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Comment by Animats | Hacker News Reader

The Bitcoin world has replicated most of the known financial scams. This has worked because it preys on a population that doesn't know the known financial scams.

There is a long, long history of financial scams. That's why the handling of other people's money is regulated. FINRA fines about one broker a day, year in and year out. Even with regulation, there are problems, but today in the US you can often get your money back. Bank failures occur, stock brokerages fail, and the SIPC and the FDIC pay off the losses up to $250K per person. Madoff's victims already have about half their money back, after years of litigation and clawbacks. Madoff himself, of course, is in the federal pen at Butner, North Carolina.

The Bitcoin world thinks it doesn't need regulation. About half of Bitcoin brokers, and most of the Bitcoin online wallet companies, have gone bust, most of them taking customer assets with them. Any questions?

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Having followed the bitcoin world fairly closely, I think it's a little more complicated than that.

Part of the problem is that it gets very hard to distinguish between woefully unprepared entrepreneurs and outright scams. It's difficult beforehand, when you think "Well, they're unprepared, but there's a 1% chance it might work anyway." or "They know they can't do it and they'll run with the money."

Even after the case, when they've failed and you know how they've failed, you can't always tell which is was.

Not that it matters much when the money is gone.

This has made me re-think my support for crowdfunding for equity for the masses. Even the best VCs aren't very good at sorting out winners from losers on a percentage basis (sorry, YC). They just have enough money to eat the variance and get to the winners. The general population doesn't.

On the other hand, I don't think most bitcoiners putting money into these schemes are stupid, I think they're just degenerate gamblers. I think they know the risks. Certainly once they've been around bitcoin for a couple months they do. You can't miss it.

Personally, I don't think they should be stopped from their gambling, but I can understand how people disagree.

Sounds like well-insured and managed Bitcoin businesses are a big opportunity.

>About half of Bitcoin brokers, and most of the Bitcoin online wallet companies, have gone bust, most of them taking customer assets with them. Any questions?

Do you have a source for that?

"Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk"[1] That was written in 2013. At that point, 45% of the exchanges listed had gone bust. Check their list on page 3. That was before the collapses of Mt. Gox, Vicurex, Intersango, Bitfloor...

[1] http://lyle.smu.edu/~tylerm/fc13.pdf

"Five exchanges have not reimbursed affected customers, while six claim to have done so"

So, how did that turn into "most of them taking customer assets with them"?

And that only talks about exchanges, not wallets.

(I'm also disappointed that it didn't break down what percentage of funds were lost).

It's not that these people don't know the known financial scams. These people think they're too smart to fall for them, and think that regulations are "for the weak."

My favorite are the people on Bitcoin forums advertising "reputable Ponzi schemes." "Reputable" meaning that there's an actual Ponzi scheme and not just one guy pretending there is but then running off with everyone's money.

> It's not that these people don't know the known financial scams. These people think they're too smart to fall for them

Or think that, in a market not regulated to control them, they will be able to make money perpetrating them.

Neither of these are true. 'These people' don't want to let any particular party regulate their use of money, for better or worse. By using bitcoin, you implicitly accept the risks of a decentralized currency. Until there exists some good way of decentralized regulation, if its even possible[1], these sort of risks become a simple fact of life, a cost of doing business.

Bitcoin users and proponents dont "think they don't need regulation", they reject it. They don't "think they won't fall for scams", they accept the risk and possibility. They don't think "regulations are for the weak", they think regulations are for people who accept their government knowing everything about their finances and need transactional legal accountability. Your comment, and the parent one, are nothing more than really weak strawmen.

[1] :: I'm kinda sorta working on something that might help solve this problem, hyphaelia (https://github.com/kurotetsuka/hyphaelia), which could theoretically be used to create a trustable darknet marketplace. I'm nowhere near that point yet though.

Cash seems to be rather more anonymous than Bitcoin. There's no permanent ledger for every cash transaction that's ever taken place.

True enough - but carrying and exchanging large amounts of cash is rather unsafe. Not so with Bitcoin :).

I think you're closest.

I have yet to see any business in the bitcoin space that many bitcoiners themselves didn't say was a scam. Literally every business. As a group, bitcoiners are the most scam-declaiming group of people that ever lived.

As a group. Individuals are something else again.

So they do think they're smart enough to not need it. And of course someone who "accepts the risk" assumes they're smart enough to not get caught up in it. Otherwise they wouldn't do it.

You accept the risk you could die every time you step outside -- not because you think you're too smart to get shot or hit by a bus or whatever, but because the risk is so low and you kinda have to go outside to get what you want. Same thing for bitcoin. Sometimes the risk of getting fucked by someone over the internet is lower than getting fucked in person (or by the government), and you just gotta use them bitcoins to get what you want.

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