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

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."'"

Comments

No sympathy

[1u3hr]

But the guy for fraud, sure, but the "investors" were idiots.

Re:No sympathy

[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.

Re:No sympathy

[Theophany]

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.

Re:No sympathy

[Anonymous Coward]

Ah. You caught me at a bad time. I just lost most of my liquid assets unluckily in an online savings fund. However, I am interested in your kind offer provided you can clarify some points.

1) May I invest with Bitcoin?
2) May I make my first deposit in a few days (I need time to secure a loan).
3) Could you define "sixtilliontuple".

Yours faithfully,
AC

Re:No sympathy

[cristiroma]

I was thinking about the exact thing, how can someone trust a person whom nick contains "PIRATE". Seems to me there is more stupidity on Internet than I previously thought!

Re:No sympathy

[slim]

"A real scammer would never put the word 'pirate' in his handle. Therefore this guy must be trustworthy..."

Re:No sympathy

[gigaherz]

Anything is a valid currency if people give a value to it. If you spend money to get bitcoin (electricity used to run the gpu), and use bitcoin to buy stuff, then it means bitcoin is a currency. Also he stole bits, not pixels. Digital bits can be coins the same way real coins are metal that's put into the shape of a coin.

Re:No sympathy

[Lumpy]

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

[Bengie]

"A Fool And His Money Are Easily Parted"

Re:No sympathy

[Anonymous Coward]

The thing is (and i was there) people thought that because it was so obvious, it could not be true.
Yeah, exactly.

Re:No sympathy

[Talderas]

Or the guy is brilliant, figured that old guys would be more trusted, and used that nick.

Re:No sympathy

[Theophany]

Holy crap, a Jimmy Buffet fan is even worse in my books...

Re:No sympathy

[EvilSpudBoy]

Maybe it is Jimmy Buffett. Eventually, whoever did this scam will want to convert their loot into other assets (other currencies, real estate, gold, etc..) so he/she can use it. If it's just some regular Joe, suddenly driving around in his new Maserati might raise a few eyebrows, but would anyone notice Jimmy Buffett with an extra 5 or 6 million?

Re:No sympathy

[asylumx]

I'm a retard for not being justalittlefuckingbit sceptical.

Nah, that name was already taken.

Re:No sympathy

[nedlohs]

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.

Re:No sympathy

[sco08y]

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.

Just to be clear: if this had been done in a regulated currency, the investors still get *no* protection, whatsoever. Just ask Bernie Madoff's investors.

Re:No sympathy

[fustakrakich]

...if a guy going by the handle pirateat40 is asking to invest my money, I'm a retard for not being justalittlefuckingbit sceptical.

Would you feel better if his handle was Charles Keating? How about Ken Lay?

Re:No sympathy

[slashmydots]

THANK YOU for posting that, as bitcoin gets enough needless hate around slashdot already. Here, let me go back in time about 6 months and post what every single intelligent bitcoin user said on the forums about this guy:

"Anyone who invests with this fake bullshit is a moron"

Morons are morons. It's not bitcoin-dependent.

Re:No sympathy

[Greyfox]

It's hard to have sympathy when they keep falling for it! You're not supposed to blame the victim, but it's just so easy! He could probably park on a crowded street and shout "Give me a bitcoin and I'll give you two back!" and make a million dollars! If it were an even remotely creative scam (Like the "Oh I accidentally sent a check for too much, could you please just deposit it and send the rest back?" one) I might feel bad for the people who fell for it, but come on people!

Re:No sympathy

[mspohr]

If it had been done by a regulated bank, the investors would be protected.
Even the currently very weak banking regulations in the US would have protected investments in interest bearing accounts up to $100,000 if it had been a regulated bank. Plus, the bank would have been vetted and monitored to make sure it really had the money.
Bernie Madoff and the Wall Street "banks" have been able to work their way around some of the regulation and have purchased a bunch of our finest congresscritters to further weaken regulations.

Re:No sympathy

[AvitarX]

No way a bank could get FDIC on accounts paying out that much interest in the US.

Re:No sympathy

[KhabaLox]

I wouldn't call them idiots for investing,

Really? 7% interest per week? From someone named Pirateat40? You're right. Seems legit.

Re:No sympathy

[mspohr]

Before a bank could offer 7% weekly interest, they would have to prove to the FDIC that they could financially support that payout which is, of course, impossible and in fact it was a "too good to be true" offer which did, nonetheless attract a good number of suckers.
The world is full of people trying to steal your money in one way or another. This was just a fairly obvious and blatant scheme which would have been prevented in a well regulated world but in the land of laissez-faire, you, the sucker, are fair game.

Re:No sympathy

[Stan92057]

Why not? theft is theft no matter whats being stolen.

Re:No sympathy

[lister king of smeg]

I'm a Nigerian price and i am interested in you proposal could you send me you bank account number and pin so i can deposit my investment?

Re:No sympathy

[Talennor]

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.

Re:No sympathy

[horza]

As opposed to the trillions of dollars lost by investors using regulated currency???

Phillip.

Re:No sympathy

[sco08y]

If it had been done by a regulated bank, the investors would be protected.
Even the currently very weak banking regulations in the US would have protected investments in interest bearing accounts up to $100,000 if it had been a regulated bank.

Huh. I don't think I've ever heard of a scam where someone pretends to be a bank.

Plus, the bank would have been vetted and monitored to make sure it really had the money.

No, banks explicitly do not have your money. That's why in bad times you see bank runs. And, in fact, during the recent crisis, even the FDIC came close to running out of funds.

Bernie Madoff and the Wall Street "banks" have been able to work their way around some of the regulation and have purchased a bunch of our finest congresscritters to further weaken regulations.

In a Ponzi scheme, the scammer is deceiving people into giving him money by claiming to be taking it in when he's not. That's just plain old fraud and requires no elaborate regulations to prosecute. The SEC was warned about Madoff, and could have sent prosecutors after him, but due to bureaucratic incompetence, they didn't.

Re:No sympathy

[tompaulco]

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.
Right. And I'm sure Madoff's victims got all of their money back, right?

Not really about Bitcoin

[slim]

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.

Re:Not really about Bitcoin

[cgt]

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".

Re:Not really about Bitcoin

[IamTheRealMike]

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 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

[Anonymous Coward]

>Every time there's a BitCoin story, people loudly claim it's a Ponzi scheme. Maybe they're right.
No, they are not. It's a pump-and-dump, not a Ponzi scheme.

Re:Not really about Bitcoin

[mellyra]

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.

Re:Not really about Bitcoin

[DrXym]

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 raise alarm bells that stop the con from being pulled off.

Re:Not really about Bitcoin

[FireFury03]

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).

Re:Not really about Bitcoin

[KnightMB]

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/

Re:Not really about Bitcoin

[ratbag]

One of the hackneyed excuses for spelling or grammar mistakes is to say that language is mutating.

Re:Not really about Bitcoin

[vipw]

I'm sure you mean mutilating, not mutating.

Re:Not really about Bitcoin

[Anonymous Coward]

There seems to be a pattern in these negative stories about Bitcoin: they're actually not about Bitcoin.

Re:Not really about Bitcoin

[syrinx]

Even if you could turn "virus" into an -i plural, it'd just be "viri". I don't know where people get this extra i from. It's not "virius".

But yes, just use "viruses" for FSM's sake.

Re:Not really about Bitcoin

[m.ducharme]

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

[Rogerborg]

just use "viruses" for FSM's sake

Fringe cultist demands use of biological weapons, news at 11.

Re:Not really about Bitcoin

[IamTheRealMike]

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.

Re:Not really about Bitcoin

[DarkOx]

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 facility to analyze and understand it or access to the opinion of people you can trust that do, it may still be very bad for you and you know no more than if it were closed.

Still others keep tossing the idea around that the early adopters are reward with easy money and later comers don't have the same opportunity. This also appears to be true at least on the surface. Its true of lots of investments as well. You got a much bigger reward if you bought Apple when they first announced the iPhone than you are likely to get if you buy it today. Ultimately though its supposed to be a currency users are not really supposed to be generating wealth by mining it. They are supposed to be doing other economic activities and using it as a medium of exchange. After all the easy Btc are mined, its essentially intended to be deflationary. Which punishes borrowers and rewards savers. We could easily have an entirely separate 600+ comment thread on the economic effects, social merits, justice, and societal impacts of that as compared to implicitly inflationary monetary system we use now. I think its to early to make a value judgement about Bitcoin here on these topics, its just something to be very *aware* when you consider your personal situation and if you should swap wealth in or our of Bitcoin.

Re:Not really about Bitcoin

[rioki]

Yes language is mutating, our you would not write in "English". Question: color or colour? It is only wrong as the majority or rather a significant minority think it is wrong. See also: History of the English language

Re:Not really about Bitcoin

[Mister Transistor]

I think it's an extension of radius->radii.

Re:Not really about Bitcoin

[h4rr4r]

Zuckerberg created value? Are you fucking kidding?

He his a fine example of scamming your way to the top.

Mining bitcoins does not create value anymore than mining MikeCoins. They fail as a store of value as well. I need dollars to pay taxes, I can also use them for all other economic activity. I cannot pay taxes with bitcoins, not can I use them in my day to day life.

The fact that bitcoins can be destroyed in the way you describe is not a good thing. It means there are less and less of them each year. This means if they catch on they will encourage hoarding and be a huge hindrance on any economy tied to them.

Re:Not really about Bitcoin

[Zontar_Thing_From_Ve]

"virii" is not a word. The correct plural of "virus" is simply "viruses".

In current usage that is probably right. But at least give some acknowledgement to classical Latin, in which virii would, indeed, be the plural of virus. I've never figured out why we use the Latin word but refuse to use its Latin plural.

Do you actually know anything about Latin declensions? If you don't know what "declensions" means then you do NOT. This article disagrees with you:
http://en.wikipedia.org/wiki/Plural_form_of_words_ending_in_-us#Treating_v.C4.ABrus_as_2nd_declension_masculine
I know how inflected languages work having studied Russian, but as I have not studied Latin I can only point to this article and speculate that you're another person with no training in the subject who's trying to pass himself off as an expert.

Re:Not really about Bitcoin

[Anonymous Coward]

No, you're wrong. http://en.wikipedia.org/wiki/Plural_form_of_words_ending_in_-us

Re:Not really about Bitcoin

[ratbag]

Note I don't deny that language is mutating. But using that truism to justify why someone yet again has used the unnecessary and nonsensical neologism "virii" is tired and lazy.

Re:Not really about Bitcoin

[slim]

I cannot pay taxes with bitcoins, nor can I use them in my day to day life

"Cannot" and "choose not to" are not the same. There are a handful of businesses who accept BC, and you could choose to use them. I'm told some people pay their rent in BC. If they're happy with that arrangement, then why not? It's not much different from paying your rent with PayPal, as I'm told some people do as well.

Re:Not really about Bitcoin

[crashumbc]

DING DING we have a winnner...

The exact method used by junk bonds and penny stock "investment" firms (which they often go to jail for)

Re:Not really about Bitcoin

[Anonymous Coward]

A Ponzi scheme is a type of pyramid scheme. What you just stated would be equivalent to saying "That's not a dog, that's a poodle".

Re:Not really about Bitcoin

[Anonymous Coward]

And the plural of "pedant" is "slashdot".

Re:Not really about Bitcoin

[Pope]

In current usage that is probably right. But at least give some acknowledgement to classical Latin, in which virii would, indeed, be the plural of virus. I've never figured out why we use the Latin word but refuse to use its Latin plural.

Why would there ever need to be a nod to Latin for an entirely English word? One virus, many viruses. Done.

Re:Not really about Bitcoin

[h4rr4r]

So I should change my entire life to use this currency.?

You call up the major banks and see which ones take bitcoins as payment for mortgage payments. Paypal is much different by the way, it uses a widely accepted set of currencies.

How close to buffalo ny is the nearest grocery store that takes bitcoins?

Re:Not really about Bitcoin

[slim]

Nobody said you should, nor that it's ubiquitous.

Only that you *can* use it for *some* things if you *want* to. Which you stated wasn't possible.

Re:Not really about Bitcoin

[h4rr4r]

Cool, lets say I want to use it for my mortgage, how would I do that?

Just because you can some tiny amount of things, does not mean I can use it in my day to day life.

Re:Not really about Bitcoin

[Bigby]

No. It is equivalent to saying "That's not a poodle, that's a dog".

Re:Not really about Bitcoin

[ffflala]

"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:Not really about Bitcoin

[exentropy]

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).

By that logic, any company taking investor money is a ponzi scheme: the early adopters (i.e. initial investors) are heavily rewarded if and only if they can convince latecomers that the company actually has value (otherwise cashing out -- selling their stock -- becomes hard).

Re:Not really about Bitcoin

[tftp]

By that logic, any company taking investor money is a ponzi scheme: the early adopters (i.e. initial investors) are heavily rewarded if and only if they can convince latecomers that the company actually has value

The difference is in the fact that legitimate companies have value - they have buildings, machines, materials, people and the market where the produced goods can be sold at profit.

A pyramid scheme company has no value outside of a tiny office with filing cabinets where nonexistent money is recorded.

In both cases the company seeks investment and in both cases the company advertises how good and stable it is. A pyramid scheme company is lying. A manufacturing company tells the truth.

The chocolate game

[georgeaperkins]

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.

Re:The chocolate game

[Anonymous Coward]

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 operation anything like a Ponzi scheme.

Re:The chocolate game

[Q-Hack!]

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.

Re:The chocolate game

[Anonymous Coward]

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.

Re:The chocolate game

[biodata]

This assumes that the market rebounds, i.e. it keeps growing forever. You make a good case that the market is really a Ponzi scheme, but that it is so large it cannot be imagined to fail, so everyone consents to pretend it will grow forever. At base, there are limited natural resources, and limited human resources, and when the market starts to run out of ways to efficiently exploit them, or the resources themselves start running out (peak oil, peak rainforest, peak population), it's hard to imagine how there will ever be a rebound. On the upside, some of the base resources are generated by sunlight and other forms of nuclear energy, which won't run out for a long time, but most resources are all too finite.

Re:The chocolate game

[AnonyMouseCowWard]

Stocks do _not_ work on that principle. If I buy 100% of the BitCoins in existence and everyone refuses to buy BitCoins, I have a big block of virtual data that is worth 0, because I can't use it in any way. If I buy 100% of Apple Inc., I get a company that employs people that makes money. I can choose to siphon all of that profit away and pay myself huge dividends, even if no one else wants to buy Apple stock.

People that don't understand the theory behind stocks compare it to a Ponzi scheme. I'm not saying some stocks aren't pumped and dumped like in a Ponzi scheme (from hotcake IPOs to penny stocks spam galore), but that's not how they're designed. It's only a zero sum game if the company pays 0 dividends and somehow crashes to the ground, but fundamentally, stocks do not work on the Ponzi principle.

Re:The chocolate game

[V-similitude]

At base, there are limited natural resources, and limited human resources, and when the market starts to run out of ways to efficiently exploit them, or the resources themselves start running out (peak oil, peak rainforest, peak population), it's hard to imagine how there will ever be a rebound.

Only if you assume technology growth is limited. The basis behind unlimited stock growth is unlimited technological growth. As long as we continue to discover new ways to convert non-resources into resources more efficiently, we can continue to grow. Theoretically, yes, this will end, someday, when we've essentially maxed out our knowledge about the universe. But not in our lifetimes.

Re:The chocolate game

[BigSlowTarget]

Brilliant - I think this should be part of classroom instruction. It's the only way to get through to people sometimes.

Re:The chocolate game

[slim]

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!

Of course if participants take part more than once, and everyone always accepts the deal and honours it, then it could loop around forever, and on average everyone would break even.

Re:The chocolate game

[slim]

Yes. In effect the market grows because it's ultimately fed by energy from the sun. A tradable company can make a pile of valuable timber out of an acorn, some nutrients, some water and some sunshine, and hence its value increases.

Re:The chocolate game

[benjamindees]

Theoretically. In actuality, the market grows by consuming finite resources, and the input of the sun is tiny in comparison.

Re:The chocolate game

[benjamindees]

Depends on the stock. Some stocks, yes if you buy them all you control the company. Others, you don't. Still others, you can buy up all the stock while the company just decides to issue more. The reality of a hostile takeover is a bit more complicated than you imply.

Re:The chocolate game

[slim]

The finite resources are ultimately made of sunshine.

The market grows *faster* when you're using up a glut of finite resource. But overall it must grow forever due to input from the sun. Yes there are (possibly severe and long-lasting) peaks and troughs.

Re:The chocolate game

[biodata]

Most of the resources we have consumed in the past 100 years took about 100 million years of sunlight to produce (oil, coal, natural gas). Technology needs to get about 1000000 times better than it is if we have any hope of economic growth becoming a reality rather than a fiction underwritten by draining prehistoric resources.

Well if it was a fiat currency like $$

[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.

Re:Well if it was a fiat currency like $$

[makomk]

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.

Re:Well if it was a fiat currency like $$

[Yunzil]

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.

That's it! Leaving bitcoin currency...

[Anonymous Coward]

I'm leaving the bitcoin currency and will give away all my bitcoins. Send me any amount and I will double it back to me..

JitaCitizen123198958

Re:That's it! Leaving bitcoin currency...

[Dunbal]

Well played. Transferring 0.10 ISK.

Is Bitcoin trace-able ?

[Taco Cowboy]

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?

Re:Is Bitcoin trace-able ?

[gl4ss]

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 ?

[eugene2k]

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.

Re:Is Bitcoin trace-able ?

[jhoegl]

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!

Re:Is Bitcoin trace-able ?

[Lumpy]

"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 ?

[Razgorov Prikazka]

Yeah, I totally agree, regulation is bad. I mean, so far in 2012 (35 weeks old now) we barely had 24 bitcoin (related) stories. And only 9 of those in august alone, a month that is already 4 weeks old now. That is just over twice a week. Bad moderation systems (=regulation of course) is going rampant!
http://slashdot.org/index2.pl?fhfilter=bitcoin
</sarcasm>

Re:Is Bitcoin trace-able ?

[Anonymous Coward]

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 ?

[Talderas]

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 ?

[Anonymous Coward]

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 funds presumably has valuable knowledge or connections or some other time valuable commodity and simply lacks the wealth to capitalize on it. Ostensibly you are forming a partnership. So no, it isn't about "getting something for nothing".

It is a matter of transparency and accountability.

If you are an established financial institution, adhering to the regulations of the government with regard to fiduciary responsibility, with a clearly stated foundation on just how it is you plan to provide me my interest and if I have an obvious means of redress should you fail to meet your obligations, then I think it is fair to consider investing with you.

If you are an individual, relatively new on the scene, with only an online handle to identify you, wishing to operate with a form of currency which is purposefully advertised as being anonymous (whether it is or not is another matter), and have not actually provided information on just how you plan to generate the revenue to pay the interest, then yes, why on earth would I give you my money?

Re:Is Bitcoin trace-able ?

[bickerdyke]

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 ?

[DrXym]

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:Is Bitcoin trace-able ?

[slim]

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).

Re:Is Bitcoin trace-able ?

[Enry]

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 ?

[bloodhawk]

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.

Re:Is Bitcoin trace-able ?

[CrimsonAvenger]

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.

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 ?

[petermgreen]

Specifically it's trivial to trace the flow of bitcoins among bitcoin addresses but unless someone has been stupid (e.g. giving out a fixed bitcoin address for incoming payments) it's very hard to pin down those bitcoin addresses to real world entities or even to tell the difference between internal transations by an entity and transactions between entities.

Re:Is Bitcoin trace-able ?

[fustakrakich]

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 ?

[slim]

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.

Re:Is Bitcoin trace-able ?

[Bill, Shooter of Bul]

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 ?

[makomk]

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 ?

[Skal Tura]

and unfortunately every bit of regulation, laws etc. are designed with the worst of the idiots in mind.

Re:Is Bitcoin trace-able ?

[Pope]

I know the title is ridiculous, but everything about this scam henge on it

Isn't that the one where the Druids promised life eternal for moving a bunch of 500 ton rocks around?

Re:Is Bitcoin trace-able ?

[gl4ss]

sounds like normal hyip forums then,shills gonna shill.

actually, hyips and drug trade is the main actual use for untraceable online cash - for obvious reasons. (they were the main uses for egold too)

Re:Is Bitcoin trace-able ?

[robthebloke]

"getting sumthin for nuthin" is exactly what intrest is.

You are getting something for 'risk'. You give your money to the bank, they either give it someone else, or they start gambling with it. There have been many occasions where banks have faltered because debts haven't been paid off (eg sub-prime mortgages), or because employees of the bank have seriously underestimated the risk (e.g. Barings Bank). There is always a very real possibility that your bank could go bust, taking all of your savings with it. If you are lucky, the governement will step in to prevent that, but even then, you aren't guarenteed to get all of your savings back (i.e. The UK will only guarentee £30k of your savings).

Re:Is Bitcoin trace-able ?

[Enry]

You obviously didn't read the rest of my comment.

Re:Is Bitcoin trace-able ?

[Thuktun]

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.

Re:Is Bitcoin trace-able ?

[khallow]

"getting sumthin for nuthin" is exactly what intrest is.

So how did you manage to get interest without a deposit?

Re:Is Bitcoin trace-able ?

[Jeremi]

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.

The above quote is perfectly true, but what it doesn't capture is that the easier it is to scam someone, the more often scams will occur. Crooks, like everyone else, will tend to concentrate their efforts on projects that are more likely to succeed, and avoid projects that are unlikely to succeed.

So the fact that there will always be idiots and crooks doesn't mean it's pointless to try to keep people honest.

Re:Is Bitcoin trace-able ?

[ckaminski]

And the Fed's manipulation of rates has broken natural competition between banks. If a banker has a good eye to investments and makes an AWESOME return for his clients, that should encourage them to give more money back to their capital holders (savers) and thereby draw more customers allowing him to make more deals.

The Fed skews this by setting on rate - no real competition in rates (until the Internet banks came along), and those profits instead go to the CEOs and management, who have very little skin in the game, since they buy and sell their debt to the Fed (who transfers it to the taxpayer).

Biggest. Ponzi. Ever.

Re:Is Bitcoin trace-able ?

[s73v3r]

Sounds like every internet community ever.

Re:Is Bitcoin trace-able ?

[AvitarX]

Social Security has lasted this long because of two things:

Forced participation
Top and bottom are constrained by reality

It is started to get to crumble due to weak management of it (nobody is willing to raise the age for fear of votes), and the bottom is starting to shrink relative to the top due to lack of a baby-boom and stricter immigration policy. I still think real leaders could fix it easily.

It works though because the size of the top and the bottom are completely regulated. Your definition of Ponzi scheme could apply to partnership type organizations too (design/law firms). Of course, once again the relative size of top vs bottom is constantly controlled, so they can last for very long amounts of time.

Re:Is Bitcoin trace-able ?

[Dogtanian]

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.

Alternate possibility- Some or all of the investors knew damn well that it was likely to be a ponzi scheme, but thought that they could enjoy the benefits by pulling their investment (and any "profit" accrued) before it collapsed.

This assumes that the person running the ponzi scheme would give them their money back. Obviously this just wouldn't happen if everyone asked, but if only one out of a large number of investors did (and they were "entitled" to withdraw at that point), it would make more sense for the scammer to return that single investor's money and accept a proportionately small loss, rather than refuse, which would quickly result in unfavourable attention, panic and the collapse of the scheme sooner than otherwise would (inevitably) have happened.

Well, maybe that's what they were thinking. Maybe not, who knows...

Re:Is Bitcoin trace-able ?

[zarlino]

No mod points today. Parent should be 5, Insightful

Re:Is Bitcoin trace-able ?

[shutdown -p now]

Yet there's no shortage of such. In Russia, there is currently a guy who's running a pyramid scheme immediately after spending five years in prison for... previously running a pyramid scheme, the biggest and best known one in Russian history. Not only that, but he uses the same name for his new creation, and he openly advertises his past experience on his website and other promo materials. What more, his website has an explicit warning that "this is a financial pyramid, no payouts are guaranteed", before you can sign up. And yet people come and give him money!

Re:Is Bitcoin trace-able ?

[cpu6502]

>>>the bottom is starting to shrink relative to the top

And that is exactly the mechanism by which Ponzi/pyramid schemes collapse. The bottom shrinks so that there is not enough money to support the people receiving money out the top. You say Social Security is "fixable" but I think the entire concept is flawed:

A better system would be one where SSI checks were only received if you needed the money..... folks who are well off (like me with ~10 million lifetime income) would not receive the benefits because we don't need the help. Then SSI could be sustainable like Welfare and Food Stamps are sustainable. It would only have to support ~20% of the retirees instead of 100%.

Re:Is Bitcoin trace-able ?

[shaitand]

Completely traceable but there are no people in the transaction chain, only addresses and the addresses are completely anonymous. Using small uneven varied transactions, multiple addresses, and taking advantage of large multiple user pools of Bitcoin, Bitcoin is effectively untraceable.

Re:Is Bitcoin trace-able ?

[shaitand]

There are lots of these especially in the currency markets. Generally they pay out in the beginning so if you catch them early and get out early you will actually get the promised yields while the people on the tail end get burned. Some people invest early in these schemes understanding exactly what it is.

Re:Is Bitcoin trace-able ?

[shaitand]

There is a class of investor that does this. It's just another higher risk form of investment. There are no shortage of these high paying scams just look at forex. There are even sites that review the scammers and let you know the ones who have a history of floating the scam for awhile.

Re:Is Bitcoin trace-able ?

[xtracto]

That remind me of an old quote I read somewhere that wondered why people lose like 40 IQ points as soon as they got in front of a computer.

Whom in his right mind would agree to that description you quoted, if a man knocked on their door telling them "give me your money and I'll give you 7% more next week... oh, and I won't tell you who am I nor what I'll do with it".

Crazy shit...

Re:Is Bitcoin trace-able ?

[AvitarX]

Agreed, that would be an example of a fix (I would like to see benefits calculated the same way (supporting about 66% of the population rather than your proposed 20%), but the cap on contributing lifted significantly, also, add a few years to the age at one receives it (we are living way way longer).

Something like 3 years would pretty much fix the issue for quite a while.

There are plenty of ways to control the ratio of people paying in vs receiving out, and have it remain a broad safety net.The difference is that it is fully regulatable (much like partnerships in a firm), meaning that it can be prevented from collapse. It's just that our politicians are in the end a bunch of short-term populists.

Even people with 10 million lifetime income can become broke (I've seen it happen to a smallish construction business owner) and may need a mild safety net.

Re:Is Bitcoin trace-able ?

[cpu6502]

>>>Even people with 10 million lifetime income can become broke (I've seen it happen to a smallish construction business owner) and may need a mild safety net.

He probably didn't lose anything. His personal assets would have been separate from his corporation's collapse, so he'd still have tons of money in his retirement savings. I'd still want him to be ineligible for SSI checks because he's rich enough to support himself. (If he really gets desperate, he could sign-up for Welfare and Food Stamps.)

Re:Is Bitcoin trace-able ?

[AvitarX]

He went personally bankrupt (funny thing about confidence, you rapidly break that corporate protection as you borrow against personal assets to try and save the business, because just that one construction job will turn it all around). Definitely didn't end up poor by any measure, but retirement was in investments that were not retirement accounts, so not protected.

I think your proposal of the lower 20% is a little absurd at least, 25% of households make less than 25k/year. It's a livable amount (though that may be a dubious claim for even a 3 person household), but it hardly leaves enough left-over to survive even a few years without working, the median is only double that.

Also, I think in principle both taxes and payouts should be flat. As in everybody of working age gets $x every year, and of retirement age $y every year. this should have nothing to income (past or present) or assets (past or present). Taxes should be a flat unavoidable percentage, as long as $x and $y are high enough nobody should complain, and all those smart lawyers and accountants can be freed up to do real work.

Re:Is Bitcoin trace-able ?

[molecular]

A fool and his money are soon parted.

Comment removed

[account_deleted]

Comment removed based on user account deletion

It's About the Unique Features of BitCoin

[eldavojohn]

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

[alphatel]

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:It's About the Unique Features of BitCoin

[Talderas]

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.

Re:It's About the Unique Features of BitCoin

[IamTheRealMike]

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". But saying Bitcoin has "no government regulation" just distorts reality. MtGox follows the AML/KYC regulations and if somebody wants to run an investment scheme they would need to follow their countries securities regulations. As I mentioned in another post, a Brazilian guy already got fined for not doing so.

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

I find this argument fascinating because it actually doesn't apply to Bitcoin, though I suspect you don't realize why. Firstly, you don't have to invest in shady "funds" in order to use Bitcoin. Using the currency does not imply using investment vehicles so it's quite possible for idiots to use it, though I'd not recommend it just due to the general immaturity of the software. So - your logic is simple but wrong.

It may not be immediately apparent that your logic is wrong because with currencies like USD and EUR, using the currency does practically (if not theoretically) require investment due to rampant inflation, so if you don't invest then your savings shrivel up and die. The absolute, hard requirement to invest rather than save means everyone (idiots included) ends up giving all their money to third parties who claim to be able to beat inflation. So regulation of these third parties does make a lot of sense.

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.

By the way, don't put too much faith in regulators. They don't have a great track record and there are worse things to come. For instance, go check out the web site of a typical hedge fund. Observe it is virtually empty. The reason is that the regulations say you have to publish information about your investment strategies if and only if you solicit for customers. Hedge funds do not solicit (hence the empty websites) so they can keep their strategies secret, which is one reason they can make a lot of money. So where do they get their customers? Well, a lot of personal contacts and backroom deals, very often with pension funds. Pension funds are supposed to be conservative and heavily regulated, which they are, but to get the returns they need to outrun inflation they have actually ended up just putting their money into unregulated entites - effectively acting as proxies.

Re:It's About the Unique Features of BitCoin

[Anonymous Coward]

Funny, all sorts of regulations and controls were in place by SEC for the last decades and absolutely no crooks went to jail for the longest con ever played in our economy (aka subprime mortgage crisis of 2008).

Re:It's About the Unique Features of BitCoin

[slim]

Pension funds are supposed to be conservative and heavily regulated, which they are, but to get the returns they need to outrun inflation they have actually ended up just putting their money into unregulated entites - effectively acting as proxies.

Thanks for scaring the bejesus out of me.

Re:It's About the Unique Features of BitCoin

[slew]

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 "securities" (e.g. fractional ownership rights in exchange for money), the SEC would get involved. However, if the monetary transaction were just transacting an unsecured private loan to this other entity (either documented, or undocumented) which had an "interest" receiving understanding (written or unwritten), neither the SEC nor the FDIC would probably currently have the juristiction to get involved unless it was deceptive (unsecured loan posing as a bank interest scheme). Depending on how it was structured, it might fall under the juristiction of an state insurance commissioner (e.g., if it looked more like a fixed annuity product), but that is easy to get around. Nobody is really regulating how you loan your money to other people (as opposed to the crap load of regulation on companies loaning money to you).

Although I'm sure if stuff like this were prevalent enough a problem, maybe congress could act (they always want to get their noses into stuff like this), but the take away is that the SEC isn't involved w/ everything monetary...

Re:It's About the Unique Features of BitCoin

[Kjella]

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:It's About the Unique Features of BitCoin

[khallow]

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.

So you seem to think that there was a property "unique" to Bitcoins that made them unusually conducive to fraud.

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.

Ok, so what's the feature that makes Bitcoin conducive to fraud? The above makes it less conducive to fraud. After all, what government isn't inherently fraudulent? For example, try doing a genuine accounting of any government's budget. The financial position of the government is invariably greatly exaggerated.

Re:It's About the Unique Features of BitCoin

[Jeremi]

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:It's About the Unique Features of BitCoin

[Bert64]

Ponzi schemes are illegal in most countries anyway, irrespective of the currency (or in some cases, goods) used to fund the scheme.
Regulation of the currency is entirely separate from use of the currency to commit other types of fraud. Billions of dollars and various other currencies are involved in illegal activities of one form or another on a continual basis.

Re:It's About the Unique Features of BitCoin

[IamTheRealMike]

Huh, I find it interesting you think what I said is wrong, because I think the same about what you're saying :)

You need to be very precise about how you're using words. If the value of a currency fluctuates against another, that is not inflation by any standard definition of the word. Inflation is typically defined as an increase in prices over time, averaged over the whole economy (typically approximated using an ever-changing basket of goods and services). Obviously if you only look at imports, prices can rise a lot without any money printing, but that's not what economists refer to as inflation so I don't see why you brought it up.

Likewise, your point about GDP is not helpful. It's obvious I was referring to the size of the Bitcoin economy. Imagine a country were to adopt Bitcoin as its formal currency if it helps. I wouldn't suggest anyone tries to save money with Bitcoin today, that's an absurd strawman. I was talking about what would happen if an entire economy in which people spend their whole lives adopted a currency with a fixed monetary base.

The rest of your post is just more of the same - you seem to be deliberately trying to miss the point I was making. Most dollars aren't sitting in currency exchanges either, do you believe that makes the dollar illiquid? That the "whole economy must fit inside a fraction of total dollars"? What does that even mean? You finish with a prediction of a flash crash to zero after "hoarders stampede", a prediction which I've seen so many times, but it hasn't happened. The currency started out being worth zero, remember?

Re:It's About the Unique Features of BitCoin

[pantaril]

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.

Are you trying to say, that what the Pirateat40 did is legal in USA? I suppose that his users had some kind of agreement with him and he broke this agreement. Does US legal system not protect the citisens from such things? I was aware that the legal system in US is in pretty bad shape (copyrights, patents etc) but if breaking agreement and stealing things from other people is legal, it's worse that i thought.

Re:It's About the Unique Features of BitCoin

[genkernel]

No, he is correct. There are two types of inflation, monetary inflation and price inflation. Your parent is clearly talking about the latter. This is the standard definition of the term inflation (look at the titles of the wikipedia articles there).

By that definition, bitcoin should be measured against what it can buy, or the real value of bitcoins. However, few things can be bought directly with bitcoins, and even some of those things might automatically fluctuate with the value of bitcoins in USD. So when bitcoin fluctuates against the dollar, that is indeed inflation/deflation due to what can be bought. You can substitute USD for CAD, AUD, or Euro as you prefer, that is just the only way to buy most of the goods on any reasonable price index. Your comparison with imports/exports is mistaken.

If bitcoin was adopted by a country, most of these problems would disappear, at least for those living in that country anyways. Since you must tie bitcoin to any other currency at the moment in order to buy necessary goods, let us use the fiction I'll call "Euro-Bitcoin", which is bitcoin as tied to the euro currency, instead of giving bitcoin a country of its own (which would change the current situation considerably). You will notice some bonus deflation in Euro-Bitcoin should the euro decrease relative to bitcoin, and some bonus inflation in Euro-Bitcoin should the euro rise relative to bitcoin, or should the market decide to raise the prices of common goods (which can happen completely separately from monetary inflation). This will be negligible for our discussion, as that plagues all currencies, not just bitcoin.

Now, the fact that you cannot just buy milk at the local grocery store using bitcoin creates another problem for Euro-Bitcoin. This is that someone must be willing to exchange bitcoin for euros in order for your Euro-Bitcoin value to be spendable. Now, the price at which someone is willing to exchange your bitcoins depends on the perceived demand for bitcoins in the market. If people want to own 10x as many bitcoins, the price of bitcoins jacks up, and the value of Euro-Bitcoin increases. If the reverse happens, the price of bitcoins plummets and the value of Euro-Bitcoin decreases. This is the inflation which the GP was talking about, the purchasing power of the bitcoin, with respect to buying real goods, can decrease or increase significantly according to bitcoin demand.

Right now, should any one major holder of bitcoins get rid of a significant portion of their bitcoins for the euro, it is conceivable that would saturate the market for bitcoins and decrease demand. This could cause the price of bitcoins to drop fantastically, since there are only so many people trying to buy, say, several hundred thousand euros worth of bitcoins. Bear in mind that since most bitcoins are being held, rather than being used, in general the pool of bitcoins available for exchange is much smaller, so the whole bitcoin economy must fit inside a fraction of the total Euro-Bitcoin value of bitcoins in existence. Should any significant fraction of that value be suddenly put up for exchange, that will tank the price. That may or may not happen, but if it does, it will mean inflation, lots of inflation.

I think it is also reasonable for the price of bitcoin to drop gradually, which also creates significant inflation (by definition), but that won't kill bitcoin, only decrease the value of everyone's bitcoin.

Personally, I don't like the "rich get richer" nature of (monetary) deflationary currencies, but bitcoin can suffer from inflation under the wrong circumstances.

Stock Market is a little bit different

[Taco Cowboy]

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 ...
 
... as you mentioned, when people starting to realize that Apple Inc ain't worth that much in the first place, and a crash will commence
 

Re:"members of the Bitcoin community"

[Anonymous Coward]

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.

Glasgow handshake

[Hognoxious]

But the guy for fraud

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

Re:Glasgow handshake

[1u3hr]

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.

Sigh. Great reporting Slashdot! Woo!

[sudog]

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.

Re:Sigh. Great reporting Slashdot! Woo!

[Zironic]

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

Re:Sigh. Great reporting Slashdot! Woo!

[gl4ss]

if feds would bother, they could lock him up for soliciting shitty investment scheme illegally - not 30 days from now but whenever they please.

it's not really premature, calling it legit was premature.

Re:Sigh. Great reporting Slashdot! Woo!

[pantaril]

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

Wow, are the FEDs only interested in money? Other valuables are free to steal in US?

Hold On There

[eldavojohn]

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 will say "good times while it lasted."

Alert the Bitcoin regulatory agency!

[Arancaytar]

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.)

Re:Alert the Bitcoin regulatory agency!

[JSBiff]

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.

Re:Alert the Bitcoin regulatory agency!

[gl4ss]

Why would the SEC touch him? A competing currency loses value due to loss of confidence? The SEC is *pleased*.

because he committed wire fraud? I guess that's for FBI though. but there's a reason why you don't see adverts on magazines for these schemes, mainly that sec would bite their ass and the publishers ass who would print such soliciations for money.

Re:Alert the Bitcoin regulatory agency!

[Anonymous Coward]

For the SEC to accuse him of wire fraud, they would have to agree that bitcoins are things of value. The suckers transferred no currency to this guy, just bitcoins. True, the suckers exchanged money for those bitcoins, but they didn't exchange money for bitcoins /with him/.

As far as the SEC is concerned, thief ganked a bunch of noobs in some weird MMO.

C does have a unique trait. Bare metal programming

[Anonymous Coward]

And Bitcoins don't have a property unique to Bitcoins for this. Paypal are an absolutely equal property.

And after the losses of trillions on the stock markets and derivatives, that too demonstrates the EXACT SAME PROPERTY. Even though there are far more regulations on those (just nowhere near enough).

Re:"members of the Bitcoin community"

[Anonymous Coward]

Why? Do you work for the government?

Misunderstood... like all other financial markets.

[Delgul]

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?

Not a Ponzi scheme.

[udachny]

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.

Re:Not a Ponzi scheme.

[slim]

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.

[udachny]

Bitcoin is a limited resource, as you said, 21 million coins, so there cannot be more than 21 million individual owners of the actual coin.

But there are many different possible scenarios for Bitcoins, I can come up with 2 right now.

1. It is possible to have a derivative product based on Bitcoin, something like a fractional reserve system, where 1 Bitcoin is basically an asset behind an ever increasing debt instrument (think fractional reserve). When this happens, then Bitcoins will be in very few hands, while the debt based on them will be growing and spreading more widely, so more than 21 million people with debt based on the actual coins.

At some point the Bitcoin will enter a bubble stage based on the debt. The reason for it is that people will expect the debt to be paid back with interest, but it cannot be paid with interest in Bitcoins, it has to be interest in other currencies. But this means that Bitcoins have to go up in price because of all this interest that is supposed to be paid to the holders of the coins.

2. If there are no derivative instruments, there is no growing debt based on Bitcoins, but without debt based on Bitcoin, it just becomes a limited edition item, where the price in other fiat currencies is completely subjective. Who can say, if the price goes up, then again, fewer people will have them. If price goes down to 0, then it doesn't matter who has them, you can't use them for anything.

If prices go either very high or very low, it limits the number of people either way, in either case it will be traded on exchanges and number of people trading them will be diminishing. If prices go too far up, most people are priced out of that market. If prices go too far down, everybody will be trying to jump ship, in that case it would actually possible for 1 person to buy up all of them and then maybe sell them as collector items.

It's hard to say precisely, but they are of very limited purpose and so there will be limited number of owners.

Re:Not a Ponzi scheme.

[slim]

I admit that a lot of what you said went over my head. There are some statements made as if self-evident in there that are not self-evident to me (e.g. " if the price goes up fewer people will have them").

so there cannot be more than 21 million individual owners of the actual coin

As I understand it, a wallet can contain a fraction of a bitcoin, so in fact - 2.1 × 10^15 people could own one of the smallest unit each. ... which makes sense since currently 1BC has a market value of ~US$10, which wouldn't be very useful for small purchases, if they weren't divisible.

they are of very limited purpose and so there will be limited number of owners

They are intended to be very general purpose. Whether that comes about, we'll have to see.

Re:Not a Ponzi scheme.

[udachny]

"if the price goes up fewer people will have them"

- well yes, that's how every product works, the more it costs, the smaller the market is for it. Think plasma TVs when they just came out and today. The difference is price, and if the gov't sets tariffs for example on plasma TV imports and because of that the TVs become twice as expensive, fewer people will own them. If the prices goes up by a factor of 10, then very few people will buy them.

If OTOH there manufacturers find a way to increase efficiency, minimize costs further and prices fall by a factor of 10, then everybody will have more than 1 plasma screen.

If a 50 inch TV costs 40 bucks, then people will have 5 of them at home.

If the price goes to 10 dollars for a 60inch plasma screen, then people will buy them not just to use as TVs, but just to break them, use them for various reason I can't even think of. Maybe people will build houses out of them.

--

If you can own a fraction of a bitcoin, there is still a smallest unit that you can have, so basically the same rules apply, except now, obviously they even lose the perceived collector value.

As to being general purpose, well, obviously they are not. They have very specific purpose, you need a computer, maybe a computer network to be able to use them. It's not like you can take a Bitcoin, put a hole in it and wear it around your neck, though you may have a Bitcoin USB stick with a Bitcoin on it, but then it's not a Bitcoin, it's a USB stick, which has intrinsic value.

Re:Not a Ponzi scheme.

[Great Big Bird]

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.

Re:Not a Ponzi scheme.

[udachny]

Of-course there is intrinsic value. Thousands of years of human history prove that physical items have intrinsic value. For example a piece of steel is much more valuable than a piece of paper, not because we 'believe' it to be, but because of what can be made of steel vs paper.

Same with gold vs fiat, all fiat currencies go to 0 over time, every one of them.

Gold is a proven store of value. It takes effort to mine gold, people use gold as jewelry and as money, we even have some industrial uses for it that are definitely impossible with paper. That's intrinsic value.

If you want to argue about it, argue with thousands of years of human history, not with me.

Re:Not a Ponzi scheme.

[slim]

"if the price goes up fewer people will have them"

- well yes, that's how every product works, the more it costs, the smaller the market is for it. Think plasma TVs when they just came out and today. The difference is price, and if the gov't sets tariffs for example on plasma TV imports and because of that the TVs become twice as expensive, fewer people will own them. If the prices goes up by a factor of 10, then very few people will buy them.

Perhaps this is a semantic issue of "fewer people will have them" versus "people will have fewer of them".

Practically every American has a cent. Some people have more cents than others. But everyone owns a cent. If the dollar doubled in value, I still think everyone would own a cent.

If you can own a fraction of a bitcoin, there is still a smallest unit that you can have, so basically the same rules apply, except now, obviously they even lose the perceived collector value.

I think the rules break down (as they do for cents) when the divisions are small enough. The smallest division of a BC is a "satoshi". There will eventually be 1.2 * 10^15 of them, enough for every human being on earth to have over 170,000 satoshi each.

As to being general purpose, well, obviously they are not. They have very specific purpose, you need a computer, maybe a computer network to be able to use them.

General purpose within those constraints, in that they're conceived as being equally viable for small transactions like buying a bag of sweets, right through to larger transactions like a load of grocery, a lawnmower, a car, a house. Lots of people carry small networked computers around all the time. I think that offline transactions can work somehow but I don't know the details.

(I do, however, write as someone who hasn't ever owned a Bitcoin, due to not being arsed and not having encountered a situation where one would be useful, yet)

Re:Not a Ponzi scheme.

[Great Big Bird]

Now that is an appeal to antiquity. The age is no indication of its correctness. Money is a measurement, not a store of value. It is like saying that a joule stores energy — it doesn't, it is the measurement of energy. Why not back it with steel? If you are arguing for intrinsic value, and defining it by what we can do with it, it is certainly FAR more valuable than gold.

Re:Not a Ponzi scheme.

[udachny]

Appeal to antiquity? Is 1971 antique now? Do you even realize that the gold standard was repealed 'temporarily'? Nixon took US off the gold standard temporarily. Is yesterday 'antiquity' for you as well?

OK, then how about 10 years ago, 1999-2002, is that 'antique'? Do you know what "Brown's Bottom" is?

Money is not just a measurement, it's a store of value, unit of account and means of exchange. If you want to keep your money in something that doesn't store value, go right ahead, keep it in paper.

As to backing things with steel - even steel has too much value in it today to make US cents out of. Yes, a steel standard is better than nothing. Steel has too many industrial uses and it rusts, so it doesn't keep value as well as gold, but it's definitely better than nothing, which is what fiat currencies of today are.

Re:Not a Ponzi scheme.

[udachny]

too late.

Re:Not a Ponzi scheme.

[shutdown -p now]

Please go ahead and explain how, precisely, gold has the value that it currently has in the market - i.e. what magical properties does it have that make people buy them at such prices.

You'll quickly realize that the only reason to pay $1.6k for an ounce is when you're planning to sell it (i.e. exchange it for something useful) for the same later on. But there's no inherent reason why anybody should buy it off you for that price later. The only reason why they do is that they, in turn, hope to sell it to someone else.

Gold is fiat money. It's just a fiat so ancient that we have a lot of trust with it, purely from custom. But there's nothing magical about it that actually makes it have that value - the magic is all in our heads.

Re:Not a Ponzi scheme.

[udachny]

Fiat by definition is currency that is declared to be valuable by the decree of government, and governments hate gold, they don't want anybody to use it or to have it, it prevents the owners of it from being taxed by inflation. Thus your entire premise is incorrect, gold cannot be 'fiat', nobody declares gold to be money, people just see it that way.

As to 'magical price', when nobody sets the relative value of goods and money, the market discovers the relative prices, it is what the market does.

As to paying 1.6K for an ounce, the absolute dollar amounts don't matter. I was buying at 250 and at 500 at 800 and at 1200, it didn't matter, many people saw it as high at those prices as well. I still didn't sell any, I see it as money - store of value.

As to people to speculate, I sometimes do too, but speculation is a different topic, it has nothing to do with fundamental understanding, such as understanding of inflation.

Re:Not a Ponzi scheme.

[jwdb]

So the intrinsic value of something is the value of what it can be used for.

So, what happens when we no longer have any use for platinum? It loses its intrinsic value? That means that its value wasn't *intrinsic* but extrinsic, dependent on our need for it in manufacturing, in the same way that cash has extrinsic value dependent on our need for it to engage in commerce.

Can you name one useless, ugly and undesirable material with intrinsic value?

Re:Not a Ponzi scheme.

[udachny]

You clearly have a negative connotation with the word 'commerce'. Commerce only means trading for things, and at the basis of it is trading for things we need by making things other people need. It's a positive word - we make things we need, and clearly we need things.

Re:Not a Ponzi scheme.

[jwdb]

How on earth do you come to that conclusion? I compare cash to useful platinum, and compare commerce to manufacturing, both necessary parts of a modern economy.

Or were you referring to my "useless, ugly..." statement? In that case, you completely misread my comment: I was challenging GP to find me something that was of no use to people, had no redeeming esthetic qualities, and was just not something someone would actually want for any reason, but which nonetheless you could say had "intrinsic value". I'm saying that something like this doesn't exist. At no point did I say cash or commerce is useless, ugly or undesirable, and was in fact implying the opposite: that money and platinum have value *because*, and also *only* because, they are currently desirable.

Re:Not a Ponzi scheme.

[molecular]

The Number of bitcoins in existance should have no direct influence on the number of bitcoin owners, since bitcoins are highly divisible (8 decimals).

I'd also like to know how udachny arrives at "the number of people with Bitcoins diminishes over time".

I agree with him on bitcoin not being a ponzi and fiat money not having the "store of value" property.

Always enough suckers available...

[gweihir]

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.

Re:Always enough suckers available...

[Revotron]

This points to a class of people that are incapable of seeing facts and cannot evaluate risks.

Slashdot readers? So all those Bitcoin stories were actually just Ponzi recruitment drives... now it all makes sense!

Re:MPU

[Caesar Tjalbo]

Surely you mean 'modpointii'.

Re:"members of the Bitcoin community"

[gweihir]

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.

Re:"members of the Bitcoin community"

[gweihir]

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.

Re:MPU

[VortexCortex]

I thought we went over this already: virus -> viruses, therefore: modpoint -> modpointet

The more things change

[erroneus]

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.)

Re:The more things change

[slew]

Fear of retaliation: now that's an interesting point.

Actually, there's no reason to fear violent retaliation in a civilized society, so if you were to assume (like some folks), that civilized society is an evolutionary stable point, a sociopath would have very little to fear in the long run. However, as many have noted, we aren't completely civilized, so maybe some fractional amount of "uncivil" behavior is actually the real evolutionary stable point and those "we-can-live-as-one" imaginers need to wake up (like Mr Lennon did in his later years)...

Just trollin'... ;^)

Re:Misunderstood... like all other financial marke

[erroneus]

Yes. There will be no government bailouts of Bitcoin.

Re:Misunderstood... like all other financial marke

[transporter_ii]

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.

Re:Let me get this straight:

[someones]

THIS!

Way to miss the point

[Anonymous Coward]

The C analogy is just here to illustrate that the currency and the ponzi are not one and the same. In this sense the analogy is fair but, if we draw on other aspects of C and Bitcoin we will naturally find dissimilarity.

"Analogy" is analogous to "Equality" but they are not equal.

Re:"members of the Bitcoin community"

[Ash-Fox]

I agree completely, let's shutdown bitcoin, WoW and EVE!

Re:"members of the Bitcoin community"

[Ash-Fox]

When did it happen under the PLN currency?

Re:Misunderstood... like all other financial marke

[Anonymous Coward]

I am not seeing what you are seeing. I have been watching the bitcoin rates, because I mine bitcoins on my own and want to know about the progress of my $100 investment that I have stashed away (not at First Pirate Savings Loan and Trust)

The rates have been hovering around $11 all week, up from $10 last week. Sure, they were up to $15 for a day somewhere in there. Wish I had known it was going to be a peak, but how can one predict these things (without magical powers of foresight?)

Re:Misunderstood... like all other financial marke

[Yebyen]

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.

You really strawberried that point...

[reluctantjoiner]

Good Horse.

(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:Misunderstood... like all other financial marke

[gl4ss]

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

Paypal is reversable...

[nweaver]

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.

Re:Misunderstood... like all other financial marke

[Nursie]

Most people are buyers, not sellers. As a result they prefer financial instruments that offer them protection from fraudulent sellers.

I'm thinking bigger...

[djsmiley]

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 :)

Re:I'm thinking bigger...

[petermgreen]

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.

Re:Misunderstood... like all other financial marke

[bloodhawk]

paypal is a real entity that is backed by government financial regulations and protection. Bitcoin has no such backing. If you are defrauded on paypal you have multiple means to recovery your funds or even reversing the transaction altogether.

Re:Misunderstood... like all other financial marke

[Yebyen]

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.

Re:Misunderstood... like all other financial marke

[Yebyen]

Yeah, ok, I'll sue paypal. How did that work out for the last group of folks?

I heard that some people got as much as $2000 back.

Re:"members of the Bitcoin community"

[nedlohs]

Sure it sounds familiar. It also sounds nothing like a Ponzi scheme. But who cares about actually using meaningful terms, right?

Mod that up!

[X86Daddy]

Damn; my mod points expired yesterday... this is the most concise, insightful thing I've seen comparing the two types of currency.

BS&T ?

[frostfreek]

I wonder what the T stands for.

Re:"members of the Bitcoin community"

[nedlohs]

This particular ponzi scheme, yes that was obvious to anyone who gave it half a second of thought.

Sometime being smarter (or more accutetly more knowledgable/experienced) can make spotting a ponzi scheme harder. Madoff is the obvious example. Sure the returns were way to good and consistent be legit and it looks like a ponzi scheme, however, some people who can see that then went that next level and instead concluded that Madoff was just insider trading or front running or whatever and wanted in on that scheme.

They were wrong of course, and deserve to lose their money since they weren't tricked into thinking they were in a legit investment, they were trying to get in on a scam (they just thought they were on the other side of it).

Re:Misunderstood... like all other financial marke

[Yebyen]

http://mtgoxlive.com/orders
So where did the price go down by 30-50%?

I am looking at the news that came out this morning, and the dip in prices a little over a week ago, and struggling to put it together just how these are related.
https://mtgox.com/

You can find the weekly and monthly graphs on the main page, link at the very top of the site.

Insider trading??? :)

Pirateat40

[travbrad]

Someone named Pirateat40 couldn't possibly be defrauding people surely?

Re:Pirateat40

[Rob_Bryerton]

It's entirely possible, and stop calling me Shirley.

Goddammit

[GameboyRMH]

I should have thought of this!

Re:No proof of the amount

[makomk]

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.

Was Abraham Lincoln Wrong?

[confuscan]

Attributed quote to Lincoln: "You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time." No, he probably is correct but with the Internet, "some of the people" is big enough to make a great living as a scammer.

Lessons from EVE Online

[pellik]

If there's one thing EVE Online demonstrated it's that within 1-2 years an even bigger Ponzi scheme is comming. The people that learn their lesson quit, leaving a new batch of sheep.

Re:Let me get this straight:

[neminem]

My favorite part of this post: the realization that everyone uses "monopoly money" as a convenient shorthand for "stuff that looks like cash, but has no value", despite the fact that it actually -does- have value. Not its printed value, obviously, but you can buy it at Amazon, and I bet if you put yours on craigslist or had it out at a yardsale, someone would buy it. Voila! Value!

Indeed, the same value that bitcoins have. I would argue that bitcoins -don't- have the same inherent value that currency-backed-by-nations have - that would be the "you can't pay taxes with them" argument. But they do have value in exactly the same way that anything else people buy and sell has value - if someone will buy the stuff with a currency-backed-by-your-nation, there's an equivalence between them.

It is indeed about bitcoins

[Timmy D Programmer]

What make it about bitcoins is that bitcoins are most useful to perform transactions behind your governments back. But this also means the government doesn't have your back when someone steals your bitcoins.

Re:Let me get this straight:

[slim]

US dollars, (which before you argue the point, you can pay taxes with it, you can buy gasoline with it, you can throw it at strippers/whores... unlike bitcoins).

I did a quick Google and found a store selling Thinkpads for BC150. So a bitcoin is *worth* 1/150 of a Thinkpad, at least to one trader.

True, you can't pay taxes with BC. But you can buy dollars with BC, and spend that on taxes. There's not many gas stations accept it (but I bet there's at least one). I'm certain I read somewhere of a brothel that accepted BC. If you really want to you can throw http://www.bitbills.com/ at strippers...

But none of this "you can't do X" is all that relevant. One day Bitcoin didn't exist. A bit later it existed. A bit later some people were accepting it exchange for services. In future, it might become more widespread, or it might die out. It'll be interesting.

Re:Misunderstood... like all other financial marke

[Nursie]

Sure.

But it's a far more pressing concern for most people that they not be ripped of on a daily basis by unscrupulous sellers and conmen.

Best use of bitcoin is criminal

[PremiumCarrion]

About the only safe (from a consumer scam point of view) uses of bitcoins are to purhase drugs. Silk Road is the only bitcoin related website that I haven't heard of being 'hacked' or a straight up scam, though I'd be wary of using it myself. I'm sure someone will point out that scams can be performed in US Dollars and that a scam perpetrated using bitcoins is not an indictment of the bitcoin itself. I agree but when 99+% of the transactions of bitcoins are scams or criminal it's not an economy anyone should be looking to join, it seems to me a classic case of an honest man can't get scammed.

Incidentally the guy behind BS&T still has some other investment schemes that people (as of yesterday when it was pretty clear what BS&T was) are still paying into. "Why should I care" is the attitude of investors who presumably have some ridiculous notion that he might be using his ill gotten gains to prop up that scheme for a while.

Less money and people would have been taken in by this if it wasn't for the fact that bloggerjournalists will report on anything in order to get pageviews without fully understanding or investigating what they report on, instead essentially just publishing the press release from bitcoin fanatics.

The fundamental design flaw of Bitcoin technology

[Animats]

Bitcoin is not a Ponzi scheme. Bitcoin is technically a pump-and-dump.

But that's not the real problem. Bitcoin enables anonymous non-revocable money transfer. That's the scammer's dream.

It's the "non-revocable" that's the problem. Bitcoin is a one-step process. A revocable system is technically possible. It would work like a database commit. A send N units to B, which locks those units for both A and B until A sends a commit or B sends a rollback. If neither event happens after some time limit, there's a disagreement. Either party can then send a ticket to an arbitration service (which arbitration services are allowed was set in the original transaction, in the form of a list of arbitration service public keys) and the arbitration service can make a decision and cause either a commit or a rollback. This could all be done in a distributed, anonymous fashion.

All the Bitcoin technology does is prevent double-spending. We now know that's not enough.

And this is shocking to whom?

[mitcheli]

Investing in international, unregulated, anonymous funding systems with no legal oversight (at least not the positive kind) from law enforcement and we are surprised why?

Some people'd say there's a pirate to blame

[billstewart]

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 some quick money and get out before it collapses, which is to say "you're an even bigger sucker."

Re:Some people'd say there's a pirate to blame

[Lumpy]

Wierd... It's my fault that he is a Jimmy Buffett Fan? I really need to curb my influence on other people, I had no idea that my circle of influence stretced across the internet like that.

Or did you reply to the completely wrong thread.

Re:Don't implicate bitcoin

[qubezz]

Yes, in fact there are millionth-of-a-bitcents. A Bitcoin is actual made of 100,000,000 base units (sometimes nicknamed Satoshis, after the creator). This makes it possible to send .00000001 Bitcoins to someone (although you might need to pay a .0005 network fee to do so). There is plenty of Bitcoin for worldwide adoption. An eventual 21 million Bitcoins x 100 million base units, enough for everybody in the world to use them for commerce.

Re:The fundamental design flaw of Bitcoin technolo

[JesseMcDonald]

The system you described, which is commonly known as "escrow", can be trivially implemented on top of Bitcoin. There are, in fact, several Bitcoin escrow providers already. Most people don't need escrow for most transactions, but it's available for those who do.

It is even possible to incorporate escrow and arbitration directly into the existing transaction format using N-of-M multisignature transactions. The simplest example would be a payment to a temporary holding address requiring two of three signatures to spend: the sender's, the recipient's, and/or an arbiter's. The sender and recipient can then agree to the payment (or refund), or the sender or recipient can appeal to the arbiter to refund the payment or complete the transfer. Since two signatures are required to spend the funds, no one can act unilaterally--not even the arbiter.

Everyone is so quick to jump to conclusions

[Time_Ngler]

This may not be a ponzi scheme. pirateat40 seems to be still around: https://bitcointalk.org/index.php?topic=101339.0

Virii as slang/jargon is fine.

[billstewart]

We don't avoid "virii" becaue we "refuse to use its Latin plural", but choosing to use something that is very deliberately NOT its Latin plural as a play-on-words jargon is just fine. Similarly, using "boxen" as a plural for "box", making the analogy to "vaxen", is fine. ("Boxen", with capital B, is a correct German plural; Google Translate thinks the German plural for "vaxes" is "VAXes"...)

There's at least one Roman grammarian who thought that the original word "virus" (poison, venom, slimy liquid) doesn't have a plural, though he probably didn't think about a collection of jars of snake poison, toad poison, arsenic, etc. There's some argument that it's 4th declension (so the plural would be "virus"), but even if it's second declension it wouldn't be "virii".)

I kind of like "viroids".

Re:The fundamental design flaw of Bitcoin technolo

[Animats]

The system you described, which is commonly known as "escrow", can be trivially implemented on top of Bitcoin. There are, in fact, several Bitcoin escrow providers already.

No. Escrow involves trusting a third party. That adds risk. Escrow agent fraud has been a big problem on eBay. Also, escrow involves identifying the parties to the escrow agent, so anonymity is lost.

It is even possible to incorporate escrow and arbitration directly into the existing transaction format using N-of-M multisignature transactions.

Multisignature transactions are being implemented, but I don't see that N of M transactions are. It's a good idea, though.

Re:The fundamental design flaw of Bitcoin technolo

[JesseMcDonald]

Escrow involves trusting a third party. That adds risk.

Regular escrow with physical goods requires a fully-trusted third party, because someone has to hold the goods. Escrow with Bitcoin (or whatever you prefer to call it; it serves the same purpose) can use multisignature transactions for that purpose, preventing unilateral action on the part of the arbiter, and you can stick to pseudonyms if you wish. If you want third-party arbitration you'll obviously need to trust that the arbiter is impartial, and provide evidence to support your case, which may well reduce your anonymity.

Multisignature transactions are being implemented, but I don't see that N of M transactions are.

My understanding is the N-of-M transactions with independent private keys and signatures are supported by the protocol (via the CHECKMULTISIGVERIFY operation), but lack a convenient interface in the GUI of the official client. It is possible to generate them with other programs and upload the transactions manually. The system I described is detailed on the Contracts pages on the Bitcoin Wiki.

If all else fails, standard cryptographic techniques exist for splitting a private key into several parts, a subset of which are required to reconstitute the original key, and these techniques can be applied to Bitcoin private keys.

Re:"members of the Bitcoin community"

[gweihir]

Ah, well, suckers will be suckers.

Re:The fundamental design flaw of Bitcoin technolo

[benjamindees]

Either party can then send a ticket to an arbitration service

No. Escrow involves trusting a third party.

So does arbitration.

5.6 million? Surely that's a joke

[viperidaenz]

I would value 500,000BTC at $0.00, given that the value of each BTC is $0.00.

Why is this news?

[shaitand]

People have claimed Bitcoin itself is a Ponzi scheme and this is unrelated to that as this is just a normal Ponzi scheme that happened to use bitcoin as the currency.

Last I checked 5 million bucks isn't even a drop in the bucket compared to Ponzi schemes involving completely traceable bank transactions in government backed currencies.

Re:The fundamental design flaw of Bitcoin technolo

[Animats]

So does arbitration.

Only if things get that far. Unless there's a disagreement between the parties, only the parties know about the transaction.

Re:choose externalities or bankable interest

[slim]

Clearly my figures were made up and illustrative, but "I spend that $10 on tending an apple tree" needs to account for all costs, including what you're calling externalities. I'm not sure what you mean by "the apples are worth". Either I can sell them at an acceptable profit (taking into account the interest payments the bank expects from me), or I can't. If I can't, the business isn't viable. Nobody's claiming that all businesses are viable.

Perhaps you'll claim that I'll be in competition with someone with all the same costs as me, except that they have their own capital and hence no interest to pay. Well, maybe. But maybe the market is big enough for us both. Or maybe I have a better marketing department. It doesn't matter; the point is that lots of successful businesses get started by taking loans (or by selling shares, which is effectively the same thing).

If I want my apple business to be sustainable in the long term, then yes I should replace the nutrients. I could go organic from the get-go, or I could use the inorganic fertilizer you allude to until it becomes scarce enough to be too expensive, then migrate to organic. Either way, phosphorus doesn't leave the planet (unlike helium!), so it will always be available in some form.