What is an «open Ponzi scheme»?

Question

I recently read that Nassim N. Taleb thinks that Bitcoin is an open Ponzi scheme. An influental and intelligent person like him surely doesn't say something without thinking about it first. Therefore I asked myself what he means with that term.

In my view the key ingredient of a Ponzi scheme is deception - deception of investors about the real source of their revenue. In order to keep this deception from becoming public knowledge, a Ponzi scheme must remain «closed» in that regard. An «open Ponzi scheme» would mean that there is no deception because «the secret» of the revenue is known to everyone. Isn't «openness» exactly the necessary ingredient which would legitimize even a Ponzi scheme by making it possible to investors to «add» fair value to it, which would most possibly be Zero?

Wouldn't any asset be an open Ponzi scheme by Nassim N. Talebs logic? I mean every investor tries to make money by selling his investment to others for a higher price at some point. I feel that following his Logic even gold, diamonds, company shares, etc. are «open Ponzi schemes» - our whole economy would be an «open Ponzi scheme».

If my logic would be right, this term has no meaning and someone just added a total useless term to the vocabulary.
(I don't ask if Bitcoin is a Ponzi-Scheme - I'm interested in the logic behind the idea of «open ponzi sheme»)

Answer 1

It's commonplace that when there's an investment or monetary instrument someone doesn't like, they call it a "ponzi scheme".

For example, gold (ie gold bullion) is indeed often called a "ponzi scheme". Diamonds and gems certainly are.

Some folks think that conventional stock market shares in the current historical era .. ie "Apple shares" or "Ford shares" are a "ponzi scheme".

So, people buy APPL at a higher and higher price, there's no intrinsic value at all (they argue), and the one and only way to make money is to sell to the "greater fool."

Note that I do not know, do not care, and don't have an opinion either way on whether or not these things are indeed ponzi schemes. The point is, it's completely commonplace to label things like gold, or even shares as "ponzi schemes".

You can find endless discussions where certian folks think government money ("fiat money!") is just a ponzi scheme.

(Just the other day someone commented that real estate in a certain city is "just a ponzi scheme"; ie they believe the prices are un-real and the only reason to buy is to sell to a "greater fool" - until someone is left holding the bag.)

So it's completely normal and commonplace to describe something as a "ponzi scheme"

Note that the term is now used very generally (to mean "a scam" or "something with no real value"). It is NOT used CAREFULLY in an exact sense of how "the original ponzi scheme" operated.

(If you object to "the exact meaning of words changing" - whatever, would have to go live on another planet. You can immediately list huge numbers of words in English that have no connection to their "older, precise" meaning.)

Regarding the talking head's appending the trendy word "open".

It's: an attempt to be clever and attract publicity, more TV appearances, and more book sales.

It would be wildly reading too much in to it, to try to tease out the exact "meaning" of adding "open".

Here are a few other clever! phrases in the same vein:

• "it's a prime based ponzi!"

• "ponzi mining!"

• "a ponzi scheme that's listed on major indexes!"

and so on.

An influental and intelligent person like Nassim N. Taleb

Football players make money via: creating television programming which generates tv ad income.

Bakers make money via selling buns.

"Talking heads" like Taleb make money via: catchy soundbites which generate more interviews and book sales.

It's exactly like being a tiktok'er or youtuber and generating views with shlock.

Answer 2

"It's commonplace that when there's an investment or monetary instrument someone doesn't like, they call it a 'ponzi scheme'."

Everything you write is an excellent answer... until you specifically mention Taleb. At this point in your answer it becomes clear you know nothing of his work.

When Taleb uses the phrase "open Ponzi scheme" he does so accurately and advisedly, not flippantly nor facetiously. It's "open" in the sense that it can be seen by all to have no basis in value—everyone knows it's a pyramid built in the clouds.

One can argue that shares in Apple are overvalued, that the prices for gold or tulips are too high. One cannot argue iPhones are imaginary, that Dutch tulips do not exist. There's real stuff you can reach out and touch.

This is not the case with Bitcoin. Ethereum has SmartContracts and Distributed Applications, the Weimar Republic had wheelbarrows of money burnable for heat, but what real thing of some actual value does Bitcoin offer? At best, one could argue Bitcoin is a ledger of past energy consumption, but that's about it.

I can see Bitcoin hitting $100k late 2021, early 2022 before the masses start to realize the truth of Bitcoin: There's no "there" there.