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Dan McCrum was only mostly wrong in his factual assertions about Bitcoin recently.

It was a bit sad to see someone demonstrate such little actual understanding, but deliver such an offensive opinion about Bitcoin. To his credit, McCrum did interview at least one mining pool operator for his article, but nevertheless managed to even get that person consider the idea that Bitcoin is a pyramid scheme. This idea has been debunked for so many years that it’s irrelevant. But here we are:

Bobby Lee, head of BTCC, the largest bitcoin exchange in China, argues its use for everyday transactions makes it a currency, and is frank about its price, saying “the reason bitcoin has value today is scarcity, that is all”. […] He also agrees bitcoin has the character of pyramid scheme, but compares it with bubbles in housing markets, which might also appear pyramidical. […] He adds: “It all comes down to what we think of a pyramid scheme. Is that a good thing, or a bad thing?”

Throughout the article, which starts out talking about the recent viral scam, MMM, which has decided to use bitcoins as a currency rather than Euros or anything else, Bitcoin is called a pyramid scheme. Simply because people are evangelical about a technology does not make that technology a scam.

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The price of Bitcoin is secondary to the fact that it cannot be stopped, it cannot be erased. Its value may drop to zero, but people on dark markets and others wanting to hold their value in a non-traditional way, they would still use it. That’s where much of the use comes from.

The value, however, on a given day, is largely due to the excessive amounts of trading that take place 24 hours a day with Bitcoin. This did not stop the writer from making a fundamentally foolish assertion:

The inherent flaw of pyramid schemes is that they must always suck in new converts to avoid collapse, and the exponential growth in users is impossible to sustain. Bitcoin shares some of these features. It requires constant evangelism because its value derives from its use.

A Sale in Bitcoin = A Sale of Bitcoin

What he doesn’t acknowledge is that usually a sale in bitcoins equals a sale of bitcoins, which makes sell orders, which typically mean the price is vulnerable to taking a small hit. Now Bitcoin markets are huge at this point, and so it takes some serious effort to bring them down, but nevertheless, the point remains: a sale in bitcoins equals a sale of bitcoins. A sale of bitcoins is a dropping of the price, potentially, because it signals a sale at whatever price the sell column will immediately produce.pyramidscheme

To be clear, MMM is a dangerous Ponzi scheme. Other Ponzi schemes take place in Bitcoin all the time. Occasionally, we write about some here. It’s part of the work we like to do, informing people about such things. But for the writer at a reputable publication, this late in the game, to be denigrating Bitcoin as a mere “Ponzi scheme,” well, it’s just not right.

For Bitcoin to be a Ponzi scheme, the early adopters would have to profit by the loss of the new adopters. The fact is that if I buy in at $124 and you buy in at $154, we both profit when the price goes to $300. I may profit a little more, but it’s not based on losses you’re sustaining. The new buyers are more like new buyers of stock than they are new members of a Ponzi scheme, objectively speaking.

Therefore, the article by Dan McCrum was, really, inflammatory and unnecessary. Bitcoin has been around quite awhile now. It seems like, at this point, many of the people reading such a publication probably know more about Bitcoin than the writer appears to. The silly thing he said about the value of Bitcoin isn’t the only thing wrong in the article, however.

The author also mentioned Dogecoin, but failed to acknowledge how much actual value the cryptocurrency carries today. Even at its height, it was nothing compared to others like Litecoin, which started out as just a Bitcoin clone done in Scrypt instead of SHA-256.

It seems there will always be people like McCrum who cannot accept that a currency was born outside the halls of government and needs no government to protect or govern it. It’s a form of digital cash, and while there are hundreds of variants, only a few are truly secure from attack at this point, while the rest are just sort of wandering in the breeze.

Respect for Bitcoin is not a requirement to intelligence, but it seems obvious that many intelligent people do respect it, and understand that it is not a scam. There is no centralized point where someone could overwhelmingly profit from the losses of others, no one place where the master of the scam can collect, so such an assertion rings false.

Images from Shutterstock.

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Posted by P. H. Madore

P. H. Madore has been publishing since 2003. Tip: 1phmMcubFy298wujNFj6hQ1gctUBFovmL -- Visit me on Steem: https:[email protected]

10 Comments

  1. David Weiss 24/07/2016 at 03:33

    Thanks for feedback. I just bought into TXCoin that hasn’t yet been sold internationally because it is ready to sell globally and has to prepare technologically. It is backed by a company and based on gold. Since I bought through someone who already had a lot of TXCoins, the value of my coins just went up from 5 to 6.69/coin. in two weeks. It has just opened up in China where I am located. TXoin was not started in China, but the U.S. I carefully thought it over and it won’t be a big loss if by chance it turned sour. I saw an article recently that predicted a good year for crypto currency. Even with stock there’s a chance of a scam and the market is so unsteady that it keeps going up and down and could potentially crash. I believe coin investment has less a chance of crashing and is not like stock because it is a new type of currency. Because Bit Coin was a new thing it had a rocky ride to the top but it has taken hold and U.S. as well as China has finally approved of it and is not making waves like they were. It will never at this time replace real currency but I see it as a safer haven the more it is accepted globally. Of course there will be scammers and just recently a man was sentenced in Texas to only 1.5 years prison time for a Ponzi scheme using Bit Coin and he got millions from people. I don’t really understand it 100%. They are beginning to teach about crypto currencies in universities now. Since Bit Coin was the first trial, it had it’s bad times getting established. Internationally they should develop a regulatory system to prevent scams. The one article I read on internet were warnings from some consumer bureau about dangers of getting hacked and other negative opinions. The wallet on internet is very safe though where your coins are kept. With Bit coin and others, there is no insurance like a bank on your coins. I understand having a wallet is very safe and that is why it was developed on internet. One has to also have a good anti malware software in their PC. in my opinion. I believe consumer protection bureaus for investors are sometimes influenced by the stock market who wants people to invest into stock and not Coins. I don’t need to line the pockets of the stock brokers to invest. My wife is learning about how to buy and sell and how this system works. As of now you might not find much online about TXCoin but I hear it will open up very soon. That would be the time to buy. If investors start buying while price is low then the value will increase rapidly as the people start buying. I will then watch my profit, hopefully, increase to maybe 700% like Bit Coin did and then sell or buy a house or car or something and retire. Even if the media envisions a global recession investment and money still will continue. I we can do is hope for a better financial future, but we all have to take a risk sometimes to get anywhere ahead and out of financial distress. I feel that if one is careful like you suggested then investment in crypto currency will be a great success and better than going to the casino r playing the lottery. Thank you for generating a discussion. I am in China doing a lot better financially than in U.S. at this time at my age. I hope to move back to U.S. when I know it is safe. What is safe is a whole other subject. There are many Americans leaving U.S. to retire and work in other countries because our economy is a wreck and inflation of food there is a nightmare. I live very comfortably with my wife in China on $300/ mo. for everything. The air in this secondary city is not too bad but it’s not too good either.

  2. whowhatwhywhen 23/07/2016 at 09:07

    You need to stick with Bitcoin and maybe Ethereum. Bitcoin is the safe bet, Ether is a close second and has potential. There are something like 700 variations of crypto coins so far, so whatever coin you just purchased has little chance of gaining traction (like you said, the only way it goes up is if people buy them). Those new coins are basically investment scams. A few people make money, most lose money. Maybe you’ll be one of the lucky few. If you want a safe haven asset like gold, buy Bitcoin, simple as that.

  3. David Weiss 23/07/2016 at 04:14

    I agree. It’s a new type of currency that could be safer and better to use than conventional currencies. So there are people suspicious about this new idea. Do you believe crypto currencies can be a pyramid scheme that depends on support by evangelizing it. If no one buys than the value of the coin will not increase for one who invests. The new comers that invest into it when it’s new over a few years will benefit the most until it maxes out and can’t go any higher. I just bought into a new one called TXCoin, it is being now globalized and is not up for purchase quite yet. I bought it through acquaintance of my wife and it’s value has already gone up before it even opens soon. I didn’t want to invest too much into this. The news claims 2016 will be a good year for crypto currency. Like regular currency however it could go up and down in value. I don’t even quite understand it clearly how it works. the evidence is there that Bit Coin grew a huge amount in a few years. It appears to be some kind of international type of currency. If I put my U.S. money into a bank, I get little or no interest to make it grow, yet banks are making billions off of our money. I remember when I was getting 4% interest as a child on my savings in a bank. The value of U.S. currency has become very poor and purchases little. Like I said, I don’t really understand this crypto currency fad too much, but it appears to show some good future. I think we should be careful about some of the new ones because they very might be Ponzi or too much like a pyramid scheme. If you have any words of wisdom for me please feel free to share them. I would appreciate it.

  4. nickgogerty 20/11/2015 at 06:03

    currency is social protocol regardless of how it is instantiated. Paper/electronic etc. Video explains network #economics of #bitcoin supports $2,300 value/ user. https://www.youtube.com/watch?v=_WD3HW6l6gc

  5. Financial times just talking rubbish!!!, they don’t know what they are saying, maybe copy paste or lots of ponzi scheme use US dollars, that makes USD bloodsucker also a ponzi scheme too, propaganda machine, i agree

  6. Anon Wibble 13/11/2015 at 15:17

    Yeah well, FT used to be good and informative. 10 years ago. Now it’s just running around desperately looking for a tabloid headline. It’s just another propaganda machine.

  7. Illutian Kade 11/11/2015 at 14:34

    Biggest pyramid scheme ever is the US Dollar, Euro, British Pound, Australian Dollar, Canadian Dollar, ah hell…lets just say every single government-issued “Legal Tender” is a pyramid scheme.

    Because only a small handful are still backed by precious metals. The rest are merely backed BY THE WORD OF THE GOVERNMENT ISSUING THE TENDER (can’t bold, so caps lock it is!), you know the same word that people say makes Bitcoin a scheme.

  8. Economics Professors at multiple recognized Universities around the world have adopted Bitcoin classes to educate students. CEO’s of some of the top Fortune 500 companies in the country have not only adopted bitcoin, but invested heavily in technology companies focused around bitcoin. Some people just don’t get it, and you sound like on of them! You probably thought the idea of a computer was ludicrous when they were first released to the public way back when. And the internet, well that was probably way over your head.

  9. anthonyvop 11/11/2015 at 00:01

    What? You mean a mouthpiece for Wall Street talking trash about a major disruptor of their power base?

    I am shocked….Shocked I say.

  10. Bruce Barry 10/11/2015 at 23:58

    if the shoe fits. I wonder how many gold conferences were held thousands of years ago to sell people on the idea of using gold as money? I wonder how many goldbugs were allowed to preach their gospel in colleges and universities to attract the youth?

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