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[JoelKatz]

Doesnt matter. Can you perhaps make 10% commission on some deals? Sure. Could it make sense to borrow bitcoins to allow you to conduct such business and get started? Sure. But it you are making such windfall profits trading btc, you will not keep lending more and more while compounding your costs,  instead as your own capital grows you will pay back your loans and keep your profits. So this is not a reasonable explanation of what pirate did. If he could make 100s of 1000s btc profits for his investors, he could make them for himself and he wouldnt need anyone to lend him a bloody thing.

Exactly. Any explanation that doesn't explain why Pirate borrows at 3,600% effectively equates to "Pirate is so rich he can give money away, and he chooses to give money away only to people who would fall for a Ponzi scheme".

You asked me how could one make a great return. I'm not even talking about pirate here

Oh, okay. Then we agree. I thought you were trying to explain how I was wrong about Pirate.

Obviously, "Pirate has some secret way to make super-high returns and because he's a nice guy, he shares that money with people who would invest in something that looks exactly like a Ponzi scheme" is silly. So this doesn't explain what Pirate is doing.

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[Bitcoin Oz]

The only way hes going to pay back is if he has been working on a competing blockchain and then replaces the existing one with his own. Then he could pay back as many bitcoins as he wants 

[JoelKatz]

Now what we disagree on is that for you, at some points Pirate would have buy his debt back instead of letting the loan go. I do'nt see why. I can see how when you make several % a week of profit on an amount of several hundreds of thousands of btc, you don't see the point to buying back your debt (which would reduce your volume and your profit).

I don't see why it would reduce either your volume or your profit. Also, I don't see why it necessitates buying debt at way above market rates. Also, I cannot comprehend how any legitimate business would make an offer that would only be accepted by someone who would also respond to an offer that was an obvious Ponzi scheme. And those are really just the three most obvious flaws in such an explanation. It falls apart in so many places.

[Grinder]

What do you? How do you deal with their request?

I would ask what they could be doing with all those money in such a tiny economy, why they would pay such a ridiculously huge premium for using bitcoins instead of just transferring the fiat, and what the chances of getting my money back are. I wouldn't be able to come up with a remotely believable answer to justify it, so I'd say no thanks.

[gene]

Threads like this one should be archived into a subforum for easy indexing and cross-referencing. This episode will be useful forthose who wish to study ponzi schemes: their stages, the psychology of victims, the techniques of perpetrators, etc.

I wonder if Theymos would consider freezing posts after a few hours to prevent sneaky retractions/deletions.

[Cluster2k]

If only pirate could have kept his operation going a bit longer.  In a few months he would have pwned every bitcoin in existence.

 

It's only a matter of time until the people who correctly pointed out that his scheme was mathematically impossible to sustain are directly blamed for the collapse of the scheme.  It'll be like a Scooby Doo moment: 'It would have worked if it wasn't for these meddling kids!"

[JoelKatz]

I don't see why it would reduce either your volume or your profit.

During the time when you buy back your debt, while still doing your business of selling and buying coins, you obviously can't grow your volume or even have to reduce it (depending of the rate at which you reimburse your lenders).

That's ridiculous. Borrowing at 3,600% is what would kill your business. Try as you might, you'll never make the numbers work that way.

Well, it was not "way above the market rate" of the btc economy (where loans rates were and still are huge), it was slightly above these rates, which makes sense if you're trying to make a big loan (you have to compete with others, to get the greatest part of lended BTC).

There's no reason you have to borrow in the BTC economy unless something about your business requires it. Why would a rational businessman position himself to compete with Ponzi schemes over anything but the very shortest possible time frame?

Also, I cannot comprehend how any legitimate business would make an offer that would only be accepted by someone who would also respond to an offer that was an obvious Ponzi scheme.

Why not?

Because that's not what legitimate businesses do. Ford doesn't advertise a sale where you drop money in a garbage can in the middle of the night and maybe they'll give you a car in a month.

Every legitimate investment provides investors with some way to know that their funds were actually legitimately invested in something that has a reasonable expectation of making a profit and provides them some way to know that claimed profits or losses were actually the result of legitimate investment activity and not manufactured. It provides an assessment of the risk factors that affect the investment and some way for the investor to at least begin to assess the level of risk.

It is immediately obvious why this rule is essential to investing. A person with a shred of integrity wouldn't even consider asking someone to invest without these basic safeties in place.

[Nubarius]

Some people's perceptions about the nature of "investing" seem to be muddled by the effect of inflationary fiat currencies. In an inflationary currency system (defined as a system with an ever-growing monetary base), changing the format of your wealth to an asset like a house or some company's shares may give you a "return" in terms of the fiat currency simply because the value of the currency has decreased. This is why an interest rate around 2% in America or around 10% in India may be perfectly reasonable, and not a Ponzi scheme. The more stable a currency is expected to be, though, the less leeway for interest there is. In a hypothetical society with a constant monetary base and 0% inflation, every positive yield from an investment (e.g. in a successful company) would have to be matched by an equally-sized default (e.g. by a bankrupt company), since the total money in circulation is a zero-sum game.

Bitcoin is a deflationary system, where as more and more people start using the coins, these become more valuable. I think the growing awareness of Bitcoin largely outweighs the inflationary effect of the 7200 new coins that get mined very day, and that inflationary effect will halve in size in December. Basically, even with coin supply growing, coin demand can grow much faster, so I think we're already in a deflationary stage. This means that returning a loan in bitcoins can be very very hard, much harder than returning an investment in a fiat currency. As a thought experiment, let's imagine a new company sells a 1,000 BTC bond, with an interest of 5% after one year. The investor would get 1,050 BTC next year, which seems reasonable. But the company will  have to convert some (or all) of the original BTC investment into a fiat currency like US dollars or euros (to pay rent, utilities, probably employees...). Their profit is likely to come in the form of fiat money too (even if they sell products in bitcoins, prices will have to trail the fiat exchange rate). Now imagine the USD/BTC rate were to jump from 10 to 100 in one year. How can this company multiply by 10 the part of the principal that they converted into fiat? And the interest of 50 BTC that is now worth 5,000 USD rather than 500?

In the end, loans in BTC are extremely dangerous given the volatility of the exchange rate. I can understand how those who don't believe in Bitcoin and expect its value to collapse may want to give out loans in bitcoins. People like Pirate are basically short-sellers who bet that Bitcoin will collapse (or who delude themselves thinking they can manipulate the market). But anyone who believes in the potential of Bitcoin should be sceptical of any such scheme. For long-term believers in Bitcoin, the cleverest investment is to buy bitcoins now and keep them in cold storage.

It is those who claimed that they could understand what Pirate was doing and that he was legit who should apologise for giving the guy any credibility. And we should thank those that cried Ponzi from the start, as it is very clear that there is no other sensible explanation for what Pirate has been doing.

[muyuu]

Some people's perceptions about the nature of "investing" seem to be muddled by the effect of inflationary fiat currencies. In an inflationary currency system (defined as a system with an ever-growing monetary base), changing the format of your wealth to an asset like a house or some company's shares may give you a "return" in terms of the fiat currency simply because the value of the currency has decreased. This is why an interest rate around 2% in America or around 10% in India may be perfectly reasonable, and not a Ponzi scheme. The more stable a currency is expected to be, though, the less leeway for interest there is. In a hypothetical society with a constant monetary base and 0% inflation, every positive yield from an investment (e.g. in a successful company) would have to be matched by an equally-sized default (e.g. by a bankrupt company), since the total money in circulation is a zero-sum game.

Bitcoin is a deflationary system, where as more and more people start using the coins, these become more valuable. I think the growing awareness of Bitcoin largely outweighs the inflationary effect of the 7200 new coins that get mined very day, and that inflationary effect will halve in size in December. Basically, even with coin supply growing, coin demand can grow much faster, so I think we're already in a deflationary stage.

Yes, it's hard to predict how will the community anticipate the diminishing block rewards but Bitcoin is not deflationary. Right now inflation is still over 25% yearly, and in December it will drop to about 12%. That's still very high inflation short-term and mid-term. The question is how many people hoard, and what are the effects of the long term ~0% inflation, and also the fact that the underlying bitcoin economy might be growing faster than money supply right now.

But "deflationary" is a misleading word to describe bitcoin's planned money supply.

In any case 7%/week beats current bitcoin inflation astronomically and so it did in November when BCST began taking BTC.

[gene]

People like Pirate are basically short-sellers who bet that Bitcoin will collapse (or who delude themselves thinking they can manipulate the market).

Nah. He's just a scam artist.

It is those who claimed that they could understand what Pirate was doing and that he was legit who should apologise for giving the guy any credibility.

Many (most?) of the supporters are more than just gullible fools - they are knowing and willing participants (in some cases, alternate accounts or pirate) who are simply extending the scam for greatest effect.

There really isn't any mystery here.

[DeathAndTaxes]

Some people's perceptions about the nature of "investing" seem to be muddled by the effect of inflationary fiat currencies. In an inflationary currency system (defined as a system with an ever-growing monetary base), changing the format of your wealth to an asset like a house or some company's shares may give you a "return" in terms of the fiat currency simply because the value of the currency has decreased. This is why an interest rate around 2% in America or around 10% in India may be perfectly reasonable, and not a Ponzi scheme.

I would just point out that Pirate's "yield" was so high as to make any inflation or deflation adjustment to be immaterial.  All investors are seeking REAL returns and thus the inflation risk is part of the interest calculation however 7% per week is 3,400% APR.  The inflation component (or lack thereof) is utterly immaterial compared to that asinine interest rate.

3,400% APR in any currency under any circumstances is almost certainly a ponzi scheme and if it isn't the investor should have clear and detailed prospectus outlining why and be able to explain in their own words why. The fact that "this one might not be a ponzi" isn't sufficient.  If that is what one is relying on well then it IS a ponzi.

[Nubarius]

(...) Bitcoin is not deflationary. Right now inflation is still over 25% yearly, and in December it will drop to about 12%. That's still very high inflation short-term and mid-term. The question is how many people hoard, and what are the effects of the long term ~0% inflation, and also the fact that the underlying bitcoin economy might be growing faster than money supply right now.

But "deflationary" is a misleading word to describe bitcoin's planned money supply.

Well, we have 25% inflation if you define the word 'inflation' solely in terms of the coin supply. But the normal meaning of 'inflation' and 'deflation' is related to how prices change, and in that sense we can say there is deflation now in the Bitcoin economy. This is because the user base for the currency is expanding quickly and people are willing to pay more and more fiat for a bitcoin. Since most products and services sold for bitcoins get their price by converting the expected price in fiat currency, things have been getting cheaper in BTC. The pizza that was sold for 10,000 BTC in 2010 would be worth around 2 BTC now. That's quite a deflation rate, and I expect that trend to continue during the next years.

[DeathAndTaxes]

(...) Bitcoin is not deflationary. Right now inflation is still over 25% yearly, and in December it will drop to about 12%. That's still very high inflation short-term and mid-term. The question is how many people hoard, and what are the effects of the long term ~0% inflation, and also the fact that the underlying bitcoin economy might be growing faster than money supply right now.

But "deflationary" is a misleading word to describe bitcoin's planned money supply.

Well, we have 25% 'inflation' if you define the word 'inflation' solely in terms of the coin supply. But the normal meaning of 'inflation' and 'deflation' is related to how prices change, and in that sense we can say there is deflation now in the Bitcoin economy. This is because the user base for the currency is expanding quickly and people are willing to pay more and more fiat for a bitcoin. Since most products and services sold for bitcoins get their price by converting the expected price in fiat currency, things have been getting cheaper in BTC. The pizza that was sold for 10,000 BTC in 2010 would be worth around 2 BTC now. That's quite a deflation rate, and I expect that trend to continue during the next years.

A word of advice.  Use the word price to describe changes in price.  i.e. price inflation or price deflation.  Many people use the a definition of "change in money supply" as the meaning of inflation/deflation so if you are talking about change in price explicitly saying so avoids a lot of unnecessary back and forth (on ever single post).

The counter and then counter counter post and the probably still to come counter counter counter post ...

[muyuu]

(...) Bitcoin is not deflationary. Right now inflation is still over 25% yearly, and in December it will drop to about 12%. That's still very high inflation short-term and mid-term. The question is how many people hoard, and what are the effects of the long term ~0% inflation, and also the fact that the underlying bitcoin economy might be growing faster than money supply right now.

But "deflationary" is a misleading word to describe bitcoin's planned money supply.

Well, we have 25% inflation if you define the word 'inflation' solely in terms of the coin supply. But the normal meaning of 'inflation' and 'deflation' is related to how prices change, and in that sense we can say there is deflation now in the Bitcoin economy. This is because the user base for the currency is expanding quickly and people are willing to pay more and more fiat for a bitcoin. Since most products and services sold for bitcoins get their price by converting the expected price in fiat currency, things have been getting cheaper in BTC.

Thing is, inflation in that sense doesn't translate well since most prices are decided in terms of whatever the exchange rates are against fiat references. We have no significant price indices that are native to the bitcoin economy and the exchange rates are highly speculative and volatile.

The inflation that matters for trusts, banks and funds to be able to return a given %APR is mainly defined by M1 and M2, which also define consumer prices for established currencies.

The pizza that was sold for 10,000 BTC in 2010 would be worth around 2 BTC now. That's quite a deflation rate, and I expect that trend to continue during the next years.

Considering the volatility that would be a risky bet for any given point in time. The pizza that was sold for 10,000 BTC in 2010 would be worth 0.7 BTC in July 2011 and 2 BTC now. Because pizzas are priced in fiat, not in bitcoin and they won't be priced in bitcoin any time soon.

[Nubarius]

A word of advice.  Use the word price to describe changes in price.  i.e. price inflation or price deflation.

Ok, that makes sense. I didn't realise it was common here to regard inflation as the sheer change in coin supply.

[muyuu]

A word of advice.  Use the word price to describe changes in price.  i.e. price inflation or price deflation.

Ok, that makes sense. I didn't realise it was common here to regard inflation as the sheer change in coin supply.

Well, it makes sense to assume that. What else is there? prices are basically never set in bitcoin directly. People look to exchanges and covert fiat to set prices, that's the reality of the situation.

[556j]

I'm french

surprised you haven't surrendered yet.

[muyuu]

I don't think i will see my money back on this one man, but I still don't think it's a ponzi.

I'll post later tomorrow or today how you can make insane profits, and how you can screw up by being exposed in USD when all things in bitcoins are bullish

[bitlane]

I'm new here.

Is this where we say SORRY to Pirate ?

[sarpar]

Actually, I "know" what he was doing, and how he could make such profits. Now if on monday he hasn't paid back/post a news, I will explain the general concept. He was not a scammer, and it wasn't a ponzi, that's for sure. That doesn't mean he will be able to repay all of his debt.

Now I understand why you think pirate deserves to be thanked and everyone who called him a lowlife piece of shit should apologise.

Wait, what?

You'll understand what I meant on monday.

Do you promise on Monday?

Sure (but that could be thuesday for you, I live in France and will give Pirate his full day to give a payment or an explanation)

?