Posted on 02/09/2015 8:26:35 PM PST by CutePuppy
Hong Kong-based bitcoin exchange MyCoin has allegedly shut its doors and stolen HKD 3 billion ($386.9 million) in the process.
The South China Morning Post reported Monday that 30 MyCoin clients approached a local lawmaker with complaints that the company had fled with funds from up to 3,000 investors.
The reports coming out of Hong Kong would seem to indicate that there may have been a Ponzi scheme at play.
"No one seems to know who is behind this," a woman surnamed Lau, who said she lost HKD 1.3 million, told the paper. "Everyone says they, too, are victims ... but we were told by those at higher tiers [of the scheme] that we can get our money back if we find more new clients."
One warning sign of a pending collapse could have been that when the company changed its trading rules to bar people from exchanging all of their bitcoins unless they solicited new investors for the firm. ..... < snip >
..... According to the SCMP, MyCoin had hosted events at luxury hotels and a roadshow in Macau in 2014. .....
The few bad actors running exchanges are easily noticed. Just look for the greedy idiots clustered around them.
You can pay or tip anyone online instantly, whether or not they know anything about bitcoin and support an economy of micropayments for microservices.
EFT is much higher overhead in many cases. Sending 20 cents makes sense with bitcoin. Also bitcoin can be used with trusted third parties. That is cryptographic trust, not exchanges holding private keys. That means a higher value transaction can be finalized when two our of three parties agree that it should be.
Good posts. Thanks.
... and have been doing this well before bitcoin's ecosystem and its expensive hi-tech magic and wizardry of "mining" the final e-product which was supposed to appreciate simply because of artificially limited quantity (The Number) "mined", which was bestowed to us by some superior yet unknown being / body.
So again, where is any advantage of Bitcoin over what already has long been done cheaply and efficiently with various forms of EFT (Electronic Funds Transfer)?
I will address some of the technological differences and issues re advantages and disadvantages of EFT vs Bitcoin, but just to make it clear, these / my quoted responses were addressing the issue and the question of Bitcoin being "just like the US dollar" in the sense of being "backed by nothing" as in a "currency based on nothing, accounted for by nobodies, misrepresented as anonymous, and ultimately worth zero." In other words, it was a response to a specific political argument for a Bitcoin, not a technological one.
Most of the advantages and disadvantages of Bitcoin economy are already well known to you, which is why you emphasize micropayments and microservices, which is what Bitcoin was originally developed for, as a method of generally small online payments over distant and disparate economic systems and currencies, and financial services, that otherwise would have to be either free or, more likely, unavailable.
You can pay or tip anyone online instantly, whether or not they know anything about bitcoin and support an economy of micropayments for microservices.
Of course, transactions are limited to online payments only, while most people shop locally or transact online with shops that have no problems accepting credit or debit cards in local currency that won't need to be immediately exchanged if they deem their local currency stable, i.e, they are not using Bitcoin as a store of value to manage their local currency risk. Debit transaction cost is much cheaper than credit cards since there is no credit risk and approval / acceptance / debit is instant, while Bitcoin transaction delivery may depend on priority (to prevent "penny-flooding" DoS on the network) - it's not necessarily real-time.
EFT is much higher overhead in many cases. Sending 20 cents makes sense with bitcoin.
I think one of the most common and perpetuated misconception is that Bitcoin transactions are cheaper than EFTs. Few of BTC transactions are "free" because it would defeat the financing mechanism, especially when "mining" is exhausted or inadequate as income source and transaction fees (just like in the banks) are needed for ecosystem to exist. And with the rising cost of "mining", both by original design due to increasing complexity and electricity cost, and with with the immense inflation of the BTC since the "early days," the transaction fees will represent higher proportion of ecosystem than originally projected. That particularly hurts the primary reason for BTC — micropayments — that "sending 20 cents" in BTC/satoshis transaction may become very expensive. By contrast, it may cost nothing to send it over the phone or computer (EFT) depending on type of your account at the bank, which could be very flexible and customizable, depending on your needs. Also, with the rise of newer EFT services (like Square and bank deposit / debit apps) the "conventional" EFT systems are becoming cheaper and more transparent.
Links to BTC transactions' costs and time:
Bitcoin Is an Expensive Way to Pay for Stuff - FR, post #21, 2014 January 05
The Case of the Disappearing Dollar Bill - FR, post #26, 2014 January 05
Bitcoin Price... to $1 Million? - FR, post #56, by Greysard, 2014 April 04
Debit vs Credit Card Charge / Offline Debit Vs Online Debit Vs Credit Card Charges - FR, post #57, 2014 April 06
So the article's conclusion — that Bitcoin (or other altcoin) will be mostly limited to libertarians (to simplify, "because US dollar is a fiat currency, backed by nothing, manipulated / devalued by the Fed, used to track your purchases and at some point may be confiscated by Government from your savings accounts") and the hi-tech geeks who feel comfortable with it, think it gives them some sense of privacy, Bitcoin's "cool factor" or because they really have a legitimate need to pay some people (mostly software coders) for services in regions like Asia and Europe where "normal" EFT could be either difficult or undesirable — seems very logical.
Micropayments, while useful, is a minuscule segment of world economy so, while theoretically interesting, inventing a relatively complex (mashing several existing technologies - P2P, cryptography, database) and relatively useless / resource-wasting (e-coin "mining" is a resource-consuming activity as opposed to most resource-creating or resource-transforming activities - like "work" - which is what usually done to get paid) system with the great potential of abuse when scaled up and misrepresented, may not be the best way to serve it.
Of course, the anonymity aspect is a double-edge sword. In fact, it doesn't need Bitcoin to be accomplished, but anonymous EFTs have some of the same dangers, if not done properly.
From Green Dot's Decision to Stop Selling MoneyPak Cards Will Take a Toll - Dealbook/NYT , by Matthew Goldstein, 2015 February 03:
The decision by Green Dot to stop selling MoneyPak, its popular prepaid card, will take a bite out of the company's projected revenue and bottom line this year, and that has taken a toll on the company's share price over the last several days. Green Dot, the nation's largest seller of prepaid debit cards, has estimated that its decision last year to discontinue MoneyPak, partly because it had become a popular method of payment for online swindlers, could shrink operating revenue by $10 million to $40 million. The company, based in Pasadena, Calif., has also estimated its operating cash flow, or earnings before interest, taxes, depreciation and amortization, may be $2 million to $10 million lower without sales of MoneyPak this year. ..... < snip > ..... The company said last week that it would stop shipping MoneyPak cards to stores that sell them this month. It anticipates that most MoneyPak cards will be gone from store shelves by the end of March. Last summer, Green Dot announced it intended to stop selling MoneyPak as it moved to a newer technology. It is replacing MoneyPak with a product that will enable customers to add money to existing prepaid cards by swiping them at a special machine at the registers of stores that used to sell MoneyPak. The company said its decision to discontinue the paper MoneyPak card was also prompted by growing concern about the ease with which swindlers were using MoneyPak to conduct both online and telephone scams. Scams involving prepaid debit cards have been on the rise for the last few years and have resulted in dozens of warnings to consumers from the F.B.I., state law enforcement agencies and even a congressional committee. The cards allow for quick and easy money transfers, often done with a great deal of anonymity, a feature that has attracted scam artists. ..... < snip > ..... MoneyPak cards have a unique numerical code, or PIN, on the back of each paper card. Anyone with that code has access to the money stored on the card. Scam artists who use MoneyPak as a method of payment persuade unsuspecting victims often the elderly to voluntarily give them the code.
MoneyPak had become a popular method of payment for online swindlers.
Another publication (paywalled) points out that MoneyPak was sold at nationwide stores like Wal-Mart, where customers could load cash from $20 to $500, on a deposit certificate "card" (which was really just a peace of cardboard with a printed 14-digit PIN) after which money could be transferred to a prepaid debit card through Green Dot's website or automated phone service. This was very convenient, for example, to several members of Baltimore's branch of national prison gang Black Guerilla. In fact, it became the gang's main financial instrument, where prisoners use a slang "dot" referring to PIN codes. (Baltimore... does "Wire" come to mind?) New procedure will load the prepaid debit card at the register, eliminating codes. Here's the kicker - Green Dot projects significantly lower revenue from the new method, because the demand is lower than for the product that is easy for criminals to use anonymously.
Meant to give you a ping, too. Might find it interesting.
In the online economy you can order food, clothing, etc and have it shipped without currency conversions. The main reason to transact in bitcoin however is to integrate into the online virtual currency world, which already includes some investments (and numerous scams), but will have vastly more services and investments than the meat world over time.
that "sending 20 cents" in BTC/satoshis transaction may become very expensive. By contrast, it may cost nothing to send it over the phone or computer (EFT) depending on type of your account at the bank, which could be very flexible and customizable, depending on your needs.
A strange claim. I have yet to see a bank support that. It costs me $20 and up to send money internationally. Paypal is filling the gap to some extent but will eventually support virtual currenncy.
Micropayments, while useful, is a minuscule segment of world economy so, while theoretically interesting, inventing a relatively complex (mashing several existing technologies - P2P, cryptography, database) and relatively useless / resource-wasting (e-coin "mining" is a resource-consuming activity...
It is true that the e-coin mining consumes electricity, but can be scheduled to use power that would otherwise have to be burned off to avoid overvoltage in the power grid. As for the micropayment economy, it will inevitably grow by leaps and bounds in a nearly fully automated manner. The online economy is in its infant stages with entirely new concepts and methods for knowledge, sharing, ownership, group ownership, etc being developed. There are security primitives and operations that I work on (very crude) that support digital ownership and transferral. It is very difficult to develop without making crypto mistakes or relying on misplaced trust. But as development continues, the online world is still growing with new service and need for payments.
cardboard with a printed 14-digit PIN)
Suffice to say that bitcoin private and public keys are much safer and more reliable than a quasi-private secret key. I looked up "Green Dot" and it is a reloadable prepaid visa, ho hum. But given what you described, a secret key on a piece of cardboard, is I would write an app to use a phone camera to steal the key and immediately spend in between the time the victim takes it out of his pocket and then spends it. Secret keys are vulnerable for many reasons, but the main one is they must be in two places, hence double the vulnerability.
Bitcoin is based on PKI, so you can protect your private key as much as you want and everyone else (your payees) verify using a public key. To be successful a electronic currency will have to be PKI based at a minimum.
I agree, the online economy is growing and will continue to grow, but for most people it will be various forms of EFT — whether they realize it or not (direct deposit, EBTs, prepaid cash/debit/"gift" cards etc.) — not involving Bitcoin [network].
The main reason to transact in bitcoin however is to integrate into the online virtual currency world...
Given the overhead of blockchain and other inherent problems of Bitcoin and network (of which, it seems, you are aware or becoming aware) I'd be very surprised if its structure became the model, because it's really rather expensive for what is essentially an intermediate exchange of currency.
As a "Because I could!" engineering feat, it's somewhat impressive, if not elegant, but there are already many easier, "natural" (same for offline and online), safer (insured; not anonymous when they don't have to be, anonymous when they do) ways to transact business.
So for 99+% of the people in the developed world Bitcoin is not a necessity, but rather would be relatively inconvenient. For some, it could be a novelty, for some it is / was a "currency" speculation, but even in terms of anonymity Bitcoin doesn't represent an advance over properly encrypted EFT.
It may be of value to people who have a need to transact often and in small enough amounts with other people who can't or don't want to use "conventional" EFT services, which are themselves getting better, faster and cheaper - there are a lot of new companies in EFT space that don't involve Bitcoin or similar e-coin ecosystems, but rather build on existing infrastructures (see The Case of the Disappearing Dollar Bill link in my previous post).
Here's latest example : Ecuador becomes the first country to roll out its own digital cash - CNBC, 2015 February 09
Ecuador's Sistema de Dinero Electrónico (electronic money system) kicked off in December by allowing qualifying users to set up accounts, and it will begin acting as a real means of transaction this month. Once the government flips the switch, the South American nation of 16 million will host the first-ever state-run electronic payment system. (Other countries, such as Sweden, use digital currencies widely, but they're not state-sponsored.) But the Ecuadorean government says the scheme is designed to support its dollar-based monetary system, not replace it. "Electronic money is designed to operate and support the monetary scheme of dollarization," economist Diego Martinez, a delegate of the President of the Republic to the Board of Regulation and Monetary and Financial Policy, wrote to CNBC in a comment provided by a central bank spokesman. Martinez said that Ecuador law expressly states that economic transactions are conducted in U.S. dollars. Electronic money will not only help the poor, he added, but will act as a cost-saving mechanism for the government: Ecuador spends more than $3 million every year to exchange deteriorating old notes for new dollars, Martinez said. There would presumably be less wear and tear on the currency if much of it was stored at the central bank while citizens relied on mobile payments. ..... < snip > ..... The dollar system has been good for the country's relatively low inflation and low interest rates, White said, adding that it would be difficult to start a new currency without ruining the economy. Ecuador's most recently reported monthly inflation rate of 3.67 percent is lower than neighbors including Mexico, Chile, Costa Rica and Bolivia. ..... < snip > ..... The project initially created buzz in the bitcoin blogosphere, but that interest faltered once it was clear that Ecuador's project would not present a competing alternative. ..... < snip > ..... The electronic money system does not require Internet access or an account with a financial institution, and it can be redeemed for physical money at any time, the central bank's website said. ..... In 2000, Ecuador moved to ditch its stumbling currency for the U.S. dollar. Now more than 15 years later, the South American country is revamping its monetary system again using digital currencies.
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