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Bitcoin Crime The Almighty Buck

Large Bitcoin Ponzi Scheme Collapses With a Loss of $5.6 Million 327

Posted by Soulskill
from the jig-is-up dept.
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."'"
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Large Bitcoin Ponzi Scheme Collapses With a Loss of $5.6 Million

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  • No sympathy (Score:5, Insightful)

    by 1u3hr (530656) on Wednesday August 29, 2012 @05:18AM (#41163517)
    But the guy for fraud, sure, but the "investors" were idiots.
    • Re: (Score:3, Insightful)

      by Anonymous Coward

      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.

      • by Taco Cowboy (5327) on Wednesday August 29, 2012 @05:27AM (#41163561) Journal

        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?

        • by gl4ss (559668)

          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.

          • by jhoegl (638955) on Wednesday August 29, 2012 @05:58AM (#41163753)
            See, this is why regulation is bad. Bad people are prevented from setting up schemes.
            Schemes that are only obvious to those that are educated on such things.
            Turrble!
            • by Lumpy (12016) on Wednesday August 29, 2012 @06:30AM (#41163931) Homepage

              "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.

              • by DrXym (126579) on Wednesday August 29, 2012 @07:57AM (#41164451)
                And bitcoin investors by virtue of buying bitcoins have saved the scammers a lot of effort by identifying themselves as easy marks. Much like how some scammers operate on church congregations, MLM members, timeshare owners, people who've bought cures "they" don't know want you to know etc. By virtue of the fact that rational people would run a mile from these things, the scammers know that those who remain are far richer pickings.
              • Re: (Score:3, Informative)

                by fustakrakich (1673220)

                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.

            • by Anonymous Coward on Wednesday August 29, 2012 @06:52AM (#41164045)

              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.

          • by makomk (752139) on Wednesday August 29, 2012 @09:43AM (#41165687) Journal

            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.

        • by eugene2k (1213062) on Wednesday August 29, 2012 @05:52AM (#41163715) Homepage

          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.

      • by Bengie (1121981)
        "A Fool And His Money Are Easily Parted"
      • by nedlohs (1335013)

        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.

    • But the guy for fraud

      I hereby sentence you to be taken from this place and be given one wi' the heid.

      • by 1u3hr (530656)
        Yeah, I saw it too late. Fumble fingered typist and too used to revising forum posts after the fact. And Slashdot's preview takes so long I usually just wing it. Some ludicrous results when I screw up the HTML.
    • Re:No sympathy (Score:5, Insightful)

      by Theophany (2519296) on Wednesday August 29, 2012 @05:48AM (#41163691)
      Maybe this is a bit obvious, but if a guy going by the handle pirateat40 is asking to invest my money, I'm a retard for not being justalittlefuckingbit sceptical.
      • by asylumx (881307)

        I'm a retard for not being justalittlefuckingbit sceptical.

        Nah, that name was already taken.

  • by slim (1652) <john&hartnup,net> on Wednesday August 29, 2012 @05:19AM (#41163529) Homepage

    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.

    • by eldavojohn (898314) * <eldavojohn&gmail,com> on Wednesday August 29, 2012 @05:37AM (#41163629) Journal

      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.

      • by alphatel (1450715) * on Wednesday August 29, 2012 @06:18AM (#41163867)

        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.

        • Re: (Score:2, Insightful)

          by Talderas (1212466)

          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.

          • by Jeremi (14640)

            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.

      • Re: (Score:3, Informative)

        So, there's no way to fix this with BitCoin because that's the great thing about BitCoin: no government regulation or government backing.

        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".

        • by slew (2918)

          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 "

        • by Kjella (173770) on Wednesday August 29, 2012 @11:04AM (#41167121) Homepage

          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.

    • by cgt (1976654) on Wednesday August 29, 2012 @05:41AM (#41163655)

      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".

    • by IamTheRealMike (537420) <mike@plan99.net> on Wednesday August 29, 2012 @05:52AM (#41163713) Homepage

      Every time there's a BitCoin story, people loudly claim it's a Ponzi scheme. Maybe they're right.

      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.

      It might be the case that this Ponzi scheme couldn't have been conducted using (say) US$ because of financial regulation.

      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.

      • by mellyra (2676159) on Wednesday August 29, 2012 @06:16AM (#41163859)

        Every time there's a BitCoin story, people loudly claim it's a Ponzi scheme. Maybe they're right.

        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.

        • by m.ducharme (1082683) on Wednesday August 29, 2012 @07:37AM (#41164295)

          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.

        • by IamTheRealMike (537420) <mike@plan99.net> on Wednesday August 29, 2012 @07:55AM (#41164433) Homepage

          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.

        • by DarkOx (621550)

          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

      • by FireFury03 (653718) <slashdot@NOspam.nexusuk.org> on Wednesday August 29, 2012 @06:28AM (#41163921) Homepage

        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).

    • by DrXym (126579)
      It's a ponzi sitting on top of a ponzi in this instance. People who convinced themselves that bitcoin is an "investment" and sunk a lot of money into it are just the kind of people who would be more susceptible to other kinds of scams. Especially if they're seeing their initial investment sink in value and are getting desperate to exit.

      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

    • by KnightMB (823876)

      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)

    by georgeaperkins (1715602) on Wednesday August 29, 2012 @05:20AM (#41163533)
    These 'too good to be true' schemes always take me back to primary school, when there was a letter going round: Free chocolates for everyone: Please send me 1 chocolate and then send this letter to 5 friends. Everyone gets 5 chocolates just for buying one. Amazing! I was so upset when my dad refused to buy me the one chocolate. How could he not understand!!! My friend who gave me the letter was equally outraged with me. Everyone around was getting free chocolates. Of course there were losers in the end. At least I learned an important lesson about schemes which seem too good to be true.
  • by Anonymous Coward

    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.

    • by makomk (752139)

      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.

    • by Yunzil (181064)

      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.

  • by deego (587575) on Wednesday August 29, 2012 @05:36AM (#41163623)

    Blaming bitcoin for this ponzi is like blaming the currency USD for what Madoff did. (Come to think of it, USD, with fed's liberal printing, really /is/ like a ponzi, but that's a separate matter.)

    The fact is that there are a large number of us bitcoin investors who haven't invested a (bit)cent with this scheme.

         

  • by sudog (101964) on Wednesday August 29, 2012 @05:41AM (#41163657) Homepage

    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.

    • by Zironic (1112127)

      The feds won't come after him, 30 days or otherwise, because as far as they are concerned, bitcoins are not money.

  • 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.)

    • by JSBiff (87824)

      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.

  • 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?

    • by erroneus (253617) on Wednesday August 29, 2012 @06:51AM (#41164043) Homepage

      Yes. There will be no government bailouts of Bitcoin.

    • 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.

    • by gl4ss (559668)

      well.. pulling 1 million from the market is going to crash it a bit.

  • Not a Ponzi scheme. (Score:3, Interesting)

    by udachny (2454394) on Wednesday August 29, 2012 @06:04AM (#41163793) Journal

    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]

    • by slim (1652)

      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?

    • by Great Big Bird (1751616) on Wednesday August 29, 2012 @10:13AM (#41166199)
      There is no such thing as intrinsic value. Gold and silver only have value because we give it that. The same thing with a fiat currency, both are based on a faith in its value.
  • 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.

  • by erroneus (253617) on Wednesday August 29, 2012 @06:50AM (#41164029) Homepage

    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.)

  • 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 :)

    • 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.

  • by Time_Ngler (564671) on Wednesday August 29, 2012 @01:51PM (#41169415)

    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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