDP. Many Albanians—about two-thirds of the population—invested in them. When the schemes collapsed, there was uncontained rioting, the government fell, and the country descended into anarchy and a near civil war in which some 2,000 people were killed. [1]

[1] https://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.ht...

I agree with that.

What I meant was the governments at the minimum stop banks and financial institutions from legitimizing these.

So the blood washes away the diamond?