SEC Alleges 'Bitcoin Savings & Trust' Is a Ponzi Scheme 176
New submitter craighansen writes "The U.S. Securities and Exchange Commission has filed a lawsuit against a man they allege ran a Ponzi scheme using Bitcoin. According to the complaint (PDF), during 2011-2012, Trendon Shavers, operating under the username pirateat40, collected investments of over 700,000 Bitcoins from at least 66 'investors' (a valuation of $4.5M) with the promise of as much as 7% weekly returns. These 'investors' received about 500,000 Bitcoins in returns, so on average, they're probably much better-off than investors in Madoff's scheme. Nevertheless, with the rising value of Bitcoins, the $4.5M investments would be worth $65M at recent pricing if they had actually been left in Bitcoins, which approximates the 1% per day returns that the scheme promised."
interesting (Score:2, Interesting)
so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?
Re:interesting (Score:4, Insightful)
You think the SEC cares if it is a legitimate security?
The funny thing is that even if it is not a ponzi scheme, it is still an unregistered bank, which is illegal in and of itself.
You can't escape regulation just by doing business with bitcoin instead of dollars.
Ponzi schemes (or securities) aren't USD-only (Score:5, Insightful)
Why would you think it's not considered a legitimate security? A Ponzi scheme can be built on anything you like; if it's an investment, the SEC has jurisdiction.
The feds may not like BitCoins, but that's mainly due to their use for money-laundering, not because they have some sort of deep-seated fear that the USD will start feeling the heat of competition.
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It's not a lie. They can refuse to provide goods and services in exchange for cash, because neither goods nor services are debts.
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Wrong! The line about "legal tender for all debts public and private" is a lie.
Wrong! There is a difference between debts and "goods and services". From your link:
This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.
The banks issuing your credit cards, or holding your car loan or mortgage must accept US Currency as legal tender in payment for that loan. There are certain schools of thought that hold that if they don't, they have lost the ability to collect on that debt. Following that school, If a car dealer and I signed a purchase agreement for a car, a debt has been created. If I offer to pay in cash and the dealer refuses, the car co
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Sounds like bullshit, but government officials have said as much openly and on the record. How ANYONE could have ANY money in a system like that, I will never know.
I invested in a good lunch... (Score:2)
I invested in a good lunch...but now I am afraid my investment has turned to poo! Did the cafeteria defraud me? Should I contact the SEC?
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The SEC does *not* regulate currencies. It does, however, regulate investment companies, with the protection of the public in mind.
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so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?
For the amount of money involved I think they would be involved if it was a scam involving sea shells or wooden tally sticks.
Comment removed (Score:5, Insightful)
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Re:Covered before on slashdot, a year ago. (Score:5, Funny)
http://yro.slashdot.org/comments.pl?sid=4009033&cid=44369347 [slashdot.org]
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Neither Slashdot, the article, nor the SEC are saying that it is a bitcoin problem; it's your standard scheme exploiting irrationality around a commodity, that happens in this case to be bitcoins.
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What's new this time around is that he's in custody. I haven't read the article, but I got grapevine news from someone who reads more than I do that yesterday, PirateAt40 was taken into custody and caught with 700000 bitcoins in his wallet.
I told her I was honestly surprised he was in police custody and not the recipient of a brand new Colombian Necktie.
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I cannot confirm that he is in custody, but I heard "they got him". Reading this article I am starting to doubt it. There is little doubt for anyone who knows the Pirate Savings and Trust (that's what it was called first) that it is a scam, a lot of people lost their money and this is almost certainly not a big stunt for Bitcoin publicity. (heh)
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700,000!? That's 66 million USD at current market prices.
That's one hell of a con.
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Amazing that so many people trusted "First Pirate Savings and Trust" with 700,000 of anything, be they pennies or $17-coins or $1-coins or $12-valued or whatever. They are certainly worth more now than they were. If he started returning the money today, it's arguable that he would have made a great deal for all of his customers by forcing them to hold onto the coins for a longer amount of time until the market rate had gone sufficiently high to make it worthwhile cashing out.
"First Pirate Savings and Trus
Filed a lawsuit, not arrested? (Score:2)
FLEE TO MEXICO
Build private compound
Employ armed guards
Enjoy
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Because the mexican's won't extradite?
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You're right I forgot they have an extradition treaty and occasionally use it. There are plenty of other countries to choose from, pick one from the ALBA group.
Re:Filed a lawsuit, not arrested? (Score:5, Funny)
FLEE TO MEXICO
Build private compound
Employ armed guards
Enjoy
If you chose Belize, you could pick up a pre-built compound, and some currently unemployed, (but experienced), guards.
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Actually from what I last heard [slashdot.org] the land is available but you'll have to clear it and build on it yourself. Dunno about the guards...or underage girls.
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FLEE TO MEXICO
Build private compound
Employ armed guards
Enjoy
With 66 million in digital currency he better have a private army bigger than the zeta's and the police put together.
Actually he doesn't need it now, he will be quite safe in jail. Well moderately safe. Less of a target anyway.
well duh... (Score:2)
Some people were just happy to collect "earnings" while it was running. A few people even managed to cash out before it all went to shit.
Also, keep in mind that most of the losses reported by people were their account balances after a few months of compounded 7% per week "interest" (LOL). The actual losses were much lower.
All the bitcoins are being hoarded (Score:2)
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I think the hoarding is an unavoidable consequence of a new/young currency that allows individuals to help "mint" it?
If you invest a lot of money and effort into mining bitcoins or other e-currencies, you're starting out in a situation where your up-front costs to do it are large, and initial payback is small. You *could* take a long-term view of things thinking "If I keep my systems mining the coins for several years, I'll eventually pay them off and start coming out ahead." but IMO, few of the miners do t
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Get rid of them. Swap them for bitcoin and do it as soon as you can. Any alt-chain is likely to be worth exactly nothing. Only the inflationary ones are interesting. But don't keep them, because they'll lose their value as time goes by. Use bitcoins, and spend them like a regular currency.
It'd be like having lots of Estonian Kroon while living in the USA. Useless, you can't even spend them in Estonia (who have switched to the Euro). Sure you could change them, for now, but sooner or later you won't be able
Does the SEC have any credibility? (Score:2)
Madoff operated under their noses for years despite numerous warnings by competitors that his results were impossible and likely a fraud. Wall Street itself is a ponzi scheme.
For several years, one big financial firm after another cratered or had to be bailed out and all we heard from the SEC was crickets. And now they're on the warpath against bitcoin.
Re:Does the SEC have any credibility? (Score:4, Informative)
If you think Wall Street is a ponzi scheme, you've defined the term so vaguely as to be meaningless.
Just say "I don't like bankers! Yucky!" if that's what you're getting at.
Ponzi Scheme? (Score:2)
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No, it means investing in them is slightly dumber than we all knew it was yesterday.
Re:Legal (Score:5, Insightful)
Actually, in this case it means quite the opposite; investing your bitcoins in something (a scam in particular) is worse than investing _in_ bitcoins.
If the investors had merely been sitting on their bitcoins they would have gotten the returns he promised (although in dollar value).
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Actually, in this case it means quite the opposite; investing your bitcoins in something (a scam in particular) is worse than investing _in_ bitcoins.
If the investors had merely been sitting on their bitcoins they would have gotten the returns he promised (although in dollar value).
Apparently, trusting your money to someone whose username begins with "pirate" is a good way to get your savings keelhauled.
Yarr!
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Re:Legal (Score:5, Insightful)
No, it means investing in them is slightly dumber than we all knew it was yesterday.
No, it means investing in bitcoin-denominated ponzi schemes is dumb, running ponzi schemes is illegal and keeping their saving in bitcoins would be good idea for people scammed by pirate40.
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No, it means investing in them is slightly dumber than we all knew it was yesterday.
Every time I read these stories I wonder if I'm doing the right thing by not investing in the continued stupidity of other people. It seems a more reliable investment than any others I've made recently.
Re:Legal (Score:5, Insightful)
Never underestimate the power of greed to suspend normal thinking processes.
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"No one ever went broke underestimating the intelligence of the American public." -- Henry Mencken
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Never underestimate the power of greed to suspend normal thinking processes.
That sums the whole situation up perfectly. Sadly I've already posted and can't mod you up.
Re:Legal (Score:5, Insightful)
Unfortunately, virtually every practical means of investing in stupidity break the law; and the ones that don't (the lottery, for example), the government itself runs.
If you can find a new way they haven't yet banned to extract money from the stupid (eg. "payday loans", but those look near the end of their glory days), you will find yourself very, very wealthy.
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Taking money from dumb people should never be illegal. If you're dumb enough to believe that a Nigerian prince needs $50k to transfer $100m to the US. Then by all means, this should be legal.
Ponzi schemes should be evaluated on a case-by-case basis, but the burden of proof should be on the schemed.
For instance, if I ask you for $1k, and promise to return you $10k in 6 months with no proof or explanation of my scheme, that should be perfectly fine and legal.
On the other hand, if I have a porftolio with 100
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I think you are missing the point. The reason this should be illegal is not in order to protect the few people dumb enough to fall for it. There are other people smart enough to figure out in a couple of seconds, that it is a scam. But once they have figured out it is a scam, they have still wasted a couple of seconds.
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In a few man-years of smart peoples' times, spread out over a couple of seconds per person, almost nothing of worth could have been accomplished.
If it's gonna be illegal to waste others' time, let's start by throwing in jail those city workers who fail to properly time red/green light cycles.
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No, but those few seconds are being taken away from the time they could have spend on something else. If you will try to argue that it makes no difference if a smart person is going to spend say eight hours on a task or eight hours minus a couple of seconds, then you would be wrong.
I agree one smart person is unlikely to achieve anything great in a couple of sec
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This is genius: "Invest in continued stupidity." I think it may be the only stable market.
Re:Legal (Score:5, Insightful)
This really has nothing to do with bitcoin itself, and is just someone trying to use them to scam people. Nothing new here.
Re:Legal (Score:4, Interesting)
This really has nothing to do with bitcoin itself, and is just someone trying to use them to scam people. Nothing new here.
The reason it's a big deal is that he wasn't just trying to scam people, he was actually very successful at scamming people. If he just tried and failed no-one would care.
I saw give him a fair trail and if found guilty lock him up with a bunch of violent offenders for very many years.
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Post a decent argument and contribute to the world instead of just trolling.
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You misquoted me. I explictly said give him a fair trail and if found guilty lock him up. Note the 'if' there, I do not discount the possibility that the SEC got the wrong man or that what he did was technially legal.
If you really think upholding the law where that law is strongly aligned with morality and the social good is 'stupid and spiteful' then you are a sociopath.
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I don't agree. He is a threat to society. He stole a large amount of money and should face a fair trail and a prison sentence if he is found guilty. Fraudsters should be locked up both to prevent them commiting crime again for a few years and as a clear warning to anyone else who would commit fraud. The stupidity of his victims is no excuse for his actions.
Re:Legal (Score:5, Interesting)
I know how trollish this is going to sound, but it's consistent with my observations. This was a demonstration of just how well libertarian investors do in a (mostly) unregulated environment.
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Given the context, you seem to be suggesting that you are, yourself, a scam artist. Might want to consider implications of your phrasing in the future.
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It's Darwinism at its best.
If and only if you consider "having money" to be a trait worth selecting on.
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No, it means investing in them is slightly dumber than we all knew it was yesterday.
Investing in a risk free 1% a day is fishy in any currency. This was an obvious scam and this guy should be locked up for it.
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No, it doesn't mean that bitcoins in general are a Ponzi scheme, it's just about someone USING them in a specific scam that was a Ponzi scheme.
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When I first heard about Bitcoin, I thought it might have been well-intentioned. But well-intentioned or not, the whole thing is a giant flashing sign for scammers, thieves, and money-launderers reading "Marks Here!" It was only a (very brief) matter of time before they inevitably started showing up in droves.
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Which makes it no different than gold. Fox news talking heads were advertising shady gold companies during the commercials in their own shows.
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I would rather have precious metals which require a supernova to manufacture than a set of bits.
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Not when you buy it at $1800 an oz and now it is down to $1336. Unless you are saying that is a sign of deflation. Gold like any other commodity has its ups and downs. There is no reason to suspect it will always be a good hedge against inflation. In hyper-inflation economies like Zimbabwe gold was worth comparatively little vs USD and Rand.
I actually used Fox News because they were advertising it on that channel. It was that and some medicare scam type companies. I saw this at a doctors office in the middl
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When the economy bounces back gold prices go down and platinum prices go up. Platinum was cheaper than gold contrary to what used to be usual. A correction had to come sooner or later. It usually takes 5-6 years to resolve a banking crisis. Guess when the banking crisis happened.
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The usual breakdown for gold use is 50% jewelry, 10% industry, and 40% hoarding -- sorry, I meant "an investment vehicle to hedge a
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And houses used to be 60% more valuable than they were after the market crashed. And Apple used to be $700 and now is selling at 436. And ...
Your analysis is lacking any depth.Where you saying gold was a bad investment when it was under 700 two years ago? Saying gold is a bad investment and pointing to Fox News is pure hyperbole, designed to illicit emotional responses.Gold is an investment, good at times, poor at other times. It is not a scam anymore than AAPL is a scam.
On the other hand, it is perfect for
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Sorry, gold was under 800 two years ago, typo.
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I never suggested gold in general was a scam. Just that the peddlers on FOX news were using it for one.
So how much did you buy at over $1200/oz?
If you want to invest in gold remember to compare it to platinum. When it costs more than that a correction is coming.
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Why at auction when you can just go to any gold and silver store or pawnshop and buy it at todays price?
There is no safety increase to physical control. As we saw in Zimbabwe during hyper-inflation other currencies quickly become far more valuable vs gold than usual.
If you are predicting total world economic collapse I would advise investing in lead wrapped in brass instead of gold.
Re:Legal (Score:4, Interesting)
Gold is and always will be a solid hedge against inflation.
Actually, gold is a pretty poor hedge - as with any commodity, it is very volatile and it's long term returns are not that great. For example, $100 invested on gold in 1965 would be worth around $4000 in 2012 vs about $6000 for the same investment in the S&P 500. Gold touts play on people's fears and their belief that others will continue to share those fears to drive up the price; when in reality gold is a basic commodity and behaves as such. It even has a limited upside because as prices rise uneconomic means of production become viable; and there is a lot more gold that has not been recovered than there is demand.
Of course, it doesn't hurt that you tossed in "Fox News" to get all your liberal friends panties in a wad. And when Obama's monetary policy lead to rampant inflation ... well you will not look so smart.
Actually the Fed sets monetary policy and it is notorious for doing things that piss off presidents; to the point of being accused of acting to influence elections. Of course, you use "Obama" the same way as others use "Fox."
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Yeah I want to declare an automatic Godwin when these stupid fucks bring up "mrurm umrm OBAMA,.." or "graug urgma FOX...". Sheesh.
You guys sound like 6 year olds having a dick waving contest. "My Dad can beat up your Dad AND Glenn Beck".
Jesus Christ, give it a rest.
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Charging 100% mark up on gold is a scam. No reputable source does that.
Marketing folks should take Bill Hicks sage advice.
No, I have what is called morals and ethics, so I would never do that. Nor should others be allowed to take advantage of the elderly that way.
Obamacare is not a scam, it might be ill advised but it is not a scam.
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And show up they did, and they were very successful. You know what they say about a fool and his money..
But then scams with cash and money transfer services have been going on for a very long time. BitCoin didn't really change anything there.
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They almost try to be though. What with mining paying early adopters more it has a bit of that.
I think the shrinking supply of them and increasing price will lead to uptake for litecoin and its other competitors.
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They almost try to be though. What with mining paying early adopters more it has a bit of that.
I think the shrinking supply of them and increasing price will lead to uptake for litecoin and its other competitors.
LiteCoin is a troll on BitCoin. It's just a copy and paste job and there really isn't any need for it to exist.
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It is not a troll. It is an alternative.
It does not matter if 100 of those spring up, once the price of bitcoins is too high there is a need for these to exist. There is no reason why more digital currency should not be minted.
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Except that litecoin and other alts are basically pointless (except for the ones that implement inflation, which are not pointless, merely worthless at this stage). Oh, one bitcoin is too large, if only there were a way pay a fraction... Oh wait, there is. Consider: one bitcoin can be divided up into 10,000,000 pieces. That's better than the USD, which can only be divided into 100 pieces.
The only reason I can think of for most of the alt-chains is to be a money grubber for the creators and early adopters. T
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Divisibility does not solve this problem. The basic design of bitcoin causes it. This is because it is deflationary and was a massive value give away to early adopters. Also being easy to reproduce means people will, by making their own new versions.
The point is there is nothing magical about bitcoin. Why should anyone let the early adopters this massive advantage?
There is no reason not to have more digital currencies. The what can you buy argument is one you should avoid as bitcoins are not widely accepted
Re:Legal (Score:5, Insightful)
Doesn't this mean bitcoin is now illegal?
No, it means that bitcoins are just like real money! You can commit real financial fraud with them.
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It means they caught a conman who prayed on those blinded and stupefied by greed.
I hope they throw the book at this guy. Although I know there are literally millions more con artists who would happily repeat his actions.
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According to the post the actual value of bitcoins has climbed at about 1% per day, so surely it's more remarkable that the scheme failed to meet those expectations?
Re:8% weekly - what kind of idiot believes that ?? (Score:4, Insightful)
Not really, the fact is with bitcoin having climed so fast there isn't really much you could invest it in that would have performed better than just holding the bitcoins. I guess you could make bitcoin denominated loans but the combination of lack of effective regulation and the aforementioned rise in bitcoins value would probablly lead to an extremely high default rate on such loans.
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That's my point. The scheme's operators only had to sit on the coins and pay out their actual nominal value to come out in line with even their most optimistic predictions. If they'd posited a 5% rate of return they could've even made a very tidy profit too.
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What makes you so sure that they didn't do just that? Collect money whose value is increasing at 7%, pay out at 5%, pocket the difference. Sounds like a wonderful business model to me as long as you can find the marks to "invest". And 65M * 2/7 = $18.6M pocketed, even ignoring the effect of compound interest.
Lets see, the reality would be closer to:
1 year = 52 weeks
@5%/week = 1.05^52 = 12.64
@7%/week = 1.07^52 = 33.72
profit = $65M*(33.72 - 12.64)/33.72 = $65M*0.625 = $40.6M
Not bad for a dishonest year'
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Except they had to pay out in bitcoins, not dollars. If Bitcoins increased their value against the dollar, it made the 8% per week even more implausible.
Since there are no actual investments with legitimate earnings yields that are nominally denominated in bitcoin (or at least not enough to matter), any sort of banking scheme that offers interest denominated in bitcoin is either a scam or a pure short-play (bc to $, wait for price to drop, buy more bc). Welcome to full reserve banking, where the only legi
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Yes it's the weekly bitcoin praise article just doing it from a different angle. Whether that claim is true or not is sadly a different story and not proven here.
It's at best Amway or Tupperware for geeks, but personally it looks very much to me like an old fashioned ponzi scheme that is baited for geek and has people like the readers here as it's intended victims.
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According to the post the actual value of bitcoins has climbed at about 1% per day, so surely it's more remarkable that the scheme failed to meet those expectations?
Right. But the scheme was denominated in BitCoins. You invest 1, next day you have 1.01 and so on. That's on top of the USD value of the BitCoins going up. Of course there was no way that this guy was getting 1% of his held BitCoins from thin air. This guy even started rumours about involvement in laundering drug money as a source of the 1%.
What kind of an idiot believes the unbelievable? I struggle with that too. The answer seems to be that there are a lot of people that will literally believe anything.
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According to the post the actual value of bitcoins has climbed at about 1% per day
Depends on when you bought. There was a run-up to 15 to 260 earlier this year, but it's been mostly downhill since then. Today, 87.
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Turn off Javascript. Try he NoScript plugin if you are using FireFox.
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Does that mess up the way comments are displayed? Especially trying to show all the 0 and -1 posts?
I use NoScript, and I think that was a issue at first.
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It does not matter if it worked out in their favor or not Ponzi schemes are illegal.
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You can have a ponzi scheme in anything. It could be goats or chickens or pornomags.
It does not matter how the values of goats, chickens or pornomags change. If you take the later investors pornomags and give it to earlier investors it is a ponzi scheme.
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In the simplest case it is a fraction of the issuing body's products, be that labour, goods, raw materials, whatever in the case of a country. I work in the mine and exchange my gold for dollars; I go to the baker and exchange my dollars for his bread. I could've exchanged gold for bread with essentially the same outcome.
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Except in the time between you selling the gold and buying the bread, the government has printed a few billion more dollars.
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Err, so I should say that a negative is an unpaid debt. You take the bread, but you don't leave any gold.
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If you take 10% from each exchange the value will never reach zero (Zeno's paradox). Regardless, a Ponzi scheme extracts no value from the original capital. There's no arbitrage. It's a zero-sum game. That's what distinguishes it from markets, which are supposed to be about finding areas where someone has under- or over-valued something relative to its actual value, and extracting that difference.
Re:Money, Its all a ponzi scheme (Score:5, Informative)
Not sure you have a good grasp of what a Ponzi scheme involves. In a Ponzi scheme there's no making money off other people's money. There's no making money off anything. It's like trying to build a hill in a sandbox. You drag the sand in to the middle, which makes the middle go up, but the edges go down to form a moat. So you drag sand in from further away. The moat gets deeper, and the hill gets higher. The total amount of sand stays the same; all that happens is that it is redistributed. So long as you keep dragging sand around, people think the hill will get bigger forever, because the moat's never in the same place very long.
Except when you run out of sand and have no way to fill in the moat.
http://en.wikipedia.org/wiki/Ponzi_scheme [wikipedia.org]
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That is precisely how Social Security works.
Only by equivocating the terms "return" and "benefits". They are not the same thing. A more accurate analog for SS would be insurance.
P.S. In before "insurance is a Ponzi scheme!"