September 23, 2020

Judge hits Bitcoin Ponzi Scheme with $40.7 million penalty


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bitcoinacceptedBy Chris Morran From Consumerist

If someone convinces you to invest with him by promising returns of 7% weekly, and that he’s never lost money and there’s no risk, you should be incredibly concerned about giving him your money, regardless of whether it’s a dollar or a Bitcoin. But the operator of a Bitcoin-based Ponzi scheme in Texas was able to rake in millions based on completely empty promises — and now has to pay it all back.

In July 2013, the Securities and Exchange Commission filed a lawsuit [PDF] in federal court against Trendon T. Shavers, the founder and operator of Bitcoin Savings and Trust ().

According to the complaint, Shaver managed to raise around 732,000 Bitcoin (which is worth around $290 million today, though the exchange rate changes wildly) between Feb. 2011 and Aug. 2012, by convincing people in Bitcoin forums that he was some sort of hotshot investor in the virtual currency who sold to individuals looking to buy Bitcoin “off the radar” quickly and/or large quantities.

But BTCST turned out to be an illusion, with Shavers using new investors’ Bitcoin to make payments to other investors, while also taking some for himself to invest and play with.

And like all Ponzi schemes, it had to come crashing to the ground eventually. Some investors did manage to make money, but many others lost their investments.

Earlier this week, Reuters reports that the District Court judge in the case determined that “The collective loss to BTCST investors who suffered net losses.. was 265,678 Bitcoins.” At today’s exchange rate, that’s more than $106 million.

The court also calculated that Shavers’ operation brought in $38.6 million in illegally gained profits. With interest, she came up with the total penalty of $40.7 million for the scammer.

As a result of this case, the SEC issued a warning [PDF] to investors to be on the lookout for Ponzi schemes trying to take advantage of interest in, and ignorance of, virtual currencies. However, much of the advice given by the Commission is no different from what it, or common sense, would tell you to be mindful of — guaranteed high returns, promises of no or little risk, difficulty in cashing out of your investment, complex or secretive strategies and fee structures, and the use of word-of-mouth from other investors to attract new investors.

These are all red flags that, if people had been aware of them in 1920, we wouldn’t all know the name of one .

IMAGE: (Duncan Rawlinson)

For more on this story go to:

Related story:

Bitcoin slips back under $400

bitcoin-perfecthueBy Alex Wilhelm From Techcrunch

After a steady decline from former, mid-year highs, bitcoin is now back under the $400 mark. The cryptocurrency hit that mark in April, at which point TechCrunch pointed out that the stuff was off 60 percent from its record highs.

The price of bitcoin recovered. And then it un-recovered. Same question as before: “What next centennial mark will bitcoin reach? $300 or $500?” Last time, the answer was $500. But past has been a poor predictor for bitcoin thus far.

Here’s the chart, courtesy of Coinbase:


There has been an almost-paradox at play with bitcoin this year: As adoption has increased, and the constant media cycle asking if the currency will die has slowed, its price has slipped. At $400 per coin, what percentage of mining operations are profitable?

If the price of bitcoin continues to slip, dragging consumer interest down at the same time, does that present the chance of something akin to ‘deflation’ in adoption of bitcoin, that could relegate it to niche status?


For more on this story go to:

To understand what Bitcoin is go to Consumerist’s excellent article by Kate Cox “Bitcoin: What The Heck Is It, And How Does It Work?” at:

Extract from above article:

What is Bitcoin?
Bitcoin is the world’s biggest cryptocurrency. It was introduced in 2009, and is the longest-standing, best-known, and most widely-traded cryptocurrency.

Generally, Bitcoin with a capital B means the software and the system; bitcoin with a lowercase b means the actual money.

If it’s not issued by a government, where does it come from and who keeps track of it?
The acts of generating new bitcoins and of tracking Bitcoin transactions go hand in hand, and both are accomplished through a process known as “mining.” This is where it starts to get a little complicated.

Basically, mining occurs when a computer or a network of computers runs Bitcoin software. That software creates new entries in Bitcoin’s public record of transactions, called block chains. The math is complicated and hard to forge, so the block chain stays accurate. Because anyone can download and install the Bitcoin software for free, the payment processing and record-keeping for Bitcoin is done in a widely distributed way, rather than on one particular server.

When block chains are created, so are new bitcoins — but there’s a hard limit to how many will ever exist. The system was designed to create more bitcoins at first, then to dwindle exponentially over time. The first set of block chains each created 50 bitcoins. The next set each created 25 bitcoins, and so on. New block chains are created roughly every 10 minutes no matter what; when more computers are actively mining, the program they’re running gets harder (and therefore slower) to compensate. The bitcoin FAQ estimates that the final bitcoin will be mined in the year 2140, bringing the permanent circulation to just under 21 million. (Currently, there are roughly 12.4 million bitcoins in the world.)




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