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Print 47 comment(s) - last by Mint.. on Sep 26 at 6:25 AM

Bitcoin investors fall for classic Ponzi ploy

Bitcoins, everyone's favorite quasi-legal internet currency, are still lingering around thanks to strong support from the hacker, future, and technopunk communities.  Prices remain off their record highs, but at $10.97 USD per Bitcoin at last count [source], the currency has legitimate value.

The first rule of Bitcoins is to guard your digital treasure wisely.  After all, the currency is denationalized, and has no central governmental regulators (though blatant fraud attempts are combatted by the community).  Bitcoins are oft stolen from those who don't strongly encrypt their wallets.  Thus most experienced Bitcoin users exercise a healthy degree of caution when storing and spending their hard-earned digital cash.

That makes the strange and sordid tale of the Bitcoin Savings & Trust and its originator "pirate40" all the odder.

Apparently, a number of Bitcoin users were lured to invest their Bitcoins in this digital hedge fund, which promised lucrative payouts.  But like many things too good to be true, it probably was -- BS&T is being billed as a "pyramid scheme" and reportedly pirateat40 has pulled a Bernie Madoff and made off with 500K worth of Bitcoins ($5.49M USD).

Last week pirateat40 sought to assuage concerned investors, writing, "Once my process is released you'll understand more of how coins move around."

But this week pirateat40 did offer a vague sort of explanation that sounds kind of like an admission that the fund was pyramidal in structure:

The decision was based on the general size and overall time required to manage the transactions. As the fund grew there were larger and larger coin movements which put strain on my reserve accounts and ultimately caused delays on withdraws and the inability to fund orders within my system. On the 14th I made a final attempt to relieve pressure off the system by reducing the rates I offered for deposits. In a perfect world this would allow me to hold more coins in reserve outside the system, but instead it only exponentially increased the amount of withdrawals overnight causing mass panic from many of my lenders.

Pirateat40
Pirateat40 has been locking down his threads regarding repayment.

The fund's chat room has an away message from the boss commenting "When I know, you will."

Upset investors are flocking to Bitcoin boards crying a common tune -- "WHERE ARE MY BITCOINS?"

Initially BS&T claimed the 'coins would arrive with interest in just a week.  Now it comments that there is "no ETA on payments."  While there are many losers in the scheme, some investors who got out in time actually gained; after all, like most Ponzi schemes BS&T initially attracted attention by paying out large amounts of interest to early adopters before reaching critical mass and imploding.

Bitcoin
There's no telling if the foolish investors will recoup anything. [Image Source: Shapeways]

Some duped investors have taken to trying to hunt down the pesky pirateat40.  There are rumors that he is based in Texas.  But short of extracting some good old fashioned (and wholly illegal) vigilante justice, it's unclear what the scammed can do.  Bitcoin Ponzi schemes are growing more frequent -- one lawsuit in California [Scribd] has already taken up the issue.  But it remains to be seen how seriously the courts will take the cyber-currency, given that it's founded on a rather anti-nation premise.

And of course, the onus for these losses largely rests on those who sent someone named "pirateat40" actual money, and failing to recognize the classic signs of a Ponzi scheme -- inflated interest rates, shadowy management, and unrealistic promises.

Sources: The Verge, BitCoin Talk



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Sounds Like a Great Idea
By Newspapercrane on 8/28/2012 5:45:02 PM , Rating: 5
I'm totally going to entrust my money in the care of someone with "Pirate" in their name. Yarrrgh.




RE: Sounds Like a Great Idea
By geddarkstorm on 8/28/2012 5:55:46 PM , Rating: 4
If they could trade in that irony for currency, they'd be filth rich.


RE: Sounds Like a Great Idea
By Ammohunt on 8/28/2012 7:53:52 PM , Rating: 3
You are soo right thats why i invest my bitcoins with ninja69


RE: Sounds Like a Great Idea
By Samus on 8/29/2012 1:42:06 AM , Rating: 4
And yet another reason bitcoin will fail. With no powerful bank (or government/country) backing it, there is no entity with the resources to regulate it. Currency needs regulation.

Look at the USD. You know why gold costs $1670/oz? Because our money is worth absolutely nothing.


RE: Sounds Like a Great Idea
By kdoto on 8/29/2012 8:09:13 AM , Rating: 3
It seems like you just said that if there isn't a government "backing" say, cars, then the government can't enforce a law against car theft.

If an American's car is stolen, the US government can arrest the thief. If a German's car is stolen, the German government can arrest the thief.

If an American's bitcoins are stolen, the US government can arrest the thief. If a German's bitcoins are stolen, the German government can arrest the thief.

When a government backs a currency, it declares it legal tender, so everyone is forced to accept that currency as payment. Bitcoin doesn't have that, but you haven't made an argument here that it needs it either.


RE: Sounds Like a Great Idea
By mcnabney on 8/29/2012 9:38:42 AM , Rating: 2
A bitcoin is just a number. It has no intrinsic value, and is not an item. The only conceivable protection it might have would be copyright, since they are all uniquely created.

The only reason it exists is because there is demand for an untraceable barter unit that can be electronically transmitted. The main users are the paranoid and the criminal. The people I know that use them are both.


RE: Sounds Like a Great Idea
By gamerk2 on 8/29/2012 11:32:58 AM , Rating: 2
The issue is a simple one: Can a wholely digital item have "value" as far as US Federal laws go? If so, then theft is theft.

Basic economic lesson: "Everything is worth what his purchaser will pay for it". The USD has worth for this reason. Same as the Euro. Same as Gold. The relative worth is nothing more then how investors view the currency. Gold is trading at insane numbers for no other reason then investors being scared of the Dollar and Euro. As the US/European economies improve, Gold will self-correct in price [see: 1982-1983 gold crash as reference].


RE: Sounds Like a Great Idea
By Gondor on 8/29/2012 12:08:37 PM , Rating: 2
Does music in digital form (MP3 etc.) count ?

What about digitally created music ?

Courts seem to think it does (hence the piracy fines).

While I find the concept of "bitcoin" absurd and its users idjits, that doesn't change the fact that even an idjit has the right to possess whichever absurdity he desires (within bounds of the law) and that nobody should infringe on said idjit's possessions.


RE: Sounds Like a Great Idea
By kdoto on 8/29/2012 5:29:27 PM , Rating: 2
When you "steal" digital music, you are making a copy.

When you steal a bitcoin, you are depriving someone else of the ability to spend that coin -- you have actually taken the coin from them, and you are not just making a copy.

So no, those are totally different.


RE: Sounds Like a Great Idea
By NellyFromMA on 8/29/2012 4:06:09 PM , Rating: 2
Car's aren't used as currency. Good luck getting governments to back currency that has the [highly improbable] potential to supercede the exact thing that gives them power....


RE: Sounds Like a Great Idea
By kdoto on 8/30/2012 6:03:55 AM , Rating: 2
quote:
Good luck getting governments to back currency that has[...]


Who cares if they back it?

The point is that the government doesn't have to back the currency in order for it to enforce fraud/theft laws.

The government does not back gold. You can still press charges if someone steals your gold.


RE: Sounds Like a Great Idea
By freeagle on 9/1/2012 2:01:08 PM , Rating: 2
I'm not sure. What he did sounds a lot like what banks do in general.


RE: Sounds Like a Great Idea
By Mint on 9/26/2012 6:25:02 AM , Rating: 2
Gold is just as flaky as currency as a long term store of wealth, if not more so.

What productive value does it truly have? What application is there that has no substitute, ensuring that its value will hold through the ages? At least real estate gives people a place to live a productive life, and companies produce something useful.

The value of gold is almost entirely based on the belief that future generations will keep irrationally revering it in the same way we do now. There's even a possibility that we will be able to mine it from space (asteroids and even other planets), and we can't even imagine what technology will be like 100 years from now, so how is gold so bulletproof in long term value?

Anyway, currencies for wealth storage are in so much demand that there's no shortage of people wanting to buy treasuries (US, German, whatever) at negative real interest rates for 10 years. Money was meant to be a short term transactional tool for goods/service/asset exchange, not for amassing society's debt to the wealthy. As long as they keep saving for the sake of saving, there will never be a non-inflating currency.


LOLCoins
By EricMartello on 8/29/12, Rating: 0
RE: LOLCoins
By kdoto on 8/29/2012 7:42:27 AM , Rating: 2
In the past 4 weeks, on average about 0.5 million USD worth of coins are traded each week just on MtGox alone. There are other exchanges as well of course. (Source is bitcoincharts.com).

Selling $5.6 million worth of coins is not really that difficult. As with anything, selling a large amount quickly will reduce the price, as the bid market depth is limited, but you can sell about half a million dollars worth of coins instantaneously on MtGox (one of the largest bitcoin exchanges) right now at an average price of about 9.50 USD each.

Where do you think that the author got the number 5.6 million from?


RE: LOLCoins
By mcnabney on 8/29/2012 9:47:08 AM , Rating: 2
Beannie babies and Dutch Tulips also had their advocates. At least those had some intrinsic value and would never drop to zero. BC have zero value. The only value they have is based upon the demand for illegal transactions.


RE: LOLCoins
By owsharp on 8/29/2012 10:42:18 AM , Rating: 2
quote:
The only value they have is based upon the demand for illegal transactions.


I'm not saying I agree with you on this, but did you read what you typed? If you believe that bit coins will only have value based on the demand for illegal transactions, how can you come to any conclusion other than "wow these things are going to be valuable forever."

Last I checked there's been a demand for illegal transactions ever since there were laws.


RE: LOLCoins
By kdoto on 8/29/2012 5:32:50 PM , Rating: 2
To prove a point:

I will buy as many bitcoins as you can sell me for $5 each. I will happily do this because I know the market price for them is much higher than that.

How can you say that they have no value, if someone is willing to pay you for them?


RE: LOLCoins
By dsumanik on 8/29/2012 7:17:45 PM , Rating: 2
Thats right:

somone is willing to PAY YOU for them.

In US dollars.

Your own statement proves A bitcoin is not a currency, it is a digital commodity, that can be traded in limited fashoin.

i.e.

if you go to the store with your memorized password to access your bitcoinc savings...you will STARVE, or be robbed by he cashier.

Same as if you went to pay for gas with potatoes. Or gold, or diamonds.

depending on what you used to trade for the fuel poeple would jump or snicker at the prospect...but in the end, it boils down to trading goods for goods, not currency for goods.


RE: LOLCoins
By kdoto on 8/29/2012 10:36:26 PM , Rating: 2
You can trade Bitcoins for US dollars, or euros, or any other currency, so what?

You can also trade them for gold and silver.

You can of course also trade bitcoins for goods and services (from computer equipment, to alpaca socks, some restaurants accept them, you can buy hosting services, Diablo 3 gold, drugs, guns, and the list is too long to enumerate completely).

There is at least one factory in china that accepts bitcoins for trade.

There is at least one company in the USA that pays their workers partly in bitcoins.

Your argument is like saying that US dollars are worthless and cant exist without Euros, just because you can trade them for Euros. You can trade US dollars for many things. You can trade Bitcoins for many things.

As long as someone is willing to trade valuable items for bitcoins, bitcoins have value.

Most supermarkets didn't accept Credit cards when credit cards were first invented. It takes time to gain widespread acceptance -- just because they are young, doesn't mean they are worthless.

And besides, you can use BitInstant's upcoming Bitcoin Mastercard to spend your bitcoin balance anywhere that accepts mastercard (look it up).


RE: LOLCoins
By EricMartello on 8/29/2012 11:24:18 PM , Rating: 2
Kdoto, you're obviously a LOLcoin fanboy. Warcraft gold has a "dollar value" that is roughly $1 USD per 1,000 - that' what the market has agreed to pay, but unlike bitcoins which are not tied to any particular "virtual" economy, there is no inherent value to them other than what unregulated "trading" websites decide. Mtgox is far from credible - would you "deposit" millions of USD into a mtgox account with the intention to buy bitcoins? Something tells me not really.

According to mtgox, bitcoins are currently averaging $10 USD per coin with an average daily trade volume in the low thousands. To liquidate $5.6 M worth of SH!Tcoins you would need to sell 560,000 coins. Flooding the market with that many coins at once would kill their value.

Alternatively you could make several small transactions, but with daily trade volumes totaling around 3,000 per day, you would need 560 days to liquidate all of it at 1,000 per day...even at that rate you would be pushing their value down.

While you are correct in saying that "if someone is willing to pay for it, it has value" it does not in any way legitimize bitcoins. What was touted as their advantage, lack of centralization, is also their biggest pitfall - the only real source of valuation for a bitcoin that you have are the unregulated markets like mtgox. They're always going to be extremely volatile so their "value" is essentially LOL.

Just so we're clear - credit cards are not "another form of currency" they are a method for exchanging existing currency.


RE: LOLCoins
By kdoto on 8/30/2012 1:03:17 AM , Rating: 3
I have no idea where you got your numbers from, but the trade volume in the last 30 days on MtGox alone was 2.4 million bitcoins, which is worth 24 million USD at the current trade price. (You can confirm these numbers by looking at bitcoincharts.com/markets/).

As I said elsewhere in this article's comments already, you can instantaneously sell half a million USD worth of bitcoins at an average fill price of $9.50 right now, if you sold on MtGox only, and no other exchanges. If you sell slower, you will likely not affect the price nearly as much (you can check the MtGox bid market depth on mtgoxlive.com).

What makes you say that MtGox is not credible? Of course they are credible, and absolutely I trust them with millions of USD. They transact hundreds of millions of USD annually, and are an accredited institution. Even if you don't trust them with millions, you don't need to deposit millions all at once in order to buy millions of coins anyway.

There have been single orders on MtGox in the several hundred thousand USD value range in the past, so someone certainly trusts them enough to deposit at least 6 digit amounts of USD.

I may have had a little bit more to say, but I find it difficult to take someone who uses phrases like "LOLcoin fanboy" seriously, and I think it's prudent to avoid being trolled too badly.


RE: LOLCoins
By EricMartello on 8/30/2012 3:10:29 AM , Rating: 1
quote:
I have no idea where you got your numbers from, but the trade volume in the last 30 days on MtGox alone was 2.4 million bitcoins


Are you talking about this:
http://bitcoincharts.com/charts/mtgoxUSD#rg360zm1g...

You are citing a recent upward trend when the average has been well below 500,000 for most of the year.

quote:
What makes you say that MtGox is not credible? Of course they are credible, and absolutely I trust them with millions of USD.


I don't need to prove that they are not credible. You need to show me they are. Can you do that? Who regulates them? Who holds the people operating mtgox liable for any wrongdoing? How do I know my money would be safe in their hands?

quote:
There have been single orders on MtGox in the several hundred thousand USD value range in the past, so someone certainly trusts them enough to deposit at least 6 digit amounts of USD.


Wait, an unregulated site with ZERO accountability indicates to you that they have handled such huge transactions of other peoples' money and, without any doubt or due diligence, you believe them. Why? Because some anonymous guy on some random bitcoin forum told you "it's ok"?

You do realize that the people running mtgox could, if they wanted to, fudge the numbers to "buy" bitcoins at a lower price than artificially make these upward trends so they can offload them.

You also do realize that the vast majority of the people involved with bitcoins are the "get rich quick" types who bounce between various "opportunities" trying to get rich without doing any real work or providing anything of value to anyone?

quote:
I think it's prudent to avoid being trolled too badly.


LOLcoins - fake money for people who do fake "work". Seems fitting.


RE: LOLCoins
By kdoto on 8/30/2012 5:41:15 AM , Rating: 2
http://bitcoincharts.com/charts/mtgoxUSD#rg360zigW...

The very lowest weekly trade volume on MtGox in the past 1 year has been about 0.8 million USD worth of bitcoins. A very far cry from the numbers you gave earlier. Liquidating the 5.6 million worth of bitcoins that this article mentions would not be very difficult.

As for MtGox regulation, it depends what you mean. They are subject to AML regulations, and comply with their government's (Japan) laws.

If you don't trust MtGox, don't use them. I never asked you to, I merely suggested from the live data that there are users that have made 6 figure USD orders on MtGox, and therefore must have deposited at least 6 figures worth of USD or bitcoins.

I have personally moved a fairly large amount through MtGox without issue.

If you don't trust them, research them -- their information is available by the same methods that all Japanese incorporations info is available.

Otherwise, you can trade face to face with someone locally, or use one of the many other exchanges, or both. (Or neither, no one is forcing you to trade bitcoins, I am responding to your argument that bitcoins are not liquid, and/or dont have value.)


RE: LOLCoins
By EricMartello on 8/31/2012 11:17:52 PM , Rating: 2
quote:
Liquidating the 5.6 million worth of bitcoins that this article mentions would not be very difficult.


Suuure keep telling yourself that.

quote:
As for MtGox regulation, it depends what you mean.


The forex market is generally unregulated as it is. There is not much recourse for someone to take against fraud or other deceptive practices. Sh!tcoins have zero options for dealing with fraud, especially since transactions are not reversible and are largely untraceable.

quote:
I merely suggested from the live data that there are users that have made 6 figure USD orders on MtGox, and therefore must have deposited at least 6 figures worth of USD or bitcoins.


You are missing the point completely. What MtGox claims to have taken place on their charts is not necessarily what actually took place. They have no legal obligation to report factual data to their users or to the third party charts websites. Must have doesn't invoke any kind of certainty.

quote:
I have personally moved a fairly large amount through MtGox without issue.


Oh, I'm sure a lot of people do but that in itself isn't the point I'm making. Without any kind of oversight Mt Gox and any other exchange can operate with relative impunity.

quote:
Their information is available by the same methods that all Japanese incorporations info is available.


So to add credibility the best you can do is say "look up their public records in japan" which are probably in japanese language and tell me nothing about the actual company other than what was provided at the time of the company's formation.

quote:
Otherwise, you can trade face to face with someone locally, or use one of the many other exchanges, or both.


Sounds good except that the value of a bitcoin is being arbitrarily decided by MtGox while the smaller exchanges tend to follow suit. Person-to-person exchanges highlight the underlying problem with bitcoins - they have no real-world value because they are not tied to any kind of economy.

Warcraft Gold is tied to the in-game economy.

The US Dollar is tied to the US economy.

Bitcoins are tied to....what, exactly?

quote:
I am responding to your argument that bitcoins are not liquid


You have yet to make a compelling argument that supports your notion that they do have some kind of value or liquidity. For chump-change transactions you can use empty beer cans as currency...but even empty beer cans have a value in terms of the material they are made from. lol


RE: LOLCoins
By Tuxavant on 8/30/2012 7:27:47 AM , Rating: 2
"Inherent value" is fallacy. What is the inherent value of gold? There is none. All currencies and commodities have a value based on historical transactions and individual, personal needs.


Come on...
By kmmatney on 8/28/2012 8:20:26 PM , Rating: 2
I can't take any article about bit coins seriously...I guess I just prefer real money. I can't see any reason to use bitcoins, excet to maybe avoid taxes.




RE: Come on...
By kdoto on 8/29/2012 8:03:34 AM , Rating: 4
Bitcoins are no less "real" than US Dollars or Canadian Dollars, or Euros or any other fiat money that you have assigned value to.

Some reasons to use them would be:

Small (almost zero) fees to send any amount of money.

Have the ability to send very small amounts easily (think tipping a blog site with a few pennies).

Avoid any government intervention of your purchasing power:

Your account cannot be frozen.

No one can stop you from receiving coins.

No one will seize you at the border for bringing coins over it (since the only thing you bring over the border is a memorized password, so they can't tell if you have bitcoins or how many).

The amount of bitcoins to be minted is known in advance -- there will only ever be 21 million and no one can print more of them, which makes it impossible for a government to debase the currency.

Bitcoin is not about avoiding taxes.


RE: Come on...
By mcnabney on 8/29/2012 9:41:46 AM , Rating: 2
Fiat money is backed. The US holds about half a trillion in gold - not enough to back all $1.1T in currency, but a lot. Also, they can take actions to support their currency. There are no regulations, governments, soldiers, or nuclear weapons standing behind bitcoins. There are behind dollars, Euros, Pounds, and Yuan.


RE: Come on...
By kdoto on 8/29/2012 5:58:03 PM , Rating: 2
That doesn't make bitcoins not real.

Gold is not backed by any of the things you mentioned, it is still real, people still place value in it, and if it was easier to move around, then you could still use it for trade.


RE: Come on...
By NellyFromMA on 8/29/2012 4:10:57 PM , Rating: 2
Bitcoin is at least one order of power less real than US dollars because its based on an extra order of derived value, on top of the 'fiat' currency required to employ the technology necessary to even allow bitcoins to exist in the first place.

Bitcoins can't exist independantly.


RE: Come on...
By kdoto on 8/29/2012 6:00:15 PM , Rating: 2
I guess you'll have to define the word "real" in order for me to fully address your comment.

Bitcoins do not need fiat currency in order to exist, so I'm not sure what you meant.

Perhaps you meant that computers are purchased with fiat money like US dollars. You can also purchase computers with Bitcoins from various places. If we still had a gold standard, then gold would be used to buy those computers.

So I really don't follow -- bitcoins can exist without US dollars or Euros or Yen, or any other fiat money.


By KOOLTIME on 8/29/2012 1:33:40 PM , Rating: 2
Here is a clue for the stupid folks that think bit-coins have some real value, they dont.

WHY? simple, software is software, its changeable by anyone any time, so 1 day i have 1 virtual coin the next day some hacker gives me 10 million of them by the press of a software button. Software is alterable, and can be done at any second 24/7 a day.

Dont go claiming security as security software is also changeable by the same rule above, so it makes that useless as well when the money handlers deem fit to ponzi off more cash from suckers paying with real money.

Same thing as that QUIBIDS web site, pay before bidding, lol, winning expensive items for pennies on the dollar haha, all the winners are BOTS, and never a real person wins an IPAD for 27.52 like they claim. Since its a fake person winning over "YOU" every time, they dont have to prove anything, and just keep raking in your sucker money.




By kdoto on 8/29/2012 5:36:07 PM , Rating: 2
Sorry, but this is not true at all.

Bitcoin is the first digital currency ever to achieve decentralization.

By design, you cannot change the way the Bitcoin protocol works without a large majority of users agreeing to the change.

The Bitcoin software is open source, and anyone can go modify it -- go ahead and do that -- but your modified software will be rejected by the system by design.

There will only ever be 21 million bitcoins, and the number of coins produced is predetermined by an algorithm. It is currently 50 coins every 10 minutes, and that number cuts in half every 4 years.

You can't change that by simply changing the software.


By EricMartello on 8/29/2012 11:32:31 PM , Rating: 3
The currency of a country is tied to is GDP, i.e. what it exports. If the exports are necessary items like food, medical supplies, equipment then there is always going to be a steady demand for such items. This demand is what backs up the value of a particular country's currency...this, and the ability of the country to sustain its economy by managing tax rates and ensuring that its citizens are productive.

Bitcoins, on the other hand, are little more than an alphanumeric hash that is generated by a computer. The bitcoin miners are not providing anything of necessity so the intrinsic value of bitcoins is automatically nothing.

You counter with "if someone is willing to pay or accept them as payment, they have value" yet you ignore the fact that the actual value of the bitcoin itself is being set arbitrarily by a website like mtgox. While mtgox may facilitate "80%" of bitcoin transactions, it is not 100% representative of the entire bitcoin market.

The USD dollar, on the other hand, is backed by the USA which means a dollar's value is a dollar anywhere, any time regardless of whether it is being used to buy stocks, futures or food at walmart.

Decentralization is a good idea for a country to adopt for its own currency, but a currency that is backed by nothing is at worth nothing in the grand scheme of things.


By kdoto on 8/30/2012 1:15:28 AM , Rating: 2
These are strawmen. I was addressing someone's argument that arbitrarily many bitcoins can be created, which is untrue, and has nothing to do with government backing or the other things you've said here.

MtGox may facilitate 80% of bitcoin transactions, but that doesn't mean that bitcoin has multiple different values. It's value is the aggregate total of all exchanges.

This is exactly the same as the US dollar, or anything else really.

The US dollar is exchanged in many different places, and its exchange value is the aggregate total of all of those exchanges as well. Your bank gives you a different Canadian dollar to USD exchange rate than the currency exchange kiosk at the mall does.

1 USD is always 1 USD, but 1 bitcoin is also always 1 bitcoin.

The volatility of the price of a USD vs the price of a bitcoin is a different discussion.

You said:

"the actual value of the bitcoin itself is being set arbitrarily by a website like mtgox"

That is absolutely not true. The price of a bitcoin gets set by the traders on bitcoin exchanges, MtGox is one exchange. MtGox simply facilitates trade.

What you've said is like saying that the NASDAQ arbitrarily sets the price of Apple stock. The NASDAQ and the brokerages that interface with it merely facilitate trades by traders who set the price. Stocks can trade on multiple exchanges as well. Some stocks are listed on the NYSE, NASDAQ, and international exchanges like the TSX. The price of the stock can be slightly different on each exchange, but ultimately the price can be viewed as the aggregate total volume weighted average price on all exchanges it trades on.

This is essentially the same as how MtGox facilitates trades by traders who decide the price.

No one forces anyone to use MtGox, in fact MtGox has been losing market share rapidly (it is down from over 90% to under 80% over the past 1 year -- this is a good thing).


By EricMartello on 8/30/2012 3:27:13 AM , Rating: 2
quote:
These are strawmen.


No, they're facts.

quote:
MtGox may facilitate 80% of bitcoin transactions, but that doesn't mean that bitcoin has multiple different values. It's value is the aggregate total of all exchanges.


No, it's value is what it trades for on your exchange of choice. Unlike a US dollar which has the same buying power in the futures market as it does with stocks - two different exchanges for different types of securities - a LOLcoin's value is all over the place.

Mtgox and other exchanges want you to believe there is some "value" that you can spend a couple thousand on a mining rig and eventually turn a profit - but not really - because if you put your money into exchange A your left with their valuations of bitcoins...while exchange B may offer better numbers.

quote:
The US dollar is exchanged in many different places, and its exchange value is the aggregate total of all of those exchanges as well. Your bank gives you a different Canadian dollar to USD exchange rate than the currency exchange kiosk at the mall does.


The buying power of country's currency is universal everywhere in the country, for all products and services. Not so with bitcoins, whose values fluctuate based on the mood of the people involved in the transaction.

The differences in currency exchange rates are typically set by an analysis of the two countries' respective economies, which is why $1 buys a lot more in a 3rd world country than it would in Europe. If you are in the forex business you can set the spread yourself. Some places give better rates than others, but they are making a profit on the transaction which is why it's not a direct 1:1 conversion.

quote:
What you've said is like saying that the NASDAQ arbitrarily sets the price of Apple stock.


The stock values of publicly traded companies are closely tied to their current and expected performance. Apple's stock is stable because, for now, people like Apple products and investors know it is likely that Apple will continue to be profitable. They can boost their stock values by introducing new products that are likely to sell well.

Do you see what Apple stock has that bitcoin doesn't - substance. There is a company behind Apple that markets and sells a product - bitcoins are generated by someone running a program on their computer...but the bitcoin network itself does NOTHING of value. It only consumes resources (electricity) to operate but does not provide any kind of resources in return.

On top of that, if Apple suddenly closed shop and stopped all of its operations, it could still liquidate its equipment and sell or lease its properties - sh!tcoins only have an open source program which, like the coins themselves, is worthless.

quote:
That is absolutely not true. The price of a bitcoin gets set by the traders on bitcoin exchanges, MtGox is one exchange. MtGox simply facilitates trade.


Set by traders or did you mean set by the market? Either way, mtgox IS the market and they have full control. They can say the value, volume or any other stat is whatever they want you to believe. If mtgox decides its better for sh!tcoins to be $20 per coin, they can artificially start a rally and claim that their values are shooting up. People rush to sell, and other exchanges follow suit because they want a piece of the action.

You're putting way too much faith into an unregulated company with no accountability and no laws or standards to protect anyone involved with it. It's as devoid of value as LOLcoins' are. This is like a ponzi scheme with a little obfuscation.


By kdoto on 8/30/2012 6:01:35 AM , Rating: 2
quote:
No, they're facts.

Even if they are facts, they are in response to arguments that I haven't made. If I started talking about factual data related to the heart rate of a dolphin, and pointed out that nothing you've said agrees with that data, then you might wonder why you're discussing anything with me at all.

quote:
Mtgox and other exchanges want you to believe there is some "value" that you can spend a couple thousand on a mining rig and eventually turn a profit


What on earth are you talking about?

Trading bitcoins has little to do with mining, and these exchanges do not care if you mine -- if they do care, they probably prefer that you buy bitcoins rather than mine them.

quote:
Do you see what Apple stock has that bitcoin doesn't


You completely missed my point. You are now comparing a stock to a bitcoin, which has nothing to do with what we were discussing.

I wasn't comparing bitcoins to apple stock. I was illustrating how MtGox does not arbitrarily set the price of a bitcoin -- which is what you argued.

quote:
You're putting way too much faith into an unregulated company


Bitcoin is not a company. It is just a protocol.

quote:
This is like a ponzi scheme with a little obfuscation.


There is no central organization to collect the funds, it is therefore impossible for it to be a ponzi scheme.

quote:
Set by traders or did you mean set by the market?


The traders are the market makers... Without traders, there is no market.

quote:
The differences in currency exchange rates are typically set by an analysis of the two


You have completely misunderstood. The currency exchange rate of a USD to YEN will be different depending on which exchange you ask. Bank of America will give you a different rate from Chase, will give you a different rate from a forex kiosk.

quote:
Not so with bitcoins, whose values fluctuate based on the mood of the people involved in the transaction.


No, the value of a bitcoin is determined by the trade price on exchanges -- the same way that the value of the USD vs the YEN (or any other currency) is determined.

quote:
The differences in currency exchange rates are typically set by an analysis of the two countries' respective economies


It is set by the traders. The traders happen to evaluate a currencies worth vs another currency based on criteria like that yes. The value of a Bitcoin is determined by traders also, however they determine the value based on different criteria.

The price of an ounce gold is determined by traders as well. It is not important that gold is not backed by a government, we can still assign a price to it.

Anyway, you keep arguing about things like whether Bitcoin has backing and whether it's exchange rate is stable.

But I haven't made any arguments about those! Who are you arguing with?

My main points have simply been:

That Bitcoins have value, because people will pay for them (whether that value changes from day to day or not, is irrelevant to my point).

And bitcoins are useful, whether they replace a government currency or not, is irrelevant to my point.


By EricMartello on 9/1/2012 12:01:49 AM , Rating: 1
quote:
Even if they are facts, they are in response to arguments that I haven't made.


I'm presenting you with facts that you have not even considered. That alone should indicate that instead of arguing with me you should take a harder, more objective look at LOLcoins instead of buying into the hype.

quote:
Trading bitcoins has little to do with mining


It makes sense that you'd be entire oblivious as to what gives a currency inherent value (or not).

Money like the US Dollar derives its value from the economy of the United States. The goods we export and services we provide - especially necessities like food and raw materials - have a value because people NEED these things.

Do you follow this?

When you're dealing with NECESSITIES there is ALWAYS a demand, which means value. Why? Supply and demand. There are limited resources - people need them, and the more people need them the more valuable they become. Get it? The US Dollar is simply a "placeholder" for these goods and services, and that's why it has a value.

Bitcoins are "created" by running a computer program to generate "random" strings of text. The entire process ONLY consumes resources, mainly electricity and network bandwidth, while providing nothing in return. Bitcoins decentralized nature means they are not connected to any country's economy, and the underlying process of "mining" them does not fulfill any needs.

If you ever wondered why we don't have a "global" currency, now you know. The value of the currency is only as high as the country that backs the currency.

quote:
You are now comparing a stock to a bitcoin, which has nothing to do with what we were discussing.


Wrong. I am comparing bitcoins - an abstract currency with no value - to stocks, an abstract security that HAS value which is backed by the company that issued the stock.

Just like the US dollar is backed by the USA, the stock of a company is backed the company that issued it.

It's a simple concept. Who is backing bitcoins? Who is providing a value to bitcoins? You may as well be trading unicorn dust on mt.gox - both have the same value - zero.

quote:
I was illustrating how MtGox does not arbitrarily set the price of a bitcoin


Wrong again. The value of bitcoins IS set by the market. Do you think you can go on a forum or even in person to ask someone "how many dollars will you give me for 1 bitcoin"? No, you check an exchange and so would the other person before agreeing on the "value". It's entirely arbitrary.

Because mtgox has no legal obligations to report accurate data, they can set the values of bitcoins as they see fit.

Forex trading services are called "market makers". Why do you think that is? They make the market and set the relative prices between currencies. Mtgox and other bitcoin exchanges are market makers which ARBITRARILY set the value of bitcoins.

Remember, 1 bitcoin has no value, nothing backing it up and no value in its production. A US Dollar represents a currency that is backed by the economy of a country. How much of something do you trade for nothing? The answer? What's the highest some sucker is willing to pay. lol

quote:
Bitcoin is not a company. It is just a protocol.


Pretty sure there is some company or organization that promotes it, much like mozilla promotes firefox.

quote:
The traders are the market makers... Without traders, there is no market.


You got this backwards, bro. The market makers are the market makers and traders rely on what they say. You didn't link to a website that shows what traders thing a bitcoin is worth, you linked to a website that shows what mtgox says a bitcoin is worth. Quite the dense one aren't you?

quote:
You have completely misunderstood. The currency exchange rate of a USD to YEN will be different depending on which exchange you ask.


It doesn't matter because both the USD and YEN are backed by their respective countries and both countries have a GDP and export goods, services and raw materials that have a real-world value because they are necessary for people to live.

The exchange rate may not be consistent across all exchanges but the relative buying power of each countries' currency will be preserved based on the state of the economy in each country.

quote:
No, the value of a bitcoin is determined by the trade price on exchanges -- the same way that the value of the USD vs the YEN (or any other currency) is determined.


The value of a country's currency depends on its buying power within a country and that is the extent of it. Bitcoin has no central authority backing it so it has no inherent value beyond what is arbitrarily determined by the exchanges.

Comparing two the currencies of two different countries and assigning a relative value is the service provided by forex market makers - their opinion is based on their perception of two countries' economies and is not entirely pulled out of thin air...however I do not consider the forex market to be a smart investment vehicle since your options for managing risk are very limited.

quote:
The value of a Bitcoin is determined by traders also, however they determine the value based on different criteria.


How much koolaid can you buy with 1 bitcoin? Seems like that's where you've been spending yours. You really don't get some fundamental facts about this phony currency you're cheerleading.

quote:
The price of an ounce gold is determined by traders as well. It is not important that gold is not backed by a government, we can still assign a price to it.


Gold has historically been a coveted metal due to its rarity and beauty - rich people would pay a lot for jewelery and other items made from gold.

Today, gold has become a necessity as it is used in many electronic manufacturing applications along with other precious metals. Gold may not be backed by a government, but the fact that all modern countries recognize gold as being of high value allows it to be an extremely liquid investment.

Since bitcoins have no intrinsic value - i.e. you cannot use them to etch a circuit board as you can with gold - their value is solely based on what unregulated market makers claim...that, plus they are not portable. They require a computer to exist. You cannot "print" bitcoins or make actual coins with bitcoins.

quote:
Anyway, you keep arguing about things like whether Bitcoin has backing and whether it's exchange rate is stable.


I've made my case and you haven't provided a rebuttal that amounts to much more than "nuh-uh".

quote:
But I haven't made any arguments about those! Who are you arguing with?


Chalk these up to long list of points you haven't considered but should have before getting involved with LOLcoins.

quote:
That Bitcoins have value, because people will pay for them


I think I've said more than enough about why a willingness for someone to pay for something does not make it a viable currency.

I can buy a product anywhere in the world with a gold coin or US dollars - people recognize it as a valid currency because they know the US backs dollars and that gold is widely accepted as universal currency.

With bitcoins you only have a small community of eccentric and confused people who think that something different is something better. Bitcoins do not have anything backing them and do not have a value outside of this community.

A "magic the gathering" card may be worth thousands to some nerds who play that game, but to anyone else it's just a piece of paper with a picture of some scantily clad elf.

quote:
And bitcoins are useful, whether they replace a government currency or not, is irrelevant to my point.


LOLCOINS...the currency of DERP.


Ponzi scheme or...?
By MadMan007 on 8/28/2012 7:45:01 PM , Rating: 3
I don't know all the details having read only this article but this doesn't sound like a Ponzi scheme. It sounds more like he was running a fractional reserve bank and had a liquidity problem and then a run on his bank when too many depositors tried to withdraw funds.




RE: Ponzi scheme or...?
By someguy123 on 8/28/2012 9:38:58 PM , Rating: 2
I'm assuming they gave people more coins/increased interest if they referred people, after requiring a minimum deposit of course.


bit coin
By muhahaaha on 8/28/2012 11:32:48 PM , Rating: 2
I still don't understand this Bitcoin tech, even after trying to read a bunch of articles on it. It's apparently something about people using their GPU's to "mine" them.

How do you do this, how do you make money, and where do you spend this "digital cash"?

Can someone point me to an article or blog that really explains this stuff?




RE: bit coin
By kdoto on 8/29/2012 7:55:30 AM , Rating: 3
You can think of bitcoins simply as gold coins for the internet.

These coins get sent similar to how you send an email -- enter someone's address, and press send.

Mining is really not what Bitcoin is about, that is just part of the underlying tech -- used to process/verify transactions.

Bitcoin is a system that allows you to transfer units of value around, and these units are called "bitcoins". You can buy some bitcoins from anyone who has them, on an exchange, or in person, or whatever (think of how you would buy gold coins).

You can sell bitcoins at any time on an exchange as well.

Once you have some bitcoins, you can now send them to others in exchange for goods/services -- just like how you could trade a gold coin to someone before we had fiat money like the US dollar.

There are no accounts, just addresses. You can get an address at any time by using the software, and you can have as many addresses as you like. A bitcoin address is like an email address -- you tell it to someone so that you can receive bitcoins from them.

Anyone can create as many addresses as they like, and no one can stop you from sending bitcoins anywhere, and no one can stop you from taking your bitcoins with you anywhere you go (they wont know how many you have, or if you have any, since you can simply memorize your password, and thats all you need to spend your coins). The cost to send bitcoins is extremely low (close to zero) for any amount.

You can spend them anywhere that someone accepts them -- this list includes thousands of places and grows every day.

There will only ever be 21 million bitcoins, and there is no one in control of the network -- to make any change to the protocol, a majority of the users need to vote to alter it.


Bitcoins Can Coexist With Fiat Currency
By Pixelpusher6 on 9/1/2012 8:47:25 AM , Rating: 2
I think really only the diehards believe that Bitcoin will overtake Fiat currency. The reality is Bitcoin will exist alongside Fiat, but will slowly keep gaining more adoption. Bitcoins become relevant in a world moving into the digital. The funny thing is many people will say "oh they're worthless" without even doing a little research. If you research anything about bitcoins you would know that the concept is based on mathematics, and if the concept is flawed the developers want you to prove it. Bitcoins are also backed by the energy required to mine them. The biggest advantage that people don't realize about Bitcoins is the fact that it is not a part of the established banking system. As such there are more risks involved with bitcoins i.e. no FDIC insurance. But a huge benefit is at any point in time you can send or receive money anywhere in the world almost instantly for an extremely low cost, usually just a small fraction of a percent. Considering that to just send $20 even just within the U.S. costs $5 sometimes more, the banks are receiving 25% fees. And that doesn't take into account sometimes it takes 1-5 business days for the transaction to clear. I don't know about anyone else but I feel in the last 10 years banks have been "feeing" people to death. There are no real small community banks anymore and a lot of the big banks are investment houses in the U.S. so there is a focus on profit above all else.

I think if people went back through their records and started adding up all the $2-3 fees they would look into Bitcoin. Take an example of a person in the U.S. who wants to send money back home to his family in Mexico. First he would have to exchange $ for pesos and pay a pretty hefty exchange rate usually 7-8%. I just recently came back from Europe and probably lost 25% both ways getting fleeced from currency exchange. After getting pesos then they have to pay exorbitant fees to Western Union or some other money servicing company. Whereas someone could change in U.S. to Bitcoin, send the bitcoin instantly, and the person receiving them could cash them out into local currency at much more reasonable prices. One of the negatives of bitcoin is that it is unregulated but that is also a positive because over regulation kills efficiency. I would expect conservatives to love bitcoin.

For people that think the U.S. dollar is based on something real, it's not. In fact bitcoin long term looks much more stable than the U.S. There are only a limited number of bitcoins by design, and when the last ones are mined that's it. What real GDP is the greenback tied to when the federal reserve just pumps and pumps, with some estimates around 9 trillion in currency printed. If our GDP goes down does that decrease the money supply then? No quite the opposite, the Fed prints more money.

http://www.forbes.com/sites/michaelpollaro/2012/03...

I think the writing is on the wall. What I think is funny is when this wall of inflation comes crashing, it affects the whole world because the greenback is the standard. People can laugh all they want at bitcoins, but you ask them what makes a $ real the answer isn't much better than a bitcoin. You can say bitcoins are fail all you want, but the reality of it is they are still around and valuable when lots were saying they'd be extinct by now. Bitcoin has it's place alongside fiat currency.




By schmandel on 9/4/2012 9:12:43 PM , Rating: 2
The only writing on the wall is that Bitcoin is another internet sideshow of no consequence. It blew its window as a means of normal exchange, no one who had any other choice would bother with it and that includes just about everyone. The various robberies and frauds that have marked its existence just get bigger each time.

Bitcoin is for suckers and the criminals that prey on them.


Better bitcoin pyramid
By xorr on 8/29/2012 1:36:12 PM , Rating: 2
I really like this bitcoin pyramid: http://bitcoinpyramid.com/r/2820
It has the same ideology as bitcoin itself. It is transparent and anonymous. You just need to enter you bitcoin address to sign up. No one can steal your money from this bitcoin pyramid, because bitcoins are not stored on server, but are immidiately sent to other pyramid participants.




Hahahaha... IDIOTS.....
By maxxcool on 8/28/12, Rating: 0
"I'm an Internet expert too. It's all right to wire the industrial zone only, but there are many problems if other regions of the North are wired." -- North Korean Supreme Commander Kim Jong-il














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