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That's fascinating. It would seem to set up a situation where your incentive, if you suspect a Ponzi scheme, is to quietly withdraw your money early then keep

That's fascinating. It would seem to set up a situation where your incentive, if you suspect a Ponzi scheme, is to quietly withdraw your money early then keep your mouth shut. Unfortunate if true.

londons_explore 4y ago
I would imagine the FBI to be able to trace the holders of all the big withdrawals through the blockchain.
- yellow_lead 4y ago
  How? The blockchain doesn't store names or SSNs for every address. If the victim/user uses a mixer they can get their coins out easily and anonymously.
  - chrisjc 4y ago
    I've been watching some of Coffeezilla's videos lately and he often gets into the analysis of "following the money" from one crypto wallet to another to show how lots of his subjects conducted their scams. Were these individuals just sloppy (probably) or is there some kind of forensic analysis that can be performed blockchains to trace the path of tokens/funds/credits through a mixer? Although I know nothing about crypto, blockchain, defi, I imagine credits/tokens/funds can be split and merged in every imaginable way by a "mixer" and transactions can probably occur across different blockchains via exchanges as well as occur outside in the real world, but I'm curious about any sort of signal that might be extracted from such analysis, other than signals arising from just pure sloppiness. BTW, I'm not disputing your asserting about being able to track people... more about breadcrumbs in general, even if they're anonymous.
    - yellow_lead 4y ago
      I watch those videos as well but many of those influencers are dumb enough to put their wallets in their twitter bios (eg their ENS names), or its because they are linked to their project from the flow of large amounts of tokens.
    - limaoscarjuliet 4y ago
      You are anonymous as long as you have not used your wallet somewhere where you can be identified. Read about "welcome to video" child porn bust possible due to chainanalysis. From https://www.wired.com/story/tracers-in-the-dark-welcome-to-video-crypto-anonymity-myth/ https://www.wired.com/story/tracers-in-the-dark-welcome-to-v... Chainalysis had combined these techniques for de-anonymizing Bitcoin users with methods that allowed it to “cluster” addresses, showing that anywhere from dozens to millions of addresses sometimes belonged to a single person or organization. When coins from two or more addresses were spent in a single transaction, for instance, it revealed that whoever created that “multi-input” transaction must have control of both spender addresses, allowing Chainalysis to lump them into a single identity. In other cases, Chainalysis and its users could follow a “peel chain”—a process analogous to tracking a single wad of cash as a user repeatedly pulled it out, peeled off a few bills, and put it back in a different pocket. In those peel chains, bitcoins would be moved out of one address as a fraction was paid to a recipient and then the remainder returned to the spender at a “change” address. Distinguishing those change addresses could allow an investigator to follow a sum of money as it hopped from one address to the next, charting its path through the noise of Bitcoin’s blockchain.
  - pjc50 4y ago
    Note that everybody who uses a mixer is potentially participating in money laundering, sanctions evasion, etc. The whole premise is that you put money in and are given some different money out. But where does your money that you originally put in go? If it went to North Korea, congratulations on your crime.
    - yellow_lead 4y ago
      I would be interested if you've heard of any prosecutions against individuals solely for using a mixer. In itself, I don't believe that it is illegal to use a mixer, but it is likely illegal to operate a mixer in most countries.
      - aaaaaA3 4y ago
        I've been convicted of money laundering in an European country for far less than using a mixer, so probably yes. I merely sold 5000 euros worth of bitcoin to a Chinese OTC exchanger. There wasn't any real legal theory behind the charges. The court and prosecutor just assumed without any evidence that 1) the money must have been from criminal source and 2) I was using the Chinese exchanger specifically to obscure the source of those funds and not because he was someone I'd been working with since before cryptocurrencies existed. I received a suspended sentence, wasn't worth appealing to recover the 5000 euros. Wasn't gonna get rid of the suspended sentence, there were counts I was totally guilty of.
        yellow_lead 4y ago
        Wow, that sounds shitty - sorry.
jerf 4y ago
This is an important aspect of the financial world to understand, because a lot of things work this way. It doesn't have to be a "Ponzi scheme", this happens anywhere where a lot of people pool money together, nominally have an agreement that they can withdraw whenever they like, and that money is used for something illiquid, regardless of the reason for the illiquitity, resulting in a situation where if too many people withdraw at once, the fund can't cover it. Ponzi schemes are an extreme example, because the fund is illiquid because it lied about its investments and simply stole the funds, meaning there's absolutely no way to cover. But there's a lot of ways this can occur. This basically describes a "bank run"; you nominally have an agreement you can withdraw your cash at any time, but if everybody does it at once there's a problem because the bank is using it to do things like fund mortgages, which can not simply be called back in instantly if needed. Even if the bank has the right to do that, and for various things it sometimes does (taking "financial instrument" generally and not just "US mortgage"), it would still be squeezing blood from a stone; they can demand it but it doesn't mean they'll get it. In recent news, Blackrock suspended withdrawing from a UK real estate fund, because investors have been withdrawing at a rate that would require them to liquidate their holdings at fire sale rates, further depressing the fund's value: https://uk.finance.yahoo.com/news/blackrock-halts-withdrawals-3-5-154532016.html https://uk.finance.yahoo.com/news/blackrock-halts-withdrawal... Same sort of thing. No "Ponzi" scheme here; there's some legitimate financial stress, but that stress would only be exacerbated by letting everyone withdraw. (Whether you agree that it is justified to halt withdrawals in this case or not, I'm just using it as an example of the generality of this structure.) I can't pull it up quickly in a news article because I'm not coming up with the right search terms to pull it out of the noise of constant financial news, but when Janet Yellen was Treasury Secretary, she had floated a trial balloon about trying to fix this incentive problem with bank runs against real banks with the same sort of clawback scheme, the idea being to disincentivize a bank run in the first place by making it so you don't get the pattern where the first few people get all their stuff and everybody else loses everything, which is a huge contributor to the run occurring in the first place. The game theory on this one gets a bit complicated if you think about it. e.g., OK, if everybody else is going to sit tight because this scheme incentivizes them to stay in the bank, then it's safe for me to withdraw everything because the bank run was prevented in the first place. If they then hold things together "long enough", then I can say I did it for my own reasons, not the bank run that was delayed for six months while everyone else sat tight, before an ultimate collapse. But if everybody thinks that way... etc. Not clear to me whether this can actually prevent bank runs, which I mean straight, not as a weak sarcastic "no this obviously wouldn't work". Not clear. Complicated analysis. This structure is not intrinsically morally wrong or anything. It's a basic tool, and you need some kind of structure to bridge between high liquidity and low liquidity like that, and such a thing will intrinsically have some "impedance mismatch" to it, to use a favorite technical metaphor. But it does have a certain amount of risk intrinsic to it that can be a bit difficult to characterize; the problem is that a given instance of it failing is likely to be highly correlated with a lot of other instances of it failing at the same time. Naive analysis of the risk is utterly inadequate, and being sophisticated and correct about it is easier said than done.
itsoktocry 4y ago
>It would seem to set up a situation where your incentive, if you suspect a Ponzi scheme, is to quietly withdraw your money early then keep your mouth shut. How so? Law enforcement can claw it back, and the earlier you withdraw, the less your gains.
- Scoundreller 4y ago
  The limits depends on the jurisdiction. And harder to claw back funds after you’re already dead and the estate has been settled. Or you’ve already spent it all.
  - saghm 4y ago
    I feel like I'm missing something here. Are you saying the optimal strategy is to withdraw early, keep your mouth shut, and then...die? Are these schemes usually long-lasting enough that a non-trivial number of people who invest early would be expected to die by the time they're discovered?
    - drunkonvinyl 4y ago
      As long as you don’t claw back after you die.
  - maerF0x0 4y ago
    > Or you’ve already spent it all. This is only true if you never have income in the future. They can garnish and/or reach in and take other assets
themitigating 4y ago
Or move to another country without extradition, something I'm surprised more people don't do.
- pjc50 4y ago
  There are a lot fewer of those than you expect. And of course if you need to do that, you can never come back to see your family even for a visit.
  - fortuna86 4y ago
    statute of limitations?
    - hermitdev 4y ago
      I'm not a lawyer, but I think statute of limitations only protects you against charges being filed for a crime performed X years ago. It doesn't protect you if you run from charges for X years.
      - fortuna86 4y ago
        so the timer only begins when you are in a certain jurisdiction? That seems unenforceable..
  - themitigating 4y ago
    Right but to avoid jail or even the potential of jail.
vkou 4y ago
No, it doesn't, because all Ponzi schemes will always unravel. Keeping quiet isn't going to help you. What this does is it creates an incentive to not invest in a ponzi, period. Without this rule, it makes sense for me to invest into something that I think is a Ponzi, as long as I believe that I'll be able to cash out before it collapses.
- eastbound 4y ago
  Aren’t Ponzi schemes based on people being gullible? To protect gullible people from falling victim, we ask them to foresee in advance that they’ll fall into a Ponzi scheme…

That's fascinating. It would seem to set up a situation where your incentive, if you suspect a Ponzi scheme, is to quietly withdraw your money early then keep your mouth shut. Unfortunate if true.

londons_explore 4y ago

I would imagine the FBI to be able to trace the holders of all the big withdrawals through the blockchain.

yellow_lead 4y ago
How? The blockchain doesn't store names or SSNs for every address. If the victim/user uses a mixer they can get their coins out easily and anonymously.
- chrisjc 4y ago
  I've been watching some of Coffeezilla's videos lately and he often gets into the analysis of "following the money" from one crypto wallet to another to show how lots of his subjects conducted their scams. Were these individuals just sloppy (probably) or is there some kind of forensic analysis that can be performed blockchains to trace the path of tokens/funds/credits through a mixer? Although I know nothing about crypto, blockchain, defi, I imagine credits/tokens/funds can be split and merged in every imaginable way by a "mixer" and transactions can probably occur across different blockchains via exchanges as well as occur outside in the real world, but I'm curious about any sort of signal that might be extracted from such analysis, other than signals arising from just pure sloppiness. BTW, I'm not disputing your asserting about being able to track people... more about breadcrumbs in general, even if they're anonymous.
  - yellow_lead 4y ago
    I watch those videos as well but many of those influencers are dumb enough to put their wallets in their twitter bios (eg their ENS names), or its because they are linked to their project from the flow of large amounts of tokens.
  - limaoscarjuliet 4y ago
    You are anonymous as long as you have not used your wallet somewhere where you can be identified. Read about "welcome to video" child porn bust possible due to chainanalysis. From https://www.wired.com/story/tracers-in-the-dark-welcome-to-video-crypto-anonymity-myth/ https://www.wired.com/story/tracers-in-the-dark-welcome-to-v... Chainalysis had combined these techniques for de-anonymizing Bitcoin users with methods that allowed it to “cluster” addresses, showing that anywhere from dozens to millions of addresses sometimes belonged to a single person or organization. When coins from two or more addresses were spent in a single transaction, for instance, it revealed that whoever created that “multi-input” transaction must have control of both spender addresses, allowing Chainalysis to lump them into a single identity. In other cases, Chainalysis and its users could follow a “peel chain”—a process analogous to tracking a single wad of cash as a user repeatedly pulled it out, peeled off a few bills, and put it back in a different pocket. In those peel chains, bitcoins would be moved out of one address as a fraction was paid to a recipient and then the remainder returned to the spender at a “change” address. Distinguishing those change addresses could allow an investigator to follow a sum of money as it hopped from one address to the next, charting its path through the noise of Bitcoin’s blockchain.
- pjc50 4y ago
  Note that everybody who uses a mixer is potentially participating in money laundering, sanctions evasion, etc. The whole premise is that you put money in and are given some different money out. But where does your money that you originally put in go? If it went to North Korea, congratulations on your crime.
  - yellow_lead 4y ago
    I would be interested if you've heard of any prosecutions against individuals solely for using a mixer. In itself, I don't believe that it is illegal to use a mixer, but it is likely illegal to operate a mixer in most countries.
    - aaaaaA3 4y ago
      I've been convicted of money laundering in an European country for far less than using a mixer, so probably yes. I merely sold 5000 euros worth of bitcoin to a Chinese OTC exchanger. There wasn't any real legal theory behind the charges. The court and prosecutor just assumed without any evidence that 1) the money must have been from criminal source and 2) I was using the Chinese exchanger specifically to obscure the source of those funds and not because he was someone I'd been working with since before cryptocurrencies existed. I received a suspended sentence, wasn't worth appealing to recover the 5000 euros. Wasn't gonna get rid of the suspended sentence, there were counts I was totally guilty of.
      - yellow_lead 4y ago
        Wow, that sounds shitty - sorry.

jerf 4y ago

This is an important aspect of the financial world to understand, because a lot of things work this way. It doesn't have to be a "Ponzi scheme", this happens anywhere where a lot of people pool money together, nominally have an agreement that they can withdraw whenever they like, and that money is used for something illiquid, regardless of the reason for the illiquitity, resulting in a situation where if too many people withdraw at once, the fund can't cover it. Ponzi schemes are an extreme example, because the fund is illiquid because it lied about its investments and simply stole the funds, meaning there's absolutely no way to cover. But there's a lot of ways this can occur. This basically describes a "bank run"; you nominally have an agreement you can withdraw your cash at any time, but if everybody does it at once there's a problem because the bank is using it to do things like fund mortgages, which can not simply be called back in instantly if needed. Even if the bank has the right to do that, and for various things it sometimes does (taking "financial instrument" generally and not just "US mortgage"), it would still be squeezing blood from a stone; they can demand it but it doesn't mean they'll get it. In recent news, Blackrock suspended withdrawing from a UK real estate fund, because investors have been withdrawing at a rate that would require them to liquidate their holdings at fire sale rates, further depressing the fund's value: https://uk.finance.yahoo.com/news/blackrock-halts-withdrawals-3-5-154532016.html https://uk.finance.yahoo.com/news/blackrock-halts-withdrawal... Same sort of thing. No "Ponzi" scheme here; there's some legitimate financial stress, but that stress would only be exacerbated by letting everyone withdraw. (Whether you agree that it is justified to halt withdrawals in this case or not, I'm just using it as an example of the generality of this structure.) I can't pull it up quickly in a news article because I'm not coming up with the right search terms to pull it out of the noise of constant financial news, but when Janet Yellen was Treasury Secretary, she had floated a trial balloon about trying to fix this incentive problem with bank runs against real banks with the same sort of clawback scheme, the idea being to disincentivize a bank run in the first place by making it so you don't get the pattern where the first few people get all their stuff and everybody else loses everything, which is a huge contributor to the run occurring in the first place. The game theory on this one gets a bit complicated if you think about it. e.g., OK, if everybody else is going to sit tight because this scheme incentivizes them to stay in the bank, then it's safe for me to withdraw everything because the bank run was prevented in the first place. If they then hold things together "long enough", then I can say I did it for my own reasons, not the bank run that was delayed for six months while everyone else sat tight, before an ultimate collapse. But if everybody thinks that way... etc. Not clear to me whether this can actually prevent bank runs, which I mean straight, not as a weak sarcastic "no this obviously wouldn't work". Not clear. Complicated analysis. This structure is not intrinsically morally wrong or anything. It's a basic tool, and you need some kind of structure to bridge between high liquidity and low liquidity like that, and such a thing will intrinsically have some "impedance mismatch" to it, to use a favorite technical metaphor. But it does have a certain amount of risk intrinsic to it that can be a bit difficult to characterize; the problem is that a given instance of it failing is likely to be highly correlated with a lot of other instances of it failing at the same time. Naive analysis of the risk is utterly inadequate, and being sophisticated and correct about it is easier said than done.

itsoktocry 4y ago

>It would seem to set up a situation where your incentive, if you suspect a Ponzi scheme, is to quietly withdraw your money early then keep your mouth shut. How so? Law enforcement can claw it back, and the earlier you withdraw, the less your gains.

Scoundreller 4y ago
The limits depends on the jurisdiction. And harder to claw back funds after you’re already dead and the estate has been settled. Or you’ve already spent it all.
- saghm 4y ago
  I feel like I'm missing something here. Are you saying the optimal strategy is to withdraw early, keep your mouth shut, and then...die? Are these schemes usually long-lasting enough that a non-trivial number of people who invest early would be expected to die by the time they're discovered?
  - drunkonvinyl 4y ago
    As long as you don’t claw back after you die.
- maerF0x0 4y ago
  > Or you’ve already spent it all. This is only true if you never have income in the future. They can garnish and/or reach in and take other assets

themitigating 4y ago

Or move to another country without extradition, something I'm surprised more people don't do.

pjc50 4y ago
There are a lot fewer of those than you expect. And of course if you need to do that, you can never come back to see your family even for a visit.
- fortuna86 4y ago
  statute of limitations?
  - hermitdev 4y ago
    I'm not a lawyer, but I think statute of limitations only protects you against charges being filed for a crime performed X years ago. It doesn't protect you if you run from charges for X years.
    - fortuna86 4y ago
      so the timer only begins when you are in a certain jurisdiction? That seems unenforceable..
- themitigating 4y ago
  Right but to avoid jail or even the potential of jail.

vkou 4y ago

No, it doesn't, because all Ponzi schemes will always unravel. Keeping quiet isn't going to help you. What this does is it creates an incentive to not invest in a ponzi, period. Without this rule, it makes sense for me to invest into something that I think is a Ponzi, as long as I believe that I'll be able to cash out before it collapses.

eastbound 4y ago
Aren’t Ponzi schemes based on people being gullible? To protect gullible people from falling victim, we ask them to foresee in advance that they’ll fall into a Ponzi scheme…