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Is Bitcoin a Ponzi Scheme?

In this episode, we provide a quick history lesson on Ponzi schemes. We then posed the question, is Bitcoin a Ponzi Scheme? If not, what risks does it face?

technical

5th February 2021

Table of Contents

Transcript

Episode overview

Ryan: Is Bitcoin a Ponzi scheme? In today’s episode we’re going to cover that and a lot more. So let’s dive in

What is going on everyone and welcome back to another episode of the quantum resistant ledger channel your video portal into the world of post quantum digital asset security. And today’s episode we’re diving into his Bitcoin a Ponzi scheme with me is our Director of Outreach at the URL strike. It’s awesome to have you with me, how’s your day going?

Michael: Good. Always glad to be back.

Ryan: Cool. Well, for those of you watching this, obviously with the title is Bitcoin a Ponzi scheme. Some of you may be yelling at the computer and saying no, it’s not. And maybe a few of you skeptics or fighters out there are saying, Well, is it a Ponzi scheme, so we’re going to dive into just that and today’s video so strike before we dive into me asking you the question and kind of picking this apart a little bit, I just want to give one minute of background on who Charles Ponzi is, what a Ponzi scheme is, and then that we’ll set up a little bit of a, you know, definition before we dive into it.

Quick History Lesson + defining what a Ponzi Scheme is

Ryan: So for those of you at home, a Ponzi scheme derives from a man named Charles Ponzi. He was born in 1882, in Italy, and Ponzi scheme is, you know, the fraud had been done before, but never on his level. So that’s why the term was coined after his last name. So what he did in the 1920s in the US is he had a fraud a scheme where he would lure investors in promising either, you know, 50% profits within 45 days, or 100% profits in 90 days. And the way he paid the early investors was with luring in new investors and Nick scheme kept going on. And he used what was called International reply coupons. So this was back in the day, we don’t really do this now. But you would, let’s say you had family back overseas in Europe, you’d send them a package, the International reply coupon would let them reply to you. So he had the scheme was that oh, you know, we’re going to have arbitrage and that’s how you’re going to make money. But the scheme went on for almost a year, I think he ended up stealing $20 million from investors in today’s money, that equates to about a quarter of a billion dollars. But that’s the premise of what a Ponzi scheme is, and that’s what Charles Ponzi is. So that is kind of the definition of a Ponzi scheme, you’re luring in new investors, saying that there’s an actual product or something of value, and you’re actually just paying the early people in if new people come in. So it’s a scheme. So I just wanted to go over a brief history lesson there. And with that strike, I want to ask you, is Bitcoin a Ponzi scheme? Or does it have any elements of that? I’d love love to dive into that.

Is Bitcoin a Ponzi Scheme?

Michael: Sure. So you know, it’s not gonna matter what I say at the everyone’s gonna always form their own opinion. Yeah. So but what I can do is, I’ll present my you know, my opinion. And then everyone else can decide. But if you did a really good intro, as far as what a Ponzi is, there’s a couple things that I would add. But I want to take one step back. And as you were talking, I realized that we weren’t talking is Bitcoin a bubble? That question didn’t come up. And I remember that that was quite a thing. For the, for quite a while now. But nobody’s really asked, I haven’t heard that I’ve heard the narrative get toned down quite a bit. So in the case of a bubble, I think that’s because of the you know, zero to $20,000, back down to three, and now, you know, into the 40s. And as many of us already know, you know, at the, from the tulip bulb mania, you know, one of the most famous bubbles, I mean, if you, if you look up bubble, you’ll see a picture of a tulip from, you know, from the 1600s. They have tulips where tulips were in such a bubble that they were selling for 10 times the annual income of a skilled artisan. And so 10 years of someone that was killed was the price. It’s it was insanity. But as we know, tulips never recovered. Right after at that point, I mean, there was there was never any such thing as having to work for, you know, average wage of 10 years for to buy a tulip so. So I think that that’s interesting. And the way the reason I’m bringing it back to that is because as we move forward with crypto, I expect that each one of these narratives will be shot and dead. Alright, so with that being said, Ponzi schemes, you covered a lot of it. But Ponzi schemes are based on really at the end of the day, they’re based on deception. Lies, misdirection. These are all these are all things that perpetuate the Ponzi. game until it eventually runs out. Bitcoins transparent, you can see the code, there is no deception, you can look at it, you can run your own node, you can have it be with you, you know, you can, everything, everything is there for you to see, though. So if that’s not transparency, you know, the the opposite of deception, then I guess I just, I just don’t know what it is. So, the other thing is to the money with the Ponzi scheme, you’ve got, you know, you have money, that’s pain. earlier investors, were using investments from future investors, and that money is the same money. Right? So, but with Bitcoin, you the money is not it’s not the same dollars or euros or whatever it is. It’s not the it’s not, it’s not moving. That’s the it’s, it’s not moving in the same way. The money, you know, they’re not the same dollars. So and I’ve talked to Sir, I’ve talked to other people about this online, and then they’ll say, Well, something well, you know, it was a bubble, but it was a bubble, but it’s not anymore, or it’s a Ponzi scheme, but okay, fine, then and then you’ll convince them, okay, it’s not a Ponzi scheme, but the effect is still the same. Well, what do you mean, the the effect, the end result, or the effect is still the same? And they say, Well, you know, if people lose money, well, if some people lose money, you’re basically describing any publicly traded asset class. Yeah. So is, is Bitcoin a Ponzi? No, were there a lot of people saying that it was a bubble of time? Yeah. There’s anyone? Does anyone? Is anyone talking tulips anymore? Not really. So pines, you’ll get shut down eventually, too, in my opinion.

Ryan: Yeah. And as with each year going on, obviously the case against that becomes stronger and stronger. And I think a few parts to mention here that just to kind of reiterate on them are, you know, no investment returns are promised with Bitcoin, you know, Satoshi wasn’t sitting there writing the white paper saying, Hey, if you invest in year two, or after this having, you’re gonna make more money, those were just built in incentives in game theory that actually, in hindsight, just keep seeming smarter and smarter. But it’s important to know, you know, there’s no pre mine. No one is the CEO, there’s no Charles Ponzi heading up, Bitcoin. Bitcoin is fully distributed, as you mentioned before, it’s open source. And even if you look at it, you know, eventually, you know, if you you’re profiting from it, it’s, you know, taxed as property. So like, there you go on and on, the list can go on and on. Obviously, Bitcoin is not a Ponzi scheme, but I think it’s important to hit some of those points home because some people do just look at charts or theaters hearing about it, and they think, oh, you know, it’s just, you know, it’s only the value of what people think, but it’s like, okay, well, what do you what are you saying that like, when it comes to, you know, the stock market and other areas people lose in that too, but you just claiming that Bitcoin is simply a Ponzi scheme or a bubble, it just doesn’t do it justice, and there’s no strong valid argument, you know, proving that and, you know, I really haven’t seen any valid parts, you know, whether it be four or five years ago, or especially today that even dispute that.

Michael: Yeah, and the only thing I’d add to that is a Ponzi, you know, the Ponzi scheme has its, it has the person facil usually has a person facilitating, I think it’s probably possible to do with Blockchain technology. If somebody were to do it. It’s possible it might have even been done. But to the point of Bitcoin, Satoshi, I think one of his quotes, word for word was essentially, it might make sense. If other people start to think the same way, it might make sense to get some. It’s like he’s throwing darts his project, he’s throwing his own variability into it, saying that, hey, Think for yourself. It might make sense not, I can guarantee you 50% returns in three months, or 100%, in nine months, or whatever, 30 days or whatever it was. So completely different narratives, completely different topics, complete different levels of transparency. I think we’ve buried this.

Ryan: Yeah. And you know, he another part is just, you know, he shear them whoever it is, they haven’t even collected their own earnings based on how much bigger it’s got over time. So there’s still, you know, a million of those coins out there. So, I think that, you know, kind of ties up that question. What I want to ask as a follow up to that question is, if bitcoin is not a Ponzi scheme, it’s not a pyramid scheme. And it is a sound store of value currently in present day in 2021. Then what other risks does Bitcoin potentially face in the near future or the far future? If, if it doesn’t face any at the moment?

Michael: Well, the only thing I’d add to that is the the pyramid scheme that you just brought up. Yeah, pyramid schemes. You know, they have some similar things with Ponzi Ponzi schemes and we all No, most, you know, we all should be sure all of us know multilevel marketing is but with MLM and pyramid and things like that you have a you have a clearly defined hierarchy, right? You have someone at the top of the pyramid, and then you have their subs. Right? And the Commission’s generally flow up, right? Bitcoin doesn’t Bitcoin doesn’t pick favorites. That point that good doesn’t pick winners and losers. Bitcoin doesn’t care where you went to school doesn’t care, your religion doesn’t care how much money you have doesn’t care if you’re married, divorced, your orientation, it doesn’t care about anything, yet, everyone’s got the same set of rules, completely agnostic. Pyramids don’t have the same set of rules, pyramids have, you know, is built under hierarchy. So I just wanted to cover that before we before we move on. So go ahead and go ahead. But what was the final part of that question?

Ryan: So we covered Ponzi schemes. I mentioned pyramid schemes in that you briefly touched on that. So my question is that, if it’s not a Ponzi scheme, if it’s not a pyramid scheme, and for the time being, it’s a really great store of value moving forward, then what are the some of the potential risks or the risk that Bitcoin faces in the future?

If Bitcoin is not a Ponzi scheme, a pyramid scheme, etc….then what risks does it potentially face?

Yeah, so um, as you know, on the on the, as many of our viewers already know, here on the quantum resistant ledger project, we’re preparing for what we call as is y2q, which is, excuse me, the similar to y2k, we call it white to queue for quantum obviously. And essentially, what this risk becomes Is there is there is a, there is a as quantum computers are being brought to scale, it has been shown that a sufficiently powerful quantum computer has the ability to reverse a public key into a private key. And I was on Twitter the other day, and there was some confusion over well, we’ll just change the hashing algorithm and another in you know, and other things like that. Now, I’m not faulting anyone that, you know, I’m not I certainly don’t fault. Anyone that gets a little, you know, gets a little wound in different ways over asymmetric encryption, symmetric encryption, public private keys, hashing algorithms and things like that. These are all you know, these are these are all technical concepts that really just don’t come up in normal conversation. Well, I guess it depends on your crowd, but you hang with but most of these, you know, these are pretty obscure terms. But I just wanted to point out bitcoins volume, you know, bitcoins volume really is not about the hashing. So pay to public key hash, if I’m paying to a bitcoin address, which is a hashed version of that public key, that’s actually that that’s pretty secure. So finally be able to find a preimage with Grover’s, which is what a quantum computer would use to attack hashing. That’s, that’s considered right now to be quantum secure. With that being said, there is this risk. And there is this risk between the private key and the public key. Now, the the private key is, as we most of us know, is just your Bitcoin private key, it’s a 256 bit random number, that’s all that it is 256 bit random number. And then it goes through a process called elliptical curve multiplication, and you get a public key. Now the public key you can send funds to a public key, but most loved people use pipe a lot people hash the public key, and then you can pay to public key hash instead, that would be the address that you would give to someone to pay because patches hashes are more secure. And I think a lot of wallets support those No. But the ability but the ability to for Shor’s algorithm and a specific sufficiently powerful quantum computer, even if most of the addresses on the Bitcoin in the state files are, you know, on the blockchain are hashed addresses, which, which in many cases are some should be considered to be secure. Even if that’s the case, there’s so many different public addresses that are known. I mean, sometimes, you know, Satoshis are known. It’s not people don’t always consider the the confidence. They’ll talk about, for example, we read I read a great article on Bitcoin that really broke it down as far as what it was. And they said, basically, there’s not a threat because we have paid a public key hash. But in order to do that, all you have to do is take your Bitcoin and send a payment and then bounce it back to your pay to public key hash address and you’re secure because the only thing that would be on the blockchain would be the hashed address. But the this you know, this article didn’t cover anything like if if any of the other bitcoins on the chain were to become compromised, what confidence would do you know, to the ecosystem? We’re already talking about blockchain quantum computing, hashing, encryption public Key asymetric blah, blah, blah LMNOP when things start to get attention, people are going to be confused. And we’ve been doing these videos for what over over a year now. And you know, there are times that I’m still trying to find the correct narrative in order to really just communicate this as as easily as possible. And at the intersection of quantum and blockchain. That’s a real challenge. So the our project is focused on keeping your digital assets quantum secure. We have a product, we have our Aetherium project, which we will be able to quantum secure ether for Ethereum and a select subset of ERC-20s. The if you don’t know yes, your 20s are those are other there are other blockchain projects that run on the Ethereum network.

But I mean, that’s the threat. So I mean, everyone that’s watching this just needs to ask himself, do you know, all I’m suggesting is, I’m not saying put up, you know, drop Bitcoin drop thorium drop polka dot, I’m actually a big fan of polka dot, and Aetherium and Bitcoin. They all have their own, they all have their own little niches drop. Yeah, we’re not Yeah, we’re not saying drop those, what we’re saying is, look, do your own research, look at the risks. And if you think that there’s a measurable risk there, which I think it’s hard to argue that there isn’t, you know, in stasis words, it might make sense to get some.

What our project is about

Ryan: Now, that’s a good way to kind of close in that part, what I want to do is you briefly touched on, you know, what our project is about and a little bit of the direction of where it’s going. Could you dive in really quick? I’ll do a few overlays in the video here. Can you just talk about, you know, where someone might want to get started on our website? If they’re going there for the first time? Maybe they haven’t been to the QRL that org before? Can you just kind of, you know, touch on a few things, whether it be you know, reading the white paper, or, you know, going to wallet.qrl.org? Can you just maybe leave us in this video with one area to kind of do a little bit of further initial research, then we can go from there.

Michael: Yeah, definitely started off at the white at the at the webpage. There’s good information on there. There’s also a there’s also an Faqq.info. Anything is what it is, yeah. Built by the community. Yeah, yeah, community website, that that breaks down on the quantum thread. So if you want to learn about CQRS, well go to dub dub dub, dub ql.org. If you want to get go to a site that has good, some good information about the quantum threat, go to eff you know, Faqq.info. If you want to see the internet, if you want to see things explained in video format, definitely go through our other videos that we’ve done, we’ve been doing these for 13, 14, 15 months now. Go look at those, I’ve tried to take a systematic chronological approach to kind of help people kind of get their foot in the door with the quantum threat. If you saw if you’re a visual learner, and you just want to hear it, get have it shown do go there. If you want to engage with our community members, and talk about this stuff, we have a passionate lively discord group that you can do that. So depending on what what your goal is, that’s what I recommend.

How to get started & loearn more about the QRL

Ryan: Awesome, that leaves out you know, three to four really quality resources depending on the way that they want to absorb content. And if you haven’t already done so make sure that you hit that lovely little Subscribe button below. That way when we come out with new content each week, you are the very first to know about it. As we come out with new content, you don’t want to just randomly come to YouTube and three weeks later realize you missed a good video or two so make sure that you hit that subscribe button to do that first. And just a strike said if you want to you know see what’s going on in our community we got a big community of 5000 plus in discord and faqq.info and theqrl.org. Strike, appreciate you diving into this topic of is Bitcoin a Ponzi scheme because not only is it you know, it’s obviously a catchy title in the sense of, you know, is people want to know, you know, diving into that and then being like, obviously, I know it’s not a Ponzi scheme or you know, maybe if you’re a skeptic you think it is but the underlying parts of you know, where the technology stems from and where it’s going in the future is the more important part of the discussion. So strike Thank you very much for diving in the episode today and everyone at home. Keep those digital assets secure and we will both See you next week. Take care.

Michael: Thanks, guys. See ya. Bye

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technical

5th February 2021


Jack Matier

WRITTEN BY

Jack Matier