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

Posted by Soulskill on from the jig-is-up dept.

New submitter beltsbear writes "Despite the many people calling it out as a Ponzi scheme from the beginning, Pirateat40 was able to collect millions of dollars worth of Bitcoins from thousands of Bitcoin users. At almost every stage Pirateat40 copied the path of the EVE Online Ponzi scheme except on a much larger scale with a far more liquid take. Now, it has shut down, and investors are wondering where their digital currency went. Quoting: 'He claimed that BS&T was sitting on 500,000 BTC on the day of the shutdown, worth more than $5.6 million USD at today's price of $11.38. "Once my process is released you'll understand more of how coins move around," he told members of the Bitcoin community last week. Pirateat40 initially promised to refund his investors' Bitcoin deposits plus interest within a week, effectively admitting that he did not have the Bitcoins on hand. The fund normally paid out on Mondays, but last Monday and today have passed so far without refunds. BS&T investors are complaining loudly and so-called "pass-through" funds that invested with BS&T are shutting down. As of this writing, BS&T says there is "no ETA on payments."'"

74 of 327 comments (clear)

  1. No sympathy by 1u3hr · · Score: 5, Insightful

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

    1. Re:No sympathy by Anonymous Coward · · Score: 3, Insightful

      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.

    2. Re:No sympathy by Theophany · · Score: 4, Insightful

      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.

    3. Re:No sympathy by slim · · Score: 5, Funny

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

    4. Re:No sympathy by gigaherz · · Score: 3, Insightful

      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.

    5. Re:No sympathy by Lumpy · · Score: 4, Informative

      you little kids miss the clues, doing too much pot in the van with shaggy does that to you...

      Pirateat40 = Pirate at 40 or a Jimmy buffett song. the guy is a Jimmy Buffett fan, therefore an old guy.

      --
      Do not look at laser with remaining good eye.
    6. Re:No sympathy by Talderas · · Score: 4, Insightful

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

      --
      "Lack of speed can be overcome. In the worst case by patience." --Znork
    7. Re:No sympathy by EvilSpudBoy · · Score: 2

      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?

    8. Re:No sympathy by Talennor · · Score: 2

      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.

      --

      //TODO: signature
  2. Not really about Bitcoin by slim · · Score: 5, Informative

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

    But it's worth pointing out that this story is not the story that vindicates that claim. This is a story about a Ponzi scheme that happens to have been conducted using Bitcoins.

    To claim that this shows Bitcoins are a Ponzi scheme is like saying that C is a virus because you can write virii using C.

    It might be the case that this Ponzi scheme couldn't have been conducted using (say) US$ because of financial regulation. Lack of financial regulation attracts some people to Bitcoin -- but look how it can bite.

    1. Re:Not really about Bitcoin by cgt · · Score: 5, Informative

      To claim that this shows Bitcoins are a Ponzi scheme is like saying that C is a virus because you can write virii using C.

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

    2. Re:Not really about Bitcoin by IamTheRealMike · · Score: 4, Informative

      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.

    3. Re:Not really about Bitcoin by mellyra · · Score: 5, Interesting

      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.

    4. Re:Not really about Bitcoin by DrXym · · Score: 2
      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.

    5. Re:Not really about Bitcoin by FireFury03 · · Score: 4, Insightful

      Bitcoin itself is not a ponzi scheme and that's obvious to anyone with a dictionary. A ponzi scheme is a scheme where "investors" are paid from deposits from new investors. Obviously such a scheme must always grow in order to make payments and that means it is guaranteed to eventually collapse.

      It isn't a ponzi scheme, but it does resemble one in some ways:

      With a ponzi scheme, the early investors make great returns due to the influx of later investors. The returns gradually diminish as time goes on because the money from new investors has to be spread more thinly, the early investors get to cash out before the whole thing collapses.

      With bitcoin, early investors get a lot of bitcoins (as they are easy to produce at the start). Later investors don't get so many, and as more and more investors enter the scheme, the currency gets spread more thinly and therefore each bitcoin gains value. The early investors still have their big stack of bitcoins, which now have considerably more value than when they started due to the increasing scarcity of bitcoins amoungst the later investors. The scheme may or may not eventually collapse, but either way the early investors are left with huge gains and the ability to cash out before anything bad happens.

      As nobody sane would invest in something that explicitly advertised itself as a ponzi, such schemes always involve secrecy and obfuscation.

      I'm not sure that's necessarilly true. Ponzi schemes *do* make a lot of money for the early investors, so it would be reasonably sane to enter such a scheme if the scheme is very new, then cash-out before it goes tits-up. Without some inside knowledge about the scheme, it would be pretty risky though because you don't know whether you are going to be an early investor or a late investor (who will lose all their money).

      Bitcoin, being a currency, is not an investment

      Currencies are frequently used as investments. Anything that fluctuates in value can be used as an investment (shares, currencies, properties, etc) - with all these things, the trick is to buy when it has a low value and sell when it has a high value. This is probably even more reason to invest in bitcoin, since the increasing scarcity of the coins is likley to gradually drive the value up (assuming the currency doesn't fall into disuse).

      --
      http://blog.nexusuk.org
    6. Re:Not really about Bitcoin by ratbag · · Score: 4, Insightful

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

    7. Re:Not really about Bitcoin by vipw · · Score: 2

      I'm sure you mean mutilating, not mutating.

    8. Re:Not really about Bitcoin by m.ducharme · · Score: 3, Insightful

      Bitcoin is not a ponzi scheme but it behaves similar to one - the increasing mining difficulty and limited overall amount of coins heavily rewards early adopters (who hoard their bitcoins) if and if only these early adopters can convince the latecomers that bitcoins actually have value (otherwise cashing out becomes hard).

      That's not a ponzi scheme, that's a pyramid scheme.

      --
      Rule of Slashdot #0: You and people like you are not representative of the larger population. - A.C.
    9. Re:Not really about Bitcoin by Rogerborg · · Score: 5, Funny

      just use "viruses" for FSM's sake

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

      --
      If you were blocking sigs, you wouldn't have to read this.
    10. Re:Not really about Bitcoin by IamTheRealMike · · Score: 4, Insightful

      This argument comes up repeatedly, but it's ridiculous. It's very often the case that new technologies reward early adopters who do nothing beyond "leech", but practical experience shows that the big winners are always people who create real value.

      Maybe an example makes things clearer. If you were an early adopter of the internet then you would have had the chance to obtain huge IP blocks and tons of domain names for virtually nothing, these are scarce resources that would later become very valuable. But if you asked the man on the street to name some internet millionaires, chances are they would name people like Mark Zuckerberg, Larry Page, Sergey Brin, maybe Marc Andreseen and so on. People who built real businesses and real value. In practice although domain speculators did and do exist, the world is not awash in a lazy elite of people who just camped on scarce resources for decades. Nor does the existence of a small number of these people make the internet "behave similar to a ponzi scheme".

      Whilst Bitcoin certainly does have people who did nothing beyond buy up coins early and sell them later, there are also tons of early adopters (like me) who are creating real value by writing software, running services, being merchants, mining and so on. These people risk something very real - usually their time and capital - to build the system, and they may or may not do very well financially out of it. Just like any new technology. Your grist with miners is particularly bizarre because the people who mined on Bitcoin when the coins were worth little/nothing were actually sacrificing real capital (for electricity/cpus) to provide security to a system that was extremely small and unlikely to go anywhere.

      By the way, the people who mined coins when it was very easy didn't know Bitcoin would take off. A lot of the early coins have been lost because for around 1.5 years Bitcoin was merely an interesting piece of open source software. The coins had no value and there were no exchanges, but mining had real cost in terms of electricity, pegged CPUs and so on. So people would mine or get some coins, get bored and delete the software/not back up their wallets, etc.

    11. Re:Not really about Bitcoin by DarkOx · · Score: 2

      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.

      --
      Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
    12. Re:Not really about Bitcoin by ffflala · · Score: 2

      "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.

  3. The chocolate game by georgeaperkins · · Score: 5, Interesting

    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.

    1. Re:The chocolate game by Anonymous Coward · · Score: 2, Insightful

      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.

    2. Re:The chocolate game by Q-Hack! · · Score: 2

      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.

      --
      Some days I get the sinking feeling Orwell was an optimist.
    3. Re:The chocolate game by Anonymous Coward · · Score: 2, Informative

      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.

  4. Well if it was a fiat currency like $$ by Anonymous Coward · · Score: 2, Insightful

    Well if it was a fiat currency like the US $, they could have just 'sold' the ponzi assets to the Federal Reserve who would promptly magic some more $$$ from nothing. Really transferring value from every other Bitcoin user to these Ponzi scheme fund managers.

    So isn't the collapse of a Ponzi scheme in Bitcoin validation of the value of the currency? Nobody bailed it out the way Wallstreet was bailed out, because nobody COULD bail it out.

    No TARP is possible is Bitcoin land.

    1. Re:Well if it was a fiat currency like $$ by makomk · · Score: 2

      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.

    2. Re:Well if it was a fiat currency like $$ by Yunzil · · Score: 2

      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.

  5. Is Bitcoin trace-able ? by Taco+Cowboy · · Score: 5, Interesting

    I know the title is ridiculous, but everything about this scam henge on it
     
    Normal paper-based cash are almost un-traceable, that is why petty criminals often get to spend the cash that they robbed from old ladies
     
    If Bitcoin is untraceable, then the masterminds behind this ponzi-scheme get to "spend" their ill-gotten loot as well, without being identified
     
    I use Bitcoin, but I am not well verse with all the details
     
    If I were to scam someone and got his Bitcoin, could I spend them, without being identified?

    --
    Muchas Gracias, Señor Edward Snowden !
    1. Re:Is Bitcoin trace-able ? by gl4ss · · Score: 2

      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.

      --
      world was created 5 seconds before this post as it is.
    2. Re:Is Bitcoin trace-able ? by eugene2k · · Score: 5, Insightful

      It's traceable, but it's not easy to trace. I remember there was a paper on the traceabilty of bitcoin transactions. Google it if you're interested.

      P.S. If you were to scam ppl using bitcoin, right now you can probably get away with it, because complaining to the authorities won't help you in any way.

      --
      Apple has "Mac vs PC", Microsoft has "Laptop Hunters", Linux has recession
    3. Re:Is Bitcoin trace-able ? by jhoegl · · Score: 4, Funny

      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!

    4. Re:Is Bitcoin trace-able ? by Lumpy · · Score: 5, Insightful

      "Schemes that are only obvious to those that are educated on such things."

      you mean like the super secret education that "you cant get something for nothing" and "a fool and his money are soon parted" ?

      There have always been idiots, there will always be idiots. and as long as there are idiots, you will have crooks that take their money this way.

      --
      Do not look at laser with remaining good eye.
    5. Re:Is Bitcoin trace-able ? by Anonymous Coward · · Score: 5, Interesting

      Bitcoin Saving and Trust: "7% per week return. The operators methods cannot be disclosed. The operator is essentially anonymous."

      The only education required for an honest person to hesitate from investing here is basic reading comprehension and the wisdom not to believe everything they read. If you lack either of these then please avoid Bitcoin until appropriate regulations have been applied, thank you.

    6. Re:Is Bitcoin trace-able ? by Talderas · · Score: 4, Insightful

      Interest on accounts is not something for nothing. There is an very obvious opportunity costs that comes with depositing your money. You lose control of it and you lose some access to it.

      Look at interest bearing back accounts. There's typically a minimum balance that must be kept before you're assessed fees. CDs close off access entirely. Even in no account minimum interest bearing accounts you will often have to go into the bank itself (time) in order withdrawal all the funds and close the account.

      The only real reason those accounts appear to be something for nothing is because the banks you deposit at are insured by the FDIC so you can't get scammed and the reality is that the only banks an American is likely to deal with that are not FDIC insured are international banks or are scams.

      --
      "Lack of speed can be overcome. In the worst case by patience." --Znork
    7. Re:Is Bitcoin trace-able ? by Anonymous Coward · · Score: 2, Insightful

      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?

    8. Re:Is Bitcoin trace-able ? by bickerdyke · · Score: 4, Insightful

      Interest on accounts is not something for nothing. There is an very obvious opportunity costs that comes with depositing your money. You lose control of it and you lose some access to it.

      Yes, and that's exactly the same what this scheme promised: let me control your bitcoins for a while and you'll get them back later - with intrests.

      So this alone was no criteria for recognizing a scam.

      --
      bickerdyke
    9. Re:Is Bitcoin trace-able ? by DrXym · · Score: 4, Insightful

      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.

    10. Re:Is Bitcoin trace-able ? by slim · · Score: 3, Informative

      Yes, and that's exactly the same what this scheme promised: let me control your bitcoins for a while and you'll get them back later - with intrests.

      So this alone was no criteria for recognizing a scam.

      The clue is "with interest vastly in excess of market levels".

      The higher the promised interest, the less plausible it is. (Yes, I don't find hedge funds particularly plausible).

    11. Re:Is Bitcoin trace-able ? by bloodhawk · · Score: 4, Insightful

      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.

    12. Re:Is Bitcoin trace-able ? by CrimsonAvenger · · Score: 4, Insightful

      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.

      --

      "I do not agree with what you say, but I will defend to the death your right to say it"
    13. Re:Is Bitcoin trace-able ? by fustakrakich · · Score: 3, Informative

      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.

      --
      “He’s not deformed, he’s just drunk!”
    14. Re:Is Bitcoin trace-able ? by slim · · Score: 4, Informative

      How do you make interest on a currency that is that fixed?

      The same way you make interest on any currency.

      You put $10 in the bank. The bank gives me $10. I spend that $10 on tending an apple tree. I sell the apples for $14. I pay back $12 to the bank (20% interest) and keep $2 for myself. The bank adds $1 to your balance (10% interest) and keeps $1 for itself.

    15. Re:Is Bitcoin trace-able ? by Bill,+Shooter+of+Bul · · Score: 4, Insightful

      Yes, this is banking without any regulation. The FDIC does some background checking on banks and steps in when there is trouble. In the absence of such a trusted third party performing due diligence, you the individual must perform the same level of investigation to determine if its a trustworthy source for depositing money. The reason why they are stupid for investing or depositing in this scheme, is that they didn't do that research or even recognize the need for it.

      --
      Well.. maybe. Or Maybe not. But Definitely not sort of.
    16. Re:Is Bitcoin trace-able ? by makomk · · Score: 5, Insightful

      The part you're missing is the brigade of shills on the Bitcoin forums who called anyone that pointed out that this was a Ponzi a troll and insisted that they were just too stupid to figure out how the operator of the scheme had managed to achieve such good returns. (Some of them even insisted that they knew how he was doing it, though they consistently refused to actually say.) Social conformity is a powerful thing; a lot of people are willing to put their concerns aside and do really foolish things so long as everyone around them is telling them that they're idiots for not doing them.

    17. Re:Is Bitcoin trace-able ? by Thuktun · · Score: 2

      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.

    18. Re:Is Bitcoin trace-able ? by AvitarX · · Score: 2

      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.

      --
      Wow, sent an e-mail as suggested when clicking on "use classic" banner, and got a fast response that addressed my msg
  6. Comment removed by account_deleted · · Score: 4, Insightful

    Comment removed based on user account deletion

  7. It's About the Unique Features of BitCoin by eldavojohn · · Score: 4, Insightful

    It might be the case that this Ponzi scheme couldn't have been conducted using (say) US$ because of financial regulation. Lack of financial regulation attracts some people to Bitcoin -- but look how it can bite.

    No, your C to Bitcoin analogy is a bit flawed. If C had a unique trait that was unique from all other computing languages that made it insulated and without consequences for virus writers (and this is impossible) than it would be a valid analogy. The problem is that all other currencies have some entity backing them that has a motive to or already does instituted financial regulation -- like stopping ponzi schemes. And the logic for this is quite simple. If you don't protect idiots, then idiots can't use your currency. Since much of the population is idiots, you need to protect them from the really bad stuff that comes along with capitalism -- otherwise your system starts to look really shitty and third world really fast.

    So, there's no way to fix this with BitCoin because that's the great thing about BitCoin: no government regulation or government backing. I suspect you're going to start to hear more and more stories like: lack of security in major BitCoin trading systems (with no repercussions), more ponzi-like activity (with no repercussions) and more child porn/drugs/etc bought with BitCoin (with no repercussions). And then once it becomes evident that there are no repercussions? Just watch the copycats copy.

    So, yeah I find your BitCoin is like C really really flawed. But of course, if anyone thinks that BitCoin is the currency of the future and there are finite BitCoins, it only makes sense to move all of your liquid assets and investments to BitCoin so put your money with your mouth is if you want to defend BitCoin and that will be the most effective way to validate this currency.

    --
    My work here is dung.
    1. Re:It's About the Unique Features of BitCoin by alphatel · · Score: 3, Insightful

      If you don't protect idiots, then idiots can't use your currency. Since much of the population is idiots, you need to protect them from the really bad stuff that comes along with capitalism -- otherwise your system starts to look really shitty and third world really fast.

      So, there's no way to fix this with BitCoin because that's the great thing about BitCoin: no government regulation or government backing. I suspect you're going to start to hear more and more stories like: lack of security in major BitCoin trading systems (with no repercussions), more ponzi-like activity (with no repercussions) and more child porn/drugs/etc bought with BitCoin (with no repercussions).

      So you're now going to argue the SEC protects citizens and catches ponzi crooks before all is lost? Wrong century!
      The useless government isn't going to do squat for real money or anything else. If your BC community is about helping each other and someone blatantly steals your virtual cash, you now know that you can't trust your fellow man without some virtual credibility. In this case the scammer had none, but people went for it anyway.

      --
      When the foot seeks the place of the head, the line is crossed. Know your place. Keep your place. Be a shoe.
    2. Re:It's About the Unique Features of BitCoin by IamTheRealMike · · Score: 2, Informative

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

      No, that's (yet another) gross and dangerous misunderstanding that gets repeated in the internets echo chamber.

      Securities laws do not have some magic exception for Bitcoin. If you are running an investment scheme you're supposed to register and follow those laws. Now we can argue how useful these regulations are, but they certainly do apply to this scheme by "pirateat40". 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.

    3. Re:It's About the Unique Features of BitCoin by slew · · Score: 2

      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...

    4. Re:It's About the Unique Features of BitCoin by Kjella · · Score: 5, Informative

      However Bitcoin has limited and predictable inflation which eventually stops entirely, so (in theory) it's quite possible to just build up savings. With a stable monetary base the value of your savings basically tracks overall change in GDP. If the economy grows at 2% per year, the value of your savings does too. No investment required, though obviously nothing stops you investing if you want to try and beat general economic growth.

      I've rarely seen so much wrong rolled up into a few sentences. Inflation means that the purchasing power of your money goes down over time, the quantity of Bitcoin is known but the value is not so saying it has a predictable inflatioin is just ridiculous. Yes, printing of money is one of the things causing inflation but far from the only one. Like you say in the next sentence, the purchasing power will continue to change also after all Bitcoins are assigned an an increasing value we'd call deflation - it's just negative inflation. But let us talk closer about the steady stead.

      With a steady state, whoever owns Bitcoins own a fixed fraction of the total Bitcoin economy - not to be confused with the GDP of any country or the world. If you own 1% of the Bitcoins, you own 1% of the economy whether that's worth a million, a billion, a trillion or nothing at all. So if 10 times as many people want to use Bitcoins, all the existing money will be worth 10 times as much. If 90% (leaving 1/10th) leaves, your money will drop to 1/10th of the value.

      Actually it's worse than that because most of the Bitcoins are not liquid, In order to be able to buy Bitcoins somebody must be willing to sell them, and already today most of them are hoarded. What it means is that the people who actually want to use Bitcoins are buying and selling from an even smaller pool of money, the whole actual economy must fit within just a fraction of the total Bitcoins. And it gets very susceptible to flash crashes if the hoarders stampede, on top of the chance that people abandon the currency.

      Either way, the system keeps getting stuffed with more and more "old money" which means you have to be crazier and crazier to invest as you get less and less Bitcoins for your dollars while the existing Bitcoin owners profit from deflation. The early adopters have the most to gain and the last ones in most to lose, eventually new people will cease to join and the panic will start in the other direction as the Bitcoins only have value as long as anyone else accepts Bitcoins.

      --
      Live today, because you never know what tomorrow brings
    5. Re:It's About the Unique Features of BitCoin by Jeremi · · Score: 2

      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.

      --


      I don't care if it's 90,000 hectares. That lake was not my doing.
  8. Stock Market is a little bit different by Taco+Cowboy · · Score: 3, Interesting

    You mentioned the Apple stock and the hot-potato nature of it --- but stock market itself is a little bit different from Ponzi Scheme
     
    The rise of Apple stocks is not totally due to the perception of Apple Inc is worth what and what billions, but rather ---- The world we live in, right now, is being flooded with too much liquidity, and those excess cash is looking for each and every way to stay ahead of the curve, and Apple Inc just so happened to become the "safe haven" for the time being, until ...
     
    ... 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
     

    --
    Muchas Gracias, Señor Edward Snowden !
  9. Re:"members of the Bitcoin community" by Anonymous Coward · · Score: 2, Informative

    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.

  10. Sigh. Great reporting Slashdot! Woo! by sudog · · Score: 2

    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.

    1. Re:Sigh. Great reporting Slashdot! Woo! by Zironic · · Score: 2

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

  11. Hold On There by eldavojohn · · Score: 2

    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."

    --
    My work here is dung.
  12. Alert the Bitcoin regulatory agency! by Arancaytar · · Score: 3, Funny

    oh wait.

    (But seriously, can the SEC even touch him? If not, that imparts a serious lesson to everyone who uses BC for financial trading rather than just an online payment method.)

  13. Misunderstood... like all other financial markets. by Delgul · · Score: 4, Interesting

    As a fallout from this news, the Bitcoin rate has dropped roughly 30% (even around 50% for a short while). Why? No one seems to know. Whatever the scam, this _should_ have had near-zero impact on the exchange rate of the Bitcoin and the drop can only be explained by people panicking and selling off their coins. No matter, I made a nice extra when the rates bounced back from -50% to -30%, but it goes a long way to show how many people do not have a real inkling of how financial markets really work.

    Really... where is this any different from 'conventional' financial markets?

  14. Not a Ponzi scheme. by udachny · · Score: 3, Interesting

    While I am not myself in Bitcoin and would not recommend it, it's not because it's a 'ponzi' scam, it's not. It's because there is no intrinsic value behind these electronic means of exchange, they don't store value. Yes, they can act as means of exchange and units of account, but the third property of money is lost - store of value.

    Same exact problem is with fiat money in terms of store of value - they don't have that property, specifically because the interest rates are manipulated by the government (or pseudo-government agency, like the Fed), and the money is created out of thin air. That's the reason gov't hates real money, it wants fiat, because it allows the gov't to give promises that it doesn't have to pay for by raising taxes, instead it prints and destroys the very value of money.

    But Bitcoins are not a ponzi scam it's the opposite, there is no exponential growth of Bitcoins, it's the reversed pyramid, the number of people with Bitcoins diminishes over time, so that is an unfair qualification for it.

    --

    American problems and solutions in 24 minutes.

    --
    MY OTHER COMMENTS
    1. Re:Not a Ponzi scheme. by Great+Big+Bird · · Score: 4, Insightful

      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.

    2. Re:Not a Ponzi scheme. by Great+Big+Bird · · Score: 2

      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.

  15. Re:MPU by Caesar+Tjalbo · · Score: 4, Funny

    Surely you mean 'modpointii'.

    --
    "I'm not much interested in interoperability. I want substitutability. I want to be able to throw your software out."
  16. Re:MPU by VortexCortex · · Score: 2

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

  17. The more things change by erroneus · · Score: 2

    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.)

  18. Re:Misunderstood... like all other financial marke by erroneus · · Score: 3, Insightful

    Yes. There will be no government bailouts of Bitcoin.

  19. Re:I'm thinking bigger... by petermgreen · · Score: 2

    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.

    --
    note: i'm known as plugwash most places but i screwd up registering that here somehow in the past and now can't register
  20. Re:No proof of the amount by makomk · · Score: 2

    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.

  21. Best use of bitcoin is criminal by PremiumCarrion · · Score: 2

    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.

  22. Some people'd say there's a pirate to blame by billstewart · · Score: 2

    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."

    --

    Bill Stewart
    New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
  23. Everyone is so quick to jump to conclusions by Time_Ngler · · Score: 2

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