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

Soulskill posted about 2 years ago | from the jig-is-up dept.

Bitcoin 327

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

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327 comments

No sympathy (5, Insightful)

1u3hr (530656) | about 2 years ago | (#41163517)

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

Re:No sympathy (3, Insightful)

Anonymous Coward | about 2 years ago | (#41163535)

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.

Is Bitcoin trace-able ? (5, Interesting)

Taco Cowboy (5327) | about 2 years ago | (#41163561)

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 ? (2)

gl4ss (559668) | about 2 years ago | (#41163687)

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 ? (4, Funny)

jhoegl (638955) | about 2 years ago | (#41163753)

See, this is why regulation is bad. Bad people are prevented from setting up schemes.
Schemes that are only obvious to those that are educated on such things.
Turrble!

Re:Is Bitcoin trace-able ? (-1)

Anonymous Coward | about 2 years ago | (#41163879)

Look at how many of the Goyim invested in Facebook. Did they really, truly believe that they'd see any ROI on that Ponzi scheme?

-- Ethanol-fueled

Re:Is Bitcoin trace-able ? (5, Insightful)

Lumpy (12016) | about 2 years ago | (#41163931)

"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 ? (0)

Anonymous Coward | about 2 years ago | (#41164039)

Enron... Nuff said?

Re:Is Bitcoin trace-able ? (-1)

bickerdyke (670000) | about 2 years ago | (#41164145)

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

and even if you count lending something for a while as something, it would still bethe same something that happend here. Giving someone money and getting back money + x is the base principle of all saving accounts, so at least teaching this principle won't work here.

Re:Is Bitcoin trace-able ? (4, Insightful)

Talderas (1212466) | about 2 years ago | (#41164233)

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 ? (0)

Anonymous Coward | about 2 years ago | (#41164261)

wrong, but I guess this will still be modded as insightful.

now, would someone take a guess on what you're giving away in exchange for interest?

Re:Is Bitcoin trace-able ? (2, Insightful)

Anonymous Coward | about 2 years ago | (#41164285)

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 ? (1)

Razgorov Prikazka (1699498) | about 2 years ago | (#41163983)

<sarcasm>
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 ? (5, Interesting)

Anonymous Coward | about 2 years ago | (#41164045)

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

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

Re:Is Bitcoin trace-able ? (5, Insightful)

eugene2k (1213062) | about 2 years ago | (#41163715)

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:No sympathy (0)

Anonymous Coward | about 2 years ago | (#41163567)

Not idiots? Hmmm....

I have business proposal for you Sir. You will be way ahead of the curve, many people already invested. Beacoup money. You will be rich. Please send your money to me smart and respected Mr. AC. I will sixtilliontuple it in less then a year. Guaranteed money back safe sale security.

Re:No sympathy (1)

Anonymous Coward | about 2 years ago | (#41163731)

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 (1)

Bengie (1121981) | about 2 years ago | (#41164149)

"A Fool And His Money Are Easily Parted"

Glasgow handshake (1)

Hognoxious (631665) | about 2 years ago | (#41163651)

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 (1)

1u3hr (530656) | about 2 years ago | (#41163751)

Yeah, I saw it too late. Fumble fingered typist and too used to revising forum posts after the fact. And Slashdot's preview takes so long I usually just wing it. Some ludicrous results when I screw up the HTML.

Re:No sympathy (4, Insightful)

Theophany (2519296) | about 2 years ago | (#41163691)

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

Re:No sympathy (1)

cristiroma (606375) | about 2 years ago | (#41163773)

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 (5, Funny)

slim (1652) | about 2 years ago | (#41163883)

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

Re:No sympathy (4, Informative)

Lumpy (12016) | about 2 years ago | (#41163949)

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 (4, Insightful)

Talderas (1212466) | about 2 years ago | (#41164241)

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

Re:No sympathy (1)

Theophany (2519296) | about 2 years ago | (#41164247)

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

Re:No sympathy (0)

transporter_ii (986545) | about 2 years ago | (#41164107)

> Maybe this is a bit obvious

Oh, I see what you did there.

Re:No sympathy (0)

Anonymous Coward | about 2 years ago | (#41164171)

On the bid there are anarchists, lefties, geeks, idiots with real money on the ask are drug dealers, smuglers, grey market, mafia, pirates with BTC and the platform is called Bitcoin.

Re:No sympathy (1)

Anonymous Coward | about 2 years ago | (#41164231)

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 (0)

Dunbal (464142) | about 2 years ago | (#41163871)

Fraud? He "stole" pixels. Surely you're not trying to tell me that Bitcoin is a legitimate currency are you?

Re:No sympathy (3, Insightful)

gigaherz (2653757) | about 2 years ago | (#41163927)

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 (0)

Anonymous Coward | about 2 years ago | (#41164141)

Bits and pixels are equally incorrect here. The Blockchain, the software, the public/private keys, and the wallet.dat file are all "digital" to be sure but the "bitcoins" are wholly virtual. They are nothing more than numbers stored in the block chain (public ledger). It's really no different from fiat currencies in that respect (the money one has in the bank is virtual and is represented by a number in a database).

Not really about Bitcoin (5, Informative)

slim (1652) | about 2 years ago | (#41163529)

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.

It's About the Unique Features of BitCoin (4, Insightful)

eldavojohn (898314) | about 2 years ago | (#41163629)

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.

C does have a unique trait. Bare metal programming (1)

Anonymous Coward | about 2 years ago | (#41163681)

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:It's About the Unique Features of BitCoin (0)

Anonymous Coward | about 2 years ago | (#41163769)

If you don't protect idiots, then idiots can't use your currency.

Of course they will - you ( as a Government ) just need to state that taxes will only be accepted in that currency.

Re:It's About the Unique Features of BitCoin (3, Insightful)

alphatel (1450715) | about 2 years ago | (#41163867)

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

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

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

Way to miss the point (1)

Anonymous Coward | about 2 years ago | (#41164217)

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:Not really about Bitcoin (5, Informative)

cgt (1976654) | about 2 years ago | (#41163655)

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

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

Re:MPU (0)

Anonymous Coward | about 2 years ago | (#41163741)

My kingdom for modpoints!

Re:MPU (4, Funny)

Caesar Tjalbo (1010523) | about 2 years ago | (#41163801)

Surely you mean 'modpointii'.

Re:MPU (2)

VortexCortex (1117377) | about 2 years ago | (#41163979)

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

Re:Not really about Bitcoin (-1)

Anonymous Coward | about 2 years ago | (#41163943)

One of the beauties of language is that it's ever mutating. Much like many virii I've seen written.

Re:Not really about Bitcoin (4, Insightful)

ratbag (65209) | about 2 years ago | (#41163985)

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

Re:Not really about Bitcoin (2)

vipw (228) | about 2 years ago | (#41164049)

I'm sure you mean mutilating, not mutating.

Re:Not really about Bitcoin (1)

syrinx (106469) | about 2 years ago | (#41164137)

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 (0)

Anonymous Coward | about 2 years ago | (#41164219)

Probably because someone realized that viri is the plural of vir (man); though they were apparently unaware that virus (poison) is an uncountable noun.

Re:Not really about Bitcoin (4, Informative)

IamTheRealMike (537420) | about 2 years ago | (#41163713)

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

Or maybe they're just spewing buzzwords without understanding what they mean. Bitcoin itself is not a ponzi scheme and that's obvious to anyone with a dictionary. A ponzi scheme is a scheme where "investors" are paid from deposits from new investors. Obviously such a scheme must always grow in order to make payments and that means it is guaranteed to eventually collapse. As nobody sane would invest in something that explicitly advertised itself as a ponzi, such schemes always involve secrecy and obfuscation.

Bitcoin, being a currency, is not an investment (although some people may be tempted to use it that way). It does not claim to offer any particular returns. There is no secrecy or obfuscation, you can read the papers and check the code to see exactly what it's doing.

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

Given that by the time the SEC forcibly closed ZeekRewards [ibtimes.com] it was reported to have had over a million investors and $600 million at play, I think it's safe to say that regulation is not a guarantee against getting scammed. At any rate, Bitcoin is not unregulated. If you're running an investment scheme in the USA you'd be required to register with the SEC regardless of currency used, and in fact one unregistered Bitcoin investment scheme operator in Brazil was already fined by the Brazilian equivalent for failing to do so.

Re:Not really about Bitcoin (5, Interesting)

mellyra (2676159) | about 2 years ago | (#41163859)

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

Or maybe they're just spewing buzzwords without understanding what they mean. Bitcoin itself is not a ponzi scheme and that's obvious to anyone with a dictionary. A ponzi scheme is a scheme where "investors" are paid from deposits from new investors. Obviously such a scheme must always grow in order to make payments and that means it is guaranteed to eventually collapse. As nobody sane would invest in something that explicitly advertised itself as a ponzi, such schemes always involve secrecy and obfuscation.

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

Your ability to sell the bitcoins you mined at a low difficulty for ridiculous amounts of dollars later on is entirely dependent on the growth of the overall bitcoin scheme - and as bitcoins do currently have very limited value as use for transactions (few stores accept them, usually cheaper to pay in dollars than btcs if the stores accept them, high volatility makes accepting them difficult for business, people would be stupid to spend them giving their deflationary nature) the main motivation to get some bitcoins is to profit off the demand that will be created by those that want to get into bitcoin after you.

Re:Not really about Bitcoin (3, Insightful)

m.ducharme (1082683) | about 2 years ago | (#41164295)

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

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

Re:Not really about Bitcoin (4, Insightful)

FireFury03 (653718) | about 2 years ago | (#41163921)

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 (1)

Anonymous Coward | about 2 years ago | (#41163761)

>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 (2)

DrXym (126579) | about 2 years ago | (#41163909)

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 (1)

KnightMB (823876) | about 2 years ago | (#41163969)

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

The currency used does not matter. Being digital currency or real $$, Ponzi schemes still happen all the time. The latest large Ponzi just blew up a few weeks ago that used real money to the tune of a $600 million collapse. Here is just a recent story about it. http://myfox8.com/2012/08/17/62643/ [myfox8.com]

Re:Not really about Bitcoin (1)

Anonymous Coward | about 2 years ago | (#41164087)

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

The chocolate game (5, Interesting)

georgeaperkins (1715602) | about 2 years ago | (#41163533)

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

Re:The chocolate game (0, Insightful)

Anonymous Coward | about 2 years ago | (#41163587)

Stock markets work on the same principle. Balooning stock (e.g. Apple), then you sell it to someone else at higher price, and as it changes hands as hot potatoes, at some point critical mass of people realize it's not worth that much and the unlucky guy looses.
The usual zero sum game. If you are early enough into it, and get rid of the stock before trouble, you earned yourself cash that someone else will not reclaim in the end.
Ponzi scheme is just the most obvious tip of the iceberg of this phenomenon.

Re:The chocolate game (2, Insightful)

Anonymous Coward | about 2 years ago | (#41163643)

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 (2, Informative)

Anonymous Coward | about 2 years ago | (#41164037)

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.

Stock Market is a little bit different (3, Interesting)

Taco Cowboy (5327) | about 2 years ago | (#41163645)

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:The chocolate game (2)

Q-Hack! (37846) | about 2 years ago | (#41163709)

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 (1)

biodata (1981610) | about 2 years ago | (#41164293)

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.

Well if it was a fiat currency like $$ (2, Insightful)

Anonymous Coward | about 2 years ago | (#41163539)

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 $$ (0)

Anonymous Coward | about 2 years ago | (#41163885)

All you have to do to 'create' wealth in Bitcoin is to improve the exchange rate with dollars/Euros/Yen etc. Of course the a perfect market is supposed to prevent you from doing this. Similarly, a perfect market should also normalize any attempt by a government to increase its monetary base.

Re:Well if it was a fiat currency like $$ (0)

Anonymous Coward | about 2 years ago | (#41163887)

This

The old saying still holds true (0)

Anonymous Coward | about 2 years ago | (#41163543)

A fool and his bitcoins are soon parted.

"members of the Bitcoin community" (-1, Flamebait)

Viol8 (599362) | about 2 years ago | (#41163545)

AKA "idiots".

Re:"members of the Bitcoin community" (-1, Flamebait)

SternisheFan (2529412) | about 2 years ago | (#41163595)

You're being too nice. Isn't it time to shut down this bitcoin experiment already? 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."

Hold On There (2)

eldavojohn (898314) | about 2 years ago | (#41163659)

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 [slashdot.org] will say "good times while it lasted."

Re:"members of the Bitcoin community" (1)

Anonymous Coward | about 2 years ago | (#41163701)

Why? Do you work for the government?

Re:"members of the Bitcoin community" (1, Troll)

gweihir (88907) | about 2 years ago | (#41163847)

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:"members of the Bitcoin community" (0)

VortexCortex (1117377) | about 2 years ago | (#41164181)

You're being too nice. Isn't it time to shut down this bitcoin experiment already? 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."

Isn't it time to shut down this World of Warcraft experiment already? Call it all off, make a memorial/historial WoW page on Wikipedia, and everyone who played it can just say, "Yeah, we were dumb then."

Isn't it time to shut down this Eve Online experiment already? ... Isn't it time to shut down this Diablo 3 experiment already? ... Isn't it time to shut down this US dollar backed by Private Finance experiment already? [wikipedia.org]

According to the Board of Governors, the Federal Reserve is independent within government in that "its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government." Its authority is derived from statutes enacted by the U.S. Congress and the System is subject to congressional oversight.

Yes, the same congress that is bought and paid for by the lobbyists is the only oversight the US dollar has. So, US$ is basically identical to WoW gold or any other virtual currency run by an independent non government controlled system.

I put my investments in unopened Star Trek collectable figures. Why? Because if even if shit really hits the fan at least they're still worth something to me.

Re:"members of the Bitcoin community" (-1)

Anonymous Coward | about 2 years ago | (#41164269)

Good God, nerds are so easy to piss off! Please put down that phaser, Mr. Nerd! It might go off! Bwa-ha-ha -hah!

Re:"members of the Bitcoin community" (1)

Ash-Fox (726320) | about 2 years ago | (#41164297)

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

Re:"members of the Bitcoin community" (2, Informative)

Anonymous Coward | about 2 years ago | (#41163649)

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.

Re:"members of the Bitcoin community" (-1, Flamebait)

Viol8 (599362) | about 2 years ago | (#41163907)

"Not everyone is a paranoid bigoted bastard like you"

Did I hit a nerve? Been stung have we? Boo hoo.

"So, not being knowledgeable in how to steal other people's money, doesn't not make one an idiot."

Anyone with common sense can spot a ponzi scheme a mile off. Anyone who doesn't is an idiot and/or so greedy they put any sense they have aside. And then they get burnt. Tough sh1t. Some people have to learn lessons the hard way.

Re:"members of the Bitcoin community" (1)

Ash-Fox (726320) | about 2 years ago | (#41164309)

When did it happen under the PLN currency?

Re:"members of the Bitcoin community" (1)

gweihir (88907) | about 2 years ago | (#41163807)

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.

That's it! Leaving bitcoin currency... (1)

Anonymous Coward | about 2 years ago | (#41163557)

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... (1)

Dunbal (464142) | about 2 years ago | (#41163901)

Well played. Transferring 0.10 ISK.

Can't blame government interference on this (0)

Anonymous Coward | about 2 years ago | (#41163593)

Scams happen in free currencies and free markets, because some people are evil and greedy, while others are stupid and greedy.

Didn't know there were that many bitcoins around. (0)

Anonymous Coward | about 2 years ago | (#41163603)

n/t

Don't implicate bitcoin (4, Insightful)

deego (587575) | about 2 years ago | (#41163623)

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

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

     

Sigh. Great reporting Slashdot! Woo! (2)

sudog (101964) | about 2 years ago | (#41163657)

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! (0)

Anonymous Coward | about 2 years ago | (#41164221)

well, since today is Aug 29, 2012, I'd say ALL bets are off. Skynet's promised worldwide activation will see to that! :-)

Alert the Bitcoin regulatory agency! (3, Funny)

Arancaytar (966377) | about 2 years ago | (#41163671)

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! (1)

JSBiff (87824) | about 2 years ago | (#41164179)

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.

Same as stock market (0)

Anonymous Coward | about 2 years ago | (#41163711)

If a share does not come with an annual dividend (%) greater than the CPI it is a scam.

Misunderstood... like all other financial markets. (4, Interesting)

Delgul (515042) | about 2 years ago | (#41163777)

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?

Re:Misunderstood... like all other financial marke (3, Insightful)

erroneus (253617) | about 2 years ago | (#41164043)

Yes. There will be no government bailouts of Bitcoin.

Re:Misunderstood... like all other financial marke (1)

transporter_ii (986545) | about 2 years ago | (#41164135)

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.

Not a Ponzi scheme. (3, Interesting)

udachny (2454394) | about 2 years ago | (#41163793)

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

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

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

--

American problems and solutions in 24 minutes. [youtube.com]

Different. Sort of. (0)

Anonymous Coward | about 2 years ago | (#41164009)

The article was talking about a scheme using Bitcoins, not the money system itself.

I don't think that fiat currencies are inherently broken on their own terms, but only if administrated by rational and sane people, which when a system grows big enough will not likely be the case.

The real problem stems, as far as I can see, from the whole phenomenon of charging interest on loans. Filthy money lenders are the ones who truly break things, and that in itself is a sort of pyramid scheme.

The other problem are black hole people who have fallen to the disease of Greed and hoover up billions of dollars with endless appetite, effectively starving the economy of cash and never putting any of it back. The super-wealthy talk of being the ones who create jobs, but clearly they aren't redistributing the wealth when an estimated 30 trillion dollars are stuffed away in the Cayman Islands today.

Re:Not a Ponzi scheme. (1)

slim (1652) | about 2 years ago | (#41164209)

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?

Always enough suckers available... (1)

gweihir (88907) | about 2 years ago | (#41163797)

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.

The more things change (2)

erroneus (253617) | about 2 years ago | (#41164029)

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.)

Let me get this straight: (0)

Anonymous Coward | about 2 years ago | (#41164155)

Somebody makes up a new phony currency based on numbers, not backed by anything. Then somehow despite this not being coin of the realm, anywhere, it is said to have value in real, actual 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).

Then someone uses the phony, made up play-money "currency" to defraud people. No shit, dumbasses. Please tell me no one lost any REAL money to this. Please? Because if anyone did, I could die laughing...

This seems to me awfully like someone selling people Monopoly (R, TM, C, or whatever) Money, for real money, promising a return on investment with interest, and people being retarded enough to buy this "currency" using ACTUAL currency. Well, as the old saying goes, no one ever went broke betting on the stupidity of the general public.

Morons.

Re:Let me get this straight: (1)

someones (2687911) | about 2 years ago | (#41164211)

THIS!

I just knew I had to invest when I found out that. (0)

Anonymous Coward | about 2 years ago | (#41164191)

Bernie Madoff was the one running the show

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