Proof-of-Stake, in plain English, means that all holders of crypto are periodically gifted more crypto in proportion to the amount of crypto they already owned. It means the richest people are made richer. Meanwhile, the poorest people’s crypto is reduced in value by the creation of all that new crypto which is being handed specifically to the rich.
If your solution to the energy problem is to aggressively worsen economic inequality instead, well, sadly, you’ve just replaced one problem with another. Or, even more accurately, you’ve replaced one problem by worsening another already-fatal problem, because the entire reason people buy into Bitcoin is that they hope to speculate on it as its value rises. This, of course, gives the greatest rewards to the richest people, because they were able to buy the most Bitcoin in the first place.
Proof-of-work crypto already drives horrific inequality, because it is simply a speculative asset. Proof-of-stake drives it far faster, because it is a speculative asset which multiplies itself, handing the new coins to the people who already had the most coins.
...Until it all collapses, that is, because it’s a Ponzi scheme.
PoS does not alter the fundamental truth that *every* cryptocurrency is a Ponzi scheme (see the article I linked to in my previous comment). So honestly, all this talk I’m giving about the environmental and macroeconomic effects of crypto is laughable. It’s a Ponzi scheme! Why would we need to have a discussion that goes into any more detail than that? Why would any of this other stuff even matter when we are talking about a Ponzi scheme? Why does anything else even need to be said?
How is Ethereum, in particular, a Ponzi scheme? How does new investors’ money pay previous investors? How would a bank run and collapse even be possible in principle? (Sure, if everyone sells the price will go down, but as long as there are markets it will always be possible to sell. It is pretty similar to a publicly traded stock in this regard). Ethereum has a burn mechanism whereby ETH is burned in proportion to useage of the network. People using the network pay fees. This is actually more than balancing the new production of ETH for interest paid to stakers, so the net supply is actually reducing slightly now (and is unlikely to increase much even if there is low usage—see ultrasound.money). Proof-of-Stake is kind of like an interest bearing savings account (although in a highly volatile currency). And it’s not just open to the rich—to run your own node you need 32 ETH, but there are plenty of 3rd party services that offer staking to people putting in even very small amounts (e.g. 0.1 ETH or less; this does require you to factor in counterparty risk; but you also need to do this for savings accounts etc). [None of this is financial advice.]
How is Ethereum, in particular, a Ponzi scheme? How does new investors’ money pay previous investors?
New investors’ money pays previous investors whenever someone buys Ethereum from someone else. That’s what buying crypto fundamentally is: a new investor is paying a previous investor. That’s the fundamental building block of the crypto “economy”. That’s why they’re all Ponzi schemes.
How would a bank run and collapse even be possible in principle?
It’s happened many times already. The price of crypto collapses regularly, and then people who haven’t learned the obvious lesson decide to “buy the dip”.
“It is pretty similar to a publicly traded stock in this regard.”
The difference is that a stock confers part ownership of a business, whereas crypto’s value is entirely speculative; it’s only valuable because other people think it is. The entire “value” of a cryptocurrency is derived from hype, like any Ponzi asset.
“It’s not just open to the rich.”
The more money you have, the more crypto you can buy. Thus, between collapse cycles, “investors” make profit in direct proportion to the amount of pre-existing wealth that they could afford to invest. In this way, speculative assets systematically transfer wealth from poor to rich.
New investors’ money pays previous investors whenever someone buys Ethereum from someone else. That’s what buying crypto fundamentally is: a new investor is paying a previous investor.
How is this any different from buying stocks, or buying anything else for that matter. How does it make it a Ponzi? Where is the pyramid? Where is the insolvency?
It’s happened many times already. The price of crypto collapses regularly, and then people who haven’t learned the obvious lesson decide to “buy the dip”.
All markets have crashes. Crypto has had some severe ones, and is high risk, sure; but it hasn’t ever gone to 0 (like all actual Ponzi schemes always do eventually).
The difference is that a stock confers part ownership of a business, whereas crypto’s value is entirely speculative; it’s only valuable because other people think it is.
Crypto (or at least Ethereum) is part ownership of a technology. All investing is ultimately speculative, and all investments only have value because other people think they do and are willing to buy them for some price (money is a collective fiction etc).
The more money you have, the more crypto you can buy. Thus, between collapse cycles, “investors” make profit in direct proportion to the amount of pre-existing wealth that they could afford to invest. In this way, speculative assets systematically transfer wealth from poor to rich.
Again, the the same can be said for all investments; crypto isn’t special in this regard. Sounds like your problem is more with capitalism itself. Why hasn’t all the money in the world been transferred to a few rich people already? Because rich people sometimes lose fortunes too! (And many have on crypto!) How do people ever become rich starting poor? Investing in speculative assets can be one way; and it has happened many times with crypto—if anything, I think crypto has disproportionally benefited relatively poor people, who got in before most people with already established fortunes. A lot of new money fortunes have been made in crypto (same also for people who bought Apple, Google and Amazon stock 20 years ago).
“How is this any different from buying stocks, or buying anything else for that matter?”
See point 3 in my previous comment.
”Crypto (or at least Ethereum) is part ownership of a technology.”
No, it’s not. You don’t have part ownership of anything. You haven’t bought up intellectual rights. You have your name written in a ledger. That’s all “ownership” of crypto is: your name is written in a ledger, indicating your ownership of… nothing. ‘Part ownership of x’ could be used to describe anyone’s stake in any Ponzi scheme ever.
“All investments only have value because other people think they do.”
If you buy a 1% stake in a company, you own 1% of its assets. Physical, tangible things that have a capacity to do useful economic work. If you buy land, you can charge rent for its use, or occupy it yourself. If you buy a computer, you can use it to do work. If you buy an orange, you can eat the orange to metabolize its nutrients. In contrast, a bitcoin has zero capacity to do useful economic work; its “value” comes from the potential to find a bigger fool to sell it to for profit.
“Why hasn’t all the money in the world been transferred to a few rich people already?”
All the money in the world is being transferred to a few rich people. This is what is currently happening. See Pixel Wealth.
”I think crypto has disproportionally benefited relatively poor people, who got in before most people with already established fortunes.”
I’m not a fan of Bitcoin either (it’s basically just digital gold—what do you think of gold as a store of value?). Much prefer Ethereum. It is a physical (distributed) computer system has many economic applications. Ether has been likened to digital oil (but obviously much more green—as per my original comment).
Bitcoin is NOT like gold. Gold, unlike cryptocurrencies, is a tangible item that can be used for things. (Electronics, jewelry, etc.)
And unlike bitcoin-hoarding, with its massive losses in the forms of electricity and computer hardware, gold-hoarding isn’t a massively negative-sum game. But that’s beside the point: crypto is a Ponzi scheme and gold isn’t because gold can do economic work and cryptocurrency can’t.
I’ve been over Ethereum’s fundamental toxicity—both the fundamental toxicity of PoS and the fundamental toxicity of cryptocurrencies in general—in my previous comments.
Gold is valued way over and above its direct economic value for making things! It’s valued primarily for being a store of value (as bitcoin is—hard to fake, divisible, transportable etc). Some people use bitcoin mining rigs to heat their home. I think that’s pretty equivalent to using gold in electronics (i.e. useful economic work, but not the primary source of value).
I don’t think any of the fundamental toxicity you mention regarding PoS or Ethereum is unique to crypto—it applies to most forms of capital (stocks, bonds, private equity, real estate).
Proof-of-Stake, in plain English, means that all holders of crypto are periodically gifted more crypto in proportion to the amount of crypto they already owned. It means the richest people are made richer. Meanwhile, the poorest people’s crypto is reduced in value by the creation of all that new crypto which is being handed specifically to the rich.
If your solution to the energy problem is to aggressively worsen economic inequality instead, well, sadly, you’ve just replaced one problem with another. Or, even more accurately, you’ve replaced one problem by worsening another already-fatal problem, because the entire reason people buy into Bitcoin is that they hope to speculate on it as its value rises. This, of course, gives the greatest rewards to the richest people, because they were able to buy the most Bitcoin in the first place.
Proof-of-work crypto already drives horrific inequality, because it is simply a speculative asset. Proof-of-stake drives it far faster, because it is a speculative asset which multiplies itself, handing the new coins to the people who already had the most coins.
...Until it all collapses, that is, because it’s a Ponzi scheme.
PoS does not alter the fundamental truth that *every* cryptocurrency is a Ponzi scheme (see the article I linked to in my previous comment). So honestly, all this talk I’m giving about the environmental and macroeconomic effects of crypto is laughable. It’s a Ponzi scheme! Why would we need to have a discussion that goes into any more detail than that? Why would any of this other stuff even matter when we are talking about a Ponzi scheme? Why does anything else even need to be said?
How is Ethereum, in particular, a Ponzi scheme? How does new investors’ money pay previous investors? How would a bank run and collapse even be possible in principle? (Sure, if everyone sells the price will go down, but as long as there are markets it will always be possible to sell. It is pretty similar to a publicly traded stock in this regard). Ethereum has a burn mechanism whereby ETH is burned in proportion to useage of the network. People using the network pay fees. This is actually more than balancing the new production of ETH for interest paid to stakers, so the net supply is actually reducing slightly now (and is unlikely to increase much even if there is low usage—see ultrasound.money). Proof-of-Stake is kind of like an interest bearing savings account (although in a highly volatile currency). And it’s not just open to the rich—to run your own node you need 32 ETH, but there are plenty of 3rd party services that offer staking to people putting in even very small amounts (e.g. 0.1 ETH or less; this does require you to factor in counterparty risk; but you also need to do this for savings accounts etc). [None of this is financial advice.]
How is Ethereum, in particular, a Ponzi scheme? How does new investors’ money pay previous investors?
New investors’ money pays previous investors whenever someone buys Ethereum from someone else. That’s what buying crypto fundamentally is: a new investor is paying a previous investor. That’s the fundamental building block of the crypto “economy”. That’s why they’re all Ponzi schemes.
How would a bank run and collapse even be possible in principle?
It’s happened many times already. The price of crypto collapses regularly, and then people who haven’t learned the obvious lesson decide to “buy the dip”.
“It is pretty similar to a publicly traded stock in this regard.”
The difference is that a stock confers part ownership of a business, whereas crypto’s value is entirely speculative; it’s only valuable because other people think it is. The entire “value” of a cryptocurrency is derived from hype, like any Ponzi asset.
“It’s not just open to the rich.”
The more money you have, the more crypto you can buy. Thus, between collapse cycles, “investors” make profit in direct proportion to the amount of pre-existing wealth that they could afford to invest. In this way, speculative assets systematically transfer wealth from poor to rich.
How is this any different from buying stocks, or buying anything else for that matter. How does it make it a Ponzi? Where is the pyramid? Where is the insolvency?
All markets have crashes. Crypto has had some severe ones, and is high risk, sure; but it hasn’t ever gone to 0 (like all actual Ponzi schemes always do eventually).
Crypto (or at least Ethereum) is part ownership of a technology. All investing is ultimately speculative, and all investments only have value because other people think they do and are willing to buy them for some price (money is a collective fiction etc).
Again, the the same can be said for all investments; crypto isn’t special in this regard. Sounds like your problem is more with capitalism itself. Why hasn’t all the money in the world been transferred to a few rich people already? Because rich people sometimes lose fortunes too! (And many have on crypto!) How do people ever become rich starting poor? Investing in speculative assets can be one way; and it has happened many times with crypto—if anything, I think crypto has disproportionally benefited relatively poor people, who got in before most people with already established fortunes. A lot of new money fortunes have been made in crypto (same also for people who bought Apple, Google and Amazon stock 20 years ago).
“How is this any different from buying stocks, or buying anything else for that matter?”
See point 3 in my previous comment.
”Crypto (or at least Ethereum) is part ownership of a technology.”
No, it’s not. You don’t have part ownership of anything. You haven’t bought up intellectual rights. You have your name written in a ledger. That’s all “ownership” of crypto is: your name is written in a ledger, indicating your ownership of… nothing. ‘Part ownership of x’ could be used to describe anyone’s stake in any Ponzi scheme ever.
“All investments only have value because other people think they do.”
If you buy a 1% stake in a company, you own 1% of its assets. Physical, tangible things that have a capacity to do useful economic work. If you buy land, you can charge rent for its use, or occupy it yourself. If you buy a computer, you can use it to do work. If you buy an orange, you can eat the orange to metabolize its nutrients. In contrast, a bitcoin has zero capacity to do useful economic work; its “value” comes from the potential to find a bigger fool to sell it to for profit.
“Why hasn’t all the money in the world been transferred to a few rich people already?”
All the money in the world is being transferred to a few rich people. This is what is currently happening. See Pixel Wealth.
”I think crypto has disproportionally benefited relatively poor people, who got in before most people with already established fortunes.”
No.
https://www.wsj.com/articles/bitcoins-one-percent-controls-lions-share-of-the-cryptocurrencys-wealth-11639996204
And to remove any lingering doubt:
No. https://www.newsweek.com/dogecoin-co-creator-says-cryptocurrency-inherently-right-wing-technology-1609862
No. https://www.fool.com/investing/2022/03/04/how-crypto-increases-economic-inequality/
No. https://gizmodo.com/bitcoin-crypto-bank-of-international-settlements-1849784466
No. https://twitter.com/davetroy/status/1478017698676228099
No. https://davidgerard.co.uk/blockchain/2021/03/11/nfts-crypto-grifters-try-to-scam-artists-again/
No. https://davidgerard.co.uk/blockchain/2021/02/12/libra-shrugged-chapter-6-banking-the-unbanked/
No. https://web3isgoinggreat.com/
I’m not a fan of Bitcoin either (it’s basically just digital gold—what do you think of gold as a store of value?). Much prefer Ethereum. It is a physical (distributed) computer system has many economic applications. Ether has been likened to digital oil (but obviously much more green—as per my original comment).
Bitcoin is NOT like gold. Gold, unlike cryptocurrencies, is a tangible item that can be used for things. (Electronics, jewelry, etc.)
And unlike bitcoin-hoarding, with its massive losses in the forms of electricity and computer hardware, gold-hoarding isn’t a massively negative-sum game. But that’s beside the point: crypto is a Ponzi scheme and gold isn’t because gold can do economic work and cryptocurrency can’t.
I’ve been over Ethereum’s fundamental toxicity—both the fundamental toxicity of PoS and the fundamental toxicity of cryptocurrencies in general—in my previous comments.
Gold is valued way over and above its direct economic value for making things! It’s valued primarily for being a store of value (as bitcoin is—hard to fake, divisible, transportable etc). Some people use bitcoin mining rigs to heat their home. I think that’s pretty equivalent to using gold in electronics (i.e. useful economic work, but not the primary source of value).
I don’t think any of the fundamental toxicity you mention regarding PoS or Ethereum is unique to crypto—it applies to most forms of capital (stocks, bonds, private equity, real estate).