The HiFi Bitcoin Letters
The HiFi Bitcoin Letters
Letter #116: Bitcoin and the Story of Antifragility #7 - A Pirate’s Ponzi

Letter #116: Bitcoin and the Story of Antifragility #7 - A Pirate’s Ponzi

Read now to learn how there is no such thing as "easy money", in Bitcoin or across the financial space.

It couldn’t be true. It didn’t make sense. Sal had spent weeks researching Bitcoin Savings & Trust before investing and had found nothing but positive reviews. 

In retrospect, that honestly wasn’t really surprising though. People were receiving the massive daily returns the scheme’s pseudonymous operator had promised. What’s not to like when the money is flowing?

But now the music had stopped. The well had run dry. And she, along with countless others probably, was left holding the bag. Turned out that Bitcoin Savings & Trust was nothing more than a Ponzi, and she was nothing more than a sucker for it…

The above account is a fictionalized dramatization that is loosely based on the reported events surrounding the Bitcoin Savings & Trust Ponzi scheme that unraveled in 2012. As such, it should not be taken as factual.

Dear Readers,

Humanity is driven to make money. For some, it stems from a drive to succeed. For others, it comes from a desire to achieve a life of ease, where one is no longer required to labor endlessly to afford the necessities of life. No matter what our motivations may be, the vast majority of us are chasing money from sunup to sundown.

Converting your time and your work into money isn’t easy. No matter where you live or what you do for a living, making money is one of the more challenging aspects of the human experience. With that in mind, it’s not overly surprising to see so many people falling for “get rich quick” scams of one type or another, year after year.

Beware of promises of easy money. Learn from the past to know how to protect yourself for the future…

A Ponzi Here And A Ponzi There

Ponzi schemes are the epitome of “too good to be true” investments. Ponzi operators promise massive returns in exchange for little to no work, and they only manage to deliver for as long as they can keep new “investors” walking through the door.

Ponzis may operate for a long time. For example, the most infamous Ponzi in history, run by Bernie Madoff, operated for decades before the Great Recession took its toll and the truth came out. But eventually the easy money runs out and people find out that it was never really there to begin with. Such was the case for Bitcoin Savings & Trust, a Bitcoin-themed Ponzi scheme operated by a Texas-based man for about a year in 2011 and 2012.

Bitcoin Savings & Trust had many of the classic hallmarks of a Ponzi scheme: its operator was shrouded in mystery, known for most of the Ponzi’s short existence by only a pseudonym, pirateat40, and he refused to provide anything more than the most limited information on how he made his money. On top of that, Bitcoin Savings & Trust “guaranteed” its users a gaudy 1% daily interest rate that, in retrospect, should have made it apparent that things were far too good to be true.

While the Ponzi’s operations were secretive, the results of its downfall are not: users lost hundreds of thousands of Bitcoin, valued at several million dollars based on average Bitcoin exchange rates at the time. Meanwhile, the wider Bitcoin community was impacted by a severe loss of confidence and the Bitcoin exchange rate dropped by about half over the course of just three days.

Anchor: A Modern-Day Ponzi?

With the benefit of hindsight, it can seem easy to dismiss both the perpetrators and victims of Ponzi schemes like Bitcoin Savings & Trust. But never forget that real people are harmed and lose fortunes and more when Ponzis go belly up.

Just take the recent implosion of the TerraUSD and Luna cryptocurrencies, in which users and investors lost billions of dollars. The crash was preceded by the breakdown of the Anchor protocol, a DeFi platform tailor made for those cryptocurrencies that had been widely regarded as a Ponzi due to the fact that it offered nearly 20% annual returns on deposits while banks worldwide offer around 1% or less for the same deposits.

What’s the lesson to be learned from all this? Learn to do your own research and how to protect yourself, because Ponzis and other scams are unfortunately not a thing of the past.

Read the next article in this series:

The HiFi Bitcoin Letters
Letter #128: Bitcoin and the Story of Antifragility #8 - All Hail The (Failed) BitLicense
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