The SEC alleges that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin “off the radar” in quick fashion or large quantities
Anybody that is not skeptical about 7% weekly returns on anything is just asking for it. That's 33x your money in 1 year. How can that sound legit to anybody?
In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments.
Since the bitcoin ledger itself is public record anybody could analyze the addresses associated with the fund and see the inflows and outflows[1]. Even if new addresses are generated for each transaction at some point the fund manager would need to roll them up and combine them. It would be possible to see the ponzi flows in the ledger itself.
[1]: Assuming the fund manager isn't using some kind of bitcoin mixer. If he is then that's probably a sign that something bad is going on. https://en.bitcoin.it/wiki/Mixing_service
Anybody that is not skeptical about 7% weekly returns on anything is just asking for it. That's 33x your money in 1 year. How can that sound legit to anybody?
If you were following the Bitcoin forums at the height of the Ponzi, anyone who suggested it was a Ponzi was called a troll who was libelling pirateat40 by what felt like half the forum. Everyone insisted that unless they had actual proof it wasn't a genuine investment, they should shut up, and that the only reason for them to make a big fuss about it was to . This comment was about par for the course, and bear in mind this was after the scheme imploded: https://bitcointalk.org/index.php?topic=101377.0
A number of widely-respected members of the Bitcoin community supported the Ponzi and even ran pass-through schemes for it.
Shavers was running such a mixer service: he was laundering the bitcoins through his own mining pool (called GPUMAX). The way it worked is that he was redistributing the dirty bitcoins acquired through his Ponzi scheme to pool participants as mining rewards, while keeping the newly mined bitcoins for himself. And to entice people to use his pool he was paying a few extra percent more than what most other pools were paying. Pure genius.
I have been following the whole development of his Ponzi scheme. Yes it was obvious to some in the community that it was a Ponzi. I remember writing a few lengthy posts on bitcointalk.org accusing him of a Ponzi. But surprisingly, many people adamantly chose to believe in Shavers and argued against me, ignoring my warnings, telling me why I was wrong. Their argument boiled down to "it has to be legit since he has been paying everybody so far". Sigh... Money prevents people from thinking straight.
His "fund" was a mixing service. He was getting mined coins in and paying out probably with SR coins. Originally I'm pretty sure he was laundering for himself or somebody else, or ran his own mixing service like bitcoinfog then it became a ponzi and fell apart. He was also a chronic gambler with delusions of being a good poker player, a lot of coins prob went to gambling
This was one of several rumors he benefited from (and carefully, quietly encouraged). There doesn't appear to be any strong factual basis for it beyond speculation, but it sure helped people believe the insane rewards.
It doesn't really make a ton of sense when you think about it: "Laundering" Bitcoin doesn't really do you a ton of good as you still end up with a bunch of inexplicable Bitcoin, and if you were laundering it a service where people put coins on deposit and then got returns forever doesn't produce the right kind of transaction patterns for laundering.
The laundering is to mixmaster possibly traced coins with new untainted coins so you can cash out ponzi stolen funds or drug money safely. Some of these mixmaster services were charging ridiculous fees in the beginning, but yeah total speculation. Either way this guy is screwed and should've fled while he had the chance.
Anybody that is not skeptical about 7% weekly returns on anything is just asking for it.
True enough. But crazy returns like that do occasionally exist, though I have never seen them be a "sure thing" nor an ongoing thing. That's just crazy, or cheating.
I was getting APR's in the hundreds of percent for a very short time by lending USD to margin traders. It happened over the course of a few weeks after the latest big gold rush. I was afraid the whole time that something would happen to the exchange and I would lose my (tiny) account.
You might have been able to achieve those returns over a short period of time [edit: posted too early]
by actively investing and absorbing the risks, but would you have offered anyone who wanted you to manage their money a no-effort 7% weekly return on a liquid cash account when you could borrow on better terms from a loan shark?
That's what I said. For a few weeks, there were wild market fluctuations coupled with a lack of dollars to borrow, producing big opportunities for profits, and hence margin traders were willing to pay obscene rates to borrow USD. The only reason it lasted as long as it did is the difficulty of converting from USD to BTC.
Since the bitcoin ledger itself is public record anybody could analyze the addresses associated with the fund and see the inflows and outflows[1]. Even if new addresses are generated for each transaction at some point the fund manager would need to roll them up and combine them. It would be possible to see the ponzi flows in the ledger itself.
Given this, is anyone algorithmically analyzing the ledger for anomalies like Ponzi schemes? That could be an interesting project.
pirateat40's other service, GPUMAX, was effectively a mixing service. GPUMAX paid above market rates for hashing power, which gave the operator freshly minted coins in exchange for dirty coins distributed to miners.
Well what if he was sending them into MtGox and other exchanges? Would that not make it look rather legit? It'd further back up the story that he was working market arbitrage.
If you're the one holding it behalf of someone else then yes. If you want it to be anonymous as the consumer of the service then it's fine to anonymize your deposit. If you're going out of your way to anonymize what I've given you (to prevent me from tracking it) then that would seem shady to me.
Comments
Anybody that is not skeptical about 7% weekly returns on anything is just asking for it. That's 33x your money in 1 year. How can that sound legit to anybody?
Since the bitcoin ledger itself is public record anybody could analyze the addresses associated with the fund and see the inflows and outflows[1]. Even if new addresses are generated for each transaction at some point the fund manager would need to roll them up and combine them. It would be possible to see the ponzi flows in the ledger itself.
[1]: Assuming the fund manager isn't using some kind of bitcoin mixer. If he is then that's probably a sign that something bad is going on. https://en.bitcoin.it/wiki/Mixing_service
If you were following the Bitcoin forums at the height of the Ponzi, anyone who suggested it was a Ponzi was called a troll who was libelling pirateat40 by what felt like half the forum. Everyone insisted that unless they had actual proof it wasn't a genuine investment, they should shut up, and that the only reason for them to make a big fuss about it was to . This comment was about par for the course, and bear in mind this was after the scheme imploded: https://bitcointalk.org/index.php?topic=101377.0
A number of widely-respected members of the Bitcoin community supported the Ponzi and even ran pass-through schemes for it.
At the same time— a lot of well respected people also called it out and did not participate.
(And made all the same points which are also obvious in hindsight...)
If you invest money with someone called "pirateat40" you get what you deserve.
Well, he did learn from Buffett, just the wrong one.
So what you're saying is that I shouldn't be trusting burnside and ThickAsThieves with my ASICMINER shares?
Shavers was running such a mixer service: he was laundering the bitcoins through his own mining pool (called GPUMAX). The way it worked is that he was redistributing the dirty bitcoins acquired through his Ponzi scheme to pool participants as mining rewards, while keeping the newly mined bitcoins for himself. And to entice people to use his pool he was paying a few extra percent more than what most other pools were paying. Pure genius.
I have been following the whole development of his Ponzi scheme. Yes it was obvious to some in the community that it was a Ponzi. I remember writing a few lengthy posts on bitcointalk.org accusing him of a Ponzi. But surprisingly, many people adamantly chose to believe in Shavers and argued against me, ignoring my warnings, telling me why I was wrong. Their argument boiled down to "it has to be legit since he has been paying everybody so far". Sigh... Money prevents people from thinking straight.
His "fund" was a mixing service. He was getting mined coins in and paying out probably with SR coins. Originally I'm pretty sure he was laundering for himself or somebody else, or ran his own mixing service like bitcoinfog then it became a ponzi and fell apart. He was also a chronic gambler with delusions of being a good poker player, a lot of coins prob went to gambling
This was one of several rumors he benefited from (and carefully, quietly encouraged). There doesn't appear to be any strong factual basis for it beyond speculation, but it sure helped people believe the insane rewards.
It doesn't really make a ton of sense when you think about it: "Laundering" Bitcoin doesn't really do you a ton of good as you still end up with a bunch of inexplicable Bitcoin, and if you were laundering it a service where people put coins on deposit and then got returns forever doesn't produce the right kind of transaction patterns for laundering.
The laundering is to mixmaster possibly traced coins with new untainted coins so you can cash out ponzi stolen funds or drug money safely. Some of these mixmaster services were charging ridiculous fees in the beginning, but yeah total speculation. Either way this guy is screwed and should've fled while he had the chance.
True enough. But crazy returns like that do occasionally exist, though I have never seen them be a "sure thing" nor an ongoing thing. That's just crazy, or cheating.
I was getting APR's in the hundreds of percent for a very short time by lending USD to margin traders. It happened over the course of a few weeks after the latest big gold rush. I was afraid the whole time that something would happen to the exchange and I would lose my (tiny) account.
You might have been able to achieve those returns over a short period of time [edit: posted too early] by actively investing and absorbing the risks, but would you have offered anyone who wanted you to manage their money a no-effort 7% weekly return on a liquid cash account when you could borrow on better terms from a loan shark?
That's what I said. For a few weeks, there were wild market fluctuations coupled with a lack of dollars to borrow, producing big opportunities for profits, and hence margin traders were willing to pay obscene rates to borrow USD. The only reason it lasted as long as it did is the difficulty of converting from USD to BTC.
Given this, is anyone algorithmically analyzing the ledger for anomalies like Ponzi schemes? That could be an interesting project.
pirateat40's other service, GPUMAX, was effectively a mixing service. GPUMAX paid above market rates for hashing power, which gave the operator freshly minted coins in exchange for dirty coins distributed to miners.
Well what if he was sending them into MtGox and other exchanges? Would that not make it look rather legit? It'd further back up the story that he was working market arbitrage.
Because if you anonymize your currency (e.g., use cash) you've got something to hide?
If you're the one holding it behalf of someone else then yes. If you want it to be anonymous as the consumer of the service then it's fine to anonymize your deposit. If you're going out of your way to anonymize what I've given you (to prevent me from tracking it) then that would seem shady to me.