How fair is the deflationary nature of crypto currencies? The Ponzi scheme accusation revisited

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There are a lot of more or less valid criticisms of crypto currencies.

While the environmental concerns are true for PoW coins (to a point, where I would simply forbid this madness), it is less of a problem for Cardano and other PoS coins. The ridiculousness of NFTs – spiked with misunderstandings of what they really prove (almost nothing) and what you are really buying there (almost nothing) – is also a very valid criticism, especially since it is such an omnipresent hype.

But I was thinking a bit about the Ponzi scheme accusation. People getting into crypto currencies and then having a huge incentive to fuel the hype, so that they can later sell their coins to an even more naïve newcomer with large profits … until the flow of newcomers dries up, the system collapses, and the last holders lose everything.

If a crypto currency succeeds in becoming a useful currency in the long term, the system collapse and the loss of everything will not happen. It will “just” be that at some point buyers cannot expect huge gains in value anymore. The usefulness will have to suffice as an incentive to buy into an ecosystem.

But, what about the early birds? If Cardano will at some point be spectacularly successful and attract one billion users, then their average wealth will be 45 ADA (fixed maximal supply 45 billion ADA divided by 1 billion people). So (again if it is successful and useful, which is just a hope or belief now), the value of these ADA in fiat money or in purchasing power will be many times of what it is today.

This will be an unequal community/society from the very start! Those who had the information and the money lying around to enter now (more so two years ago) will be ridiculously rich for nothing more than buying an obscure coin early enough. Yes, it’s a risk. One could argue that risks legitimately should bear the chances of some profit. But becoming the Ebenezer Scrooges of tomorrow just because you had 1000 Dollar lying around in 2020?

Is this really a better system than the old one? Or are the profiteers just (partly) others?

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Interesting macroeconomic calculations, but I will certainly challenge their validity. The discussion of whether cryptos are Ponzi schemes is not new. Throughout history the usefulness of an asset is defined by the needs of their users. Most of Cardano holders are not here due to hype or speculation. They believe in the advancement of Decentralized Finance and the realization of a virtual world, where digital assets will have immense use. Cardano is the most transparent and safe medium of exchange in this new digital world.

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Hello @HeptaSean

I wouldn’t judge a new system as unfair just because the starting state is unfair. That’s a quick slippery slope to concluding that nothing can be fair ever again. If current state of society allows some to be better of then others, then any opportunity can (in theory) be of more benefit to the ones with more resources. Therefore, if viewed from perspective of a starting state then any new opportunity will have potentially higher benefits to them then ones with less resources. Even if you went as far to destroy a whole system and start with perfectly equal society, then you would concluded that it would not be fair to people that were not born yet because they had no chance to participate. Slippery slope.

Current systems starting state should not reflect how a new system is judged. I believe any new system should be judged on how far it improves on the current state (of fairness and equality in this case).

I see Cardano as a huge improvement to current system:

  1. It allows to automate decisions that previously suffered from human faults and corruption.
  2. It is a lot more inclusive then any other system as it doesn’t require residency or citizenship to participate.
  3. It is less punitive towards those that found no place in the old system or were rejected by the old system (like credit checks)
  4. It is 100% voluntary.
  5. It allows individuals to directly support and associate with other individuals of their choice with out needing approval from any middle man.
  6. It creates a global market where code can offer 100% trust even if participants do not speak the same language.

…and these are just benefits that deal with fairness and equality.

The way I see it Cardano is a financial Rosetta Stone that will be one of the elements that finally brings benefits of globalization to regular people. Instead of globalization today just being used to make higher profits for corporations.

There are many cryptos that are flat out Ponzi schemes. However, just like in any industry, a few don’t define the category. When Bernie Madoff was caught and it was revealed that his mutual fund was a Ponzi scheme, did everyone assume that all mutual funds were Ponzi? No. I believe it’s same with crypto. There are some Ponzie , some just fake and fraud, some incompetent. However most of the layer 1’s require more of a commitment and skill then any Ponzi would require.

What you are describing in that “Grater Fool” strategy is just pump and dump cycles. When ever there is liquidity and value people have incentive to buy then hype into a sale. This, unlike Ponzi, is an outside influence. In Ponzi schemes profits from new people are used by Ponzi scheme itself to pay the old investors. What you are seeing in crypto like Cardano is just market noise, greed and (to be honest) Bitcoin news cycle.

From what I can see I agree with @AntoTheo :

For example. I been buying ADA every month for past 18 months and I never sold a single ADA. (I did buy some CNFTS with it, but never sold back for fiat). I’m not planning to sell any. ADA has become my savings account. And if DeFi becomes any good on Cardano then this becomes my chequing account or maybe even investment planform.

Then any newcomers will be buying Lovelace and not ADA. Just on it’s own ADA is just a decimal point with a name. Value to fiat has no bearing to accessibility or opportunity (unless they forget to lower the fees as fiat goes down :wink: ). As long as they keep transaction fees accessible in relation to purchasing power of the “fiat-poorest” participants, then Cardano has the ability to bank the unbanked as it has set out to do.

At this point in time that is as fair and equal as it’s going to get. I don’t see any sovereign nation working on anything that would allow such inclusivity, opportunity and access as Cardano.

Was also going to comment on CNFTs but I think I reach TL:DR moment 3 paragraphs ago :grin:

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That’s not a slippery slope. That’s just true. And that is the reason, why societies have to redistribute wealth/resources/chances by taxing the ones that have far more than enough and giving it to those that have less than needed. This will never get to totally equal opportunities, but it should be the goal to come as close as possible to them.

And that again is not a slippery slope, but just the very valid point that a one-time redistribution is not nearly enough, but it has to be a perpetual redistribution system benefitting all future generations in the same way.

This, by the way, does not depend in any way on the monetary system used. Redistribution can and must be done, irrespective of whether we use fiat or cryptos. The monetary system right now is not the main problem and another one is not the main solution, in my opinion.

This sets out to be tl;dr. So just to a few of these points:

That’s a hope connected with cryptos as well as AI. And in both cases the empirical backing of this hope is at least mixed. Can we really write algorithms that are fairer? Do the non-desirable decisions of humans in the current state of affairs really all come from arbitrariness and corruption? Being lucky enough to live in a country with negligible corruption, the problem is more one of bureaucracy. Bureaucracies tend to do just what our automated decisions do: Execute rules exactly as they are written down.

Is it? How do they get their first ADA (or Lovelace)? Don’t they still have to buy them with what they were lucky enough to get in the old system? Do we have a plan for that? Is the plan that they have a right to get something or mere charity? What in the protocol guarantees them to get better salaries and easier credits?

How far does that 100% trust carry? We see people bitten by the code, losing funds every day. Funds for which they would have (depending on their resources, access to legal counsel, …) a far better chance of reversing fraudulent transactions in the old system. There are exploited DAOs and smart contracts. There is at least a long way to go.

I should have made clearer that

of course means that it is not necessarily a Ponzi. And even more so not one, where the ones at the top of the pyramid knowingly want to exploit the ones at the bottom.

But it still has some of the qualities of a Ponzi, namely disproportionally higher profits for the ones at the top of the pyramid, the early entries:

Yes, but the point was that the few hundred people already here right now will still have thousands or even millions of ADA and there is nothing in the system that changes that. Why should we have this wealth and associated power over the previously unbanked in that future? Why should they only have a savings account in the Lovelace range, while we still have one with huge amounts of ADA?

It is not just a decimal point if some of the people are on one side of it and the majority on the other.

There still are a lot of nations with medium okayish social welfare systems, there are nations with good minimum salaries, there are at least discussions about basic income grants, … This all has come under some pressure since Reagan/Thatcher/Kohl in the eighties and that development has never stopped, but it is still possible to strive for political solutions, while technology is seldomly more than a tool, while technology cannot solve social problems on its own.

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I was referring to a decision to judge a new system on a basis of current state as slippery slope. If you take current state as axiom you will always conclude back to that axiom regardless of what the new system is or brings to the table.

Never said that was a slippery slope, I was just explaining (apparently unsuccessfully :sweat_smile:) how taking current state as basis to start a score card would inevitably conclude that anything starting in such state would immediately lead to skewed score cards and spiral down to the same conclusion. Which is : Starting point is not fair, there for new thing at that starting point is not on even ground, there for new thing is unfair.

Strongly disagree with that statement. Bureaucracies may have started with such an idea, however I haven’t seen any hold up over time. Due to exactly the reasons I mentioned. Human error, corruption and incompetence. Refinements to such system are always possible and in better systems expected, but they still fail over time.

Yes.

As protocol is being built there are permission-less features and protocols that will award ADA. Also, ADA is not replacing all thing of value or currencies, so anyone willing to trade old world value for ADA gets in. It’s 100% voluntary. It is not imposed on anyone, so it doesn’t have to be charity.

As far as you are willing to use the code and verify, not just trust what random person tells you. Code is an agnostic tool. You can choose to use it for security or not.

I don’t think of early entrant or any early adapters as Ponzi leaders. They may be risk takers or even greedy or gamblers. However, just because you are early doesn’t mean you are scamming nor does it mean you hope to scam sooner.

It is if it doesn’t matter because everyone still has the same access, safety and opportunity. There is nothing stopping a skilled coder with no money from developing dApp on Cardano regardless of how many whales there are in the system. Nothing stopping someone with no bank account to open a wallet on Cardano and use it for savings. I bought my first Cardano on Ebay using PayPal credits. Then I got some more by trading some of my MTG cards.

Why do you assume that ADA will retain the main position on Cardano? It could be that one of the side chains in the future issues it’s own token (hopefully with out a dog logo :wink:) that everyone starts using as preferred currency. If protocol falters at reaching it’s goals I believe that solutions will come up. One of the main reasons why I have 90%+ of my crypto in Cardano is that the protocol is built with change in mind. As any technology it will need upgrades. maybe it will need an upgrade to tokenomics. Maybe it will develop new tokens for new uses. I find that extrapolating that far into future gets progressively away from reality, especially when we are talking about technological advancement.

100% agree with that. And I’m not advocating replacing such nations, just improving them with Cardano. I think countries, just like individuals, could benefit from replacing parts of their bureaucracies with protocol such as Cardano.

Also, 100% agree. However, if this is a tool that does advance such cause it should be considered/ tested/ implemented. Political solution and tech solutions are not mutually exclusive. There just has to be a will to give up some power at the top for benefit of the whole.

Yeah, I’ll stop here :smiley:. Sorry for dropping essays on you, but you started an interesting topic. :+1:

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I don’t know what country you are in. For my German point of view, I would still defend that the bureaucracies here very faithfully execute the rules as they are laid down. It’s just that laying down good rules is not as easy as thought.

Sometimes, even the intent is strongly against my viewpoints, but more often the rules are just flawed. … And I suppose that will also happen more often than we like, when the rules are executed by machines and not bureaucracies.

That is sounding suspiciously like the “from rags to riches” stories used to sell the old capitalist system to the masses. Still would at least question if it is more true in crypto economy than it is in fiat economy.

That, in fact, is an interesting and elegant opportunity to solve some of my concetns!

Totally okay. Especially since I’m also dropping essays. :wink:

I guess the bottom line is: I also consider the technology interesting (otherwise I would not spend so much time with it). But I need a lot more details to be convinced about the advantages in solving specific problems.

Hopefully, they will come with time. There really is no need to present them all today.

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I may not be able to answer directly but I’m still inspired to reply, excuse me if i sound off subject

I believe the biggest thing to come out of the crypto phenomenon is the aspirations for a new Voting System.

This will lead to Universal Basic Income.

In the western world or in the conditioned materialistic nature of man in the 21st century the masses are perceiving the crypto phenomenon as a way to get wealthy. *Not that it’s a very approachable way to invest in a technological innovation.

I believe it’s a backwards wish.

I watched a video of a Charles Hoskinson interview video on YouTube and he was speaking about going to a bitcoin conference early on and now.

He said it was pleasant early on and now it was very materialistic/superficial. That’s the vibe I’m getting observing twitter and my news feed.

I spend a lot of time reflecting on my train thought and emotions. I ask myself why I laugh at this and why I’m interested in that? for example

That being said I patiently observe myself Respecting the cryptocurrency revolution as a craze more than a mathematical and technological phenomenon. Even though it has the potential to be the latter.

It’s too smart for our political and social climate.

Charles Hoskinson also quoted a guy a couple days ago who wrote a paper who said something to the effect “we are at a cross road of is it going to be Web 3 or Web 2 x 2?”

Observing myself

I find myself becoming more and more of a Modern Nationalist or a New Age Communist. *I voted libertarian and usually do though i have voted republican and democrat when i trust their delivery. I respect Bernie Sanders.

With The Crypto Craze turning into what’s coming off as a Gambling mechanism

It’s Ironic that Cuba once upon a time had a bunch of Mobsters and Gangsters come in from the U.S and run Casinos and that This Inspired Fidel Castro and the Cuban Revolution.

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How about as payment for a service/goods/work? or welfare?

Early investors always win big on successful ventures no matter what it is, and likewise loose big if the venture fails… I don’t think there is any way around this… So just because early investors win big doesn’t make it a ponzi scheme.

A ponzi scheme doesn’t have anything backing it up, anyone remember onecoin?
Cardano on the other hand, is an actual immutable blockchain with a finite supply.
Likewise; Gold, is a for it’s intended purpose an immutable metal with a finite supply.
If someone where to suddenly find a massive, pure, gold vein that would ten fold the supply, I can assure you that the price of gold would massively drop. Or, even more unlikely, find an easy and verified way to destroy gold the he doesn’t own.

When you recieve/buy ada, you effectively own a mark on the chain that only you can change but anyone can verify anywhere on the planet. Long as there is interwebs, which may or may not be the weakest link…

hmmm… thoughts are coming!

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I don’t think wealthy people horde their wealth in a “locking it up” kind of sense, capital gets invested/reinvested and moved around, otherwise inflation eats it.

But in cardano world, what about all the ada that inevitably is gonna get lost in forgotten wallets?