I hereby make a prediction: Bitcoins will go down in bitcoin not ponzi scheme madoff 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. My analysis is strictly economic. As far as I know, it is a legal scheme—and should be.
First, someone who no one has ever heard of before announces that he has discovered a way to make money. In the case of Bitcoin, 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. 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 bitcoin not ponzi scheme madoff 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 bitcoin not ponzi scheme madoff 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. 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, Bitcoin 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 best definition of money was first offered by Austrian economist Carl Menger in He said that money is the most marketable commodity.
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. Bitcoin not ponzi scheme madoff increases the division of labor. 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.
Bitcoin not ponzi scheme madoff is the central fact of money. Money is the product of the market process. It bitcoin not ponzi scheme madoff 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.
A monetary commodity is not easy to produce. The cost of mining is high. Money is slowly adopted by a large number of bitcoin not ponzi scheme madoff.
These participants use money as a means of exchange. 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. 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 bitcoin not ponzi scheme madoff future goods and services. It is useful in the facilitation bitcoin not ponzi scheme madoff exchange bitcoin not ponzi scheme madoff because its market value varies little over time. Now let us look at bitcoins. This is not money. This commodity is not being bought for bitcoin not ponzi scheme madoff 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 bitcoin not ponzi scheme madoff money, more people will buy it.
They are buying bitcoins because we are in the midst of a Ponzi scheme mania. This digital so-called money will not be used to facilitate exchange. This is the classic mark of Bitcoin not ponzi scheme madoff scheme psychology. People do not buy the investment for the benefits that the investment provides as an investmentin other words, because it is a capital asset.
They buy it only because it has gone up in price. They expect this to continue. People buy money because it has not fallen in price.
But it has also not gone up in price much, either. 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 bitcoin not ponzi scheme madoff midst of a mania, and they are gambling that the number of buyers will continue upward forever. Here is an economic fact: They are a bitcoin not ponzi scheme madoff economic resource. As the price of bitcoins rises, more fools will be lured into the market.
But this is a finite market. Bitcoins are not an bitcoin not ponzi scheme madoff 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. 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.
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. 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.
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