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Stephen Diehl

29 Jun, 10 tweets, 3 min read

When crypto skeptics talk about bitcoin as either a Ponzi scheme, a Pyramid scheme, or Multi-level marketing scheme we're using these words as a stand-in for a type of fraud for which there isn't a precise term of art for yet. (1/) 🧵

Most crypto coins are a speculative investment that shares some properties of the three types of classic financial scams:

1) The Ponzi schemes
2) Pyramid schemes
3) Multi-level marketing schemes

(2/)

investor.gov/protect-your-i…

However it depends on subset of cashflows, market makers, and products you look at. Most cryptocoins are some combination of the above three, but diverge from the classic scams in subtle and legally important ways and may involve software in novel ways to obscure the fraud. (3/)

Tether closely resembles a Ponzi scheme, according to journalists and whisleblowers it's allegedly a novel software form of surrogate money scam that limits withdrawals and obscures balance sheets as a way for insiders to abscond with customer funds. (4/)
ft.com/content/342966…

Crypto exchanges effectively operate as open Ponzi schemes, they limit withdrawals because of massive liquidity problems due to limited access to dollars. They also have no transparency in their balance sheets and engage in widespread manipulation against their customers. (5/)

Most coins have cashflows that are structurally identical to Ponzi schemes, a group of insiders (or code) decides which subset of investors to pay out only by directing funds from incoming customers. These payouts are sometimes centrally controlled, but not necessarily. (6/)

Bitcoin is what the economist Robert Shiller calls a "naturally forming Ponzi scheme". It also very much presents with aspects of MLM schemes since cashflows consist only of paying out old investors from new investors via recruiting more suckers in. (7/)
seattletimes.com/opinion/bitcoi…

But truth be told, we don't have a specific legal term of art or technical term for this new type of fraud because it simply is so new and confusing. Just like at some point we didn't have a term of art for Ponzi schemes before Charles Ponzi did it at scale. (8/)

Some people have proposed naming these new types of financial frauds involving crypto as "Nakamoto schemes" but the term isn't widely understood or recognised yet. (9/)
jpkoning.blogspot.com/2021/06/there-…

In meantime it is morally justified to refer to predatory negative-sum crypto investments as the classical frauds for rhetorical purposes. All these frauds have same downsides of the above scams and the upside is based purely on gambling on unstable economic illusions.
/fin

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More from @smdiehl

Stephen Diehl

@smdiehl

28 Jun

After 12 months of crypto troll abuse, the upside is that I now have quite a large text corpus for my model. Trying to troll me at this point is just training my classifier to be more efficient at blocking.

Highest correlates for abusive Tweets are interesting and probably not surprising.

"#bitcoin" in bio
".eth" in handle
"🚀" in handle
"cardano" in bio

I don't have an image classifier on profile photo yet, but probably wouldn't be that hard to detect laser eye trolls. That would probably reduce confusion quite a bit.

Read 4 tweets

Stephen Diehl

@smdiehl

16 Jun

Let's talk about the evergreen meme that while cryptocoins are certainly a useless speculative bubble, "the blockchain" is a revolutionary technology that will improve the financial system. (1/)🧵

You see this clain basically every Bloomberg or New York Times article. The problem with this claim is that it's short on any specific goals, details or mechanism. What exactly will it change? (2/)

It's especially common to hear this meme repeated by residents of the United States where retail banking and payments are perhaps 20 years behind the rest of developed economies. In fact many developing economies are more advanced at this point. (3/)

Read 20 tweets

Stephen Diehl

@smdiehl

15 Jun

Generally good article in the Times this morning. Take minor issue with a few points though.
nytimes.com/2021/06/14/opi…

Blockchain technology is neither ingenious and groundbreaking. After 13 years of being a solution in search of a problem it has found no applications that couldn't be better done with a simpler solutions.

We should not fetishize useless novelty.

The central bank currencies (CBDCs) aren't variants of bitcoin technology at all. Centrally managed digital bearer assets or central bank clearing systems are literally by definition centralised databases; the complete diametric technical opposite of cryptocoins.

Read 4 tweets

Stephen Diehl

@smdiehl

13 Jun

Let's talk about the geopolitical implications of the ransomware crisis, why additional money launder rules won't solve anything, and how a blanket cryptocurrency ban is the inevitable solution. (1/) 🧵

Since the early dotcom era there was always been a criminal element looking to profit from insecure software for their own gain. Ransomware has existed long before crypto, it just wasn't generally profitable or scalable. (2/)

What is new is that what was a once a small fire has had gasoline poured on it and turned into an uncontrollable blaze ripping across our most critical infrastructure Our hospitals, power grids, local governments and soon I fear much worse. (3/)
stephendiehl.com/blog/ransomwar…

Read 23 tweets

Stephen Diehl

@smdiehl

11 Jun

Let's talk about the similarities between QAnon and #Bitcoin. (1/) 🧵

Both movements fall into the category of "conspiracy cults". Their pattern of enticement is similar to religious cults in the illusory pretense of leading acolytes deeper and deeper into the group's secrets while isolating followers from friends and family outside the cult. (2/)

The bizarre cult-like antics of the Bitcoin faithful were on full display in Miami last week in which thousands of faithful descended on Miami to worship Bitcoin in Trump-style rallies which turned into a superspreader event. (3/)
nytimes.com/2021/06/05/tec…

Read 16 tweets

Stephen Diehl

@smdiehl

5 Jun

Let's talk about why the software industry is helpless to do anything about ransomware and why there's no technical solution anytime soon. (1/) 🧵

First let's discuss the scope of all software that exists, and it's nearly unfathomable. Your average Android phone runs on 15 million lines of code dating back to ancient 1970s era Unix toolchain code written by our grandparents generation. (2/)

Windows 10 contains over 50 million lines of code and no one person on Earth even fully understands in its entirety. It contains code from tens of thousands of global companies for running hundreds of thousands of devices all manufactured with different goals and standards. (3/)

Read 18 tweets

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