In my last post, I made a few points about how Bitcoin is not a Ponzi scheme, as some weak-minded 'journalists' have attempted, while soiling their reputations at someone's bidding.
It didn't take long for a shibboleth to present itself. Thus, my 3rd article of the day will be in dismantling what I believe is in error.
This... is going to be good.
Now, back to our story.
I encourage you to embrace these two topics, The Ponzi, and the pyramid, as part of your intellectual journey into crypto, or Bitcoin, or both.
When you have the ability to show the weakness in someone's argument, you are assisting in other people's ability to climb out of the Matrix by introducing them to a lost art; critical thinking.
It is a dangerous weapon to tyrants and one they are eliminating from schools and universities. Make good points when you orange-pill people, and you are doing good for humanity. As a follower of Christ, I personally place evangelism high on my list, which is very unpopular in today's world. In fact, it is almost a guarantee that the first comments to this article will be to attack my belief. But, I am probably different from many, who actually believe the growing skepticism of the institution of church is a good thing, as long as someone actually seeks the tougher answers of an existentialist nature. I mention this, because orange-pilling has become much like Bitcoiner's only moral source code, and I personally believe it is but one small piece in our fight for freedom.
Now, on to the topic: the pyramid scheme and how Bitcoin is not one.
First, we define Bitcoin.
Bitcoin was designed as peer-to-peer cash, but in modern terms it is also valued as a store of value, in many cases it is easier to buy, store, and watch the number go up, than it is to use it for everyday purchases, but for those looking to use Bitcoin as money, layer 2 technology will be a large part of that solution at market.
Bitcoin runs on a network that is mathematically designed to encourage diverse markets and avoid centralization. The harder a single group or individual tries to out-power the rest of the network, the more they will face real-world limitations in power source, hardware investing, and the potential of making it harder on themselves to continue to earn more than others.
Bitcoin is designed on a scarcity model that also increases the challenge of obtaining future coins. The lack of understanding, or rather the intentional misleading of people on that premise, allows two extremely faulty arguments to take place: that Bitcoin is a Ponzi scheme where later investors are paying for early participants under an illusion of profit, and that Bitcoin is a pyramid scheme. I have covered the Ponzi argument in my prior post. Now, it's time to play with the pyramid model.
A pyramid scheme, according to Gordon, is a structured organizational design that ultimately benefits the people at the top exponentially more than those at the bottom. To explain, typically there is a product or service sold, but the 'scheme' is solely reliant on recruitment. People earn off of commission for selling products, but the real value in the organization is recruiting others to reside in a spot below them.
Each new recruit earns from their own sales, but also pays a portion of their commission to the individual who recruited them. Some pyramid organizations limit the number of levels to offer legitimacy to the illusion of a strong commission, but it is possible to create an anti-exponential commission model that gives every single top-dweller a small portion of profit from everyone else's efforts.
While I believe it is perfectly fair to illustrate how most of our governments are pyramid schemes, I don't see a valid argument that Bitcoin is one.
One of the large mistakes made in the journalistic argument of Bitcoin as a pyramid scheme, is the idea that everyone who is trying to orange-pill others is simply in recruitment, looking to pump their own bags. The major fault in this point, is that both the Bitcoin owner, and the new arrival benefit equally to the same degree, if the price goes up.
The next layer of ineptness in their argument is in the idea that recruitment means that early adopters are earning a fraction of someone else's commission, which is the underlying requirement of the pyramid argument.
What the fool who writes these kinds of articles is attempting to say, but doing so poorly, is that the only thing of value in Bitcoin, is in people conning other people into buying some. But, you see, earning a profit on something you own, by convincing other people to buy some, is not a pyramid scheme. Even if at worst it is shilling your investment because you want to see it pump, most people that deeply invested in Bitcoin genuinely refuse ever to sell it. The only people they despise more than the establishment are traders who believe the goal is to profit in fiat. Me?... I see both sides, but I am a care case where there are good reasons to earn and trade and also believe in the current and future value of Bitcoin Why isn't it a pyramid to earn by recruiting others? Because you both own the same investment, and you both have the exact same opportunities (and risks!) to buy some at the same market, without anyone beating you to it.
Some people fall for this argument because early adopters got it cheap, and could also easily mine for Bitcoin. We all missed that opportunity to one degree or another. But, that is typical of any stock or public investment opportunity. Let's say there ended up being a major flaw in Bitcoin that was discovered in 2015. It would have looked great for early investors until that issue happened, at which point it would be the 'caution' of risky investments. But, the longer that Bitcoin goes with a working network and the price going up, the more there will be falsely represented 'fact checker' articles 'proving' that the only thing of value with Bitcoin is that people push for recruiting new investors to buy some.
This takes us to the unimaginably thin argument that "Bitcoin has no use case". This is often tied into the Ponzi and pyramid arguments, to say the underlying asset is just a confidence game to get people's money. But, if it is meant to be decentralized money; people have used it to buy and sell. If it is meant to be bought and stored to earn value, it has proven to be a strong store of value. If it's value needs to be proven in tangible ways, it is legitimate to the same degree that the internet is legitimate. Like it or hate it, the internet exists, and billions of dollars of business are running through its network every day. The fact that layer 2 solutions are building a vast network of buyers and sellers on Bitcoin, to the extent that nation states are now adopting it as a standard, is proof that there is use, and that use is the underlying asset of value whether you agree with its validity or not. Recruitment is a byproduct of value in this case.
A true pyramid scheme perpetuates a belief in a system that, given a long enough run, will eventually run out of suckers to play the bottom feeder, and it gets exponentially worse the later someone arrives. Because people believe that Bitcoin will keep going up in price, the pyramid-debater attempts to paint this in the same light as earning less commission. They are two separate things, but also they prove the opposite to each argument.
If Bitcoin goes up in price, it rewards people who decided freely, to buy some. It is not an exact timeline. In the same year, someone could have bought Bitcoin for $3800 and $28K. There was no order for someone to follow. The only challenge was whether they believed they should buy it, and whether it was worth the rise in price.
People who bought Bitcoin at $65K have also had the chance to later buy it at $36K, so the mere potential for this to happen is an actual market feature of a volatile asset. Over time, it has only gone up at an incredible percentage, but in the short term, there are great buying opportunities, and if someone wants to solely look at Bitcoin as a way to earn profit, the order of entry is only one of the factors involved.
No one is earning off of my investment to a greater advantage than myself. There is a huge difference between early adopters getting a chance to buy Bitcoin for pennies or mining them, and the pyramid scheme that rewards latecomers to a lesser degree. Early adopters have taken the biggest risk for the longest time. There is nothing passive about holding Bitcoin that you bought for a dollar and watching it go to $65K and still holding it!
Down to the very last Bitcoin, there are going to be some people willing to trade them for something, whether goods, services, or fiat. But, it doesn't matter how much it may appear to be increasingly less advantageous to late arrivals, because if the structure of benefits is not based on people at the top earning off of everyone else's commissions for sales, the analogy does not work. Furthermore, if Bitcoin becomes critical to value at market, it is the use as monetary trade that matters to the late comer. The fluctuation of price can always be resolved at the split second of sale for anyone choosing to use it, so the fact that late arrivals may have intentionally chosen to wait until Bitcoin was more expensive still doesn't limit their ability to buy some if they wish to use it at market.
Let me try to actually construct the pyramid argument for the journalist.
I will start with Satoshi.
They make it, they release the code to a small group, they test it by sending Bitcoin around. Once the network starts working, there are dozens, if not hundreds, who know about it and have access to the code, the white paper, and the .exe used to run it.
Weeks, months offer an opportunity for the entire world to be that next level of the pyramid. But, Satoshi at top is not at an advantage over the others. They are on an equal playing field. Everyone who has read about Bitcoin and can run the .exe has the chance to join the network and generate their own coins. There is no hierarchy from the very moment the code is running on a network.
So, maybe they want to argue that bigger players in the network have an advantage. I will argue it is actually the opposite of a pyramid scheme, because powerful mining groups don't share in anyone else's commission, but are competing against everyone else in the network. The idea that more power means an advantage over the rest of the network is failing to see the design in the physical scarcity model. Making mining harder means the more powerful a mining rig, the more it is going to tell the next update of Bitcoin to increase difficulty. They will be imposing their own challenge against themselves. Meanwhile, these potential small nodes of centralization are challenged by pools of smaller computers that act as one large network in themselves, so there is a spread of people on an equal playing field winning transaction rewards every day, and none of them earn a portion of each other's earnings. It is a capitalistic competition that keeps the network secure. The idea that hoarding power can lead to pockets of centralization is also, itself, anti-pyramid, in the sense that Bitcoin encourages people seeking power to innovate, thus finding better, cheaper, more 'sustainable' ways of running their mining operation. Expenses are a necessary and intentional part of scarcity, and it is brilliant that it was programmed to be that way.
Everywhere you go searching for the real argument in support of the unfair structure of Bitcoin, it really fails (pun intended) at every level of the pyramid. One COULD argue that there is an "us against them" unfair advantage that people with more money and resources can get more Bitcoin until supply runs thin. But, that isn't a Ponzi scheme nor is it a pyramid scheme. That is just a tale as old as human history; greed and the story of rich man, poor man. That will always exist, but Bitcoin is designed as one of the few advantages the poor man can have if they choose to act upon it.
Rarely is there a new asset class that can create scarce wealth, and this is it.
If you come in later, you're still ahead of many others. Everyone has the same opportunity right now, and the more people who can purchase Bitcoin at any market price, the more likely they are to play in a much more fair economy than anyone has ever attempted in a closed system like a pyramid.
It would be very easy to turn this into a stronger pyramid argument than anything I have read from others, but let me give them a little more fuel. If that scarcity model truly means that people in the decades to come have very little chance in owning much Bitcoin, does it change the payout structure of diminishing returns, or is it measured solely by how much they chose to buy, when they bought it, and how much supply is left?
In a pyramid scheme, eventually it is possible to run out of seats in musical chairs. The people at the bottom of the chain have made the exact same effort as others to a degree, but they are left with fewer and fewer people to earn from. While there is a scarce supply to deal with in Bitcoin, it is a feature everyone understands exists. But even more importantly, that is the value in seeking out an investment, as opposed to an unbalanced model that some people are earning unfairly for their work compared to others.
You see, if I work 10 hours/day at the same job as you, and I get commission from each customer, and we both get the exact same number of sales, but you earn more than I do, that is called a free market. It happens, and some people have better jobs than others. But, if you and I work at the same place and I recruited you, and I earn a small portion of your commission, that is an entirely different structure. Now pretend that we both invest in the same product, but every time it goes up, I get some of your profit. That, would be a pyramid scheme. You are being punished for arriving after me, so every time you buy more of an asset or you get profit from it, I get a small piece of yours. That, would be a pyramid investment. If you simply chose to start buying later than me, you will likely pay a higher price as real scarcity kicks in. But, we both would be watching the exact same price action take place. The fact that I get a higher profit value for holding since, let's say, Bitcoin was $10, has nothing to do with me taking some of your profit; you simply ignored a good investment for a longer period of time.
Don't let anyone try to fool you into thinking Bitcoin, or any good investment, is unfairly weighed against the later arrival. It is rewarding ignorance at best, dishonesty at worst.
I hope I made some good points at every level!
And on that note, Crypto Gordon Freeman, for now... out.
