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Discussion Starter · #1 ·
I was recently watching a documentary on ponzi schemes and other scams. Pretty interesting to see the history of what kind of stupid ideas were pitched to people. One recurring theme is that the fraudster pitches some elaborate, often ridiculous thing (for example special emu oil). Another famous one in China was a massive ponzi scheme where cardboard boxes full of ants were sold to people as special ants with healing abilities.

I am not ruling out the possibility that crypto coins of all types (BTC, ETH, etc) could be total scams or ponzi schemes. BTC is already known to have heavily concentrated original ownership (the whales) so it might have originated as an ingenious pump-and-dump scheme. The other coins might then be copy-cats, motivated to duplicate the same basic scheme in which some original owners first create a coin, and then engage in a massive PR campaign to entice others to bid up the value of that thing.

In other words you start with nothing. Then you spin a (very elaborate) story of why value exists, involving a lot of technical jargon that most people can't understand anyway. You convince people that the thing which started as nothing, is now worth spending money on. Then you take their money.

The story of WHY the coins are valuable, based on the elaborate mathematical structure, is a bit too elaborate and exotic for my taste. And I say that as someone who has worked professionally in cryptography; I've had meetings with entire teams of PhD mathematicians as we studied these things. They are interesting, yes.

The crypto "coins" stories are just a bit too fancy, too extravagant overall. It's a bit like the emu oil, or cardboard boxes full of ants. Personally, they set off my bull**** detector. At the same time they are interesting mathematical concepts with merit. The algorithms are certainly real, and work.

Consider for a moment that the interesting technological aspects could be the hook, perhaps even the misdirection, as the scam artists operate traditional pump-and-dump. The internet-based anonymity that's baked into crypto currencies could actually be the technical innovation that keeps this scam going longer than was traditionally possible. In the past, fraud artists had to meet people and sell them the scams, either in person or by mail. But today the scam artists can conceal their identities, create the coins, and then operate the entire PR campaign all from a distance, anonymously.

My point here is ... for those of you who are buying into these stories, don't rule out the possibility that they might be total scams. And I don't just mean the scammers around the peripheries, doing ICOs and stuff. I mean that the structure and innovation itself might, fundamentally, be a giant scam.
 

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The ability to perform trustless atomic swaps between 2 parties is a significant innovation.

Right now if you buy something there is a lot of trust.
Buyers have to trust they will get what they paid for.
Sellers have to trust they will be paid.

With Cryprto currency the idea that you can set up a trade, and it will only happen if both transactions take place, is amazing.

That's just one aspect that's particularly interesting.

Yes it does look like a pump and dump.
Just like fiat currency, it has value because others think it has value.

That's why I think you need to separate out blockchain technology from the crypto currencies.
 

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I know there have been several crypto exchanges that have been busted by the police, gone broke or just disappeared with everyone's money. And as you point out, there are "whales" who can push the price around the way stock pools did in the twenties since the markets are unregulated.
Whether the cryptos themselves are scams or whether the scams are a separate issue, they are certainly there.
Apparently it is possible to verify whether a bitcoin is real or fake by tracing every transaction it has ever been involved in. Over time, this is going to take more and more time and energy to do as the blockchain gets longer with use, and the coins get broken down into smaller fractions. Is this done for every transaction? And if it isn't, what is there to stop someone from making duplicate or fake bitcoins?
 

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Just like fiat currency, it has value because others think it has value.
This basic fact is also true of gold and of shares of CP.

Crypto currencies are not backed by any power to tax, nor are they subject to control by democratically instituted policy and oversight. You may pooh pooh fiat currencies all you like, but they are very much a different kettle of fish than crypto.
 

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Apparently it is possible to verify whether a bitcoin is real or fake by tracing every transaction it has ever been involved in. Over time, this is going to take more and more time and energy to do as the blockchain gets longer with use, and the coins get broken down into smaller fractions. Is this done for every transaction? And if it isn't, what is there to stop someone from making duplicate or fake bitcoins?
It's not necessary to verify the entire chain for every transaction. Once the transactions inputs are "spent" there's no longer any purpose in verifying them, although the blockchain does save the entire history. There are no fake bitcoins, as those would never have been verified in the first place. If someone wanted to make a fake bitcoin, they would need to control more the 50% of the entire network.
 

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The blockchain must record the "spent" bitcoins or they can be spent again. Hence the requirement for an ever lengthening blockchain and time delays.

One solution proposed is that there be no verification at all for small purchases, like coffee or sandwiches type of sales.

That might work in a totally honest society, but unfortunately that isn't the reality.

The word would soon get out and many people would be "double spending" bitcoins. Businesses wouldn't be inclined to adopt the trust principle.

Preventing "double spending" is the whole purpose of the blockchain as described in the words of Satoshi Nakamoto and his fellow developers.

We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU proof-of-worker. As long as a majority of CPU proof-of-worker is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers. The network itself requires minimal structure.

Satoshi and the other developers failed to recognize the problem of an ever expanding blockchain. If the blockchain is too long and requires too much time to verify transactions today with a relatively small amount of transactions, imagine the length of the blockchain and time delays that would be required if bitcoins were processing the volume of transactions by a company like VISA which handles 4,000 transactions per second.

Also of note......every transaction of bitcoins requires verification by human "miners". How would one scale that up to VISA transaction levels ?

There is no viable solution that doesn't make it more complicated than it already is......and that is too complicated for most people to bother with.
 

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As to the "trust" system of not verifying small transactions......companies quickly learned the folly of "trusting" customers when they offered "one hour delivery or free" as a guaranteed service.

When I was delivering, companies who offered that guarantee were inundated with calls for large orders of food at the busiest times in the worst weather......when it was a virtual guarantee that delivery would not be possible in one hour or less. People ordered and if the food arrived on time......they didn't answer the door. If it was late......they claimed the guarantee. It was a no-lose situation for the grifters.

Any company that currently guarantees the delivery in one hour has a long list of restrictions, which basically boil down to........not if they don't want to.

People who underestimate the level of fraud and theft in their business.........won't be in business long.

Guarantee Policy for Pizza Pizza. See......restrictions.

 

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Also of note......every transaction of bitcoins requires verification by human "miners". How would one scale that up to VISA transaction levels ?

There is no viable solution that doesn't make it more complicated than it already is......and that is too complicated for most people to bother with.
The blockchain trilemma is to develop something decentralized, scalable and secure at the same time. Bitcoin is very secure but it is not scalable for small fast transactions. Ethereum seems to be very popular because it has struck a difficult balance of the 3. Ethereum 2.0 will be more scalable.

Ethereum 2.0 will basically be 64 blockchains in parallel (current ethereum becomes the first chain of 64) This will all be transparent to the common user. Do you really know or care how the visa or debit network works at a technical level, or do you just trust it because everyone uses it everyday?

While it's still too complicated for most people it's like the internet was in the '90s. Too much hassle for mainstream use but it just needs some user interface improvements, better explanations and better PR. There are many 3rd parties developing user friendly interfaces just like developers did for the internet

Apparently it is possible to verify whether a bitcoin is real or fake by tracing every transaction it has ever been involved in. Over time, this is going to take more and more time and energy to do as the blockchain gets longer with use, and the coins get broken down into smaller fractions. Is this done for every transaction? And if it isn't, what is there to stop someone from making duplicate or fake bitcoins?
I sync'd the entire ethereum blockchain on my 2011 laptop in a few days. My CPU was the limitation. I can't say for bitcoin but ethereum has options to just archive the old transactions you rarely need. There are different clients programmed in different ways to do this and the code is constantly being improved/refined for efficiency

If you want to verify an older transaction you probably need more time/resources but for the majority of nodes it makes more sense to archive the older transactions. Ethereum 2 will split this up to 64 ways again. Most nodes won't run all 64 chains but I suppose some super nodes could
 

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Who would conduct dispute resolution on the Ethereum protocol ? Who would reverse transactions ? How long would transactions take to verify ? Who absorbs losses due to fraud ? How does a customer pay recurring charges ?

These are all actions that VISA currently conducts. People "trust" VISA because they have a long successful history of these services.

They are actions that bitcoin doesn't conduct at all. Once the bitcoin is spent........goodbye.

Will Ethereum be any different than bitcoin in that regard ?

If so, maybe there will be some progress in crypto currencies, but it is going to take awhile to convince consumers.
 

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Who would conduct dispute resolution on the Ethereum protocol ? Who would reverse transactions ? How long would transactions take to verify ? Who absorbs losses due to fraud ? How does a customer pay recurring charges ?
Ethereum foundation

This already happened in the past. Cryptocurrency protocols can be changed or updated with "forks". You can look up for example the ethereum classic "hard fork" which was implemented to reverse fraudulent transactions. You can still buy/trade "ethereum classic" today, but the vast majority "voted with their feet" and followed with the new ethereum fork.

Sometimes the network even fragments unintentionally and eventually sync's back together when software agrees by consensus which fork is the "real" chain. This is kind of the computers reaching consensus by algorithm. The users can also vote for changes to the protocol by signing with ethereum address, which can even be weighted by participation or other algorithm

There are already patents to vote for elections by blockchain. This would make elections far more transparent, efficient and valid as it is no different from any other trust based transaction. Obviously the user interface and public knowledge is not quite ready yet. But it's painfully obvious to anyone who understands the technology compared to hand counting ballots

The fact that ethereum survived a hard fork and is also able to improve/scale into ethereum 2 shows this is very possible
 

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The blockchain must record the "spent" bitcoins or they can be spent again. Hence the requirement for an ever lengthening blockchain and time delays.
If the blockchain didn't record the spent bitcoins, they weren't spent.

Also of note......every transaction of bitcoins requires verification by human "miners". How would one scale that up to VISA transaction levels ?
There are several solutions.

Visa doesn't record everything in a single database, it has a series of them.
 

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Who would conduct dispute resolution on the Ethereum protocol ? Who would reverse transactions ? How long would transactions take to verify ? Who absorbs losses due to fraud ? How does a customer pay recurring charges ?

These are all actions that VISA currently conducts. People "trust" VISA because they have a long successful history of these services.

They are actions that bitcoin doesn't conduct at all. Once the bitcoin is spent........goodbye.

Will Ethereum be any different than bitcoin in that regard ?

If so, maybe there will be some progress in crypto currencies, but it is going to take awhile to convince consumers.
What do you mean "dispute"
The transaction either happened or not.

The parties can choose to reverse the transaction or not.

People "trust" visa, because they do a really good job hiding the cost of the system.
Most people think using their credit card is "free".
 

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Visa is also shifting to USDC now (ethereum network) So I guess we're all in on this ponzi scheme!

There is some speculation that the 12 Mar crash was in part from whales dumping. But everything crashed at the same time including gold so.. I guess gold is also a pump and dump ponzi scheme?

Visa merchant fees are baked into every transaction nowadays. Those free flights aren't free
 

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Discussion Starter · #15 ·
I could create another math-based technology with the same characteristics (or a parallel concept) as Bitcoin. Then I can encourage a whole bunch of people to use it and popularize it on social media.

Anyone can do this. This is the core concern I have. Somebody started with nothing (something which has ZERO value), and convinced other people to trade money for it. If I can create the same kind of thing tomorrow, what makes BTC/ETC fundamentally valuable?

If your answer is "a critical mass of people who believe the story", the broad public has only been on board with the story for 3 years at the moment. That's an incredibly short time. It's one thing for a social belief (the story) to last 3 years, and another thing for it to persist for 20-50 years.

There are already about 20 major 'crypto coins' in circulation today. they pop up every day. Because... they are created out of thin air, by anyone.

It's very hard to distinguish this kind of thing from an outright scam. And yes to be clear, I am concerned that Bitcoin and Ethereum could be total scams too.
 

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I could create another math-based technology with the same characteristics (or a parallel concept) as Bitcoin. Then I can encourage a whole bunch of people to use it and popularize it on social media.

Anyone can do this. This is the core concern I have. Somebody started with nothing (something which has ZERO value), and convinced other people to trade money for it. If I can create the same kind of thing tomorrow, what makes BTC/ETC fundamentally valuable?

If your answer is "a critical mass of people who believe the story", the broad public has only been on board with the story for 3 years at the moment. That's an incredibly short time. It's one thing for a social belief (the story) to last 3 years, and another thing for it to persist for 20-50 years.

There are already about 20 major 'crypto coins' in circulation today. they pop up every day. Because... they are created out of thin air, by anyone.

It's very hard to distinguish this kind of thing from an outright scam. And yes to be clear, I am concerned that Bitcoin and Ethereum could be total scams too.

But that's the point.
"a critical mass of people who believe the story", do we have that now, will we have it in the future?

When people stop believing, the currency loses value.
Has happened many times, will again.

Happens to all sorts of commodities, currencies, stocks and other "things".

Honestly thats why I think a technology platform (like ethereum) has a more solid "value" than a simple cryptocurrency.
 

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Discussion Starter · #17 ·
But that's the point.
"a critical mass of people who believe the story", do we have that now, will we have it in the future?
We've had it for 3 years so far. That's not even 'one presidential term' in length.

We don't know if it will persist into the future. It's possible that this "story" has been pushed by an incredibly effective social media marketing campaign.

What happens if the marketing push behind it stops? What happens if some large initial holders (pump & dump artists) are fuelling the whole campaign, and stop fuelling it?

Will it continue to have value to the broad public? We're only at 3 years so far.
 

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There are already about 20 major 'crypto coins' in circulation today. they pop up every day. Because... they are created out of thin air, by anyone.
And that is one argument bitcoin evangelists never want to hear or just handwave away. They'll say "fiat is just a common belief too". But no, you can't just start your own fiat currency and expect it to have more value than the paper it's printed on unless it's backed by some kind of government/corporation with significant resources.

There may be a lot of nice features in crypto but those features do not mean the specific coin you're holding has to have any value. Or to put it another way: we may all be using crypto coins 100 years from now. But that does not imply that the ones currently in use will retain any value.
 

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Discussion Starter · #19 ·
There may be a lot of nice features in crypto but those features do not mean the specific coin you're holding has to have any value. Or to put it another way: we may all be using crypto coins 100 years from now. But that does not imply that the ones currently in use will retain any value.
I completely agree. It's trivially simple to create a new crypto coin. I saw a count in an article that there are now over 2000 different coins in existence. Maybe crypto coin # 3624 created in the year 2022 will turn out to be the really amazing one that pushes all the right buttons.

The ones circulating today could become totally worthless and obsoleted. Easy come, easy go.
 

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So that means that Visa will tack on fees for USDC transfers right?
The Forbes article says Visa is integrating with USDC with the help of Circle Internet Financial.. visa doesn't own USDC

Many transfer services have already integrated with or use crypto blockchain networks, transparent to the user. This gives the legacy intermediaries the benefits of blockchain tech, while charging the end user the status quo.

Paypal is another recent service to add crypto integration (pointless really, but they will become irrelevant otherwise)

I could create another math-based technology with the same characteristics (or a parallel concept) as Bitcoin. Then I can encourage a whole bunch of people to use it and popularize it on social media.

Anyone can do this. This is the core concern I have. Somebody started with nothing (something which has ZERO value), and convinced other people to trade money for it. If I can create the same kind of thing tomorrow, what makes BTC/ETC fundamentally valuable?
You can tokenize anything using ethereum network/protocols by design. Real estate is already being tokenized in Europe

Fiat is no different. Canadian Tire can create Canadian Tire money. People in Afghanistan thought Canadian Tire money was real and so it was. Anyone can print paper money. Anyone can create crypto currency. Why is the USD considered the petro dollar rather than CAD? You can use USD almost anywhere because people recognize it as valuable and liquid. Bitcoin has more volume than some fiat currencies btw

Try spending Canadian Tire money or monopoly money somewhere. It's the same thing
 
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