Bitcoin Savings and Trust is probably a Ponzi Scheme: A Petition

[PatrickHarnett]

Which is what?

The "red flag" that they (Madoff was the example given) were paying higher than they could borrow at assumed you could borrow in the first place.  Even the most basic business models knows that the cost of debt and equity are different, and that the ability to borrow is linked less to income than assets.

There are other simple ways to pay high interest rates, but obviously the mindset is that rates must be low.

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[PatrickHarnett]

Which is what?

The "red flag" that they (Madoff was the example given) were paying higher than they could borrow at assumed you could borrow in the first place.  Even the most basic business models knows that the cost of debt and equity are different, and that the ability to borrow is linked less to income than assets.

There are other simple ways to pay high interest rates, but obviously the mindset is that rates must be low.

That still doesn't answer why pirate would need more and more bitcoins. Assuming he can legitimately make more than 1%/day on his bitcoin, wouldn't he want to fund it himself and reap all the rewards and not have to pay out the 1%/day to depositors?

So either he's running a ponzi scheme or he is going to pass on all the risks of his business to his depositors. Either way, it means bad news for his depositors.

The above point was about the bad logic that goes into "why XYZ is a ponzi". 

Like some religious witch-hunt, reason left this thread a long time ago (probably around the first post).  Your "he's going to do this or that" argument doesn't stand scrutiny because you're just repeating the same misconceptions again and again (like good religious people do), rather than testing different theories (the more science end of the spectrum).

Have you actually looked to see if Pirate is actually taking more and more coins?  or is that just made up like most of the other "facts"

btw - I have factored in 100% loss of my deposit into my risk profile, the same way I have several other loans/deposits/investments also fail.  Having money in a real bricks and mortar business is also not guarantee that you won't lose your money either.

[exahash]

That still doesn't answer why pirate would need more and more bitcoins. Assuming he can legitimately make more than 1%/day on his bitcoin, wouldn't he want to fund it himself and reap all the rewards and not have to pay out the 1%/day to depositors?

You're ASSuME-ing a few things that may not be true:

1.  Is he really taking in "more and more" bitcoins?  His books are not open, you have no way to know
2.  Are all depositors receiving 1%/day?  No, he requires 2k BTC on deposit to get that rate.
3.  Maybe he does want to fund it from profits, but can't.  Profits may not be as high as you presume; if he's arbing coins, it may move the market too much; he may require a relatively high level of funding to operate.

I've run (and been involved in a few other) businesses that could reasonably turn every dollar into two, all day, every day.  But payments typically came net 45, creating cash flow and scaling issues for many months (in one case years).  One biz had little control over demand, it would always try to meet it because it was ultimately profitable to do so, regardless of temporary cash flow issues.  An 8 figure (USD) credit line would have solved this, but was denied by the banks they asked.

I also could not have convinced any one else involved in those businesses to pay 7% weekly for capital (I'd have been laughed at), however, the quick math shows it would have been profitable to do so... the caveat is that it would have put a serious hurt on overall profitability, and after expenses it would have taken a couple years to build enough of a capital reserve to end the arrangement.

Before you label me a pirate fanboy: I do not have BS&T or Gpumax accounts.  Invites have not been forthcoming, which adds to my point #1 above.

Reeses hit the nail on the head when he said (albeit less kindly) that people who know how to make money, aren't going to tell you how to copy them. 

[Sukrim]

What everyone here seems to forget: You're dealing with an open pseudonymous accounting system! EVERY transaction is public, you only have to find out which are the ones by pirate!

Has anyone actually tried tracking a few input transactions to pirateat40 and finding out his combined BTC holdings and money flow? Unless he's really smart by using the CoinControl branch and very careful not to mix private keys in wallets, sooner or later it might be possible to link all or most of his accounts together... this might then give better ideas on how he operates actually and we could also see money flows to several known sites (Bitcoinica, MtGox...) - if they are there.

Also it could show if he really uses mainly funds to pay out investors (warning: he probably will pay some investors from funds, that isn't proof it's a ponzi though! Bitcoin works that way...!) or something else (like mining income, coins coming from MtGox...).

Edit: It might be an interesting topic for researchers (like http://anonymity-in-bitcoin.blogspot.com/2011/07/bitcoin-is-not-anonymous.html) to graph pirate's money flow(s)... just saying!

[P4man]

You're ASSuME-ing a few things that may not be true:

1.  Is he really taking in "more and more" bitcoins?  His books are not open, you have no way to know
2.  Are all depositors receiving 1%/day?  No, he requires 2k BTC on deposit to get that rate.
3.  Maybe he does want to fund it from profits, but can't.  Profits may not be as high as you presume; if he's arbing coins, it may move the market too much; he may require a relatively high level of funding to operate.

The first "ASSuMption" is pretty safe. Goat was quoted as the single example of someone turned down, as per his post, it turns out even he has been increasing his position substantially. More over, read the forums, everyone and their dog is offering pirate pass through bonds nowadays. Those end up at pirate in the end. Its hard to see how his position could not be increasing.

The second point is of little importance; even the smallest interest rate is HUGE, at 218% annually.

As for the last point, its worth pointing out all other bitcoin arbitrage bots so far have been proven a scam. Arbitrage is of course possible, and when done right, perhaps even profitable, but it wouldnt require anything like this level of funding, nor would it provide those kinds of returns.

As for pirate having trouble breaking even; the sensible thing to do would be to lower his interest rate, even if by 1%, and that problem would vanish and 6 months later its hard to see how he could not be self sustaining, or at the very least no longer needing additional funds.

[ShadowAlexey]

You're ASSuME-ing a few things that may not be true:

1.  Is he really taking in "more and more" bitcoins?  His books are not open, you have no way to know
2.  Are all depositors receiving 1%/day?  No, he requires 2k BTC on deposit to get that rate.
3.  Maybe he does want to fund it from profits, but can't.  Profits may not be as high as you presume; if he's arbing coins, it may move the market too much; he may require a relatively high level of funding to operate.

The second point is of little importance; even the smallest interest rate is HUGE, at 218% annually.

As for the last point, its worth pointing out all other bitcoin arbitrage bots so far have been proven a scam. Arbitrage is of course possible, and when done right, perhaps even profitable, but it wouldnt require anything like this level of funding, nor would it provide those kinds of returns.

As for pirate having trouble breaking even; the sensible thing to do would be to lower his interest rate, even if by 1%, and that problem would vanish and 6 months later its hard to see how he could not be self sustaining, or at the very least no longer needing additional funds.

Let me note,that in this case NO one is prommising you that he will be using your funds for that long, this might end up in very short time, all hi will do is just withdraw your funds back.
At last point, how much money do you think he is capable of sending to some one, even with lets say 50k btc? Now it is only 250k dollars, that is not much and much lower that needed in some cases, and daily volume of gox right now is about 71k, so assuming that he is doing it with 50% fee 5 times a month, he gets very good percentages, and all he need is BTC to work with.
All pirates need to get more is just to increase of exchange volumes.
And i do assume that people who are interested in it are doing something illegal, but that`s their choice.
Remember we are dealing not with billions of dollars, all this amounts are small in terms of some businesses.

[Sukrim]

Well, to sum it up what I've read here so far:

Pirates's income sources are at the very least unclear. They could come from selling BTC offline at a premium, be nonexistant (= interst comes from deposits --> ponzi), from GPUMAX customers, from money laundering/drug trafficking/other illegal stuff, selling goods other than Bitcoin at a hefty premium, from his private money ( --> charity), lending Bitcoin to others and charging high interest, day trading on some exchange/Bitcoinica, investing in another Ponzi scheme that pays even higher and is still running (e.g. the russian Mavrodi one).

What makes it likely that it's a ponzi:
* Huge interests, far above even the BTC inflation rate (which is also not small...)
* Source of income is unclear
* He could borrow these coins cheaper than the interest he pays
* People say it is

What might speak against it being a ponzi:
* Even though a lot of people are begging to throw money at him, he doesn't take it all
* He owns GPUMAX, a site that pays out real money to miners and that's nontrivial to operate
* He (supposedly?) gave his personal information to people investing in him, so he would be easy to find and prosecute
* People say it isn't

Nobody has yet published a money trail or tried to get the list of adresses pirateat40 actually owns or controls (by tracking payouts from BTCS&T, GPUMAX, payments to both services...), all of this here is pure speculation as only pirate knows what pirate does.

[MrTeal]

we need a trolling subforum....

Or an echo subforum. When it's all been said before, but you just want to hear yourself say it over, and over, and over...

[PatrickHarnett]

What everyone here seems to forget: You're dealing with an open pseudonymous accounting system! EVERY transaction is public, you only have to find out which are the ones by pirate!

Has anyone actually tried tracking a few input transactions to pirateat40 and finding out his combined BTC holdings and money flow?

Yes.  I have done some of that.  What I found is that the total (realistic) maximum of all coins sent to Pirate (based on some non-public information) is actually pretty small.

If you look through the blockchain, you regularly come across 10,000 coin wallets, and of the two largest active wallets I noticed one had over 300,000 coins sitting in it, and the other I suspect was an exchange wallet that had turned over more than 4M coins.

[terrytibbs]

* He (supposedly?) gave his personal information to people investing in him, so he would be easy to find and prosecute

Judge, judge! This man stole my virtual internet monies!!!

[Otoh]

While people are trying to guess his business model, here's my 2 satoshis - he has a/multiple clients who wish to amass a fat stash of bitcoins & don't mind paying through the nose in fiat $ for it, guessing 10 - 15 - 20% over spot & they buy regularly like say once a week or 2, this is because they have a big constant inflow of cash that they wish to move around the world outside of the banking system, where every they move it they have the means to change back from bitcoins to their preferred fiat or merchandise, quite a few enterprizes could fit this bill (hi Wal-Mart.mx)

Lets say that after Gavin's presentation to the CIA they saw the advantages of a company fund, maybe to use for entrapment, to pay anon informers, bribes, prepagardo 'ho/s for the president's security detail, wanted dead or alive rewards (Fahd al-Quso hello, well that's goodbye actually*), a host of other nefarious purposes spring to mind & being spooks they wish to have no paper trail & plausible denialability so they dip in to their black ops cash slush fund & head to downtown Texas, or it's virtual equivelent, where Pirate is happy to oblige them & becomes untouchable to LE in the process, just one small op could account for this 6 months past funding - it could even be LEO themselves getting a healthy float in an off the books manner for whatever they would like to mess with, I mean people do buy, sell & do illegal stuff with this currency so if they're going to sit at the table & act like a player then they need a stack of chips first

disclaimer, I have an active imagination but also a lot of coins with Pirate - I'm so patriotic  

* edit: that's 1,000,000 bitcoins fiat equivalent was offered just for Quso's GPS loc & you can bet that if their Brit mole had demanded payment in small denomination, used bitcoins then that's what he would have got - who'd want to trust those leaky old Useless Banks of Switzerland nowadays anyway, so last century

[Otoh]

* He (supposedly?) gave his personal information to people investing in him, so he would be easy to find and prosecute

Judge, judge! This man stole my virtual internet monies!!!

I expect that if the FBI are treating bitcoin thefts, scams & frauds seriously then judges would do so too

http://www.scribd.com/doc/92797476/FBI-Bitcoin-Report-April-2012

[Sukrim]

What everyone here seems to forget: You're dealing with an open pseudonymous accounting system! EVERY transaction is public, you only have to find out which are the ones by pirate!

Has anyone actually tried tracking a few input transactions to pirateat40 and finding out his combined BTC holdings and money flow?

Yes.  I have done some of that.  What I found is that the total (realistic) maximum of all coins sent to Pirate (based on some non-public information) is actually pretty small.

Care to send me the hashes of a few transactions to or from pirate addresses? Doesn't even have to be public. It would be nice if you could label them like "to GPUMAX" "from GPUMAX" or "to BTCS&T" etc.
This goes of course for anyone here who wants to know more about pirate's operations - just collect transactions + public addresses of him and then do the research in the chain.
One could also start to do research about the payouts of dividends each monday (just link forum posts and donation addresses in signatures here with users and check who sent them BTC on monday morning) to find more accounts even without getting any data from his "investors".

Also please give an estimate of "pretty small"...

I personally believe he just invests in the MMM Ponzi. Payouts there should be enough to leave him with even some profit after the crazy rates he gets here, and as long as they pay (which they currenty do) he'll pay as well.

[JoelKatz]

What might speak against it being a ponzi:
* Even though a lot of people are begging to throw money at him, he doesn't take it all

What this means is that if it is a Ponzi scheme, most likely we're still very early in the scheme. If that's true, people who are in now are pretty safe and will likely have plenty of warning when it's time to get out. This is one of the main reasons I'm *not* one of the people screaming "Get your money out now, it's a Ponzi scheme!". I don't really see how it could be a Ponzi scheme that's about to bust, because if so, it was very badly run and didn't achieve anywhere nears its potential for the effort expended.

[Matthew N. Wright]

* He (supposedly?) gave his personal information to people investing in him, so he would be easy to find and prosecute

Judge, judge! This man stole my virtual internet monies!!!

I expect that if the FBI are treating bitcoin thefts, scams & frauds seriously then judges would do so too

http://www.scribd.com/doc/92797476/FBI-Bitcoin-Report-April-2012

I believe that this FBI report was shown to be a hoax.  I will try to find the reference.

It hasn't been shown to be a hoax yet but the spergy bitcoiner party is eating it up like pancakes without a single verifiable clue afaik.

Such a depressing community we have here. Hey guys! The president just emailed me and he said Bitcoin is the new currency! Trust me! He read it in an anonymous PDF!

[P4man]

What might speak against it being a ponzi:
* Even though a lot of people are begging to throw money at him, he doesn't take it all

What this means is that if it is a Ponzi scheme, most likely we're still very early in the scheme. If that's true, people who are in now are pretty safe and will likely have plenty of warning when it's time to get out. This is one of the main reasons I'm *not* one of the people screaming "Get your money out now, it's a Ponzi scheme!". I don't really see how it could be a Ponzi scheme that's about to bust, because if so, it was very badly run and didn't achieve anywhere nears its potential for the effort expended.

This.
Although, a ponzi can collapse at any moment, and not necessarily when Pirate would have planned it. If too many people start worrying and demand their money back, it could unwind very quickly.

Anyway, more thinking out loud; if this is not a ponzi sensu stricto, and pirate is actually earning as many or more bitcoins as he is paying out, its more than likely someone else is losing out, bitcoin being a zero sum game. So I keep wondering, who is losing? I dont see an obvious answer, but perhaps we are all losing if Pirate manages to manipulate either mining difficulty or bitcoin exchange rates somehow. The former would almost certainly be related to gpumax, though I fail to connect the dots. The latter could be related to bitcoinica, although once again, someone smarter than me will have to connect the dots.

[Timbo925]

Just thinking about it if he is running the MMM ponzi scheme. If he does he would earn a 20% profit even when paying out 20%. In 5 months all the money someone else invested would be his profit. So if he gets the money out every month and the MMM ponzi scheme collapsed. He will be be able to payout a lot of ppl if he wanted to. All the money who is in longer then 5 months is full profit for him.

[Meni Rosenfeld]

Anyway, more thinking out loud; if this is not a ponzi sensu stricto, and pirate is actually earning as many or more bitcoins as he is paying out, its more than likely someone else is losing out, bitcoin being a zero sum game. So I keep wondering, who is losing? I dont see an obvious answer, but perhaps we are all losing if Pirate manages to manipulate either mining difficulty or bitcoin exchange rates somehow. The former would almost certainly be related to gpumax, though I fail to connect the dots. The latter could be related to bitcoinica, although once again, someone smarter than me will have to connect the dots.

The economy isn't a zero sum game. Value can be created. Even if someone pays Pirate and "loses" bitcoins, he presumably gets in return something of value to him (which could be a product, a service, money imported from the fiat economy, etc.).

[JoelKatz]

Anyway, more thinking out loud; if this is not a ponzi sensu stricto, and pirate is actually earning as many or more bitcoins as he is paying out, its more than likely someone else is losing out, bitcoin being a zero sum game. So I keep wondering, who is losing? I dont see an obvious answer, but perhaps we are all losing if Pirate manages to manipulate either mining difficulty or bitcoin exchange rates somehow. The former would almost certainly be related to gpumax, though I fail to connect the dots. The latter could be related to bitcoinica, although once again, someone smarter than me will have to connect the dots.

I don't think there has to be anybody on the losing end. Say someone has a unique opportunity to turn $100 into $150 (say by buying something wholesale and selling it retail). So they borrow some Bitcoins, sell them for $100, turn the $100 into $150, buy $110 in Bitcoins, give those Bitcoins to the lender and pocket $40 in profit. Who is the loser here?

[JoelKatz]

Just thinking about it if he is running the MMM ponzi scheme. If he does he would earn a 20% profit even when paying out 20%. In 5 months all the money someone else invested would be his profit. So if he gets the money out every month and the MMM ponzi scheme collapsed. He will be be able to payout a lot of ppl if he wanted to. All the money who is in longer then 5 months is full profit for him.

You're forgetting that he has to get the "profits" he pays out from somewhere.

There is no "profit" in a Ponzi scheme. Deposits are neutral -- someone gives you $100, you owe them $100. Payouts are neutral -- you pay out $100 to someone, you owe them $100 less. And, of course, accumulated interest is pure loss. If someone deposits $100 and I now owe them $105, that's a $5 loss. Ponzi schemes only accumulate losses. The difference between how much money they hold and how much they owe can only grow, and it grows with every passing day.