Quote from: coder_guy on December 16, 2012, 10:33:43 PM

I did some research, and figured out what a ponzi scheme is. Its basically a pyramid scheme where you don't tell the people investing that they are in a pyramid scheme, right?

Wrong. Do more research. A Ponzi scheme is where you tell people that if they give you their money, you'll pay them back with interest. And you do, except that the interest isn't coming from actual business profits, it's just the money your investors originally gave you, plus the money from later investors. Naturally, once there aren't enough new investors putting more money in, the scammer won't be able to make the interest payments. The investors will demand their money back, only to find that their money's gone.

A pyramid scheme is similar, except instead of telling investors they'll receive interest on their payments, they receive money by recruiting more investors, and those new investors can make money by recuiting even more investors, until eventually there aren't enough investors left in the world to sustain the scheme and the investors on the bottom "layer" of the pyramid have no way of ever getting their money back.

Quote from: coder_guy on December 16, 2012, 10:33:43 PM

So pyramid schemes are not fraud, but are still illegal. This means they are illegal even when using bitcoins, or other not-legal-tender currencies, correct? If so, a LOT of websites are illegal...

Pyramid schemes differ slightly from multi-level marketing schemes, where there are real products involved, but even those schemes are shady (though not always technically fraudulent or illegal).

Quote from: coder_guy on December 16, 2012, 10:33:43 PM

Anyways, here is my question: What exactly is the real difference between a bubble (not illegal) and a pyramid scheme (illegal)?

A bubble is when a real product, with real value (note that despite what some people say, bitcoins do have real value, as they enable fast and secure transactions in a way not possible with other currencies), is traded at much higher prices than its true value simply because people think its value is going up and they can sell it to a "greater fool" later on. While many people lose money when bubbles inevitably burst, they are not in themselves a scam unless someone is misrepresenting the true nature of the investment.

Quote from: coder_guy on December 16, 2012, 10:33:43 PM

I mean, I could create some fake currency (can a currency really be fake?) on a website backed by some mysterious (and basically useless) commodity, and let people bid on it and sell it to each other. I could then create a bunch of fake accounts (can an account really be fake?) on my own website and bid up the price myself. Knowing how things work, people will probably buy them just because their price has been increasing. Is this a pyramid scheme (illegal), a ponzi scheme (illegal), or just a bubble (not illegal)?

That's a pump-and-dump and is usually illegal.