Bitcoin Becomes a Tool For Ponzi Schemes

Share

BTC

Bitcoin and other crypto-currencies have been dogged by the assertion that they are ponzi schemes. While the supporters of bitcoin have tried to shake criticisms over the years, this one keeps returning. Now, an actual ponzi scheme has been perpetrated using Bitcoin as a cloaking mechanism, so it’s likely that the assertion will stick.

A ponzi scheme is a kind of investment fraud, where the scammer collects money from investors and pays the earliest investors with the money generated by later investors. No real investment takes place, and even though it may seem legitimate and profitable in the short term, the whole thing eventually falls apart.

The ponzi scheme involving Bitcoin resulted in a judgement of $ 40.7 million against the owner of Bitcoin Savings and Trust (BTCST). Trendon T. Shavers aka “pirateat40” raised more than 732,000 bitcoin between February 2011 and August 2012, and promised investors a return of seven percent per week in exchange for the chance to trade these bitcoins to generate profit.

According to an SEC statement, the court found that:

Even as he publicly denied the Ponzi scheme on the Bitcoin Forum, Shavers knowingly and intentionally operated BTCST as a sham and a Ponzi scheme, and repeatedly made materially false and misleading representations to BTCST investors and potential investors concerning the use of their bitcoins, how he would generate the promised returns, and the safety of their investments.

BTCST was an actual ponzi scheme, while others allege that the whole technology of bitcoin is by its nature a ponzi scheme. The myth is so prevalent that the official Bitcoin wiki lists it in their FAQ.

Misunderstanding the technology of Bitcoin is no reason to tar all traders with the same brush. While bitcoin may seem unregulated, the SEC did step in on this case and has punished a fraudulent actor. Bitcoin wasn’t the criminal, it was just a tool. Still, no matter the truth about crypto-currencies, there will always be detractors.

New Career Opportunities Daily: The best jobs in media.

SocialTimes

Share