MPOE-PR's list of things you always suspected were scams but never dared say so.

[Deprived]

The problem around here is that there's plenty doing it for a hobby - but few with competence.  I'd argue that lack of competence is actually the root problem - with the hobbyist attitude exascerbating it by causing loads of incompetents to do the wrong thing (run a business they aren't competent to manage) for the right reason (to help/be a part of the community).

Yes and no.  One factor which many Bitcoin enterprises have had to deal with is explosive growth - growth which they have neither the financial resources nor the experience to handle. 

Outside of Bitcoin, you can often "learn on the fly" because you're not going to have people throwing hundreds of thousands of dollars at you a few weeks after you've launched.  In Bitcoinland, your business can literally be taking a couple of hours a week of your time one month and the next month pretty much require a team of employees with different skill-sets who you can't yet afford to employ.

Hobbyists need to recognise their own limitations and plan for controlled growth before they even launch.  Past a certain point, it's neither possible nor desirable for a business founder to try to micro-manage all aspects of the operation.  You need to set your ego aside and find the best people available for the tasks which need doing as an enterprise grows.  You need to be willing to *shock*, *horror* refuse additional customers if you don't have the capacity to service them properly. 

The community are their own worst enemies in some ways.  They keep throwing money at businesses which have extremely limited capacity to absorb losses.  We know most of these businesses are so under-capitalised that a loss of even tens of thousand dollars is something they couldn't compensate and yet people insist on placing hundreds of thousands of dollars with them and just leaving it there.

The community also tends to hail new services as heroes and feed the egos of new service providers - perhaps in the process convincing those operators that they're more competent than they actually are.

To my mind the issues you're describing ARE precisely a lack of competence.

Properly realising your capital requirements (both the minimum AND the maximum) IS an area of competence.  Recognising which skill-sets your business needs but you don't possess yourself IS a competence - if someone can't even recognise the need for something then I'd say that indisputably they lack the basic competence to be running their business.

Capital is one area where a lot of BTC businesses go badly wrong - and I'd argue that raising TOO MUCH capital has been one of the primary reasons for the failure/bad performance of many BTC investment funds (with mining ones the problem is slightly different).

I trade rather than invest, but for both traders AND investors there are two key elements for every potential security purchased:

1.  How the current price relates to the actual value.
2.  The liquidity.

A lot of investment companies have given some attention to #1 whilst completely overlooking #2.  The hard truth is that with the low level of competence in BTC businesses in general #2 is very important - as the value (as well as the price) of securities can change very rapidly.  SO even if investing rather than trading you need to be able to get out of a position quickly if you spot a downwards change in value (usually some act of incompetence by the manager) before it gets reflected in the trading price.  Even a fairly incompetent fund manager can spot these changes in value before the price really crashes - as they pay more attention to what's happening than the casual investor does.

But to be able to respond by divesting yourself of your holding, you have to only be holding an amount that the market can absorb - and many funds have raised so much cash (which isn't necessarily a lot in any absolute sense) that when spread over their small list of investments meeting criterion #1 it leaves them unable to exit at any sort of reasonable price when they need to.

When, inevitably, one of their investments gos bad (and it would be an absolute miracle if none of them ever did) they then end up complaining to their investors that they couldn't sell out because of a lack of liquidity.  But that lack of liquidity existed before they bought in - and their current plight is thus a direct result of their decision to commit to positions such that they could never easily reverse them.  Their lack of ability to recognise the NEED to take liquidity into account BEFORE investing IS, in my view, pretty much a text-book example of a lack of competence.  There was something that needed to be done - and they were unable to even recognise the need for it let alone do it.

You can say they lack experience - but experience itself doesn't help.  Learning from experience helps - and that's pretty much what competence is.

I run a small fund myself (that trades rather than invests).  I could sell plenty more units in now - there's no Ask on it under about 3 times its NAV/U and I frequently get PMs asking to be notified if more units are sold.  But I KNOW that selling a load more units wouldn't be smart.  If I had ten times the capital then one of two things would happen:

1.  I'd only use 1/10th of it to trade with and leave the other 9/10ths idle and the growth per unit would be 1/10th would it is now.
2.  I'd use ALL of it to trade - and I'd make LESS profit than I do now.  Not just a smaller percentage but a lower amount.

The reason for 2. is that at present I only commit to any security I trade the amount I can liquidiate quickly at the first hint of trouble (I prefer not to wait and see - and to take tiny losses when there was actually no problem so as to avoid big losses when there IS a big problem).  If I tried to trade 10 times the volume on the same assets then I'd never be able to get out just before a price crashed - and would make little more profit when things went well.  That would result in lower profits than at present - which would then have to be shared between a lot more investors.

Investment companies need in BTC land to follow a similar policy - far more so than applies in fiat world - because of the volatility of pretty much everything BTC related (e.g. an otherwise perfectly fine business could be screwed if BTC rises more than X% vs USD in a short period).  Yet few investment funds have ever properly considered this -and end up wedded to failing businesses as they plunge to their demise.

Raising more capital than they can safely use is a direct cause of failure - as they then feel obliged to use the capital even when doing so introduces risk outweighing the benefit.

I say it's a lack of competence - if you disagree, then I suspect the difference in our views is more one of semantics than anything else (you're maybe concerned over WHY they lack competence - e.g. lack of experience - I'm just pointing out that they don't have it).

[MPOE-PR]

Outside of Bitcoin, you can often "learn on the fly" because you're not going to have people throwing hundreds of thousands of dollars at you a few weeks after you've launched.  In Bitcoinland, your business can literally be taking a couple of hours a week of your time one month and the next month pretty much require a team of employees with different skill-sets who you can't yet afford to employ.

This actually is very true. Few people can turn overnight or over a weekend from McDonald's managers responsible for two cooks and four people working counters to transnational corp managers responsible for (the work of) dozens of people each making much more in base salary than the whole take of a McD manager.

So the management doesn't scale at all, on top of the problem of finding/evaluating/hiring the respective employees. To compound problems, volatility is nuts. The market can literally expect you to scale from one to the other between 9 and 9:15 pm on a Sunday, then scale back down again the next Tuesday. Wait six weeks, back up, etc. These sorts of pressures aren't at all something that humans can handle, even if markets can ask for them - heck, markets can ask for anything, and most times they will.

That's why limits introduced by design (even on growth!) are much more sensible in BTC than anywhere else.

Hobbyists need to recognise their own limitations and plan for controlled growth before they even launch.  Past a certain point, it's neither possible nor desirable for a business founder to try to micro-manage all aspects of the operation.  You need to set your ego aside and find the best people available for the tasks which need doing as an enterprise grows.  You need to be willing to *shock*, *horror* refuse additional customers if you don't have the capacity to service them properly.

Absolutely.

The community are their own worst enemies in some ways.  They keep throwing money at businesses which have extremely limited capacity to absorb losses.  We know most of these businesses are so under-capitalised that a loss of even tens of thousand dollars is something they couldn't compensate and yet people insist on placing hundreds of thousands of dollars with them and just leaving it there.

I suppose this is just the way of BTCs filtering themselves out of the hands of the well-meaners into the hands of the savvy. This is how it should be, after all.

The community also tends to hail new services as heroes and feed the egos of new service providers - perhaps in the process convincing those operators that they're more competent than they actually are.

Egos are a very large problem quickly becoming larger. On one hand, early Bitcoin was pretty much built on the ego of socially failed individuals - take Taaki for a fine example because of his hysterical wiki page but really, half the Bitcoin "famous" are in the same boat. Because of their ultimately doomed effort to "prove themselves" as equal to their self image rather than equal to their social image these people were capable of spending quite a bit of time, and in the case of failed miners quite a bit of their own coin.

On the other hand, the perennially inept, dregs of society, Dunning-Kruger people of the world always have serious ego issues, in the sense that they cannot, for the life of them, swallow being told they fucked up. This is understandable - it happens so often in their life as it is...and after all they came to Bitcoin to escape exactly that, and build a new and true society of the future where by god nobody shall ever tell them they're stupid ever again rawr!

These two interplay - and it's often the same people - and so many mistakes that aren't really necessary or unavoidable get made nevertheless.

[MPOE-PR]

Capital is one area where a lot of BTC businesses go badly wrong - and I'd argue that raising TOO MUCH capital has been one of the primary reasons for the failure/bad performance of many BTC investment funds (with mining ones the problem is slightly different).

The problem of too much money.

But to be able to respond by divesting yourself of your holding, you have to only be holding an amount that the market can absorb - and many funds have raised so much cash (which isn't necessarily a lot in any absolute sense) that when spread over their small list of investments meeting criterion #1 it leaves them unable to exit at any sort of reasonable price when they need to.

This is a very good point. Market isn't really mature enough to handle funds and like vehicles too well yet. The problem is that the need for managed funds exists, as in, many more people would like to invest than are capable/competent to do it, and so someone investing for them makes perfect sense. Take the simple point of the S.DICE PT on Havelock going as high as 89 this week, when it both charges a fee and the underlying never went over 75 on MPEx. That's a whopping 20% worth of market inefficiency. If you think about fiat fund managers, happy to chase a two pip difference in price and gorge plentifully upon that....

There's some pressure there. Hopefully it will be slowly but not too slowly resolved the natural way: people holding worthy companies realizing that this forum doesn't, mostly, matter; that the horde of muppets screaming bloody murder at one wall will soon enough move on to some other randomly chosen wall and it all makes no difference; that the fate of BTC is in large part related to their own financial decisions (as in, the biggest thing they can do for BTC is list in BTC, larger than opening a BTC shop of anything; as in, the worst they can do for BTC is not list in it, the longer it takes for BTC to establish itself firmly as the financial measuring stick of everything the worse its prospects at success - again indifferent of absolutely anything, coffee shops taking Bitcoin, wikipedia taking Bitcoin, crud like that). Even so I am confident that the market will overtake blather slowly but surely for the universal reason this happens: the profit motive.

When, inevitably, one of their investments gos bad (and it would be an absolute miracle if none of them ever did) they then end up complaining to their investors that they couldn't sell out because of a lack of liquidity.  But that lack of liquidity existed before they bought in - and their current plight is thus a direct result of their decision to commit to positions such that they could never easily reverse them.  Their lack of ability to recognise the NEED to take liquidity into account BEFORE investing IS, in my view, pretty much a text-book example of a lack of competence.  There was something that needed to be done - and they were unable to even recognise the need for it let alone do it.

So "Absolutely!" it bleeds.

I say it's a lack of competence - if you disagree, then I suspect the difference in our views is more one of semantics than anything else

This is probably the case. Taking an implicit view of competence ("anything the rational agent could do") rather than an explicit one ("that which is so-and-so certified", for instance) resolved the problem.

[MPOE-PR]

This is because we switched servers after the attack, the gpg software is not properly configured. Sorry about that, will fix and notify you.

To top everything else off... there was an unreported hack. Which nobody knows anything about and nobody's asking anything about because the sorts of people involved are not quite together enough for anything like that. BTCJam. (Yes, they're claiming nothing was stolen, but the truth is probably more to the tune of 1k BTC).

[Monster Tent]

This is because we switched servers after the attack, the gpg software is not properly configured. Sorry about that, will fix and notify you.

To top everything else off... there was an unreported hack. Which nobody knows anything about and nobody's asking anything about because the sorts of people involved are not quite together enough for anything like that. BTCJam. (Yes, they're claiming nothing was stolen, but the truth is probably more to the tune of 1k BTC).

Its called "stealing your own wallet" or "doing the Nefario"

[MPOE-PR]

Updated.

[Walter Rothbard]

Coinlab/Coinbase/Coincrap - Multiple cases of stealing from users through the "canceling BTC sale when price goes up" scam, amplified by "pay anyone complaining on the forum" double-down. In any event their burn rate takes them out of the picture this year, so damage should be limited, but try and sit at a safe distance.

Coinlab and coinbase are two totally different operations with two totally different sets of people involved funded from two totally different sources, right?  One of your links you posted earlier today seemed to posit that coinbase is behind yesterday's news about MtGox when actually it's coinlab.

[MPOE-PR]

Coinlab/Coinbase/Coincrap - Multiple cases of stealing from users through the "canceling BTC sale when price goes up" scam, amplified by "pay anyone complaining on the forum" double-down. In any event their burn rate takes them out of the picture this year, so damage should be limited, but try and sit at a safe distance.

Coinlab and coinbase are two totally different operations with two totally different sets of people involved funded from two totally different sources, right?  One of your links you posted earlier today seemed to posit that coinbase is behind yesterday's news about MtGox when actually it's coinlab.

Not really that totally different, no. Basically the same group of people.

[Walter Rothbard]

Coinlab/Coinbase/Coincrap - Multiple cases of stealing from users through the "canceling BTC sale when price goes up" scam, amplified by "pay anyone complaining on the forum" double-down. In any event their burn rate takes them out of the picture this year, so damage should be limited, but try and sit at a safe distance.

Coinlab and coinbase are two totally different operations with two totally different sets of people involved funded from two totally different sources, right?  One of your links you posted earlier today seemed to posit that coinbase is behind yesterday's news about MtGox when actually it's coinlab.

Not really that totally different, no. Basically the same group of people.

Who is common between the two groups?

Do MPEX and GLSBE have any common people, too?  I'm sure to someone who didn't take the time to research they would seem to be "basically the same group of people."

[Walter Rothbard]

2.3. You read, on this forum, and you discuss with the market participants. You get your pecking order straight. Who are the movers and shakers? Whose word is worth 10k Bitcoins no questions asked and from whom? Why? You get the history straight. Who were the scammers, historically? How did they do it ? What are the patterns? How did the people who matter react, and why? What does that say about them, how does that color their relationships among each other?

If you don't have the list and don't comprehend how the interactions work, if you look at DeathandTaxes and have no fucking idea who he is, if you think we're buddies cause I mention him by name and so forth you're not done with this. Must lurk moar.

2.4. You ask questions. Only on step 2.4 do you ask questions, by the time you're here you have already done a lot of work! You have sunk into this upwards of a hundred hours of your spare time, whether you like it or not, you've filled half a notebook with dumbass scribblings, you have fucking hand-drawn maps hanging from your bedroom wall. This level of intensity is not an upper bound to aspire to, but a minimum requirement.

[Monster Tent]

Coinlab/Coinbase/Coincrap - Multiple cases of stealing from users through the "canceling BTC sale when price goes up" scam, amplified by "pay anyone complaining on the forum" double-down. In any event their burn rate takes them out of the picture this year, so damage should be limited, but try and sit at a safe distance.

Coinlab and coinbase are two totally different operations with two totally different sets of people involved funded from two totally different sources, right?  One of your links you posted earlier today seemed to posit that coinbase is behind yesterday's news about MtGox when actually it's coinlab.

Not really that totally different, no. Basically the same group of people.

Who is common between the two groups?

Do MPEX and GLSBE have any common people, too?  I'm sure to someone who didn't take the time to research they would seem to be "basically the same group of people."

They all use bitcoin ?

They are all in the US ?

[MPOE-PR]

Who is common between the two groups?

Do MPEX and GLSBE have any common people, too?  I'm sure to someone who didn't take the time to research they would seem to be "basically the same group of people."

Since we're talking about "people who didn't bother do the research", did you read the comments on the first link in the linked post? They pretty much cover your question, apparently it's been asked before.

This leaving aside the rest of the nonsense.

They all use bitcoin ?

They are all in the US ?

Above question to you, too. Didja read or too busy posting?

[poly]

What exchange should I go with instead? I'd like to use a reputable exchange instead of one that gets hacked or shut down..

[MPOE-PR]

What exchange should I go with instead? I'd like to use a reputable exchange instead of one that gets hacked or shut down..

If you're in the SEPA zone probably the people at Bitcoin-Central. If you're outside of the SEPA zone you're a little underserved/underbanked at the moment, unfortunately. Probably p2p is your best bet, for a number of reasons. Something like Local Bitcoins or the specialized irc channels.

[coqui33]

To: MPOE-PR

Could you please recommend sources where I might learn more about your concerns regarding Coinlab?

I agree that Coinbase is not trustworthy because of their unpredictable last-minute cancellations. I no longer do business with them, and it is irrelevant to me whether their unreliability is nefarious or mere incompetence.

Coinlab, on the other hand, worries me. I have been a MtGox customer for some time. On 3/22/13, my account will be transferred from MtGox to Coinlab. If I don't like it, my only alternative will be to leave and take my trades elsewhere.

I would be grateful if you would suggest where I might learn more about Coinlab.

[MPOE-PR]

Could you please recommend sources where I might learn more about your concerns regarding Coinlab?

I don't think there's any place where you can read anything useful. The reason is that the pretend-press (like for instance the Bitcoin Rag, or that dorky kid doing something in his sleep) fail to do their job, which would be reporting, preferring instead to do pumping.

One person discussing CoinLab's misadventures in mining in the piece linked is jcpham. You can get ahold of him on irc, or alternatively since he's in the WoT you can probably shoot him an email. There's a little more discussion for instance here. His statements are generally correct, they've tried to (bribe people to) get a mining pool going. They've failed.

Prior to that they've tried to get various online gamers (such as wurm players) to run their mine. That plan also never went anywhere, principally because it wasn't very well thought through (gamers tend to want to use their video cards, their pricing structure was ridiculous, their sales approach beyond amateurish).

The founders are Peter Vessenes, Mike Koss, and Tihan Seale. That last guy is deeply involved in the Bitcoinica fiasco (you can start reading here, but literally a search for his name on this forum and the Internet in general should be most informative). Mike Koss is a sort of slumlord for the Seattle bum entrepreneur world. His name is probably only mixed in all this because he gave the other two enough space for two desks in a hallway somewhere. Peter Vessenes is the connection to CoinBase, via Ycombinator (which is, quite literally, investment's sideshow, a sort of contemporary PT Barnum Grand Circus).

In lieu of a conclusion: the thing with handling money is that you have to do due diligence. A large part of this due diligence business is doing independent research, by yourself. The reason is that other people pretending to be doing research for you aren't really doing any research, but simply pushing their crap.

[coqui33]

Thank you very much! A very useful reply!

[danieldaniel]

MPOE: You realize that CoinBase is legally allowed to do what they do, right?  It's blatantly listed in their TOS, so it's not a scam.  Their customers agreed to follow those rules.

[MPOE-PR]

MPOE: You realize that CoinBase is legally allowed to do what they do, right?  It's blatantly listed in their TOS, so it's not a scam.  Their customers agreed to follow those rules.

First off, this list doesn't include proven scammers. There's a different mechanism to handle those.

First sentence, eh?

[coqui33]

... You realize that CoinBase is legally allowed to do what they do, right?  It's blatantly listed in their TOS, so it's not a scam. Their customers agreed to follow those rules.

That is not the point. You would be horrified to read the terms printed on the back of airline tickets. Or on most commercial software. Or most construction contracts. The point, in my eyes, is not whether the corrupt mechanisms of the U.S. justice system would side with Coinbase or with me in court. The point is that, having been screwed by Coinbase ("legally" or not--I suspect incompetence, not malice), I simply walk away and resolve to no longer deal with them. If Vessenes links Coinbase to Coinlab via ycombinator, then Coinlab is suspect as well.