Cryptocurrency Exchange Vircurex To Freeze Customer Accounts 357
Powercntrl (458442) writes "Vircurex, an online exchange for Bitcoin as well as other cryptocurrencies is freezing customer accounts as it battles insolvency. While opinions differ on whether cryptocurrency is the future of cash, a Dutch tulip bubble, a Ponzi scheme, or some varying mixture of all three, the news of yet another exchange in turmoil does not bode well for those banking on the success of Bitcoin or its altcoin brethren, such as Litecoin and Dogecoin."
hmm, people out to make a quick buck (Score:4, Interesting)
Re:hmm, people out to make a quick buck (Score:2, Interesting)
You're not taking into account that since the strength and credibility of the dollar is no longer what it was, the mob and gangs are trading in humans and blood money, this market is one they can fortify by attacking any substitute for the dollar.
The Exchanges Aren't Cryptocurrency (Score:5, Interesting)
Cryptocurrency is a platform and the exchanges are an app built on the platform. The security problems have been with the apps built on the platform. The peer to peer architecture is not what is being exploited. Its reckless abandonment of P2P for client server.
Re:hmm, people out to make a quick buck (Score:5, Interesting)
Nice euphemism for a timing based man in the middle attack.
Alice asks for shares. Bob has shares for sale. Speedy buys shares from Bob and sells them to Alice before Bob can get the message that Alice is buying and before Alice can get the message that Bob is selling. Of course it can be argued that it's just a "sharp" business practice, the "American Way you commie" or whatever and that a man in the middle attack that adds zero value to the market is perfectly fine.
Re:Ponzi scheme (Score:4, Interesting)
In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.
So they're not promising anything, therefore they can't break their promises. This does not affect anything about how the scheme actually works.
A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency.
This assumes that the "usefulness" actually exists and is beneficial. So far, Bitcoin hasn't been stable, fast, or widely-accepted, so the win-win scenario they propose isn't actually possible. I can just as easily say that by everyone giving me all of their money, society will benefit because I will donate everybody's money all at once to a charity, reducing the charity's overhead costs.
The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality.
This is true, because the FAQ writer doesn't seem to understand what a Ponzi scheme is in the first place. In a Ponzi scheme, the investment capital of latecomers is used to pay the returns of the early investors.
When you invest in a company, your money is pooled with everyone else's to run the company. The company also has a pool of profit, which is often split proportionally for dividends. You can also get a return by selling your stake in the company to someone else who wants to be involved. At no point are investments used to pay out returns to earlier shareholders.
Bitcoin as a whole fits the Ponzi scheme pattern, because at the exchanges the money used to pay off the early miners comes directly from people now buying coins. Since the Bitcoin market is so much smaller than the price of the Bitcoin supply, the main mechanism that external value comes into the Bitcoin economy is by investors trying to get into the scheme for its high (not-guaranteed) returns.
The only real distinction between a Ponzi scheme and Bitcoin is that Bitcoin has no single master, that we know of. Ponzi schemes usually have a single person or small group promoting the investment. Bitcoin doesn't have any organized leadership, but rather relies on the self-sustaining marketing buzz of zealots. That makes it a better fit for an economic bubble, rather than an actual Ponzi scheme.
Re: Ponzi scheme (Score:5, Interesting)
Precisely. The BitBelievers cannot actually defend (and in most cases I am finding, don't actually understand it enough to be able to do so), so they mire down in semantics trying to talk about everything but the facts of the matter.
Just the fact that a pro-BitCoin site has that question up as a FAQ is pretty telling on its own, written with slick marketing tricks, to boot.
I guess we need to start being ultra-specific for the BitBelievers. It is a Ponzi-like scheme. Broken down to its fundamentals, ignored in that FAQ question, a Ponzi scheme is generally understood to be a money making venture that is wholly dependent on new folks coming into the scheme in order to continue to fund the upper levels. If folks stop buying into the bottom, then things dry out all the way back up the chain until it fails.
That is precisely how BitCoin operates. It's just a new twist on it because it masquerades as a currency. Instead of trying to convince you that you are buying into something, it is quite up front about the fact that it's based on nothing. If folks stop bringing in legal currency to the BitCoin system by using it to purchase BitCoins, BitCoins become worthless. While the BitBelievers insist that it can be spent quite readily, it's a joke and everyone knows it - one can spend a dollar at literally millions of places, you can spend BitCoin directly at what, a few hundred? Maybe a thousand? The BitBelievers will then tell you about BitCoin ATMs, which, again, ignores the fact that when you use a BitCoin ATM, you are using it to pull legal tender out in order to be spent. It's worthless if one cannot turn it into legal tender (one way or another).
That's what makes it a Ponzi-like scheme, because if no one continued to exchange legal tender for BitCoin for people who have BitCoin, they have no intrinsic value on their own. It's based on nothingness. That's why that FAQ is so disingenuous - if people stopped trading Apple stock tomorrow, Apple stock is still worth money because people still buy Apple products. You would be stuck with the stock itself but you would collect dividends based on the performance of the company and the percentage of profit you get as a stockholder. BitCoin's only product is itself, and is wholly dependent on the willingness of people to give someone legal tender for the right to own a virtual property. Since BitCoin doesn't produce income aside from more people buying into the scheme, they can wrap it up any way you like, but it's still based on nothingness.
Just look at the curt, pithy replies from BitBelievers - they know this train has gone off the rails, so that's really all they can say. With MtGox they proclaimed that it was just a poorly run business, and their talking points (I swear they must distribute them like Fox News does) were "it hadn't been the go to exchange for quite some time". Now that another one has fallen into insolvency, and another domino has hit the table, it's already becoming harder to defend, hence the growth of childish retorts because it's getting increasingly difficult to deny that the motion behind the fall of MtGox wasn't the start of the domino chain falling, but an isolated incident.
Now it's clear that MtGox may have been the first to go because indeed it was run poorly, but that it didn't fall solely because of how poorly it was run as the BitBelievers would like to think.
I'll be very curious how history looks at this very strange episode - in some ways, it's quite predictable that something like this would happen as it's happened over and over throughout human history (if prostitution is the oldest profession, parting a fool from their money must run a close second), but on the other hand things like this usually target the weak, the old, the infirm, those who are easy prey. In this case, a lot of very educated, erudite folks were taken in - I guess that will just go to show that the lure of a quick buck is more deeply imb
Re: hmm, people out to make a quick buck (Score:2, Interesting)
Funny how this comment comes up (not by you personally) in every thread about either BTC or the Fed or the economy in general.
You realize, of course, that the very fact that you (and those holding a similar position) even need to make that argument in the first place, means that quite a few people very much do question the strength and credibility of the dollar.
That said, I don't think any of us expect it to vanish overnight in a Zimbabwe-esque hyperinflationary spiral. Instead, it will just continue its slow decline, year after year, decade after decade, as deliberately inflationary monetary policies make up for the inability of the asshats in DC to "keep it in their pants" (by which I mean the federal wallet).
The sad part of that? A slow, predictable decline does count as the best game in town. And you seriously have to wonder why some of us want to see a non-fiat currency succeed?
Short selling is fine per se (Score:4, Interesting)
Short selling.. it is a scam especially 'naked' shots - where you bet on the price before you have the contracts in place.
Short selling is not a scam at all. In fact it is arguably very important to price discovery [wikipedia.org], providing a counterweight to excessive bullishness, ex-ante identification of asset bubbles and providing incentives to find fraud. Short selling in an of itself is just fine. That doesn't mean there aren't practical concerns that have to be addressed but the mere act of short selling certainly is not a scam.
Shorting is simply the act of selling something before you have bought it. Usually people buy something before they sell it but there is no fundamental reason it has to be done that way. In a short transaction you borrow the asset, sell it and then buy it back later and return it to the lender. The second order consequence of selling before you buy is that you tend to do it when you expect the price to fall because you want to sell high and buy low. Stock prices fall almost as often as they rise and there is no principled reason not to allow people to to bet on the directionality of stock prices. In fact when someone ends a long position, very often they are simply betting that the stock is going to fall. It's the same sale for the same reason, the only difference is that the buy occurred in the past instead of the future.
Now there are some practical issues that have to be addressed with short selling in order to have an orderly and reliable market. You are correct that an exchange whose procedures allow naked shorting to occur is asking for trouble because they can easily end up with a transaction that cannot be completed. It also opens a door to certain types of fraud. Naked short selling isn't illegal per-se because in some cases it isn't actually a problem but it's a type of transaction that tends to carry more risk than allowing it is worth.