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Warning: Moderators do not remove likely scams. You must use your own brain: caveat emptor. Watch out for Ponzi schemes. Do not invest more than you can afford to lose.

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Author Topic: Who Pays What?  (Read 35054 times)
zyk
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September 03, 2012, 06:21:13 PM
 #201

everything depends on how pirate is getting away with this Wink

Cheers Zyk
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September 03, 2012, 08:49:09 PM
 #202

Please stop trying to save everyone; let them make their own choices. There's more than enough dissenting opinion across the forum for people to make an informed choice.
Considering how many people there are who falls for scams that seems unlikely, and there certainly wouldn't be if he followed your advice. When it comes to Patrick I can't quite decide if he's just ridiculously naive or a scammer. Having a ratings scheme which basically is there make more people give him money and where he gives himself top score for completely inverifiable information makes me lean towards a scam. It just seems strange that this many people want a loan that is 10 - 20 times more expensive than a credit card loan. On the other hand the supply of stupid Bitcoin users seems endless, so who knows?

The rates are pretty close to payday loans, actually some payday loans are higher by an order of magnitude (or several) than some of the credible lenders here. Have you ever been to Myrtle Beach, SC? I went there by mistake a couple months ago, there was 5+ payday/title loans places within view at all times. Who are the biggest users of payday loans? Drug users probably, what is one of the biggest markets with BTC? The more risk the higher the interest. The rates are not unheard of whatsoever.

Another thing you fail to mention is cost of getting the coins. If I want them instantly I have to pay at least 4%. I could take out a loan at 2.5%/w, buy coins at 0.2% fee a slower way (ACH, Cash in mail, SEPA, and so on), and get instant coins for 2.7% rather than ripoff fees from "instant" BTC companies.

Now what motive would Patrick Have to make credit ratings for other lenders? The one where you say he has to control to give himself a good (or best) rating is a valid point. But the rest doesn't really make sense to me. By giving other lenders a decent rating he's effectively helping his "competition" (assuming they are all scams) by giving gamblers confidence to deposit in other services to help mitigate risk of default. SO he hurts his own scheme. I guess you could argue that's all part of the plan, but then getting into tinfoil territory.

I will concede I think a few of the ones with good ratings are obvious scams. If you read what he does it's just black/white. He doesn't apply morality to anything. He goes off what the deposit taker gives him. Blaming him for good credit rating to a scam would be similar to blaming Nefario for a GLBSE scammer that supplied fake ID. You have more to go off than just his rating.
zyk
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September 03, 2012, 09:21:28 PM
 #203

I'm actually not taking deposits currently..... I am 100% Debt-free/Deposit-Free at the moment.

Too busy trying to get my farm re-worked with all new hardware.


That qualifies you as the most honest major account - holder at BCST.

Kudos Zyk

english ok ? Wink

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September 03, 2012, 09:22:41 PM
 #204

Now what motive would Patrick Have to make credit ratings for other lenders? The one where you say he has to control to give himself a good (or best) rating is a valid point. But the rest doesn't really make sense to me. By giving other lenders a decent rating he's effectively helping his "competition" (assuming they are all scams) by giving gamblers confidence to deposit in other services to help mitigate risk of default. SO he hurts his own scheme.

He wouldn't be considered very credible if he gave everybody but himself a poor rating. By making the others look fairly safe he can make himself look like the gold standard of Bitcoin investments. That's a much better approach than saying that all the others are probably scams, but even though my business appears exactly the same it's completely safe.
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September 03, 2012, 09:42:14 PM
 #205

Now what motive would Patrick Have to make credit ratings for other lenders? The one where you say he has to control to give himself a good (or best) rating is a valid point. But the rest doesn't really make sense to me. By giving other lenders a decent rating he's effectively helping his "competition" (assuming they are all scams) by giving gamblers confidence to deposit in other services to help mitigate risk of default. SO he hurts his own scheme.

He wouldn't be considered very credible if he gave everybody but himself a poor rating. By making the others look fairly safe he can make himself look like the gold standard of Bitcoin investments. That's a much better approach than saying that all the others are probably scams, but even though my business appears exactly the same it's completely safe.

Right but what idiot would go "oh this guy gave himself a good rating, so I trust him" It just doesn't pass the common sense test, but neither did pirates thing so who knows.
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September 03, 2012, 09:53:34 PM
 #206

Now what motive would Patrick Have to make credit ratings for other lenders? The one where you say he has to control to give himself a good (or best) rating is a valid point. But the rest doesn't really make sense to me. By giving other lenders a decent rating he's effectively helping his "competition" (assuming they are all scams) by giving gamblers confidence to deposit in other services to help mitigate risk of default. SO he hurts his own scheme.

He wouldn't be considered very credible if he gave everybody but himself a poor rating. By making the others look fairly safe he can make himself look like the gold standard of Bitcoin investments. That's a much better approach than saying that all the others are probably scams, but even though my business appears exactly the same it's completely safe.

I could take myself off the list, and it is indicated that there is a conflict of interest - that's not hidden. (and currently Starfish is running about an 4.86 average across the metrics).    Not only that, buy I'm in competition with the people I'm rating! 

I am inclined to take off the letter codes.  While there have been no complaints until a few days ago (but there was a useful post some weeks back), it's clear that some  people really don't understand what they mean.

The other change I've been considering is making it more explicit for disclosure of identity.  Having someone provide ID to Nefario, myself or someone else isn't much use, so having that more public is a good thing.
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September 03, 2012, 10:09:33 PM
 #207

leave the letter ratings. Good for those only glancing.

You will never please everyone.

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September 03, 2012, 10:44:16 PM
 #208

leave the letter ratings. Good for those only glancing.

You will never please everyone.

Agreed, but the scale needs to change.

It should be damn hard to get an A, and by these standards https://bitcointalk.org/index.php?topic=81542.msg1100627#msg1100627 I hardly think any of them are even BBB:

A               Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.
BBB             Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.

An 'A' rating should require a wallet address with a balance high enough to pay out all liabilities, either directly (provided by the borrower) or via insurance paid for by the borrower, where the insurance entity discloses such an agreement and THEIR wallet address with balance high enough to cover liabilities.  Such transparency should be front and center on the borrower's main post on their main thread.

RustyRyan - claims a 25% reserve but doesn't back it up.
smart/ziggy - mentions an offline wallet several times but doesn't back it up.
vescudero - no mention of reserve.  has no reserve?
Chungenhung - no mention of reserve.  has no reserve?
Starfish - mentions a reserve but doesn't say how much and doesn't back it up.
Kludge - nothing useful on the forum page, but links to a spreadsheet where we see he has ~184 BTC on hand, but does not back it up.

It would be easy for these people to post a wallet address.  They choose not to.  None of them deserve an 'A' rating IMHO.



 

I'm not a Coinbase fan -- I placed a buy order, they took the funds out of my account, then a week later the price went up and they canceled the buy and closed my account.  You've been warned.  Use a different exchange.
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September 03, 2012, 10:59:25 PM
 #209

leave the letter ratings. Good for those only glancing.

You will never please everyone.

Agreed, but the scale needs to change.

It should be damn hard to get an A, and by these standards https://bitcointalk.org/index.php?topic=81542.msg1100627#msg1100627 I hardly think any of them are even BBB:

A               Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.
BBB             Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.

An 'A' rating should require a wallet address with a balance high enough to pay out all liabilities, either directly (provided by the borrower) or via insurance paid for by the borrower, where the insurance entity discloses such an agreement and THEIR wallet address with balance high enough to cover liabilities.  Such transparency should be front and center on the borrower's main post on their main thread.

RustyRyan - claims a 25% reserve but doesn't back it up.
smart/ziggy - mentions an offline wallet several times but doesn't back it up.
vescudero - no mention of reserve.  has no reserve?
Chungenhung - no mention of reserve.  has no reserve?
Starfish - mentions a reserve but doesn't say how much and doesn't back it up.
Kludge - nothing useful on the forum page, but links to a spreadsheet where we see he has ~184 BTC on hand, but does not back it up.

It would be easy for these people to post a wallet address.  They choose not to.  None of them deserve an 'A' rating IMHO.



 
While I trust PH very much I do tend to agree that an A should be the uber goal. A signed message from a reserve account is good.

Also aren't these credit ratings as opposed to risk ratings?

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September 04, 2012, 01:51:30 AM
 #210

Totally concur with the A rating suggestion. Actually, I would use the following criteria to determine the rating, listed from highest to lowest weight:

Leverage ratio (how much is invested / how much is on hand in reserve)
Proof of reserves (whether the claimed reserves are stored in a public verifiable address)
Interest rate (higher rate = higher risk of default, so lower grade)
Delinquency rate (percentage of loans/investments that are delinquent or in default)
Weekly/monthly report of new deposits v.s. new revenues/profits (publicly verifiable if possible)
Business type (short-term loans, something else, or undisclosed)

Things like how long it's been going, or whether the people behind it are well known and have a reputation, are fairly useless, as demonstrated by pirate and Madoff. The earnings to liability ratios are also useless, if the earnings are just on paper as in a ponzi.
Someone who covers all 6 of the above should only get an A if their leverage ratio AND their interest rates are very low, since someone with even a 2:1 leverage ratio and 3% a week interest will get wiped out if Bitcoin jumps 50% in price too quickly and all the borrowers who were lent the investor's money to end up defaulting. A should mean a safe place to park your money in. Not a good quality casino.

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September 04, 2012, 02:17:29 AM
 #211

A higher interest rate does NOT imply a higher risk of default. It is the other way around: A higher risk of default implies  ahigher interest rate.

So many people dont understand the difference between an equavalent (double implication) and n implication relationship while the difference is quite clear.

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September 04, 2012, 02:32:13 AM
 #212

A higher interest rate does NOT imply a higher risk of default. It is the other way around: A higher risk of default implies  ahigher interest rate.

So many people dont understand the difference between an equavalent (double implication) and n implication relationship while the difference is quite clear.

Exactly. The relationship is not directly causal, bi-conditionally.

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PatrickHarnett
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September 04, 2012, 04:56:33 AM
 #213

For information: I asked Maged to "un-sticky" the thread. 
Rassah
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September 04, 2012, 01:40:24 PM
 #214

A higher interest rate does NOT imply a higher risk of default. It is the other way around: A higher risk of default implies  ahigher interest rate.

So many people dont understand the difference between an equavalent (double implication) and n implication relationship while the difference is quite clear.

Actually it works both ways. Higher risk investments do mean that people would charge more for giving their money to it (higher interest rates), which is the standard understanding of interest rates (price charged for taking on risk, including time risk). However, at the same time, someone paying higher interest rates (especially fixed) is at a much higher risk of not being able to pay should anything happen. It does depend on average revenues for a set business, i.e. I would agree that default risk is low for companies paying 1% and 3% if average revenues are 5%, but Bitcoin doesn't exist in a vacuum, and does get affected by outside economies and exchange rates. So even if average revenues were 5% for these types of businesses in Bitcoinland, should something happen to bring the revenue rates down (Bitcoin price going up, or an unexpectedly high default rate), the business paying 1% will survive, while the business promising 3% could easily go in the red and fail.
Also, even if we stick to the "higher risk of default implies higher interest rate," one could argue that the reason these guys are offering such high interest rates is because they themselves are pricing in their high risk (though more accurately they're likely just chasing greed).

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September 04, 2012, 01:52:31 PM
 #215

For information: I asked Maged to "un-sticky" the thread. 
Hrm... I am not sure that is a good idea.  Well it may be confrontational, still provides a very valuable service in my humble opinion.  I think that people just don't understand how the ratings come about, and need to better understand exactly what they're looking at, it is not an endorsement by PH.

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556j
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September 04, 2012, 02:01:59 PM
 #216

So even if average revenues were 5% for these types of businesses in Bitcoinland, should something happen to bring the revenue rates down (Bitcoin price going up, or an unexpectedly high default rate), the business paying 1% will survive, while the business promising 3% could easily go in the red and fail.

Most of them I'm aware of have no obligation to keep the same rates, Patrick for example lowered rates in August due to market or whatever reason. Most also claim to be dealing only (or mostly) in BTC so the price going up shouldn't be too much of a problem. Pirate was one of the few that claims to transition to real life ventures, it was a mistake because when the price kept spiking up from $5 slump it became ever more obvious he was full of it.
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September 04, 2012, 02:25:12 PM
 #217

Most of them I'm aware of have no obligation to keep the same rates, Patrick for example lowered rates in August due to market or whatever reason. Most also claim to be dealing only (or mostly) in BTC so the price going up shouldn't be too much of a problem. Pirate was one of the few that claims to transition to real life ventures, it was a mistake because when the price kept spiking up from $5 slump it became ever more obvious he was full of it.

Don't forget that Pirate failed because him lowering rates signaled that his business was weaker, which initiated essentially a bank run. Other investments can fail the same way.
Also, there's still almost no such thing as dealing only in Bitcoin. Unless you buy and sell everything in Bitcoin (such as only earning money on Silk Road and paying your suppliers in Bitcoin), you're still affected by exchange rates.
The best explanation to date I've heard about how 3%/week is possible, is that people take out these loans instead of paying 4%+fees to BitInstant, and then pay the loans back once their money clears and they can buy the BTC back. However, if someone borrows BTC for the same amount of USD they are transferring to MtGox, and the price jumps %10 in a week, they will be 10% short on their loan once the week is up. Just borrowing Bitcoin and sitting on it won't make it grow either, and I can't think of ways for borrowers to increase their Bitcoin holdings 3% in a week without some input from fiat (can you?)

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September 04, 2012, 02:29:45 PM
 #218

I can't think of ways for borrowers to increase their Bitcoin holdings 3% in a week without some input from fiat (can you?)

You might get close by shorting mining bonds Smiley

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September 04, 2012, 02:52:05 PM
 #219

Also, there's still almost no such thing as dealing only in Bitcoin. Unless you buy and sell everything in Bitcoin (such as only earning money on Silk Road and paying your suppliers in Bitcoin)

A bitcoin lender deals only in bitcoin. It's the final borrower that is the one that would have to deal with exchange rates. Trading on glbse as well, though I'm not familiar with that to speak much further about it. Lending to miners cuts out fiat completely. I've seen gigavps take out some of these loans, mention him because he's probably the biggest borrow (with the biggest farm). He needs some coins now for whatever opportunity, his rigs will make the coins in 2 weeks but that won't help if he needs them now.  Pay 6% to make 10% on some deal is a good deal for all involved. Or when there was good suspicion the market would tank when pirate closed up shop. Borrow 100 coins at 3%/week, sell off @ $15, buy back 2 weeks later at $10. I see lots of ways for the end borrower to make enough to justify taking loans at 3% a week. Especially if they need the coins NOW.

I do get suspicious of all the lenders now, since it's the only explanation I can think of I can think of that makes sense, it seems everyone is using that excuse. Some of the lenders have been around a long time though and I've seen their activity on the forums the entire time. So that I'm not shocked they can make 3%+ a week on small deposits. That's another important factor, the amount they are dealing with. If pirate said he could make 0.25% a week I'd still think he was full of shit simply because of the amount of coins he had ($12,500 USD profit a week)  Roll Eyes Some of these guys only need to make ~$400 usd/week or less to come out well ahead.
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September 04, 2012, 03:21:42 PM
 #220

Also, there's still almost no such thing as dealing only in Bitcoin. Unless you buy and sell everything in Bitcoin (such as only earning money on Silk Road and paying your suppliers in Bitcoin)

A bitcoin lender deals only in bitcoin. It's the final borrower that is the one that would have to deal with exchange rates. Trading on glbse as well, though I'm not familiar with that to speak much further about it. Lending to miners cuts out fiat completely.

Um, let me rephrase what I said: Lending to borrowers exposes you to fiat risks taken on by those borrowers. If the BTC borrowers have to deal with fiat, since they are borrowers, any fiat risk they are exposed to (such as what I mentioned above) will directly impact the lenders.
Even if a BTC-only lender/HYIP lends only to other BTC-only lenders/HYIPs, eventually someone down the road will have to lend to someone who will be exposed to fiat risk, and that risk in turn will transfer up the entire chain of all the lenders (last fiat borrower defaults, his direct lender defaults, the next lender defaults,n and so on). I think the only way around this would be BTC-only lenders just lending to each other, but that would make high interest rates (or any above 0%) impossible.

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