Quote from: solomon on April 11, 2014, 05:09:19 PM

I've posted this before but ill post it here.

Ponzi scheme - A central actor (person or 'company') receives money with a promise of quick and significant returns. All people that buy into the scheme interact directly with the central actor who pays out money he has received from 'investors' as returns in order to drum up more investment in a fictitious investment opportunity. It is by design centralized, non-transparent and has a hierarchy of 2 levels - CEO of ponzi and everyone else. The investors do not realize they are being payed out with their own and others principle investments.

   O O O
   \ | /
O - (CEO of ponzi) - O
   / | \
O O O

Pyramid scheme - A central actor encourages a number of other actors to invest in something in return for something of little to no real world value in a fixed hierarchy on a promise of a) high profit margins on a cheap product and b) getting more new actors into the hierarchy directly underneath you feeding your personal revenue stream (and by design, those directly above you). This structure allows large profits to flow up the streams towards the tip of the hierarchy. A pyramid scheme by design is centralized and non-transparent in nature. People lower down are often not allowed to know exactly how far down they are in the pyramid, only seeing those they directly interact with.

   (CEO of MLM)
   / | \
   O O O
   / | \ / | \ / | \
   O O OO O O O O O

Bitcoin - Every bitcoin is worth the same so every actor benefits proportionally with the growth of the network. Note that with a pyramid scheme the goods you purchase either have little utility like a poor quality 'how to' guide or a good whose market value is vastly lower than what you just paid to purchase it ($600 for 24 energy drinks). With bitcoin wealth is being traded 1:1. If you buy a bitcoin at a market price of $600, that is what it is worth at that moment and neither party can be said to have 'lost any wealth'. There is nothing stopping you from turning around and selling it right back to the market for market price, just like gold or an antique vase. Bitcoin has a flat hierarchy with no central authority and is transparent.

   O - O O
   \ \ /
O-O O - O
   \ / \
   O O - O

The scam Bitcoin is closest to in nature is a pump and dump, but what separates it from a penny stock P&D is transparency. Because the bitcoin landscape is transparent (open source software, the blockchain etc), it's utility is transparent. The pump of a penny stock is dependent on misinformation and opacity.

What confuses people is the exponential growth and the religious zeal of some bitcoiners giving the impression it is a get rich quick scheme.

This is good stuff. I have to disagree with the point about transparency. Yes the blockchain is transparent but so are the 10-Ks of penny stocks.

The reason why BTC looks like a penny stock pump & dump because the early buyers are pumping the stock so they can unload their shares. The similarity to a penny stock pump & dump is that the marketing doesn't show risk/reward analysis only reward. Penny stock pumpers usually say things like "no way this goes lower", "it's only 25c per share, will go to $10", "to da moon", etc...