Cryptocurrency pyramid scheme

[Blackadder]

I don't understand why people can't see it's all one big pyramid scheme. The early 'adopters' pay small amounts of money for a big percentage of the total amount of 'coins', and the late 'adopters' pay large amounts of money for a small percentage of the total amount of 'coins'. And once people have it, they have every incentive to get as many people to buy it as well, because only then they profit.

[retina]

Originally Posted by Blackadder

I don't understand why people can't see it's all one big pyramid scheme. The early 'adopters' pay small amounts of money for a big percentage of the total amount of 'coins', and the late 'adopters' pay large amounts of money for a small percentage of the total amount of 'coins'. And once people have it, they have every incentive to get as many people to buy it as well, because only then they profit.

People can see it.

The currency only has value when it can be spent on things. As of now the main purpose appears to be to speculative, and try to make money from the new idiots buying into the hype.

If you are into illegal stuff then perhaps it has some spending value? Otherwise there isn't anything to buy.

Anyhow, I imagine the large coin holders are happily manipulating the prices to their own ends. Without any government regulations or oversight there is no one to stop them changing the price in any way they please. So if you do buy in then you had better hope the manipulators are being favourable to you today. And even better if you can get inside knowledge about what are their future plans for the price.

[storm5510]

Originally Posted by retina

People can see it.

The currency only has value when it can be spent on things. As of now the main purpose appears to be to speculative, and try to make money from the new idiots buying into the hype.

If you are into illegal stuff then perhaps it has some spending value? Otherwise there isn't anything to buy.

Anyhow, I imagine the large coin holders are happily manipulating the prices to their own ends. Without any government regulations or oversight there is no one to stop them changing the price in any way they please. So if you do buy in then you had better hope the manipulators are being favourable to you today. And even better if you can get inside knowledge about what are their future plans for the price.

I used to dabble in this and there is one thing I noticed right away. The entire system is geared toward the wealthy. I still occasionally look at the latest propaganda.

Recently, there are more avenues which make coins spendable. Certain sites, like Coinbase, allow linking to a person's bank account to deposit coins converted into U.S. currency. PayPal is introducing linkage to coin accounts, again to be spent as dollars. I imagine this process will expand as time passes.

There is a major downside. It is the load on the nation's electrical infrastructure. I read a few weeks ago that the average load for crypto mining is 21 Terra-watts. This is just in the U.S. No global figure was available. As this continues to grow, I can see a time not far away when rolling blackouts will be common in large metro areas, especially in hot weather. I really do not see how this can continue unabated.

[ATH]

I do not understand it either. Every time someone starts a new crypto currency that is at least moderately successful the inventors and early adopters literally get rich from nothing, just from the idea and from the gullible people buying in later.

I know all currencies only have value because we say/trust/believe they have, but at least most "normal" currencies are backed by countries, banks, gold reserves etc.
I know many people like crypto currencies exactly because they are not controlled by governments or banks, but the alternative is also scary in my opinion. The lack of control means the values fluctuate easily 500%-1000% within a short time.

I think you can actually buy real things for bitcoins for example. But imagine you buy, lets say, a new computer for bitcoins. But 1-2 months later you realize you can now buy the same computer 5x cheaper, I feel like you cannot use such a volatile currency in your daily life.

Also as far as I understand bitcoins cannot handle if millions or billions of people started using it instead of credit cards, the system cannot handle that high number of transactions, it is very slow. It takes up to 30-60 min until you can be 100% sure your transaction is actually valid, and that the part of the block chain your transaction is on actually was validated instead of other possible branches, that can happen before validation.

[storm5510]

I read earlier today that Bitcoin is increasing its mining difficulty by 6%, I believe it was. Who does this benefit, I wondered? Utility companies, for one. Those using ASIC's for Bitcoin burn more electricity for no return. Bitmain, the manufacturer of most ASIC's, see their product demands rise because more want to get a piece of the action, so to speak.

GPU makers benefit greatly as well. Take a look at the attached image I plucked from Reddit. This is a single person's attempt to participate. I do not know what this individual paid for all this, but I would guess well into five digits. I would say there is a very good possibility most of this will end up on eBay sometime down the road.

[chalsall]

Originally Posted by storm5510

This is a single person's attempt to participate. I do not know what this individual paid for all this, but I would guess well into five digits.

My personal opinion on this is if anyone actually wants to participate in the "game", buy (or short) some Bitcoin or some other currency. Actually trying to mine is a fool's endeavor.

[storm5510]

Originally Posted by chalsall

My personal opinion on this is if anyone actually wants to participate in the "game", buy (or short) some Bitcoin or some other currency. Actually trying to mine is a fool's endeavor.

I agree.

To date, mining has been called "proof-of work." There is one coin, called Ethereum, which is in the process of switching to "proof-of-stake." In their case, mining will become obsolete. No heavy-duty hardware will be required to participate. As I understand it, current coin holders will invest in the process. The larger the investment, the more profitable it becomes for the individual. It will use something called "validators" to generate new coins. These people are chosen randomly based on the size of their investment. Each is given one transaction to complete, then another person is chosen for the next. There is a limited window-of-opportunity to complete the process. If a person fails to complete their assignment, they are penalized, and the same transaction is sent on to another to validate. I think something like validation groups are in process. If one in the group seems to be lagging, another within the group can complete the task. These groups would consist of only a few participants. Perhaps five. All would profit equally.

This is a complex process and what I wrote above is just a brief overview of what I understand about it. There is far more which I cannot grasp.

As for cryptocurrency itself, I see it as the largest pyramid scheme ever perpetrated in the history of the world. Every pyramid has a "capstone" which sits at the very top. I have often wondered who occupies the capstone position in cryptocurrency. There has to be somebody.

[ATH]

I do not know about the other crypto currencies, but for bitcoins "mining" validates the new transactions, so if everybody stopped mining the whole system would not work.

The reward for "mining" is also getting smaller and smaller so you will have to pay transaction fee of currently ~$17 !!
https://ycharts.com/indicators/bitco...ransaction_fee

Some of the math behind it might be clever, but when I first learned about how the whole thing works (and ever since) the only thing I thought was: "What a horrible horrible system, that cannot really be how it works?!?". But unfortunately it is.
The whole bitcoin blockchain is up to 328 GB now!
https://www.statista.com/statistics/...ockchain-size/

Here are the 2 explanation videos I usually link, if you want to know how terrible the system is:
https://www.youtube.com/watch?v=Lx9zgZCMqXE
https://www.youtube.com/watch?v=bBC-nXj3Ng4

[a1call]

The concept of Money/(Cash/Currency) is only-about/more-than a thousand years old. It can not last much longer. It's only a matter of time before someone comes up with a replacement-concept that works. Bit-currencies are just some early attempts.
Civilizations have carried on and prospered for thousands of years prior to invention of money. It is not an absolute necessity.

ETA IMHO the shortcomings of bit/crypto-currencies is that they are still linked to the arbitrary/artificial/soon-to-be-obsolete concept of Money. Once they get to the root-objective of evaluation of commodities/work-performed/products/possessions it will all make sense.

[chalsall]

Originally Posted by ATH

I do not know about the other crypto currencies, but for bitcoins "mining" validates the new transactions, so if everybody stopped mining the whole system would not work.

Not my problem. Just shows yet another weakness (in Bitcoin, at least).

Originally Posted by ATH

Some of the math behind it might be clever, but when I first learned about how the whole thing works (and ever since) the only thing I thought was: "What a horrible horrible system, that cannot really be how it works?!?". But unfortunately it is.

Ditto. A beautiful thought experiment. But at least for the PoW attempts so far, they empirically just don't scale.

[a1call]

Originally Posted by ATH

I think you can actually buy real things for bitcoins for example. But imagine you buy, lets say, a new computer for bitcoins. But 1-2 months later you realize you can now buy the same computer 5x cheaper, I feel like you cannot use such a volatile currency in your daily Life.

How is that worse than volatility of money:


https://www.statista.com/statistics/...nflation-rate/

https://www.dailymail.co.uk/news/art...World-War.html


At least with cryptocurrency the volatility is not a factor of which ideology governs your locale.
ETA Unless we keep evaluating them in terms of money.