Not really. If he pays people back X bitcoins, he has X bitcoins fewer than if he doesn't pay people back. That's true regardless of how he acquired those bitcoins. If he can get away with not paying people back, his incentive not to pay them back is the same. (Of course, if he doesn't have the bitcoins, paying people back is not an option.)

The point I'm trying to make is that even if you don't think Pirate was running a ponzi scheme and think we actually made huge profits, it doesn't follow that he'll make the promised payouts. He could still default, and for basically the same reason.

I agree. That's why I'm warning people to exercise extreme caution if they do that. There is not just the risk of irrational actors but in this case, there's a risk of rational actors who acquired the asset for free and know that it is worthless.

Essentially, Pirate can pay everyone back or he can run off with somewhere in the neighborhood of 3 million dollars. This is pretty much the way it is regardless of whether Pirate was running a ponzi scheme or not.

The counter-argument would be that they would expect a panic sell (or at least recognize it if it happened) and so should be willing to wait a bit to sell as the market normalizes. So if Pirate does repay people, you would expect a significant medium-term downward pressure on the price of Bitcoins as more and more investors pick that time to cash out.

Yes, exactly. Legitimate investments don't involve a complete absence of disclosure of what you're investing in, no way to estimate the actual level of risk, and no way to tell whether claimed losses were actually incurred or whether claimed profits were actually legitimate. No honest person should ask for investments on terms only a fool would accept.

We have actually seen offers that were basically: "Give me some money to invest, if I make money, I'll share it with you. Otherwise, you'll have to take my word that I actually lost your money in some kind of actual investment". That was literally all they were saying. And people were actually taking this offer seriously. That shows that this community is massively disconnected from reality.

I'm not giving up so easily.

First, your scenario can't avoid a technical default, since he already *has* technically defaulted. There is at least one 100% documented payment he has missed and there's no evidence the repayments that were supposed to start have started.

Also, do you think that's better for Pirate than this scenario in which he sells:

1. Suppose Pirate has taken 50,000 BTC in direct loans, and 200,000 BTC via passthroughs but also holds 300,000 in passthroughs himself. (These are almost totally free for him to buy, the money just flows back to him.)
2. Suppose Pirate, after paying weekly interest still has 150,000 BTC in his wallet.
3. Suppose pirate doesn't pay back the direct loans, leaving him with 150,000 BTC. But he also sells 50,000 worth of direct loans that don't actually exist at 50% of face value, netting him an additional 25,000 BTC.
4. Suppose Pirate sells all his passthrough shares himself at 50% of face value, netting an additional 150,000 BTC for him.
5. Suppose Pirate doesn't pay back anything.
6. Pirate now has 150,000 + 25,000 + 150,000 = 325,000 BTC.
7. Pirate has technically defaulted, but he also has a *lot* more money than in your scenario.

In your scenario, Pirate winds up with about 50,000 BTC. In mine, he winds up with 325,000 BTC. And we both start with him in the same position (except in my scenario, he has been buying his own pass throughs for awhile now, which is certainly possible). My number for the discount on Pirate debt is more realistic than yours (50% versus 90%). It's definitely in Pirate's interest to *sell* Pirate obligations.

This is a fundamental problem with any brainwallet algorithm. An attacker who has X times the computing power you have can try X possible passwords. If an attacker has a billion times the computing power you have, you need to make sure your passphrase isn't one of the first billion he would guess. This is, as far as I know, a fundamental limitation of a deterministic brainwallet algorithm that no known technique can avoid.

Madoff made people jump through hoops to invest with him. This is typical Ponzi behavior.

I'd say chungenhung was probably investing the funds in a ponzi and managed to cash out before the ponzi he was investing in collapsed. It's also possible he was really an extremely high risk investment that just happened to pan out by sheer luck. I don't know. Do you know? And if you don't know, how can you rationally evaluate the risk? And if you can't rationally evaluate the risk, why invest?

Matthew:

To increase the lulz factor of this thread, could you please update the first post (or another post, whatever) from time to time with the total amount of all bets you have accepted?

Actually, the proof Micon presented, if you accept it, proves Pirate is a scammer. That same proof, against Micon, proves that he is honest. You are missing the fact that Micon's proof purports to show that Pirate is *not* doing what he claims. Micon is claiming to do precisely what you are trying to prove he's doing. That's not scamming.

He has much more incentive to sell his debt than to buy it.

Every ponzi does that. If you couldn't successfully withdraw, nobody would deposit. Deposits are the lifeblood of a ponzi. So long as deposits exceed withdrawals, a ponzi schemer will generally continue to process withdrawals to maintan the positive cash flow into his pockets.

What does that prove? Do you think it's impossible to know a criminal?

Almost every purported investment that claims unusually high returns relative to risk is either misrepresented (the risks are higher or the returns likely lower than claimed) or a ponzi scheme. The way you show that a such purported investment is not a ponzi is to demonstrate that there are actual legitimate investments taking place and that there's a source of funds for the withdrawals that results from profitable investment of the deposits rather than just the deposits themselves.

That's the $64,000 question, isn't it?

In that case, you would know that this isn't an issue in that specific transaction. But you might still be basing the going rate on the market's estimation of a Pirate default, an estimation that could be contaminated by bogus transactions.

You're welcome.

Please take this caution seriously. I don't know for a fact that this is happening, but there's a very serious risk associated with buying Pirate debt that is not obvious. The debt you are buying may not actually exist even if you confirmed it.

1) John Smith comes to you and says, "Pirate owes me 10,000 BTC. Would you like to buy this obligation for 5,400 BTC?"

2) You confirm that this obligation exists with Pirate.

3) You think Pirate might pay back, and it seems like a reasonably good risk, so you buy it.

4) But John Smith may actually *be* Pirate and the 10,000 BTC may never have been deposited at all.

5) Pirate just got 5,400 BTC for an obligation that never actually existed and that he never intends to pay back.

I would strongly urge people *not* to buy any Pirate obligations. It's not just that Pirate might default, it's that selling the obligations may be an engineered part of a default. As I've argued elsewhere, this is one of the best explanations for why Pirate would have bought himself a week or so to make payouts. This is all time he can sell non-existing obligations for real money.

Even the NHTSA agrees that the average driver on a highway is driving over the speed limit and that your crash risk increases if you driver slower than other vehicles.

http://casr.adelaide.edu.au/speed/vol-1.html
This study suggests that your crash risk is minimized when you are going faster even than the average vehicle on the highway. (See figure 2.2) And this is all *before* you correct for higher speeds meaning less time on the road.

The newer studies are even more dramatic (because vehicles got safer), but I can't seem to find them online.

OMFG! Really! Another "Lend me some money to gamble with and if I make a profit, I'll split it with you. And if I don't pay you back, you'll have to take my word that I lost it gambling and didn't just decide to keep it."

How stupid do you think people are?!

All that is claimed is:

1) He will try to pay people back.

2) He will not pay back more than .03 BTC per week.

That's it! That's all he's saying.

How can you not trust a guy who is launching his own HYIP?
https://bitcointalk.org/index.php?topic=100800.0

Nobody does. But this was about speeding, not driving recklessly. If police observe people driving recklessly, they should charge them with that too.

The OP wants to pay miners to *not* include transactions in their blocks? It seems pretty obvious to me that this makes things much worse.