

Postmodern Ponzi Schemes: Empirical Analysis of High-Yield Investment Programs [pdf] - gwern
http://digitalrepository.smu.edu/cgi/viewcontent.cgi?article=1001&context=engineering_compsci_research

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downandout
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.

[1]
[https://instagram.com/explore/tags/flipcash/](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)

~~~
lifeisstillgood
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.

~~~
downandout
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.

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gwern
Excerpts:
[https://plus.google.com/103530621949492999968/posts/A45SaBvu...](https://plus.google.com/103530621949492999968/posts/A45SaBvuDNr)

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plongeur
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.

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dataker
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.

~~~
javert
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?

~~~
markmassie
The millions of dollars raised by scammers through crowdfunding proves
otherwise [1].

[1] [http://pando.com/tag/scampaign/](http://pando.com/tag/scampaign/)

~~~
javert
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.

~~~
nl
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.

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joshu
This was a fascinating read.

~~~
aidos
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.

~~~
joshu
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.

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javert
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].

[1] [http://insidebitcoins.com/news/trendon-shavers-bitcoin-
ponzi...](http://insidebitcoins.com/news/trendon-shavers-bitcoin-ponzi-
schemer-charged-40-million-fine/24716)

~~~
gwern
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.

~~~
javert
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.

------
loceng
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?

~~~
kleer001
Bitcoin isn't a ponzi scheme because nobody is being promised a gain in
wealth.

~~~
loceng
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)..

~~~
stormbrew
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]

~~~
kleer001
> over-zealously sold.

Right there.

I think the technology is great, but it has been speculated into the
stratosphere.

