Large Bitcoin Ponzi Scheme Collapses With a Loss of $5.6 Million 327
New submitter beltsbear writes "Despite the many people calling it out as a Ponzi scheme from the beginning, Pirateat40 was able to collect millions of dollars worth of Bitcoins from thousands of Bitcoin users. At almost every stage Pirateat40 copied the path of the EVE Online Ponzi scheme except on a much larger scale with a far more liquid take. Now, it has shut down, and investors are wondering where their digital currency went. Quoting: 'He claimed that BS&T was sitting on 500,000 BTC on the day of the shutdown, worth more than $5.6 million USD at today's price of $11.38. "Once my process is released you'll understand more of how coins move around," he told members of the Bitcoin community last week. Pirateat40 initially promised to refund his investors' Bitcoin deposits plus interest within a week, effectively admitting that he did not have the Bitcoins on hand. The fund normally paid out on Mondays, but last Monday and today have passed so far without refunds. BS&T investors are complaining loudly and so-called "pass-through" funds that invested with BS&T are shutting down. As of this writing, BS&T says there is "no ETA on payments."'"
No sympathy (Score:5, Insightful)
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But the guy for fraud, sure, but the "investors" were idiots.
I wouldn't call them idiots for investing, but they can't complain when they lose all of their unregulated currency to a Ponzi scheme.
Is Bitcoin trace-able ? (Score:5, Interesting)
I know the title is ridiculous, but everything about this scam henge on it
Normal paper-based cash are almost un-traceable, that is why petty criminals often get to spend the cash that they robbed from old ladies
If Bitcoin is untraceable, then the masterminds behind this ponzi-scheme get to "spend" their ill-gotten loot as well, without being identified
I use Bitcoin, but I am not well verse with all the details
If I were to scam someone and got his Bitcoin, could I spend them, without being identified?
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it's traceable. but what good is a trace if you don't know which people in the transaction chain are fake or real..
they get to spend it all right. the so called investors were idiots.
Re:Is Bitcoin trace-able ? (Score:4, Funny)
Schemes that are only obvious to those that are educated on such things.
Turrble!
Re:Is Bitcoin trace-able ? (Score:5, Insightful)
"Schemes that are only obvious to those that are educated on such things."
you mean like the super secret education that "you cant get something for nothing" and "a fool and his money are soon parted" ?
There have always been idiots, there will always be idiots. and as long as there are idiots, you will have crooks that take their money this way.
Re:Is Bitcoin trace-able ? (Score:5, Insightful)
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If it wasn't for idiots, the economy would have tanked thousands of years ago. No politician could ever get elected into office. It would be anarchy. Idiocy, and money make the world go 'round.
Re:Is Bitcoin trace-able ? (Score:5, Insightful)
Interest on accounts is not something for nothing. There is an very obvious opportunity costs that comes with depositing your money. You lose control of it and you lose some access to it.
Look at interest bearing back accounts. There's typically a minimum balance that must be kept before you're assessed fees. CDs close off access entirely. Even in no account minimum interest bearing accounts you will often have to go into the bank itself (time) in order withdrawal all the funds and close the account.
The only real reason those accounts appear to be something for nothing is because the banks you deposit at are insured by the FDIC so you can't get scammed and the reality is that the only banks an American is likely to deal with that are not FDIC insured are international banks or are scams.
Re:Is Bitcoin trace-able ? (Score:5, Insightful)
Interest on accounts is not something for nothing. There is an very obvious opportunity costs that comes with depositing your money. You lose control of it and you lose some access to it.
Yes, and that's exactly the same what this scheme promised: let me control your bitcoins for a while and you'll get them back later - with intrests.
So this alone was no criteria for recognizing a scam.
Re:Is Bitcoin trace-able ? (Score:4, Informative)
Yes, and that's exactly the same what this scheme promised: let me control your bitcoins for a while and you'll get them back later - with intrests.
So this alone was no criteria for recognizing a scam.
The clue is "with interest vastly in excess of market levels".
The higher the promised interest, the less plausible it is. (Yes, I don't find hedge funds particularly plausible).
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How do you make interest on a currency that is that fixed? Was the intent that BS&T loaned bitcoins for use by others and changed an interest rate? That's how most normal banks and credit unions pay their interest-bearing accounts.
Re:Is Bitcoin trace-able ? (Score:5, Insightful)
Re:Is Bitcoin trace-able ? (Score:5, Insightful)
Yes, this is banking without any regulation. The FDIC does some background checking on banks and steps in when there is trouble. In the absence of such a trusted third party performing due diligence, you the individual must perform the same level of investigation to determine if its a trustworthy source for depositing money. The reason why they are stupid for investing or depositing in this scheme, is that they didn't do that research or even recognize the need for it.
Re:Is Bitcoin trace-able ? (Score:5, Insightful)
Hmm, that's 3270-odd percent per year.
Yah, it takes a special breed of idiot to buy into that.
Re:Is Bitcoin trace-able ? (Score:5, Informative)
How do you make interest on a currency that is that fixed?
The same way you make interest on any currency.
You put $10 in the bank. The bank gives me $10. I spend that $10 on tending an apple tree. I sell the apples for $14. I pay back $12 to the bank (20% interest) and keep $2 for myself. The bank adds $1 to your balance (10% interest) and keeps $1 for itself.
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The scheme was promising 7% return per week. Even among the gullible and greedy it takes a special breed of idiot to believe such guarentees can be anything but a scam.
That's really not a special breed. That's the garden-variety idiot, right there, and we have a lot of them.
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First, it isn't a matter of "getting something for nothing". Your cash on hand represents current and possibly future wealth. By parting with it now, there is an opportunity cost involved. In theory, you performed services or provided goods in the past to generate that wealth and you are transferring that value to another individual who has not earned it, with the intent that they can piggy back on your wealth to generate additional wealth for both of you. The premise is that the recipient of the investment
Re:Is Bitcoin trace-able ? (Score:5, Interesting)
Bitcoin Saving and Trust: "7% per week return. The operators methods cannot be disclosed. The operator is essentially anonymous."
The only education required for an honest person to hesitate from investing here is basic reading comprehension and the wisdom not to believe everything they read. If you lack either of these then please avoid Bitcoin until appropriate regulations have been applied, thank you.
Re:Is Bitcoin trace-able ? (Score:5, Insightful)
The part you're missing is the brigade of shills on the Bitcoin forums who called anyone that pointed out that this was a Ponzi a troll and insisted that they were just too stupid to figure out how the operator of the scheme had managed to achieve such good returns. (Some of them even insisted that they knew how he was doing it, though they consistently refused to actually say.) Social conformity is a powerful thing; a lot of people are willing to put their concerns aside and do really foolish things so long as everyone around them is telling them that they're idiots for not doing them.
Re:Is Bitcoin trace-able ? (Score:5, Insightful)
It's traceable, but it's not easy to trace. I remember there was a paper on the traceabilty of bitcoin transactions. Google it if you're interested.
P.S. If you were to scam ppl using bitcoin, right now you can probably get away with it, because complaining to the authorities won't help you in any way.
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The unregulated currency is irrelevant. If some guy at the pub offers you 3300% interest on any cash you hand over to him when he doesn't pay up it is has nothing to do with the fact that the currency was regulated.
Glasgow handshake (Score:2)
I hereby sentence you to be taken from this place and be given one wi' the heid.
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Re:No sympathy (Score:5, Insightful)
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Nah, that name was already taken.
Re:No sympathy (Score:5, Funny)
"A real scammer would never put the word 'pirate' in his handle. Therefore this guy must be trustworthy..."
Re:No sympathy (Score:5, Informative)
you little kids miss the clues, doing too much pot in the van with shaggy does that to you...
Pirateat40 = Pirate at 40 or a Jimmy buffett song. the guy is a Jimmy Buffett fan, therefore an old guy.
Re:No sympathy (Score:5, Insightful)
Or the guy is brilliant, figured that old guys would be more trusted, and used that nick.
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Some people'd say there's a pirate to blame (Score:3)
but I know (..guitar riff..) it's your own damn fault.
Because really, 7% a week and the guy's not saying what he's investing the money in? It's occasionally possible to get that kind of interest from payday loans or financing cocaine imports, but in general you don't get high rates of return without either high risk or structural issues that can only be exploited for a short time. So either you're a sucker who doesn't realize it's a scam, or else you know it's a scam going into it, but hope you can make
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Haha! His bank logo is a pirate ship! Why? Why would anyone give this guy their money?
I read somewhere that the Nigerian scam is designed to be obvious since they're mining the population for the most gullible of the gullible. Or find people investing in bitcoin and have them keep it on your PIRATE SHIP.
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Not really about Bitcoin (Score:5, Informative)
Every time there's a BitCoin story, people loudly claim it's a Ponzi scheme. Maybe they're right.
But it's worth pointing out that this story is not the story that vindicates that claim. This is a story about a Ponzi scheme that happens to have been conducted using Bitcoins.
To claim that this shows Bitcoins are a Ponzi scheme is like saying that C is a virus because you can write virii using C.
It might be the case that this Ponzi scheme couldn't have been conducted using (say) US$ because of financial regulation. Lack of financial regulation attracts some people to Bitcoin -- but look how it can bite.
It's About the Unique Features of BitCoin (Score:5, Insightful)
It might be the case that this Ponzi scheme couldn't have been conducted using (say) US$ because of financial regulation. Lack of financial regulation attracts some people to Bitcoin -- but look how it can bite.
No, your C to Bitcoin analogy is a bit flawed. If C had a unique trait that was unique from all other computing languages that made it insulated and without consequences for virus writers (and this is impossible) than it would be a valid analogy. The problem is that all other currencies have some entity backing them that has a motive to or already does instituted financial regulation -- like stopping ponzi schemes. And the logic for this is quite simple. If you don't protect idiots, then idiots can't use your currency. Since much of the population is idiots, you need to protect them from the really bad stuff that comes along with capitalism -- otherwise your system starts to look really shitty and third world really fast.
So, there's no way to fix this with BitCoin because that's the great thing about BitCoin: no government regulation or government backing. I suspect you're going to start to hear more and more stories like: lack of security in major BitCoin trading systems (with no repercussions), more ponzi-like activity (with no repercussions) and more child porn/drugs/etc bought with BitCoin (with no repercussions). And then once it becomes evident that there are no repercussions? Just watch the copycats copy.
So, yeah I find your BitCoin is like C really really flawed. But of course, if anyone thinks that BitCoin is the currency of the future and there are finite BitCoins, it only makes sense to move all of your liquid assets and investments to BitCoin so put your money with your mouth is if you want to defend BitCoin and that will be the most effective way to validate this currency.
Re:It's About the Unique Features of BitCoin (Score:4, Insightful)
If you don't protect idiots, then idiots can't use your currency. Since much of the population is idiots, you need to protect them from the really bad stuff that comes along with capitalism -- otherwise your system starts to look really shitty and third world really fast.
So, there's no way to fix this with BitCoin because that's the great thing about BitCoin: no government regulation or government backing. I suspect you're going to start to hear more and more stories like: lack of security in major BitCoin trading systems (with no repercussions), more ponzi-like activity (with no repercussions) and more child porn/drugs/etc bought with BitCoin (with no repercussions).
So you're now going to argue the SEC protects citizens and catches ponzi crooks before all is lost? Wrong century!
The useless government isn't going to do squat for real money or anything else. If your BC community is about helping each other and someone blatantly steals your virtual cash, you now know that you can't trust your fellow man without some virtual credibility. In this case the scammer had none, but people went for it anyway.
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Regulation isn't there to protect anyone. It's only purpose is to serve as a punitive measure once your found out as having done wrong in accordance with the regulation.
It doesn't matter how much regulation gets put in place, idiots will still be idiots and end up parted from their money. Even if the crook is caught, the idiots will be lucky to get back a fraction of what they lost.
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Regulation isn't there to protect anyone. It's only purpose is to serve as a punitive measure once your found out as having done wrong in accordance with the regulation.
The knowledge that people who break the regulations will be punished is meant to serve as a deterrent to breaking the regulations. In most cases, it does (outside of BitCoin, anyway).
It doesn't matter how much regulation gets put in place, idiots will still be idiots and end up parted from their money.
Less often than they would if there were no regulation, though.
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No, that's (yet another) gross and dangerous misunderstanding that gets repeated in the internets echo chamber.
Securities laws do not have some magic exception for Bitcoin. If you are running an investment scheme you're supposed to register and follow those laws. Now we can argue how useful these regulations are, but they certainly do apply to this scheme by "pirateat40".
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I think you are mistaken about securities laws applying to banking. If you were to say that this is an investment scheme, that might be under the SEC, but at least in the United States, banks are under the purvey of the FDIC. The only exceptions I know about are local credit unions and banks that are not chartered in the US. You cannot just start an operation in the US and call it a bank w/o getting the FDIC involved.
On the other hand, if this whole thing was just an investment and offered some sort of "
Re:It's About the Unique Features of BitCoin (Score:5, Informative)
However Bitcoin has limited and predictable inflation which eventually stops entirely, so (in theory) it's quite possible to just build up savings. With a stable monetary base the value of your savings basically tracks overall change in GDP. If the economy grows at 2% per year, the value of your savings does too. No investment required, though obviously nothing stops you investing if you want to try and beat general economic growth.
I've rarely seen so much wrong rolled up into a few sentences. Inflation means that the purchasing power of your money goes down over time, the quantity of Bitcoin is known but the value is not so saying it has a predictable inflatioin is just ridiculous. Yes, printing of money is one of the things causing inflation but far from the only one. Like you say in the next sentence, the purchasing power will continue to change also after all Bitcoins are assigned an an increasing value we'd call deflation - it's just negative inflation. But let us talk closer about the steady stead.
With a steady state, whoever owns Bitcoins own a fixed fraction of the total Bitcoin economy - not to be confused with the GDP of any country or the world. If you own 1% of the Bitcoins, you own 1% of the economy whether that's worth a million, a billion, a trillion or nothing at all. So if 10 times as many people want to use Bitcoins, all the existing money will be worth 10 times as much. If 90% (leaving 1/10th) leaves, your money will drop to 1/10th of the value.
Actually it's worse than that because most of the Bitcoins are not liquid, In order to be able to buy Bitcoins somebody must be willing to sell them, and already today most of them are hoarded. What it means is that the people who actually want to use Bitcoins are buying and selling from an even smaller pool of money, the whole actual economy must fit within just a fraction of the total Bitcoins. And it gets very susceptible to flash crashes if the hoarders stampede, on top of the chance that people abandon the currency.
Either way, the system keeps getting stuffed with more and more "old money" which means you have to be crazier and crazier to invest as you get less and less Bitcoins for your dollars while the existing Bitcoin owners profit from deflation. The early adopters have the most to gain and the last ones in most to lose, eventually new people will cease to join and the panic will start in the other direction as the Bitcoins only have value as long as anyone else accepts Bitcoins.
Re:Not really about Bitcoin (Score:5, Informative)
To claim that this shows Bitcoins are a Ponzi scheme is like saying that C is a virus because you can write virii using C.
"virii" is not a word. The correct plural of "virus" is simply "viruses".
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"virii" is not a word. The correct plural of "virus" is simply "viruses".
Using virii is like holding your handgun sideways: it might not be correct, but it just feels *so* cool.
Re:MPU (Score:4, Funny)
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Re:Not really about Bitcoin (Score:5, Insightful)
One of the hackneyed excuses for spelling or grammar mistakes is to say that language is mutating.
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I'm sure you mean mutilating, not mutating.
You really strawberried that point... (Score:2)
(I don't claim credit for this; It's just such a useful retort to the whole "language evolves" excuse for poor spelling and grammar.)
Re:Not really about Bitcoin (Score:5, Funny)
Fringe cultist demands use of biological weapons, news at 11.
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I think it's an extension of radius->radii.
Re:Not really about Bitcoin (Score:5, Informative)
Or maybe they're just spewing buzzwords without understanding what they mean. Bitcoin itself is not a ponzi scheme and that's obvious to anyone with a dictionary. A ponzi scheme is a scheme where "investors" are paid from deposits from new investors. Obviously such a scheme must always grow in order to make payments and that means it is guaranteed to eventually collapse. As nobody sane would invest in something that explicitly advertised itself as a ponzi, such schemes always involve secrecy and obfuscation.
Bitcoin, being a currency, is not an investment (although some people may be tempted to use it that way). It does not claim to offer any particular returns. There is no secrecy or obfuscation, you can read the papers and check the code to see exactly what it's doing.
Given that by the time the SEC forcibly closed ZeekRewards [ibtimes.com] it was reported to have had over a million investors and $600 million at play, I think it's safe to say that regulation is not a guarantee against getting scammed. At any rate, Bitcoin is not unregulated. If you're running an investment scheme in the USA you'd be required to register with the SEC regardless of currency used, and in fact one unregistered Bitcoin investment scheme operator in Brazil was already fined by the Brazilian equivalent for failing to do so.
Re:Not really about Bitcoin (Score:5, Interesting)
Or maybe they're just spewing buzzwords without understanding what they mean. Bitcoin itself is not a ponzi scheme and that's obvious to anyone with a dictionary. A ponzi scheme is a scheme where "investors" are paid from deposits from new investors. Obviously such a scheme must always grow in order to make payments and that means it is guaranteed to eventually collapse. As nobody sane would invest in something that explicitly advertised itself as a ponzi, such schemes always involve secrecy and obfuscation.
Bitcoin is not a ponzi scheme but it behaves similar to one - the increasing mining difficulty and limited overall amount of coins heavily rewards early adopters (who hoard their bitcoins) if and if only these early adopters can convince the latecomers that bitcoins actually have value (otherwise cashing out becomes hard).
Your ability to sell the bitcoins you mined at a low difficulty for ridiculous amounts of dollars later on is entirely dependent on the growth of the overall bitcoin scheme - and as bitcoins do currently have very limited value as use for transactions (few stores accept them, usually cheaper to pay in dollars than btcs if the stores accept them, high volatility makes accepting them difficult for business, people would be stupid to spend them giving their deflationary nature) the main motivation to get some bitcoins is to profit off the demand that will be created by those that want to get into bitcoin after you.
Re:Not really about Bitcoin (Score:4, Insightful)
Bitcoin is not a ponzi scheme but it behaves similar to one - the increasing mining difficulty and limited overall amount of coins heavily rewards early adopters (who hoard their bitcoins) if and if only these early adopters can convince the latecomers that bitcoins actually have value (otherwise cashing out becomes hard).
That's not a ponzi scheme, that's a pyramid scheme.
Re:Not really about Bitcoin (Score:5, Insightful)
This argument comes up repeatedly, but it's ridiculous. It's very often the case that new technologies reward early adopters who do nothing beyond "leech", but practical experience shows that the big winners are always people who create real value.
Maybe an example makes things clearer. If you were an early adopter of the internet then you would have had the chance to obtain huge IP blocks and tons of domain names for virtually nothing, these are scarce resources that would later become very valuable. But if you asked the man on the street to name some internet millionaires, chances are they would name people like Mark Zuckerberg, Larry Page, Sergey Brin, maybe Marc Andreseen and so on. People who built real businesses and real value. In practice although domain speculators did and do exist, the world is not awash in a lazy elite of people who just camped on scarce resources for decades. Nor does the existence of a small number of these people make the internet "behave similar to a ponzi scheme".
Whilst Bitcoin certainly does have people who did nothing beyond buy up coins early and sell them later, there are also tons of early adopters (like me) who are creating real value by writing software, running services, being merchants, mining and so on. These people risk something very real - usually their time and capital - to build the system, and they may or may not do very well financially out of it. Just like any new technology. Your grist with miners is particularly bizarre because the people who mined on Bitcoin when the coins were worth little/nothing were actually sacrificing real capital (for electricity/cpus) to provide security to a system that was extremely small and unlikely to go anywhere.
By the way, the people who mined coins when it was very easy didn't know Bitcoin would take off. A lot of the early coins have been lost because for around 1.5 years Bitcoin was merely an interesting piece of open source software. The coins had no value and there were no exchanges, but mining had real cost in terms of electricity, pegged CPUs and so on. So people would mine or get some coins, get bored and delete the software/not back up their wallets, etc.
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A ponzi scheme has the very specific properties that generates its promised return for investors by paying them from the investments made by new investors who WILL NOT be paid their promised returns as soon as there is insufficient number of new investors. That does not describe Bitcoin, therefore Bitcoin is not a Ponzi scheme, full stop.
Another poster pointed out BitCoin is open. Well that's nice but something being open does not make it inherently safe. It makes it safer but if you haven't got the faci
Re:Not really about Bitcoin (Score:5, Insightful)
Bitcoin itself is not a ponzi scheme and that's obvious to anyone with a dictionary. A ponzi scheme is a scheme where "investors" are paid from deposits from new investors. Obviously such a scheme must always grow in order to make payments and that means it is guaranteed to eventually collapse.
It isn't a ponzi scheme, but it does resemble one in some ways:
With a ponzi scheme, the early investors make great returns due to the influx of later investors. The returns gradually diminish as time goes on because the money from new investors has to be spread more thinly, the early investors get to cash out before the whole thing collapses.
With bitcoin, early investors get a lot of bitcoins (as they are easy to produce at the start). Later investors don't get so many, and as more and more investors enter the scheme, the currency gets spread more thinly and therefore each bitcoin gains value. The early investors still have their big stack of bitcoins, which now have considerably more value than when they started due to the increasing scarcity of bitcoins amoungst the later investors. The scheme may or may not eventually collapse, but either way the early investors are left with huge gains and the ability to cash out before anything bad happens.
As nobody sane would invest in something that explicitly advertised itself as a ponzi, such schemes always involve secrecy and obfuscation.
I'm not sure that's necessarilly true. Ponzi schemes *do* make a lot of money for the early investors, so it would be reasonably sane to enter such a scheme if the scheme is very new, then cash-out before it goes tits-up. Without some inside knowledge about the scheme, it would be pretty risky though because you don't know whether you are going to be an early investor or a late investor (who will lose all their money).
Bitcoin, being a currency, is not an investment
Currencies are frequently used as investments. Anything that fluctuates in value can be used as an investment (shares, currencies, properties, etc) - with all these things, the trick is to buy when it has a low value and sell when it has a high value. This is probably even more reason to invest in bitcoin, since the increasing scarcity of the coins is likley to gradually drive the value up (assuming the currency doesn't fall into disuse).
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For conmen Bitcoin is attractive because they can cover their tracks more easily and don't have to deal with real banks who might stop transactions, freeze accounts or rais
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It might be the case that this Ponzi scheme couldn't have been conducted using (say) US$ because of financial regulation. Lack of financial regulation attracts some people to Bitcoin -- but look how it can bite.
The currency used does not matter. Being digital currency or real $$, Ponzi schemes still happen all the time. The latest large Ponzi just blew up a few weeks ago that used real money to the tune of a $600 million collapse. Here is just a recent story about it. http://myfox8.com/2012/08/17/62643/ [myfox8.com]
The chocolate game (Score:5, Interesting)
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Except in cases where we have a temporary abberations like an industry bubble or individual prospecting overvaluation (which usually happens around IPO's), no. Businesses use that capital to bring in greater revenue on what they do, and redistribute profit on those revenues back to investors. Sometimes they choose not to issue dividends, and instead use those increased revenues to continue to build the value of that same business, whereby the value of your stake increases. In no way is that normal operat
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Business can only use the capital obtained by IPOs or when new shares are issued. The vast majority of shares transactions don't provide the companies any funds.
Stock Market is a little bit different (Score:3, Interesting)
You mentioned the Apple stock and the hot-potato nature of it --- but stock market itself is a little bit different from Ponzi Scheme
...
The rise of Apple stocks is not totally due to the perception of Apple Inc is worth what and what billions, but rather ---- The world we live in, right now, is being flooded with too much liquidity, and those excess cash is looking for each and every way to stay ahead of the curve, and Apple Inc just so happened to become the "safe haven" for the time being, until
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While your scenario certainly does happen with stocks, it is by no means the norm. Most companies are in the business to make money, not loose it. If one invests in a company and then the market tanks, you only loose if you decide to sell at the bottom. If you let it ride until the market rebounds, then you loose nothing, and more than likely will be better off. Since the overall direction of the market it up, your zero sum game is a fallacy.
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Well if it was a fiat currency like $$ (Score:2, Insightful)
Well if it was a fiat currency like the US $, they could have just 'sold' the ponzi assets to the Federal Reserve who would promptly magic some more $$$ from nothing. Really transferring value from every other Bitcoin user to these Ponzi scheme fund managers.
So isn't the collapse of a Ponzi scheme in Bitcoin validation of the value of the currency? Nobody bailed it out the way Wallstreet was bailed out, because nobody COULD bail it out.
No TARP is possible is Bitcoin land.
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Actually, if it was a USD ponzi the Feds would seize all the operator's cash and try and clawback money from early investors in order to repay as much of the investors' initial investments as possible. Generally it's not much - I think Madoff's victims got cents on the dollar - but it's better than Bitcoin investors are likely to get. Then they charge the Ponzi operator with fraud and he goes to jail for a long time in order to discourage anyone else who might want to try the same idea.
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So isn't the collapse of a Ponzi scheme in Bitcoin validation of the value of the currency?
No. It is however validation of the infinite stupidity of people.
Comment removed (Score:5, Insightful)
Sigh. Great reporting Slashdot! Woo! (Score:3)
At the time I write this, pirateat40 hasn't even lost the best with Vandroiy. The final date for losing the bet is tomorrow at 5:00 pacific time.
And then after that, the next deadline is the day after.
And then after that, the next deadline is Sep 9.
It's *possible* (but admittedly a stretch) that he stated BTCST defaulted so interest would no longer accrue. But since the feds won't touch it until the money's been gone for like 30 days, and he just announced his "default" today, all you're doing is feeding into the panic and driving peoples' accounts straight into the hands of the risk-friendly debt buyers.
So, it's just a tad premature to say it's "collapsed" with a "loss" with a dollar figure attached. Just a little.
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The feds won't come after him, 30 days or otherwise, because as far as they are concerned, bitcoins are not money.
Alert the Bitcoin regulatory agency! (Score:4, Funny)
oh wait.
(But seriously, can the SEC even touch him? If not, that imparts a serious lesson to everyone who uses BC for financial trading rather than just an online payment method.)
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Where in the world is this guy? If he's in the US, I suspect that even if he wasn't using USD, by virtue of being in US legal jurisdiction, he's going to end up in federal prison.
If he's somewhere else, maybe the local government will prosecute him, maybe not, who knows. Maybe the local government will extradite him, who knows. Maybe he'll suddenly be facing rape charges in another country, and flee to the embassy of a "friendly" country.
Misunderstood... like all other financial markets. (Score:5, Interesting)
As a fallout from this news, the Bitcoin rate has dropped roughly 30% (even around 50% for a short while). Why? No one seems to know. Whatever the scam, this _should_ have had near-zero impact on the exchange rate of the Bitcoin and the drop can only be explained by people panicking and selling off their coins. No matter, I made a nice extra when the rates bounced back from -50% to -30%, but it goes a long way to show how many people do not have a real inkling of how financial markets really work.
Really... where is this any different from 'conventional' financial markets?
Re:Misunderstood... like all other financial marke (Score:4, Insightful)
Yes. There will be no government bailouts of Bitcoin.
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Just putting Bitcoin and Ponzi scheme together in the same news article could have resulted in a large sell off, thus the price drop. I had to go back and read the summary a little closer to understand it was a Ponzi scheme done with bit coins, not that bit coins are a Ponzi scheme.
Something really negative about what I'm holding as a commodity/money might make me want to get rid of it before it loses all it's value.
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well.. pulling 1 million from the market is going to crash it a bit.
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Damn... there's no way to claim an AC post as your own once you posted it. Anyway, that was me, not some anonymous coward. I am constantly surprised how people will trust Paypal over Bitcoin and I am not sure if it's just because they haven't used Paypal that much online, or if the number of Paypal frauds is really that low.
Paypal is reversable... (Score:2)
Paypal is reversible. If someone tries to rip you off by not delivering the goods, you can usually get your money back.
Reversibility is a feature in a payment system which has trusted third parties.
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Most people are buyers, not sellers. As a result they prefer financial instruments that offer them protection from fraudulent sellers.
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Well it's no wonder that the internet economy is upside down then. Are you a buyer or a seller? I considered buying into First Pirate Savings and Trust when it first came out, because of the name, I did not do it because I had just seen BitScalper go down, and it was pretty clear after things started going wrong that it was either fly-by-night or a big scam altogether. But if I had known they were going to change the name, I certainly would not have invested. That's one of the signs, you know.
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Not a Ponzi scheme. (Score:3, Interesting)
While I am not myself in Bitcoin and would not recommend it, it's not because it's a 'ponzi' scam, it's not. It's because there is no intrinsic value behind these electronic means of exchange, they don't store value. Yes, they can act as means of exchange and units of account, but the third property of money is lost - store of value.
Same exact problem is with fiat money in terms of store of value - they don't have that property, specifically because the interest rates are manipulated by the government (or pseudo-government agency, like the Fed), and the money is created out of thin air. That's the reason gov't hates real money, it wants fiat, because it allows the gov't to give promises that it doesn't have to pay for by raising taxes, instead it prints and destroys the very value of money.
But Bitcoins are not a ponzi scam it's the opposite, there is no exponential growth of Bitcoins, it's the reversed pyramid, the number of people with Bitcoins diminishes over time, so that is an unfair qualification for it.
--
American problems and solutions in 24 minutes. [youtube.com]
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the number of people with Bitcoins diminishes over time, so that is an unfair qualification for it.
Can you expand on that? The number of bitcoins keeps growing until there are 21M, then remains constant. I suppose there might be the digital equivalent of "losing coins down the back of the sofa" -- losing your BC wallet or whatever.
But is there a definite economic reason why BCs should consolidate to a smaller number of owners, rather than spread to more?
Re:Not a Ponzi scheme. (Score:4, Insightful)
Always enough suckers available... (Score:2)
Any halfway intelligent person can see this cannot work and that "dream profits" are just that: dreams. Nonetheless, these schemes are typically successful. This points to a class of people that are incapable of seeing facts and cannot evaluate risks. There are not "modern" humans, but stuck at a stage of evolution some 10'000 years back, were what you saw was what you got. These people cause numerous problems in other areas as well.
The more things change (Score:3)
The more things stay the same
There has never been a shortage of people who are willing to cheat others out of resources. I have known quite a few. Their lack of conscience is what interests me the most. Quite often they feel it's justified under the law of the jungle. You know; survival of the fittest, superiority and all that? It makes me wonder how often they factor in retaliation... especially violent retaliation.
Bitcoin is unregulated. This means people with guns aren't backing it or watching over it. This brings people out of the wood work to exploit others with less fear of retaliation.
It will be interesting to see how this plays out over time. Regulated currency suffers the same problems, of course, but people often find comfort in many of the safety features they have built into their money processing systems. You know, like "someone 'stole' my magic numbers from my plastic card!" (Shouldn't we stop saying that and say "infringed upon" instead?) When that happens, we get our money back.
I have a different feeling about bitcoin and all that though. I also don't value gold. I don't risk what I can't afford to lose. This is the sort of thing that isn't likely to affect me. (Of course, one could say that by putting my money in control of the government as it is presently, I am risking ALL of my value resources.)
I'm thinking bigger... (Score:2)
So I remember reading stories which basically said if you control ENOUGH of the bitcoin currency, you can then start faking the chain and cause it to split in two which would really screw with the economy. Does this guy now own enough to execute this? It'd explain his "I'm goign to get 7% back" claims by simply he'd be diverting funds from others due to the weighting of his own coins...
Or maybe I'm utterly confused; I forget :)
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No, ammount of currency controlled doesn't help you mess with the chain, it's ammount of hashing power controlled that allows you to mess with the chain.
Everyone is so quick to jump to conclusions (Score:3)
This may not be a ponzi scheme. pirateat40 seems to be still around: https://bitcointalk.org/index.php?topic=101339.0 [bitcointalk.org]
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Not everyone is a paranoid bigoted bastard like you. Most people rarely encounter con artists and thieves, online schemes like this even less. So, not being knowledgeable in how to steal other people's money, doesn't not make one an idiot.
Besides, it could have happened in any other currency. No, correction, it HAS happened in every other currency a lot of times, and when enough time passes, it will happen again.
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Indeed. There has not been any more vaporous "product" with widespread attention in recent history. Some people just cannot understand abstract concepts and are boundlessly naive.
Hold On There (Score:3)
You're being too nice. Isn't it time to shut down this bitcoin experiment already?
But wouldn't an effort to do that (which is impossible) be just more validation of the currency? On top of that, who is going to shut it down? There is no central authority to this currency! That's one of the major new features, not a bug!
Call it all off, make a memorial/historical bitcoin page on Wikipedia, and everyone who used it can just say, "Yeah, we were dumb then."
The legal citizens will no doubt say that, the criminals on the other hand [slashdot.org] will say "good times while it lasted."
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Bitcoin is not an "experiment", it is a kind of modified Ponzi Scheme itself. Just look at it: The ones first in could get Bitcoin easily, then it became harder and harder. At some time it basically becomes impossible and the people early in will cash out. This will crash Bitcoin to never recover (no real value behind it), leaving all that came a bit later with nothing. Sounds familiar?
Also, the language Bitcoin is praised with can be found in any respectable Ponzi scheme with little modification.
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IIRC, there are various third parties who've estimated the amount invested in his ponzi scheme based on the blockchain and other externally-verifiable information and it's definitely in the general ballpark of several million dollars.