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Hierarchies, Pyramids and Ponzi schemes

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HierarchiesPyramidsandPonzischemes3.png

 

 

 

Wiki;

"
A
hierarchy
(Greek: hierarchia (ἱεραρχία), from
hierarches
, "leader of sacred rites") is an arrangement of items (objects, names, values, categories, etc.) in which the items are represented as being "above," "below," or "at the same level as" one another. Abstractly, a hierarchy can be
modelled mathematically
as a
rooted tree
: the root of the tree forms the top level, and the children of a given vertex are at the same level, below their common parent.

A hierarchy (sometimes abbreviated HR) can link entities either directly or indirectly, and either vertically or horizontally.
The only direct links in a hierarchy, insofar as they are hierarchical, are to one's immediate superior or to one of one's subordinates
, although a system that is largely hierarchical can also incorporate alternative hierarchies. Indirect hierarchical links can extend "vertically" upwards or downwards via multiple links in the same direction, following a
path
. All parts of the hierarchy which are not linked vertically to one another nevertheless can be "horizontally" linked through a path by traveling up the hierarchy to find a common direct or indirect superior, and then down again. This is akin to two
co-workers
or
colleagues
; each reports to a common superior, but they have the same relative amount of authority. Organizational forms exist that are both alternative and complimentary to hierarchy.
Heterarchy
(sometimes abbreviated HT) is one such form."

 

 

It's the prevalence and structure of hierarchies that is up for debate in this thread.

 

 

 

 

 

 

"A
pyramid
(from
Greek
: πυραμίς
pyramis
[1]
) is a
structure
whose shape is roughly that of a
pyramid
in the geometric sense; that is, its outer surfaces are triangular and converge to a single point at the top. The base of a pyramid can be trilateral, quadrilateral, or any
polygon
shape, meaning that a pyramid has at least three outer triangular surfaces (at least four
faces
including the base). The
square pyramid
, with square base and four triangular outer surfaces, is a common version.

A pyramid's design, with the majority of the weight closer to the ground,
[2]
and with the
pyramidion
on top means that less material higher up on the pyramid will be pushing down from above. This distribution of weight allowed early civilizations to create stable monumental structures.

Pyramids have been built by civilizations in many parts of the world. For thousands of years, the
largest structures
on Earth were pyramids—first the
Red Pyramid
in the
Dashur Necropolis
and then the
Great Pyramid
of
Khufu
, both of
Egypt
, the latter the only one of the
Seven Wonders of the Ancient World
still remaining"

 

 

It's also the prevalence and structure of pyramids that is up for debate in this thread.

 

 

 

 

 

 

 

A
Ponzi scheme
is a
fraudulent
investment
operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.
[1]

The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered
securities
.

 

 

 

And (guess what?) the prevalence and structure of Ponzi schemes is also up for debate in this thread.

 

 

Hierarchies are seemingly universal and even outside the corporate structure, if they aren't quantified, they are implicit and ubiquitous. What do I mean? Well, any entrant into an organisation or workplace will no doubt ensure you are quickly focused on your place within the structure vertically, but not necessarily horizontally. In any neighbourhood there is an implied stratification of status when after your new neighbour has asked your name, it's inevitably followed by, "What do you do?". We all seem to have a need to know where we fit into a sometimes imperceptible structure of hierarchy within society, even on a subconscious level. Why?

 

Think of Pyramids and you think of Egypt, how valuable must that be for tourism within Egypt? Was that running through the minds of those who commanded that they be built? Who knows, but it's a powerful symbol and an amazing landmark that deserves attention to this day. Take the pyramid at Giza, for example - the website http://www.gizapyramid.com/ asks;

 

 

 

 

 

 

"
Why is there so much interest about the Great Pyramid of Giza? Is there something unique about this pyramid? In the last 100 years, this assumption has been questioned for several reasons."

 

A pyramid is a polyhedron for which the base is a polygon and all lateral faces are triangles. There is something mystical and hypnotic about them;

 

Purple_spinning_pyramid_.gif

 

 

 

Ilya-Pitalev_RIA-Novosti-mavrodi-468.jpg

 

Sergei Mavrodi is Russia's Madoff;

 

from Russia Beyond the headlines;

 

 

"Moscow’s Madoff is Back

 

 

Sergei Mavrodi founded the notorious financial pyramid in the 1990s and his new project is expanding with a vengeance. To what extent such pyramid schemes can be dangerous in the Internet era?

 

It’s 2012, and MMM – the company behind Russia’s most notorious pyramid scheme – is reopening offices. Sitting in his office at 16 Pushkarev Lane, in the center of Moscow, Andrei Kim, head of the MMM-2011 Information Counseling Center Club reported that 15 million people from across the former Soviet space have invested in Sergei Mavrodi’s new pyramid scheme since its launch in January 2011. This office is one of 150 similar organizations operating under the same brand.

 

RIA-Novosti-Mavrodi_200.jpg

 

 

 

 

The space features a lobby with a coffee machine, three not especially spacious offices, and a small warehouse for promotional products. The company is now publishing books and newspapers in addition to brochures. There’s a hall for a few dozen people where they hold training sessions and lectures for new and existing participants in the system. Andrei Kim calls himself an ardent supporter of Sergei Mavrodi’s ideas. In his office, there’s even a small bust of the great schemer.

 

“I’ve already booked a stone craftsman to carve us a life-size bust of Sergei Panteleevich [Mavrodi],” said Kim. He claims that in August 1994, when riot police shut down MMM’s head office on Varshavskoye Highway, he lost $200,000. He wouldn’t say whether he has earned a comparable amount through the new pyramid scheme, but he notes that he is waiting for Mavrodi to return the $200,000 to him: a year ago, the MMM founder promised to compensate victims for losses in all the Russian pyramid schemes.

 

Andrei Kim joined MMM-2011 in February 2011. Participants in the MMM system are divided into thousands, hundreds, and tens, and each cell has a manager––called, respectively, a thousand’s manager, hundred’s manager, and ten’s manager. Kim has been a hundred-thousand’s manager since November of last year. What he did before that, he doesn’t say. And now heading the structure that he calls the MMM-Guard is his only occupation. Kim says that he manages a sum of 100 million rubles ($3.3 million).

 

According to Kim, the MMM-Guard has 10 offices, five of them in Moscow. Kim insists that he has not yet faced pressure or even interest from the authorities. Authorities do not seem to notice Mavrodi’s new project, although there are a ton of videos on his website, like the one where a successful participant in the project is inside a BMW dealership, handing over documents for a new X6.

 

The MMM-2011 rules have hardly changed in a year. The base rate of return is 20 percent per month, or nearly 800 percent per year through a compound interest scheme. In addition, the system has deposit programs with a rate of return of 75 percent per month. To join the system, you have to register at sergey-mavrodi.com and wait for someone to contact you, or else find your own ten’s manager––the most active have their own websites. The idea is that you can enter with any amount but, for example, Andrei Kim’s MMM-Guard no longer accepts deposits of less than 30,000 rubles ($1,000). The ten’s manager will offer to transfer money to the cell’s bank account. You can keep your money to yourself (for this it is recommended that you open an account with Sberbank), but doing any transactions with them independently is prohibited. A ten’s manager may request a cash flow statement at any time. Incentives are provided to attract new participants: 20 percent with the first transfer and 10 percent with each additional one. Cell leaders are also paid for their work: a ten’s manager receives 5 percent for any payment to his cell, a hundred’s manager 3 percent, and a thousand’s manager 1 percent.

 

A year ago, the Federal Antimonopoly Service sent the Ministry of the Interior the opinion of its Expert Board recognizing MMM-2011 as a financial pyramid scheme."

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A cursory search for MLM reveals;

 

MLM3.jpg

multi%20level%20marketing.JPG

 

 

 

mlm-scam-pyramid.jpg

 

 

 

Which rather feeds into the point of this thread - Hierarchies - Pyramids - Ponzi Schemes, the differences, similarities and prevalence of them in the world.

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The interesting "Tell" of real power is who pays no US income tax, or no capital gains tax...

 

United Nations, The World Bank, and IMF employees

=====

It’s every hardworking American’s dream: a tax-free income. And for one small portion of the population, it’s a dream come true. American employees of the United Nations and its affiliate organizations, the World Bank and International Monetary Fund, enjoy a system that lets them keep most all of their income, free from the deductions typically imposed by Uncle Sam.

Read more at http://www.thefiscal...4jZ70YT80bjM.99

 

Henry Paulson

 

Tim Geithner

 

 

No wonder these "leaders" think they are above the law !

 

When will this absurd loophole be closed ??

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Is an OLD PROBLEM going to be addressed by Obama ?

 

This comment is from 2009 -

The problem of Conflicts has still not been addressed, and the economy stagnates,

Consumers may long for "the cure" of lower prices, but Obama and the Fed are not giving it too them.

 

This policy SAVES BANKS, but imperils individual consumers, and those whose jobs depend on some level of demand returning:

 

Slightly off-topic rant

I really hope Obama wakes up and realizes that his economic team is a disaster. These shenanigans and revolving doors between government and financial companies has to end. And it needs to happen soon. Obama’s current team is trying to reflate and revive the bubble. Tim Geithner, Larry Summers, and Ben Bernanke will not save us from this crisis. They are exacerbating it, and played a major role in causing it. One of Mr. Bernanke’s central tenants is that a “savings glut” is the major cause of our problems. Yes, that’s right. He actually believes that savings, not debt, are at the root of the problem.

The administration’s economic beliefs have been discredited. They obviously favor big banks over taxpayers and savers. The inflation they are stoking now could be disastrous in a few years. And the moral hazards are incalculable. They are encouraging even more risk-taking and reckless lending, which will negatively affect our economy for decades. But for now, banks can rest assured that they’ll be bailed out in the future, regardless of risks they take and the bonuses they grant.

/more: http://www.bearishnews.com/post/524

 

Here's the latest interview with Ben Fulford:

http://altmedia.tv/w...?v=MWUWG1S7RYYK

 

Near the beginning he makes a quick comment:

 

"Obama fired everyone in the Cabal, and now they are out to get him."

 

ap_obama_cabinet_090213_xwide.jpg

 

(Barry, you want some new targets for those drones you like so much?

Replacing some of these folks might help restore some freedoms that were lost in 2009-2012)

 

There might actually be something in this

 

(Look who is gone):

 

+ David Petraeus

 

(Look who is going - cabinet members likely to be replaced):

 

+ Hillary Clinton

+ Leon Panetta

+ Tim Geithner

 

Still, Obama is weighing replacements for high-profile officials expected to leave his Cabinet and the White House soon. Treasury Secretary Timothy Geithner and Secretary of State Hillary Rodham Clinton both want to step down but have indicated a willingness to push their departures into next year, or at least until successors are confirmed. Defense Secretary Leon Panetta also wants to retire next year.

"The first thing is to try to find a way out of the box we're in with regards to the fiscal cliff," said Tom Daschle, the former Senate majority leader who is close to Obama. "When the new Congress convenes they'll begin the nominating process for what I expect will be a good number of vacancies."

 

/more: http://www.eveningsu...rce=most_viewed

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ATTEMPTED COUP RUMORS - connected to resignation of Petraeus ?

 

Sorcha Faal: Obama Topples Top Coup Leader After Washington Gunbattle

 

Date: Saturday, 10-Nov-2012 09:05:52

 

The Main Intelligence Directorate (GRU) is reporting today that President Barack Obama has accelerated the purge of US Military officers involved in a coup against his regime by the “firing in disgrace” of former Four-Star Army General and current Director of the Central Intelligence Agency (CIA) David Petraeus [photo 2nd left] yesterday.

According to this report, after his refusal to meet at the White House with Obama this past week, US Federal Forces loyal to the President stopped General Petraeus’ vehicle in DuPont Circle in Washington D.C. yesterday (Friday) morning whereupon a short gun battle ensued (Washington D.C. police are reporting this incident as an attempted robbery). General Petraeus was, then, apprehended, brought before Obama and forced to resign in disgrace over his supposedly admitting to an extramarital affair.

 

General Petraeus’s toppling follows similar attacks by the Obama regime in the past 3 weeks that has seen the unprecedented ouster of many top US Military leaders including Rear Admiral Charles M. Gaouette, US Army General Carter Ham, Brigadier General Jeffery A. Sinclair, and US Navy Commander Joseph E. Darlak, all of whom we had previously reported on in our reports “Obama Coup Plot Slams Into Russia” and “Obama Fires Top Admiral As Coup Plot Fears Grows.”

 

GRU analysts in this report say that Obama’s moves against his rebellious military most closely resembles those actions taken by President Franklin Roosevelt in 1933 against those involved in what is now referred to as “The Business Plot” engineered by wealthy American businessmen who were plotting to create a fascist veterans' organization and use it in a coup d'état to overthrow the US government.

Under great pressure to jail and charge with treason many top US Military officers after the failed 1933 coup attempt, this report says, Roosevelt, instead, opted to simply oust those Generals and other high-ranking officers in order to spare his country the turmoil such a revelation would cause among the American people.

 

===

/source: http://www.rumormill...mes;read=259583

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Here's the latest interview with Ben Fulford:

http://altmedia.tv/w...?v=MWUWG1S7RYYK

 

Near the beginning he makes a quick comment:

"Obama fired everyone in the Cabal, and now they are out to get him."

 

And in this new article, he expands on what he meant by that:

 

Ben Fulford: World intervention saves Obama, prevents World War 3,

Posted on November 12, 2012

 

The Dragon family and governments of the non-Western world acted decisively to get Barak Obama re-elected as president because a Romney victory would have meant World War 3, according to multiple sources.

 

Obama was cut off of his election finances by the Pope and the Queen three weeks before the election and would have lost if the Dragon family and others did not step in and finance him, according to CIA and Asian government sources. Obama returned the favor by complying to a request to purge Bush/Nazi operatives from the government and the military, the sources say.

 

That is why Timothy Geithner, Hillary Clinton, Eric Holder and other bush operatives were fired. The purge at the pentagon and agencies included CIA Chief David Petraeus, Rear Admiral Charles M.Gaouette, US Army General Carter Ham, Brigadier General Jeffery A. Sinclair, and US Navy Commander Joseph E. Darlak, according to CIA and other agency sources.

 

Obama now has a totally different set of handlers and teleprompter script writers than he did in his first term. The agenda he is expected to follow is to set the stage for a swords to plowshares transition of the military industrial complex.

 

He is also expected to oversee the dismantling of the Federal Reserve Board.

 

The voting patterns for Obama reflected the fact that he was elected thanks to non-Europeans. He got over 70% of Hispanic, Asian and Jewish votes, close to 100% of African American votes and only 39% of European American votes. There was also massive support from the 180 nations of the world that are sick and tired of never ending American and European war-mongering.

 

Obama is now a high priority assassination target of the Nazi/Bush faction, according various sources.

===

/more: http://nesaranews.bl...tion-saves.html

 

If it is true (show me!) then maybe we can punch the sky in support of this new mission

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The coups “master plan”, this GRU report says, was for US Republican Presidential nominee Mitt Romney to be assassinated just prior to the 6 November election whereupon General Petraeus would become the Republican candidate under their party’s rules allowing him to be put into Romney’s place by a majority of State Representatives as allowed under RNC party rules.

If such a scenario were allowed to occur, this report continues, General Petraeus would have most certainly became the next President of The United States due to his unprecedented popularity with the American people.

Important to note is that the only US mainstream media outlet attempting to report on this coup attempt was the magazine GQ, who in an article this past week, written by Marc Ambinder, detailed the massive security forces ordered by Obama to be put around both himself and Romney during the final weeks of the election and the many assassination attempts that were, likewise, foiled.

/source: http://nesaranews.blogspot.hk/2012/11/obama-topples-top-coup-leader-after.html

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SAPS the productivity from the real economy...

 

As people get bored at work, and "sneak some time" on these distractions

 

But... it also keeps unemployed people busy,

instead of thinking about how they might get real jobs

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People may be familiar with Maslow's hierarchy of needs;

 

maslows-hierarchy.jpg

 

 

 

 

Climbing to the top of the pyramid - there are many who have achieved this. Self actualising is about reaching your full potential, so who could we classify as having achieved this?

 

 

220px-Dalai_Lama_1430_Luca_Galuzzi_2007crop.jpg1306182752mother-teresa.jpgmahatma-gandhi-pictures.jpg

 

 

 

Or from the business world;

 

 

Steven-Jobs-9354805-2-402.jpghi005172180_bill_gates.jpg20_georgesoros_250x375.jpg

 

 

But it's not necessarily those who have achieved success in their field and social prominence, it just follows that these people through their success have therefore become more socially prominent.

 

 

I have a strong belief that people in general have great untapped potential within them, so my message to GEI members today is;

 

Have you achieved your full potential?

 

What are the barriers?

 

What are the stepping stones, or rungs?

 

What are the conflicts, in terms of social norms?

 

 

Certainly within the UK there are examples of situations where someone has become successful but people seem to be quick to try to pull them down - the press seem to be particularly bad for this, there is far less celebration of success, compared to the US for example, so that is what I am referring to in terms of social norms. A further example is at my workplace, a recent initiative has been to put forward examples of work that has been a "success", but very few examples are put forward, despite there being clear examples of success stories at work. Perhaps this is a curiously British characteristic? Or perhaps it's more of a flaw? (Sometimes I think people in other countries must view Brits as rather quaint in some ways)

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Certainly within the UK there are examples of situations where someone has become successful but people seem to be quick to try to pull them down - the press seem to be particularly bad for this, there is far less celebration of success, compared to the US for example...

 

The "Tall Poppy" syndrome.

If it sticks up too high, chop it down

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Who Really Runs the World ?

 

Learn about the FreeMasons from a former insider

 

11/08/2012 right www.facebook.com/occupyfreemasonry Telling the story o

 

MP3 : http://www.americanfreedomradio.com/archive/Vinny-Eastwood-32k-110812.mp3

 

Thursday - James Wright www.facebook.com/occupyfreemasonry Telling the story of Freemasonry, rituals, influence, corruption, scandal, magic, evil and conspiracy. True of a small faction that is taking control of the secret society and its networks worldwide, engaged in a desperate race to put a one world government in place with the dark occulted rituals of Freemasonic lore as its new central church.

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This thread is awesome. Never heard of tall poppy syndrome. Have known about adored Maslow's Heirarchy of Needs (I didn't see a pic of Einstein though, probably my favourite self-actualiser).

 

For myself I know I have not attained my full potential but I'm sure I've started successfully self-actualising in some areas. And yes, people DO pull you down. I understand why successful people can appear aloof now. You really have to be careful who you associate with, and furthermore take care not to knock others just because you feel low about achieving your own potential... UNLESS of course that is your game plan, then you have to think like a general and remember the Art of War!

 

Steve Jobs, my 2nd favourite self-actualiser, was utterly brilliant, brutal and ruthless in his manipulation of people to do his bidding. He'd build up otherwise meek but highly intelligent (if socially awkward and shy) engineers, e.g. Steve Wozniak and Jony Ive, to achieve great things i.e. the first Apple computers and iDevices respectively.

 

Those who self-actualise and have a big enough ego know not to let others knock them off their perch!!

 

And as for the internet sapping productivity out of the economy, well... just take a look at this forum, which for all its madness and eccentricity is quite a brightly lit and fun, fascinating, educational if controversial place and for me is a lovely opportunity to use completely separate parts of my brain to what my dayjob demands. As such, I theorise, a productive employee is the happy employee: the employee who is permitted to take little breaks throughout their shift and respected by their boss.

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This thread is awesome. Never heard of tall poppy syndrome. Have known about adored Maslow's Heirarchy of Needs (I didn't see a pic of Einstein though, probably my favourite self-actualiser).

 

For myself I know I have not attained my full potential but I'm sure I've started successfully self-actualising in some areas. And yes, people DO pull you down. I understand why successful people can appear aloof now. You really have to be careful who you associate with, and furthermore take care not to knock others just because you feel low about achieving your own potential... UNLESS of course that is your game plan, then you have to think like a general and remember the Art of War!

 

Steve Jobs, my 2nd favourite self-actualiser, was utterly brilliant, brutal and ruthless in his manipulation of people to do his bidding. He'd build up otherwise meek but highly intelligent (if socially awkward and shy) engineers, e.g. Steve Wozniak and Jony Ive, to achieve great things i.e. the first Apple computers and iDevices respectively.

 

Those who self-actualise and have a big enough ego know not to let others knock them off their perch!!

 

Of course Einstein, but of course history is replete with many great people. Regarding self-actualising, I would say that I am in that phase and travelling higher, albeit not quite as quickly as I would like, it certainly appears to be a marathon for me anyway. But in terms of ego I have consciously tried to be ego-less as far as possible as I believe that less ago = better judgement, and in my opinion that has been one of the factors propelling me higher up that pyramid...

 

That said everyone's journey is different, that may just be particular to me. I would say that some of the success I have had trading investing has been absolutely down to that aspect of truth seeking irrespective of egotistical concerns. I'm as ready to point out my successes as I am my mistakes and flaws, I find it brings balance.

 

And as for the internet sapping productivity out of the economy, well... just take a look at this forum, which for all its madness and eccentricity is quite a brightly lit and fun, fascinating, educational if controversial place and for me is a lovely opportunity to use completely separate parts of my brain to what my dayjob demands. As such, I theorise, a productive employee is the happy employee: the employee who is permitted to take little breaks throughout their shift and respected by their boss.

 

According to studies at MIT the factors that motivate workers are not what you might imagine (ie it's not all about the money as some may think). Check this video, it's 10 mins, you may find it quite interesting.

 

http://www.youtube.com/watch?v=u6XAPnuFjJc

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hierarchy_distractions_960.gif

 

The above only reinforces the paradigm of 'work until you drop'; distractions are contrasted negatively to the great positive of work! The real danger of digital distraction/ dissipation lies in the subversion of re-creation, contemplation and leisure. I guess those ideals are closer to the pyramid of Maslow's that you posted. But then you'd have to be a little critical of 'self-actualization', in the sense that it could be just one step in an on-going journey. Considered as a final destination, it can just lead to egoism.

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Yeah.

And I think it is just about the moment where the schemers will be cashing their profits.

 

Here's George Ure's take on Botch-coins:

 

March 30, 2013

Bitcoin: Billionaires. Revolution, or Bubble?

Several readers have asked me for a review of Bitcoin and any thoughts/feelings I have on them since there are already reported to be millionaires in the making in the land of digital currency. Can peer-to-peer finance work out better than top-down finance? Or is it just another bubble? A discussion follows an explanation of how it works and how you can get some Bitcoins for yourself. Before we go there, however, there are the dreary morning headlines, not to mention trying to make money the old fashioned way, in the meantime

 

(for Subscribers only)

 

But his view should be obvious when yu consider THIS Book that he wrote:

 

61cdO56NEnL._BO2,204,203,200_PIsitb-sticker-arrow-click,TopRight,35,-76_AA278_PIkin4,BottomRight,-52,22_AA300_SH20_OU01_.jpg

 

Broken Web The Coming Collapse of the Internet [Kindle Edition]

George Ure (Author)

5.0 out of 5 stars (10 customer reviews)

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From Coding in my sleep blog;

 

"Ponzi Schemes In Plain English

 

 

Ponzi Schemes In Plain English
November 8, 2012 at 11:18 by David Perry

It seems like ages since anyone has actually taken this argument seriously but every now and then a new accusation that Bitcoin is a Ponzi scheme crops up. Today’s annoying accusation comes from Bitcoin’s Wikipedia page, and there’s a roiling argument over its removal happening as we speak. The specifics of Wikipedia’s policy on sourcing of comments and whether the comment should stand isn’t something I’ve got the correct information to argue, but I do have the information to argue against the correctness of the statement itself. Also, as with all entries in the In Plain English series, I’ll do my best to avoid technical jargon and unnecessary complexity.

Now obviously in order to understand why Bitcoin is not a Ponzi scheme and correctly identify those things that are, we need a definition of “Ponzi scheme” that can serve as a checklist. Since the whole argument started on Wikipedia, let’s use their Ponzi page for our definition:

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the

scheme going.

So if I’m running a Ponzi scheme, I solicit investments from a bunch of people, promising them insane amounts of profit, but the profit that investor number 183 sees is really just some of the investment of number 184 and so on. At some point you can’t find any more investors and the whole scheme collapses. Typically the only person who makes any money is the one person at the top who started the whole thing, though the first investors in well-built schemes may also turn a profit.

This gives us a great understanding, but not the checklist we were after. Thankfully, Wikipedia also lists some common characteristics of Ponzi schemes:

Extraordinary returns are promised
Descriptions of how the money is actually being made are vague
Returns for initial investors are paid by new investors
Withdrawal from the scheme is discouraged or even barred
A person or group of people run the scheme, solicit new investors and will eventually take the money and run


There are, quite importantly, a number of other schemes which are functionally similar to a Ponzi, but fail a point or two in the checklist. The pyramid scheme, for example, is almost identical to the Ponzi but new investors are solicited by old investors rather than the person at the top. For our purposes I’ll lump all of these Ponzi-like schemes together – there’s no use proving that Bitcoin is a pyramid instead of a Ponzi after all. This requires that we change the last bullet point slightly:
A person or group of people run the scheme, solicit new investors and will eventually take the money and run

There is also an important similarity between Ponzi schemes and economic bubbles, but it’s important to note that the similarity is akin to that between a wrecking ball and a tornado. Economic bubbles are created by market forces typically out of the hands of any individual or group while Ponzis are willfully perpetrated. Let’s add that to the checklist:
Is willfully created for profit, rather than arising from market forces

Now that we have a checklist, let’s go through it with an eye for Bitcoin and see how closely it resembles a Ponzi scheme.

 

Extraordinary returns are promised

If anyone in the Bitcoin world promises you returns, it had better be from their own business, not from Bitcoin itself. The majority of us within the community make no promises about tomorrow’s exchange rate and almost invariably tell you to treat it like gambling and never invest more than you can afford to lose.

 

Descriptions of how the money is actually being made are vague

This one is particulary humorous since Bitcoin is one of the most transparent markets that has ever existed. The price of a bitcoin is determined by the same market forces that determine the price of any given stock and the amount of information available to potential investors on how Bitcoin works, transaction rates, historical pricing, really anything you could possibly want to know is out there – and if it’s not, chances are good that it could be and some clever person will whip up something to give you that information.

 

Returns for initial investors are paid by new investors

This is where most people arrive at the Ponzi conjecture. Right now, Bitcoin is inflationary – 7,200 new coins are created every day so to keep a stable price or to see prices increase, either new investors or increased demand from current investors has to exceed 7,200 coins per day. If there is more investment demand than that, price goes up, if there is less then price goes down. People a) mistake this for a “need” for new investors and B) presume that a need for new investors automagically makes this a Ponzi. In truth, all inflationary assets share these exact characteristics and are not Ponzi schemes. Importantly, Bitcoin doesn’t “collapse” if investment demand doesn’t meet 7,200 coins, the price just goes down a bit, following the same laws of supply and demand that determine the price of a candy bar.

 

Withdrawal from the scheme is discouraged or even barred

While in certain regions of the world it can be difficult to get in or out of Bitcoin, these are mostly problems of local scale/demand or interference by existing banking infrastructure. In those areas where our relatively young project has had a chance to build meaningful infrastructure it’s relatively painless to cash out your coins or to buy into the market. BitInstant is even working on a Bitcoin-backed debit card that should make cashing out as simple as swiping your card at a restaurant. It’s not only possible to cash out your coins, in most cases it’s also faster and easier than buying in.

 

A person or group of people run the scheme and will eventually take the money and run

This is really the big important point. Whether we’re talking pyramids or Ponzis there is always someone at the top who has the power to cash out and collapse the whole thing. There was never a product, there was never a service, there was never a market, just one guy in control of the whole system who makes a big cash grab at the end and disappears. Folks often point out that early investors and miners, folks who bought in when 10,000 bitcoins bought you a couple pizzas (worth $109,500 USD at current exchange rates) have made a mint while current investors stand to make significantly less. This certainly feels unfair to those of us who weren’t around back then, but unfair doesn’t necessarily mean Ponzi. One could say the same of investors who bought Apple stock in 1980 (initial price, split-adjusted: $2.75 – current price: $544.06) but you would’t call Apple a Ponzi. In both cases, the price increase arose from simple supply and demand and like most technologies experiencing an explosive growth spurt, early investors got rich. Most importantly, though, there isn’t anyone at the top pulling the strings. Bitcoin is decentralized and explicitly designed to be impossible for any individual or group to control – the best argument against Bitcoin as a Ponzi is built into the system itself: there isn’t a way to take the money and run.

 

Is willfully created for profit, rather than arising from market forces
No one can argue that we’ve recently experienced a sizable economic bubble. The run-up to $31 per coin was sheer insanity driven by rampant speculation – some folks got rich, a lot more lost money, and that’s what always happens in economic bubbles. Importantly, though, an economic bubble is not a Ponzi – tragic, terrible, painful to live through and costly to many they are, but a Ponzi they’re not. You couldn’t even classify them as a scam, just a certain unsustainable behavior cycle that runs away with itself for a bit and eventually gets corrected by normal market forces. Bubbles happen in all kinds of markets all throughout history including famously the Tulip Mania of the 17th century.

All checklists aside, I do understand the confusion, I really do. Ponzis and pyramids are often difficult to identify and can be found masquerading as all sorts of reasonable-sounding investments, they tend to grow in much the same way Bitcoin has grown and people are naturally suspicious. They can’t find the cause for such a massive price increase and red lights start flashing in their brain. Allow me to provide the missing link: network effect.

Bitcoin is a currency. Bitcoin isn’t backed by anything of intrinsic value (gold, silver, etc), so its value is determined by how useful it is and your confidence in the way the system works, just like the dollar or any other fiat currency. Initial investors were drawn by the way the system worked, they had much higher confidence in openly-presented math than in arbitrarily-printed governmental currencies – they bought in because they liked the fundamentals. But at this point, something was missing: the ability to actually spend the money. When less than a thousand people in this great big world of ours are using Bitcoin, no matter how strong the fundamentals are it’s just not that useful – it’s like building the world’s best mousetrap, but it can only catch the Perdido Key beach mouse - its utility and therefore its value to you depends mostly on the likelihood of your being able to actually use the thing.

Bitcoin, therefore, is a classic case of network effect. Much like telephone service, it began life as a quirky little nothing that only a few people had and they mostly bought in because they thought it was cool. As a more significant percentage of people bought telephones, they became more useful – a phone that can contact half your friends is far more useful than one that can contact a tenth. The increased usefulness increased their perceived value to new customers and therefore increased the price that could be charged for devices and service. As new users join the Bitcoin community, they give us new people to transact with. As new businesses start to accept Bitcoin, it becomes more useful – every new entry into this still-tiny marketplace increases the value of the marketplace as a whole and therefore the value of the product, thereby attracting more users who will themselves increase the value of the market and so on.

So there you have it: nothing scary, scammy or manipulative – just market forces at work."

 

 

 

I thought this blog post was interesting given that I originally thought Bitcoin was some form of Ponzi.

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