Bitcoin mining != Bitcoin itself

Although I do agree that most Bitcoin mining is a bad investment and people largely do it as a hobby or for fun. Those people who do it as a business generally do take a large risk and don't make a very large profit. Compared to buying Bitcoins and holding them, mining isn't usually a good deal. The biggest problem is technology raising the difficulty before you can pay off your hardware expenses.

Why borrow at all? If he's making a narrow profit margin, why does he bother taking all the risk? If he's making a decent profit, why not use that profit to pay down debt?

Only an idiot would pay 100% APR to short with zero leverage.

People convincing others to invest in something that looks exactly like a scam does not help the Bitcoin community one bit. The community was worse, more acerbic and heavily divided, before Pirate defaulted than after.

You might try reading what I'm writing then.

No, not at all.  Pirate's default was absolutely inevitable. Reasonable people gained no new information from Pirate's default.

It's not sustainable because he is taking all the risk, doing all the work, and keeping a tiny sliver of the profits.

If that's what he was doing, his number one priority would be to reduce the amount he is borrowing to zero. No rational businessman would be making any kind of decent profit and yet continue to borrow at comically high interest rates. It makes no sense. If you think that model is great, think about how great it is when you're not paying absurd amounts of interest.

You don't have to ask the guy who claims he can make money by turning invisible to explain the details about how he turns invisible, how he makes money by becoming invisible, and so on. If Patrick expects people to trust them with their money, *he* has to make the case that this trust is justified. This isn't some minor deficiency or a case where there's some specific detail I'm asking for that other people might not particularly care about. This is the big pictures that's clearly broken. For example, if Patrick defaults, how will investors know that this is due to a legitimate investment loss and not due to Patrick deciding not to pay people? And on what basis can the risk of default be assessed? These are the most basic questions. It's not like there's some ultra-specific detail I want that Patrick could give me if I just asked for it clearly enough.

It's very easy to believe. Imagine, for example, he was actually passing through to Zeek.
http://www.forbes.com/sites/jordanmaglich/2012/08/27/zeek-receiver-holds-press-conference-with-media-up-to-two-million-victims-herculean-effort-ahead/

I largely agree, but I will point out two big differences. First, the Somali Pirates are violent and threaten to kidnap and kill people. That's in a different league from mere extortion. Second, the insurers are actually paying the ransom and not just helping others pay it. So what the insurers do is a lot worse, and they still do it. (But they don't brag about it.)

That's exactly how cold wallets are supposed to work. This fancy device you are imagining is commonly referred to as a "computer".

I think that could be disastrous. A full default of an insured fund would cause even more of a run as people withdraw their bitcoins from everywhere because they don't know who will default next.

You cannot reverse a bank transfer unless it wasn't authorized or the recipient defrauded you. The bank transfer was authorized and the recipient of the bank transfer did not defraud you. Reversing the bank transfer in this case would be like if you wired $100 to your Son to buy books and he got mugged and you tried to reverse the wire.

You cannot dispute the credit card charge. (Well, you can, but there will be very bad consequences.) The credit card payment was made to PayPal, and PayPal did what you asked them to do and did not defraud you.

The credit card payment wasn't to R, it was to PayPal. PayPal doesn't guarantee that R will comply with the terms of your agreement -- in fact, they make it specifically clear to you that they don't. That's why you have to lie to them to make the transfer. If anything, you defrauded PayPal by exposing them to a risky transaction they specifically made it clear they wouldn't accept.

It's like you went to a bank to withdraw $1,000 and they said, "Hey, don't take that in cash, this is a risky neighborhood" and you said "It's not problem, I have a car waiting right outside". Then you walked around with the money, got mugged, and now want the bank to give you back your $1,000.

(The consequence of doing this, by the way, will be that PayPal will ban you and anyone associated with you from using their service for life. You will have straight up defrauded them.)

You mean he might be helping the extortion victim to minimize the damage he suffers as a result of the extortion, right? If someone receives a ransom note and chooses to pay the ransom, there's absolutely nothing wrong with helping them do so.

If lenders are long on bitcoins, the last thing they'd want to do is borrow money denominated in bitcoins. If bitcoins go up, they lose money. If you're long on bitcoins, you borrow USD and buy Bitcoins. That way, if Bitcoins go up, you make money.

A lot of people misunderstood this and thought that Pirate was long on Bitcoins. They figured he was holding some large number of Bitcoins and that therefore when Bitcoins went up, he made money. But of course the truth is the reverse. Every Bitcoin he held was owed to someone and then some, so when Bitcoins go up, he loses money. There's no conceivable way anyone who accepts interest-bearing investments denominated in Bitcoins could hold that fund with an amount Bitcoins that total equal to or more than the amount invested (except at a loss).

Unfortunately, I think it can get worse.

We don't know how much of the liquidity crisis is from a withdrawal flood and how much of it is from non-paying loans. If some or much of it is from non-paying loans, then most likely it's because people borrowed money to invest in Pirate. Likely, those people have promised to make payments shortly, perhaps in the belief that Pirate would make at least partial repayments soon. But the reality is that it's likely most of those loans will fully default. An equity crisis can start out looking like a liquidity crisis.

Deposit-takers may have much more exposure to Pirate than they think. If they have loans that suddenly stopped paying interest shortly after Pirate did, they should probably assume those loans will default. Pirate may ultimately take down any number of other funds whose operators honestly thought they were doing the right thing but who, without even knowing it, were actually Ponzi schemes.

This kind of reads like word salad to me. The price of Bitcoins is roughly constant, just volatile. So all it does is add additional risk. Any additional profit potential could equally well be realized with loans in dollars. Just use the dollars to buy Bitcoins, profit with the Bitcoins, sell the Bitcoins to pay back the loans. Even the best arbitragers in the most volatile markets don't make 1%/week.

I'll admit that I don't know enough about the details to have much confidence in my conclusions. But I would just warn you that an equity problem often looks like a liquidity problem in the early stages.

For example, say you had people who borrowed money from you guys and then "invested" that money with Pirate planning to profit from the interest difference. Now that Pirate stopped making interest payments, they can't make interest payments either. This may appear to be a liquidity problem because your borrowers are either still hoping Pirate will pay back or just don't want to admit that they aren't going to pay back their loans. Once time, these non-paying loans will probably mostly fully default. If you make (or guarantee) loans to ease the liquidity problem, when those loans finally do fully default, there will probably be no money to pay you back.

A lot of people who thought they had little or no Pirate exposure may find out the truth is otherwise.

I do agree that it's a cheezy way to get free publicity. But I'm not convinced people will have that kind of reaction to the Forbes article.

I agree that you could need to borrow money for a short period of time while building a business. However, if you borrowed it at way above market rates, your first priority as soon as you were making a profit would be to pay those loans off.

There is no such thing as being "good at it". The claims are *impossible*. But I guess I'm willing to give it a try. Why don't you invest $5,000 with me? I'll take it to Vegas and if I win, I'll split the profits with you.

There is nothing wrong with helping someone who is blackmailed come up with the money, assuming you played no role in the blackmail itself. If someone's child was kidnapped at 6PM on Christmas eve and a ransom was demanded in cash by the following evening, would there be something wrong with a bank offering to open on Christmas to allow the ransom to be paid should they choose to pay?

Sure, those would be the times when you aren't making a good profit. But if you're doing all this work and taking all this risk and not making a good profit, you're basically a fool.

It appears to be a Stock Generation style Ponzi scheme. It's a scam because it claims that funds are actually invested when they are not. (Or they're invested in obvious Ponzi schemes which are not actually investments at all.)


The way I explain why these are so idiotic is by making this offer: Give me $5,000. I'll go to Vegas and if I win, we'll split the money.

Ponzi feeders are themselves Ponzi schemes. But in any event, it doesn't matter since the bet is not just over whether Pirate is a Ponzi but over whether Pirate will pay back as he said he would after his first default. In context, it's clear that even if Pirate intended to pay back, a failure to actually pay back would make Matthew lose the bet. It's clearest from this: "If he owes 100% and only pays back 90% without agreement to investors, -that- is fraud and a failure to pay back. I would obviously lose the bet."

It's entirely possible that Pirate was actually feeding a larger Ponzi scheme that paid a higher interest rate, such as Zeek. The timing is right for Zeek, I think.

Name calling is not a substitute for a reasoned response. One more time in case you missed it:


Is there something erroneous in that reasoning? You've done everything from getting offended to calling me names to making ad hominem arguments -- you've even tried to hurt my feeling and bully me into shutting up. But the one thing you've not done is shown that my argument is actually incorrect.