The interesting thing is that the whole purpose of the concept of an HYIP is to give potential victims a plausible explanation as to where their impressive returns will come from. As it turns out, you don't even have to do that to convince people to send you money.
A few days ago I posted a link to a scam that Instagram has allowed to flourish, to the tune of 263,000 posts [1]. It didn't get any traction on here, but going through some of the listings speaks volumes about the about the psychology of scammers and their victims. In this case they simply tell victims that they are going to "flip" the money - whatever that means - and people are apparently sending them money in response. I was horrified to read one comment from a mother of 7 who said she had sent money meant for her electric bill to a different scammer, had lost it, and was hoping that the person operating the account she was commenting on was legitimate. He responded in the comments, apologizing for that other rogue, and assuring her that he was legitimate and that she should contact him ASAP to begin a "cash flip".
Apparently these HYIP folks are thinking too much.
Having looked at this, I presumed this is the start of a money laundering operation ... Maybe. It seems a quick way to get cash into a semi legit form. But it seems pretty dumb.
No, these appear to be just complete scams. No money ever goes back to the victim. They simply block the victims from contacting them on Instagram once the money is sent.
Schools need to teach elementary financial knowledge and concepts; so people learn why healthy scepticism is in order if somebody promises yields beyond inflation rate.
I'm excited with the emergence of cryptocurrencies and the new equity crowdfunding JOBS Act, but I fear what scams people will exist, once people gather these two.
I don't worry about that. Poor people who can't afford to lose money generally don't invest in online ponzi schemes that require the use of exotic digital currencies.
Realistically, the "investors" are people who want to gamble with their money. Who cares if they lose it?
Well, I was talking about high-yield investments and you are talking about crowdfunding. But that is my fault because the person I replied to was also talking about crowdfunding.
However, I don't think people are spending money they can't afford to lose on crowdfunding projects, either. They are spending money they can afford to lose.
That simply isn't true. Read this thread for many anecdotes about how desperate people are often the easiest marks for schemes involving ways to get unbelievable returns.
You're forgetting that many people are poor because they never got proper financial education. They're poor because they can't handle money, not the other way around.
In fact, this demographic is probably the primary target of schemes like this. If you're smart enough to handle your money well, you're smart enough to not fall for stuff like this.
I live in Serbia. Yes, I've known many poor people. By western standards I'm fairly poor myself.
I'm not saying all poor people are poor by their own fault. Far from it, especially given where I live. But it is definitely the case for many, and for some people I've known as well.
Agreed, really interesting. Not something I'd even heard of before. The world is definitely full of colourful little subcultures!
I wonder about the discussions on cracking down on the various offenders. They claim that most people involved understand the scam - if that's the case, why even bother stopping people. I get that there are probably those who naively walk in and lose a bit of cash, but it seems pretty complicated to even get started.
Arguably the resources are much better spent on educating people about dangers on the Internet. If they don't have this scam to fall for they'll just get done some other way.
Indeed. I assume it's illegal to participate in these as well. The hidden banking system was also interesting to see.
I think the problem of scam investments is only going to be bigger, especially with crowdfunding in the future. I worry about saying much about this though as an actual accredited investor and don't want to seem exclusionary.
Should say [2012] in title. This is an old paper that apparently predates the point in time when bitcoin started getting used for this kind of scheme. For example this one [1].
I think the interest of this is pretty timeless - that such a bizarre gambling/investment subculture could exist at all... And the Pirateat40 example isn't really 'post-modern' but a more standard classical Ponzi where it poses as a possibly-real business: there was considerable doubt among quite a few people about Pirate possibly doing some sort of arbitrage on the relatively inefficient Bitcoin exchanges at the time, and it took the Ponzi growing substantially & Vandroiy making his famous bet against Pirate to make it clear to all and sundry that yes, it really was a Ponzi; after Vandroiy's bet, it might have been 'post-modern' but that period only took a few weeks (months?) and then it folded.
I think it's pretty timeless too. But still, I imagine there was a huge shift in this area after bitcoin became more well-known, so the fact that the article comes before that point in time matters. And given bitcoin's reputation, I just assumed the article was about bitcoin from the title. (I say this as someone who is a big fan of bitcoin.)
You are right about pirateat40. I was paying attention to it at the time. It was not at all certain that it was a ponzi scheme. However, let me make one comment for other people who may not be so familiar with it. It became completely obvious that it was probably a Ponzi scheme, early enough for people to take their money out of it who didn't want to just gamble. Of course, I admit, that's a subjective analysis.
Unrelated, I am curious if anyone knows if anyone is doing or has done a paper on Bitcoin and explored the idea on how it is or isn't similar to a Ponzi scheme?
No, bitcoin isn't a ponzi scheme because it's not a ponzi scheme.
A ponzi scheme is a very particular kind of scam.
If I started an altcoin (like bitcoin) and promised people it would increase in value, it still wouldn't be a ponzi scheme because that is not how a ponzi scheme works.
It would be a different kind of scheme that I don't think has a name. edit: Well, some people would call it a pump-and-dump, so maybe that.
Tell that to all of the investors putting money into the ecosystem (and amassing Bitcoin in hopes that the increased value will increase the value of their own Bitcoin)..
More specifically, no one is being guaranteed a specific (large) direct return in a specific amount of time. In a ponzi scheme the person who sells you the investment also gives you the return (from the investments of the next batch). They tell you they'll "triple your money in three months!" and they do. Until they don't.
In a ponzi scheme there isn't even a thing, commodity or otherwise, being invested in really. You never own anything except the promise of return. Your money is going nowhere but to the last batch of people to buy in via the person you bought it from, and then when Mr. Ponzi decides its time, into his own pockets as he runs away as fast as he can.
It's entirely possible to consider bitcoin a scam, or a bubble, but it really has no similarity to a ponzi scheme. It's a commodity asset that may have no long term value that's been over-zealously sold.
[Added Note: It'd possibly be accurate to describe what Mt.Gox specifically was/became as a ponzi scheme]
If I invested my life savings into a company that hasn't turned a profit in five years, that wouldn't make the company or the exchange a scam, it would simply make me an idiot.
Nobody is promising Bitcoin investors a profit because nobody (officially) speaks for Bitcoin to begin with. Anyone investing into BTC and subsequently losing or gaining money is doing it of their own will, not because they were scammed into it.
No one is promising a return, but the amount of people in the Bitcoin community that have said that the price could realistically reach into the millions is laughably too many.
Bitcoin proponents have a lot in common with pyramid scheme pushers. 'It is a completely new kind of system', 'the powers-that-be are scared of this new technology because this will destroy their old system', 'this will change the world', 'you are just mad that you didn't get in on the ground floor. but don't worry you can still be involved as this will only to go up', 'the price is undervalued right now but once it starts going up there will be no stopping it', 'this isn't a pyramid scheme or a Ponzi scheme or a pump-and-dump, this is legal and everyone hating is a shill for the other side!'. I'm paraphrasing a bit but you get the idea.
You should look up some videos of people supporting known pyramid schemes like Vemma and see the similarities between what they say and Bitcoin enthusiasts.
Then it isn't a Ponzi scheme, period. A Ponzi is a scam where you're lied to about a fake investment that doesn't exist and promised a return in a certain amount of time, your money is then paid to past investors as their return. Bad investments aren't Ponzi's just because people lose money.
All that shit you're talking about is called speculation. Just because idiots sound alike doesn't make the thing they're talking about the same. Pyramid schemes and Ponzi schemes are very particular things: fake investments where no commodity or good exists, money machines that fail because people are lied to and tricked and don't have the sense to understand exponential growth. If you aren't tricked into it, it isn't a Ponzi scheme, if there's a real underlying commodity like Bitcoin, it isn't a Ponzi or Pyramid scheme.
The scary part is that I have seen a pattern and trend that could lead to Bitcoin's value reaching upwards, perhaps towards the millions, because of some clever engineering and shifting around of money to help build up the legitimacy of Bitcoin; whether it would crash after or if there would be enough buy-in from people that the masses don't want it to crash because there's enough ownership, is a different question/problem.
You don't have a clue about what a ponzi scheme is if you think bitcoin is one.
Whether some people who invested in bitcoin advocate for it, share similarities with other people who invested in other things and advocate for those other things, including pyramid schemes, is completely unrelated.
It's like doing a paper on whether buying Facebook stock or buying Gold or buying foreign currency (i.e. the entire, gigantic, Forex market) is a ponzi scheme. It's simply not. No need to do a paper on that.
People saying bitcoin is a ponzi scheme is simply ignorance on the topic. That's not a cuss word by the way, just literal ignorance, the lack of knowledge. And hearing from them is like hearing from someone who thought dinosaurs and humans walked the earth simultaneously at one point, just completely wrong and with no basis in evidence. But easy to throw around as a truth in some communities that care not to explore the topic properly and thoroughly.
You'll also not find any government or bank reports on bitcoin being a ponzi scheme. And most modern governments have put a task force on it, most regulatory bodies like say the SEC, and most central banks like say the Bank of England. Bitcoin being a ponzi scheme hasn't come up. For example the World Bank released a report last year saying it wasn't a ponzi scheme.
Thing is, bitcoin has at various times in its life been a speculative bubble. Just like stock of Internet companies, housing etc. That bubble can pop (it did in 2014, from $1200 or so down to below $200), and it can continue trading at a more sensible price (about $250 today). It's inherent to bitcoin because it had to start at 0 value, publicly, from day 1, when it had 0 owners and 0 users and 0 investors. And that eventually grew to millions of owners, users, investors, meaning that it grew by a few million x in the past 6 years. That drove up the price. And if you see a price momentum, there will always be times that people buy because they predict the price going up, which reinforces the momentum through speculation to beyond its supposed value. That's when you get a bubble, and then the bubble pops. And 1-2 years later it starts all over again. Over time, as bitcoin becomes more used, its growth rate slows down, and these insane bubbles happen less and with less magnitude.
So if you want to write a paper on how bitcoin has had several speculative bubbles, it's probably true. Just look at the past few years. But a ponzi? It's simply not, it's a ridiculous claim.
A few days ago I posted a link to a scam that Instagram has allowed to flourish, to the tune of 263,000 posts [1]. It didn't get any traction on here, but going through some of the listings speaks volumes about the about the psychology of scammers and their victims. In this case they simply tell victims that they are going to "flip" the money - whatever that means - and people are apparently sending them money in response. I was horrified to read one comment from a mother of 7 who said she had sent money meant for her electric bill to a different scammer, had lost it, and was hoping that the person operating the account she was commenting on was legitimate. He responded in the comments, apologizing for that other rogue, and assuring her that he was legitimate and that she should contact him ASAP to begin a "cash flip".
Apparently these HYIP folks are thinking too much.
[1] https://instagram.com/explore/tags/flipcash/
(For the record I reported many of these accounts to Instagram the other day, and as near as I can tell none of them have been deleted)