It's, a fraudus ponzi. I agree completely. I i call it a ponzi with no one in charge um, but here's. The thing a ponzi scheme is a type of financial fraud in which early investors are paid with wealth taken from later investors, rather than with actual investment income.
When the flood of new investors dries up, and there is no more wealth to pay early investors, the scheme collapses in the world's largest ponzi scheme fund manager, bernie madoff stole 65 billion dollars from thousands of investors over the course of 17 years.
Since its inception, naysayers have been criticizing bitcoin for being nothing more than a ponzi scheme. Every time you invest in bitcoin the wealth that you invest goes to the previous investors or to the miners and disappears, but does bitcoin actually match the definition of a ponzi scheme.
The biggest ponzi scheme in history made of skin didn & # 39. T promise anything. Yes, it did. No, it didn't. Yes, it did. Did you study it? I studied it in this debate. George stolfey, professor of computer science, at the university of campinas, meets pierre richard bitcoin strategist.
At kraken. Pick your side in our latest coin telegraph, altcoins duel, georgie. Back in 2016, you submitted a letter to the ussc in the attempt to dissuade it from approving a bitcoin etf. The core of your argument was that bitcoin is a ponzi scheme, a belief that you continue upholding today? Could you summarize the main characteristics that would make bitcoin a ponzi scheme? Well i mean there are five things: people invest in it because they expect to make a profit.
That expectation is confirmed by people who decide to cash out. They really get the profit. However, there is no source of wealth that we pay for that profit, that profit comes only from the wealth that investors put in and the organizers take out a big chunk of the wealth that investors put in so i mean it is just there is no no Money coming into the game, and there is wealth going out of the game every time you invest in bitcoin, the wealth that you invest goes to the previous investors or to the miners and disappears, and now your only hope of getting wealth back is, if other investors Give you wealth uh.
There is because there is no other source of wealth, so those are the five things that make a ponzi scheme upon. Those are the things that make ponzi schemes, bad investments, and those are this okay. So maybe now pierre, would you like to respond to that argument? Yeah sure um? I i first off on the definition of what a ponzi is um.
I i think that uh, that definition is lacking a crucial investment part of the investment. You acknowledge motivation, which is that the ponzi promoter is promising. Uh returns right, it is promising um a profit, and i think that with bitcoin um there isn't such a promise right uh.
In fact, it's, often highlighted by its critics. That bitcoin has repeatedly had periods where it lost value, 80 percent, plus of its value, so to say that there's, an expectation of profit, i think, is contrary to fact.
Contrary to reality, in fact, what we see is that bitcoin's promoters repeatedly emphasize that there is a risk of loss and that, if we look at the empirical data, this risk has repeatedly been realized right, and so i think that uh, that's, you acknowledge when we compare it to a ponzi scheme where it says you acknowledge.
Every month you & # 39, ll earn five percent right and it's kind of the fixed expected return, which is unrealistic. Um, that's, that's. What a ponzi scheme relies on uh ponzi schemes they they never have this element of hey look.
Participants in this ponzi scheme have repeatedly lost wealth. That's, not how ponzi schemes work. They they work on the reliability of the return. Now, second of all on the criticism that there's, no other source of wealth right there's, no cash flow.
This is the same criticism made by um value investors or folks, like warren buffett, who emphasize that things like bitcoin, but also you acknowledge silver and gold right. Monetary metals like that that they they don & # 39, t, throw off a cash flow, and so they're, not selling goods and services.
That would ultimately provide a return on the invest, invested, capital um and that's. True, that's true, and what what that means, though, is that we have to look at well. What are the other uh? You acknowledge uh categories of assets that exist, and what we see is that uh wealth cash that is um does not have cash flows, it never does no wealth in the world.
Has cash flows usd does not have cash flows when you hold usd you don't, have cash flows right, and so that's, just a general property of wealth, because it is cash, so it doesn't. Have cash flows um and that that doesn't make it a ponzi scheme? Let's, keep in mind.
Bitcoin has a peer-to-peer electronic cash system um that that doesn't really uh hold up as an argument for it being a ponzi scheme yeah. So i would like george now to reply. Okay, lots of lots of things uh there well.
First of all i mean you acknowledge: bitcoin is not cash. It's, not wealth uh. We can discuss that later, but um get into it. No, no yeah, but uh. First of all, i always address the thing about the ponzi thing: policy schemes.
Don't promise. Uh don't have to promise returns. Maybe officials yeah the biggest ponzi scheme in history made of scheme didn't promise anything. Yes, it did. No, it didn't. Yes, it did. Did you study it? I studied it, it didn't promise anything.
Did you study it? I studied it, it promised it had. In fact, that was one of the very um telling parts of madoff's ponzi scheme, and it was actually revealed by a whistleblower long before it blew up, which was that the returns on madoff's fund were far too consistent.
They were so that they were mathematically impossible. Marco paulus, marco paulus. Look him up. I acknowledge that i acknowledge him. He provided a whistle blowing to the sec long before madoff blew up showing that their returns lacked volatility.
So this is something that you did not acknowledge and you're learning about it now. So no, no, no and change your no in the face of facts about reality. So do you have another example? Do you have a different example? No, no! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No! No, no, no! No! No! No! You had the wrong example.
You i promise. Sorry, sorry, you are and that's. Why it was a ponzi scheme. It was one of the key characteristics of it being a ponzi scheme. I'm. Sorry, but you are a different example. Your argument is, he didn't promise anything he deliberates uh consistent returns and that's.
What mark marcolus complained about that's? What uh was the thing i mean the the the reason why people invested in him is that he was paying everybody who wanted to to cash out was receiving consistent returns better than uh the stock market.
So he delivered that for 25 years year after year, but he didn't promise anything he just said. Well, i'm going. I'm investing. I have this fantastic method of investing, but of course he knew that he couldn't promise, because uh ponzi scheme that promises consistent return is five percent a month is a data that's, a dead uh giveaway that i mean the Sec will come knocking at the door the next day, if you say that okay, so a good ponzi scheme, doesn't promise anything it just delivers and people keep investing because when they cash out, they get profits.
Uh bitcoin has been delivering profits. Uh. All the time you acknowledge that i mean, of course you you agree with that, so um and the promoters uh people go on cnbc or the video, the bitcoin media channels, they all say well, okay.
I cannot promise that it will go up, but i think it might be a million dollars a few days in a few years. So that mean, and if you look at the forums and if you look at what people say in public, it is obvious that they are investing because they expect profits and even when the price go down, people say: oh okay, it's going down, But it has gone down in the past and then it has gone up twice as much so.
Okay, we keep investing. I'm, not losing that so so neither of those things uh the lack of a promise or the fact that the price goes down has anything to do with the fact of being a ponzi or not. I would like you now to reply to the second argument that pierre put out, that was the fact that even fiat cash doesn't have any cash flows.
So if even if bitcoin doesn't have any cash flows, why does it make it a ponzi, while fiat currency, doesn't also have cash flows, but still it's considered to be legit? Well, because i mean it is not an investment, the dollar is a currency, it's, not an investment option.
So if people don't invest in it expect them to make a profit that first condition or anything fails. No, i mean people, there is people who play effects trading right that they they they think they are making a profit, because the other currency dropped more than dollar, but the dollar dropped in value too.
So that's, not the only situation right um. So what we see um is that people hold a currency like the us dollar, for example, when they think the stock market is going to go down, so they are making a profit off of holding u.
s dollars because of the uh. The the valuations of stocks going down and then they buy the stocks at a lower price and they've made a profit off of holding us dollars relative to have held holding stocks, and this is this is common right and and so so then My argument would be let's say bitcoin is a currency? Okay.
Why is it not a currency right? Well, it has practically zero adoption. It is extremely volatile, so it is useless as a currency um i'm, not arguing that it's good. I i'm, not arguing that it's a good currency or that it's, a valuable currency or a widely adopted currency.
I'm, simply arguing that it's, a currency right, and so you can say it's, a bad currency. It has zero adoption as a currency, but it's. Still a currency right well, in the same sense that screws or currency or no, because no right screws have utility to them right, and so they they are a consumer good or a a production.
Good right and that's different than a currency right and so screws are arguably an investment right. If, if you're uh using them to to to for consumption, to enable consumption in the future as part of your factory right that they're capital good, but they're, not a currency.
In the same way that fiat is right, so why is fiat a currency and bitcoin is not a currency. Now a currency is something that that people accept in trades, because they are reasonably certain that they can exchange it for others that's, not a real definition.
That's, just that's, a tautology right because then you're, saying that bitcoin is not a currency until it becomes a currency right until it happens. That's. True! That's. True so well, it sounds like you're, saying it's, not a liquid currency.
It's, not a widely adopted currency, which is true, but why is it categorically fundamentally not a currency outside of kind of what you're talking about, which is it's? It's. Currently, i grant you that it is a.
It is: a politically useless currency, yeah yeah, okay! Well, as long as we agree on that, that's, fine, that's good. We reached that point, but i think that here the main issue was not whether bitcoin can be considered or not a currency, but whether something that has no cash flows can be like is is to be considered a ponzi scheme or not.
So let's. Just move away from this from this currency argument and maybe use another example like, for example, fine art, fine art. Also doesn't, have any cash flows like bitcoin, but it's still considered as a valuable thing as a as a thing that has and preserve its value.
So in that case georgie, how would you reply to that kind of comparison? Well, fine art is a complicated case, because i mean it's. First of all, it's, not fungible, i mean any. Each work of art is a completely different thing that has value by itself or not.
It has some consumption in the sense that people there are people who buy it, just to hang it on their wall so, and it is also the sort of uh commodity that people uh the more expensive. It is the more demand it is because uh buying, it is seen as a way of stating of showing off that you are wealthy, so um i don't, think that there is much the economy, that economic theory that you call my financial theory.
It can apply to our market, but let's. Go to another thing that don't have cash value. There are lotteries, mlm schemes, pyramid schemes, pump and dump penny stock schemes. I mean they are all they. They all have the same characteristic that there is no wealth coming into the system going out.
Let's, not forget the fiat currencies right, not like that, because you don't, invest in them. You don't, invest in them, i mean there are people don't, invest in currencies. There are people, no oh, come on other than people who are destitute and even people who are destitute.
You acknowledge they have coins, but that's, a bad way of that's, not investing. No. Actually, if you look at it um, when you look at someone's balance sheet, they have assets right. So so i mean whether you what you label it, whatever that doesn't matter, it's, an asset on your balance sheet holding us dollars is holding us dollars on your balance sheet in the exact same way that holding a monet Is holding monet on your balance sheet in the exact same way that holding bitcoin on your balance sheet is holding an asset? It's holding bitcoin, and so i you acknowledge that's.
We can talk about the cash flows right that uh or or what would it? What do we expect from the asset, but nevertheless it's. The case that holding dollars on your balance sheet as cash has no cash flow to it and that's very much the same situation that bitcoin finds itself in, but it is not an investment.
It's, not something that people. Neither is better, bitcoin is because almost 99 of the people who buy bitcoin they might become because they think it. I will get rich, because the price of bitcoin will go up 10 times in the future, and then it will get better.
It's. Still going to happen right so us dollars, we can talk about whether it's, an investment or not, but that's, separate from the fact that they are both assets, that don't have a cash flow to them, And when someone holds dollars, they're, expecting that value to not go to zero.
They are speculating that u.s dollars will not go to zero. The the the value of the dollar is sustained by the fed by the central bank yeah. Of course, let me grant that that the value of the dollar is sustained by the federal reserve and and likewise for all the other uh fiats in their central banks.
Why is it the case that that's true, but that the value of bitcoin is not sustained by the bitcoin network? Let me clarify why it's. It's. It can't, be considered as an investment and that's because it's.
A currency and currencies are never investments. Well, we agree with that. The currencies in our investment, but 99 of the people invest buy bitcoins they. I think they are investing in they that's, that's.
There's, a different word for that real profit, the the word for that is saving. When you hold up, you are saving when you hold equity or liability, that is investment, exactly the opposite. Keeping wealth under your mattress is still saving it's, a bad form of saving, but it's, not investment.
It is putting bitcoin under your mattress, is saving it's, not investing no, no 99 of the people who buy bitcoin they buy because they expect the price to be going to be kept to be ten times longer. I think you made your point.
Pretty clear it's, just a matter of how you define bitcoin. I think that bitcoin is such a emerging asset that still hasn & # 39. T uh found a consensus about how it can be defined georgie. We have an.
I have another question regarding your ponzi scheme: um accusations towards bitcoin, because what i, what i find uh important about a ponzi scheme, is that usually it has a malevolent organizer behind it, and what i can see about bitcoin is that there is not such a centralized Organization behind it that is intentionally trying to defrau to fraud people.
So how would you respond to that argument? Well that that's, not the fact that there is a central organizer is not essential to the definition of points. Most sponsors that we had so far they were centralized because most of business that we had so far were centralized.
Ponzi has been described by several people. Economists mean big names in economy as decentralized ponzi or are distributed by spontaneous ponzi, or something like that. So i don't think that the existence of a single central operator is essential.
Certainly there are thousands of promoters who try to entice people into investing in bitcoin. You see them all the time in public forums in media and whatever so, okay. So pierre, would you like to respond to that just 30 seconds to respond to that? You acknowledge i don & # 39.
T think that i don't, think usd is a ponzi scheme and i don't. Think bitcoin is a ponzi scheme. What really is a ponzi scheme in the us is social security, and so there are government-operated ponzi schemes uh throughout the world and it arguably the bond markets.
The sovereign bond markets are ponzi schemes as well, especially when we start. You acknowledge looking at absurdities like negative interest rates, and so you acknowledge, i think that first of all, bitcoin's, not a ponzi scheme.
Uh it's, a currency um and it's, a decentralized currency, and so that's. True, let's address bitcoin as a store of value. So, george, in a recent debate with lynn alden, you dismissed the case of bitcoin as a store of value, saying that it is obvious and evident that the wealth that people will be able to take out of it is a lot less than what they put in.
You said that bitcoin investors are losing at least 20 million dollars per day and they have lost so far 15 billion dollars and that's only going to increase it's clear you're, not talking about losses due To price volatility, so can you explain what kind of losses are you talking about? Yeah the miners? They create 900 bitcoins a day right now, actually a bit more because probably the hash rate is going to happen so and there is still not a difficulty adjustment yet and they sell those those uh bitcoins to investors, where a defined investor is anyone who bought or Will buy bitcoins, okay, so people who buy bitcoins they are giving uh, they are buying 900 bitcoins a day from the miners that stands up turned out to be now.
Now it's, probably closer to 35, almost 40 more than that 45 million dollars a day right uh, it was 15. It was 20 million when i brought that piece and so that's, wealth that's, leaving the system. If you look at the totality of all the people who are buying and selling bitcoins those people they well, they when you buy when one of them buys bitcoin, it gives wealth to another one of those guys, so they don't as a world.
They don't gain or lose anything, no matter what the price is, but when they buy bitcoin from the miner wealth goes out from them to the miners and never comes back, because there is no other flow. There is no other flow of wealth that comes into the the system, so it is more it's like a lottery right.
I mean people buy lottery tickets, they give wealth to the organizers and then what they get back is always 40 or whatever, or what they put in so okay. So now now i would like appear to respond to that.
So how do you see the role of the miners in this situation? Georgie says that the miners are taking out the wealth from the system and no more wealth is actually getting into the system apart from those from the investors.
So how do you reply to to george's? Argument yeah. I mean that's, that's, correct um and i just don't see why that uh changes anything and, in fact, um to me the you acknowledge. The argument here, basically, is that um folks are getting diluted right and because the miners are issuing new, bitcoin and uh the the reason what what they spend those newly issued bitcoin or whether they hold them, is kind of orthogonal.
To the question of that, they're issuing new bitcoin, um and so uh. This is also true uh on a much grander scale in the fiat system where, in the fiat system, you have central banks and commercial banks issuing new u.
s dollars or new fiat and uh diluting out the existing holders and it's. The same thing in gold mining right, um, gold: you acknowledge two percent of the gold supply gets mined every year, so um that that adds to the supply and it gets back to this argument of stock to flow ratio and so uh.
Basically, the argument that you're making here is that bitcoin's. Stock to flow ratio is too low and so um too too much uh flow is coming into the system, but bitcoin now has a better stock to flow ratio than gold.
It also has obviously a much better stock to flow ratio than than fiat currencies and, and frankly, that than real estate as well um, and so i i do agree that dilution is a problem um, but uh. It's, one that bitcoin suffers from to a much lesser degree than any other asset in the world.
You just talk about stock to flow, then stock to flow is something that applies to commodities. When you compare the amount of stock, that is the end of speculators or middlemen and whatever to the amount of flow, which is the consumption and production, bitcoin has no consumption, because everything that every bitcoin is bought eventually gets sold.
Again. It is no consumer consumption of bitcoin, so the stock to flow of bitcoin is not very high. It's, infinite yeah, i mean there are 20 million bitcoins in about 20, whatever 18 million now bitcoins issued, and there is zero consumption apart free for a small amount that's lost or whatever, but in principle there is no consumption Of bitcoins, so the stock to flow ratio is uh, 18 million divided by zero.
Okay, stop to flow doesn't mean that's. Something good stock to flow is bad because it says how much the value can crash. If there is a big stock of things in the hand of speculators - and there is a very small consumption rate, it means that, well, if the speculators get a bit more positivistic and they start selling, they will crash the market.
How do you consume a currency that's? A point? Currencies are not commodities. They don't have consumption right, yeah, okay, so the dollar doesn't. Have i'm, not hearing you saying, and you keep insisting in comparing bitcoin to the dollar tier is not a commodity.
Fiat is not an investment. I mean field in the center. Bitcoin bitcoin is an investment because people are investing in it. 99. Let's just say they're. Both assets right, fiat and bitcoin are both assets, so they both have.
As from your point of view, they both have an infinite stock to flow ratio, and so, if everyone went out and spent their fiat tomorrow, its value would plunge to zero right. Why not? Because the the federal keeps monitoring the value of the dollar and keeps regulating the amount of dollars in circulation month by month, so that to keep the value constant apart from this planet, inflection inflation, so uh, so why? Why do we have two percent inflation? Okay, um, though, is that, if it were to happen tomorrow that everyone goes and spends their dollars, the government, the federal reserve, wouldn't have the time to respond right.
The value would go to zero overnight, so the price of bitcoin crashed several times since its inception. Still bitcoin has come back stronger every time that makes it something radically different from previous speculative bubbles.
We saw in the past. Analysts at man group said that these price movements may not be defined as bubbles, but rather as a part of a not so random walk that will eventually dwindle to give bitcoin more stability and ultimately legitimacy.
What do you think of this perspective? Georgie um? Why is it coming back? No one acknowledges i mean [ Music ]. So how can you be sure that, just because it has done that in the past, it will do again. If you look at the stock of any company many companies, they have gone up and down right.
So does the fact that the stock of a company goes up and down and then goes up again means that when it goes down, it will go up again. Of course, not um, so it has gone so far. I mean i have no idea.
Frankly, i have no idea how high the price of bitcoin can go. It can go, it can crash tomorrow. I could go to infinity. No, i don't think it can go too fast, well, yeah, because the the value of the us dollar will get a zero.
I'm talking about the the price in hamburgers or that can go whatever indefinitely in increasing its purchasing power, because productivity of the economy can increase. You acknowledge until we're in science fiction, land of uh.
You acknowledge multi-planetary world, where uh economies of scale are such that your purchasing power is always increasing in a deflationary environment. Um, let's, talk about the next 10 years or whatever i mean, i think george.
Maybe maybe you are willing to to concede. The fact that bitcoin has at least more upside potential than downside potential. No, i don't, consider that at all, because i mean for the price, for instance, to go to to double.
It means that there must that investors of bitcoin the people who invest in bitcoin have to be giving 80 million dollars a day to the miners instead of just 40 million dollars a day. So there must be for the price to go up.
People have to be invest more, not just keep investing but invest more per day. So will there be such people investing into bitcoin? I don't acknowledge i mean i i don't want to speculate and that, because i see that most people who are investing in bitcoin have no idea what investment is.
What stocks buy. Stocks are valuable. What is the difference between stock and the ponzi scheme or whatever? So you think that's, that's? The only reason people think the price is going to go up is because they heard somebody else say that the price is going to go up.
They don't, have any fundamental thesis wrote a piece on his investment thesis for bitcoin? But did you read it? No, no, not his particular no, but maybe that would help you learn why it's going up. The fundamentals of bitcoin are three-fold.
Uh one is that it's permissionless, so anyone can generate a private key generate addresses receive bitcoin. The second is that it has a stronger properties in terms of holding it than any other asset in the world.
So we already touched on the fact that it can't be diluted, and then it also has native multi-sig, which no other asset in the world has and um. Then third is the ability to send it to anyone, so it's.
Censorship resistant and you can send it anywhere in the world 24 7. and those three of being able to receive hold, send those are bitcoins fundamental advantages over all other assets in the world and on all three properties.
They are orders of magnitude better than number two right. Well, i don't acknowledge um, i mean there are many things. First of all, those properties that are talking, they are shared by all altcoinscurrencies.
They're, not uh. So excellent is exactly like bitcoin, except that it doesn't have congestion that's. The only difference, pierre said that in 2021 he expects half of the companies in the s p 500 to follow the path of tesla.
So i mean, if that happens, would you reconsider your position as a bitcoin skeptic? No, because i mean none of that, it doesn't depend on how many people invest into bitcoin it doesn't change. The fundamental fact that the only wealth that comes out is wealth that investors put in and only part of it comes out.
Okay, so i mean it's like saying how many people that will have to invest in a lottery for me to believe that a lottery is a good investment. So, in order for me to change my point of view, um one of two things would have to happen either on the three fundamental properties of being able to receive, hold and send that bitcoin gets superseded by another asset.
That's. One way that i would see my thesis being wrong. The second is that the reason why people hold a currency on their balance sheet is to hedge future uncertainty, and so, if future uncertainty were to go to zero, then people would no longer need to hold a currency, um and and then i would revisit my thesis Um i don't think either are going to happen, and so that's.
Why? I'm, confident that we won't see this uh overnight uh. You acknowledge everyone trying to sell their bitcoin uh theory and it's. Uh it's implausible to me that uh uncertainty will go to zero. That's, probably only if uh, you acknowledge the the world ends right.
I think uncertainty is a constant in this world thanks a lot for for participating. I think that was uh was a great discussion guys. Thank you. Oh thank you for the invitation. Okay.