The worst case scenario would be if they start making proportional payments to the largest depositors based on assets they believe they currently hold only to discover they no longer hold those assets. For example, imagine if they calculated they could make 85% payouts prior to this last theft and started making those payouts. Then they discover the theft and no longer have enough funds to make 85% payouts. Then what?

On the flip side, the longer they hold the money, the less chance there will be any left to distributed.

So is, "I'm thinking of a number. I've encrypted it and gotten 15. What number am I thinking of?"

If he could accomplish that miracle, it would sustain his business for about two months. Perhaps he could stretch that to three if he didn't take any new deposits.

There's no need, since he hasn't claimed that finding a flaw is likely. You can simply agree with him about every algorithm having flaws and it being just a matter of time before they are exploited. But it doesn't follow from this that it's unsafe. It's just a matter of time before a house gets hit by an asteroid. That doesn't mean houses are unsafe.

How does he generate 10% a week exactly? Sure, if you have some magic way to generate 10%/week, you can offer people 7%/week interest. But that's a mighty big if.

I would just respond, "It's safe for less than whatever that amount of time is". If a vault can be cracked in a hundred thousand years, it's safe to store something in it for a few decades.

Startups are completely honest about the fact that they are very high risk investments. The majority of startups fail.

Forced benevolence isn't very benevolent.

Is that an attempt at humor? Or did you *totally* miss the point?

I don't think it makes any difference what thing of value was exchanged, whether currency or commodity. If you think it makes a difference, please explain why.

As for the onus being on the client to perform due diligence, that does not mean what you think it means. If I hire a contractor to do work on my house, it's my responsibility to do due diligence to make sure I hire a reliable contractor. But if he sets my house on fire, he can't respond, "It was your responsibility to make sure I was a good contractor". That's just silly. That a victim's stupidity made him easy to victimize is only relevant if the question is how much we should feel sorry for the victim and how much we should hate the perpetrator. It doesn't change the victim's right to restitution or the wrongness of the exploitation of the victim. (It's just as bad to rob an idiot as a genius.)

If you kill my cow, you are not expected to resurrect the cow to return to me. You are expected to pay me the value of the cow. The same thing will happen here. If people who were the beneficiaries of fraudulent transfers can be identified, they can be subject to claw backs.

Quite the reverse, charities have historically been major victims of Ponzi schemes, just as they were here. The charity here was subject to a claw back.

That can be an illusion, as it was in the Bernie Madoff case. (Everyone thought they held a much higher percentage of Madoff's deposits than they actually did because Madoff had far more money "on deposit" than he let on.)

It doesn't work that way. If a fraudster gives you another investor's money, you don't get to keep it. Every dollar you withdraw is a liability. False profits can be clawed back to repay current "investors". Fraudulent transfers can be undone.

http://www.boston.com/business/articles/2010/12/18/picower_estate_adds_72b_to_madoff_fund/
http://utahsecuritiesfraud.com/2010/08/02/clawback-lawsuits-how-investing-in-a-ponzi-scheme-can-bite-you-twice/

If you received payments from a Ponzi scheme, your interest payments were not in fact interest payments. They were fraudulent transfers of other people's deposits.

It's possible they'll collapse like dominoes and possibly even take down some legitimate funds with them. When one collapses, people might fear that others are going to collapse too and make a large number of simultaneous withdrawals, forcing others (whether Ponzi or legitimate) into an equity or liquidity crisis.

That might be true of some hypothetical scheme. But in the cases listed here, investors are being affirmatively mislead. (Assuming there aren't real investments as the investors are being told.)

Yes, but that doesn't mean what you think it means. "Buyer beware" is just like "pedestrian beware". When you walk in the streets, you better look where you're going because you're the one who will wind up in a hospital or dead if you get hit by a car. But you can't justify reckless driving or intentionally running down pedestrians by saying pedestrians should beware. One has nothing to do with the other.

People are often happy when they are lied to, if they believe the lies. Surely that doesn't justify lying to get someone's money.

Bullshit. A liar has no defense by saying "you shouldn't have believed me". Whether that's true or not, it's no defense of the lair.

If you stumble down a dark street alone in a bad neighborhood with $100 bills sticking out of your pockets, you're going to get robbed. And in a sense, you have nobody to blame but yourself. But don't for a second imagine that this takes any blame away from the robbers or makes what they do justified to even the slightest extent.

No, I don't. And I would never attempt to justify government dishonesty any more than I would try to justify any other kind of fraudulent dishonesty. (In fact, government dishonesty bothers me the most both because they're using my money to lie to people and because I'm not free to do business with the "other government" if I don't like it.)

Does he take credit cards? If so, he's giving up about 2% of his revenue on every single transaction. If,say, the risk of a 50% loss is 1 in 30 (and it's nowhere near that high), that's equivalent to a 1.7% fee. He's still better off taking Bitcoins than credit cards.

Of course, in reality, the chance of an increase in value pretty much balances out the risk of a decrease in value. If you want essentially zero risk, Tony provides that service.

The crux of a Ponzi scheme, what makes it a Ponzi scheme, is that investors are intentionally mislead about where their money is going. They are told that it is being invested when in fact it is being used to enrich the scammer and to pay off earlier investors. They are told the fund is increasing in net worth when in fact it is getting more and more in the red. They are nothing like slot machines or investment risk. They are pure scams.

When you lie to someone to get their money, it doesn't matter whether they "understand the risks" or not. I understand the risk that I might get hit by a car when I cross the street, that doesn't justify someone intentionally running me over.

Very simple. When people buy bonds, you use that money to buy Bitcoins. When people sell bonds, you buy Bitcoins with the money.

Correct, so you can't issue that many bonds. You can only issue as many bonds as you can obtain Bitcoins. In the process of performing this transaction, the price of Bitcoins will go up, meaning that you have fewer bonds left to issue. One easy way to do it is to obtain the Bitcoins over time and then auction the bonds.

Mostly correct, except the bond-price has already adjusted itself.

The company simply states that it's pegged to the price of Bitcoin. Theoretically, they should publish how the pegging is done (Mt. Gox daily average?) and how redemption works (the price as of what time?) and so on.

These are all solvable problems. I'm just not sure that it actually gets you anything because you have to charge for your services and you have to "rig" things to protect yourself from exchange rate losses.

Yes, that's exactly what it means. GPUs will be the new CPUs.

That's a really depressing thought.

One big issue is laws in other countries. For example, the United States could probably find at least three Federal laws you'd be violating, and the United States is not shy about pursuing foreign businesses. They'll argue that by accepting United States dollars from people located inside the United States, you are intentionally targeting your service at the United States. I'm sure there are other countries that would try this as well. Heck, the United States continues to pursue executives of overseas web-based Poker sites even though they aren't violating any US law.

I always hear that there's no reward without risk, and I agree with that sentiment. But I didn't really factor into that equation that problem that if you fear you might not be fully legal, that restricts your ability to use governments when you need them.