Thursday, June 1, 2017

Hey Kids! Add a Ponziesque Twist to Your Start Up! Talk Slick! Smoke Fat Cigars!

Use exclamation marks!

From FT Alphaville:

It’s not just a Ponzi, it’s a ‘smart’ Ponzi
Hat tip to Bloomberg’s Matt Levine for drawing our attention to this paper from a bunch of academics at the University of Cagliari in Italy examining the Ethereum blockchain’s tendency to incubate Ponzi schemes.

 As a whole, they note, Ethereum has managed to generate an unholy amount of Ponzi schemes in its mere 1.5 years of existence. Moreover, the paper doesn’t even account for the recent spell of ICO madness. (Current market cap of the cryptocurrency sector: $85bn, btw.)

The uniqueness of the “smart Ponzi” is its capacity to protect the identity of the initiator but also its ability to persist even after being exposed. Since contracts are unmodifiable and thus unstoppable there is no central authority to terminate the execution of the scheme or force the initiator to refund victims. What’s more, the inability to shut it down means victims can be led to believe the scheme will last forever.

Fascinatingly, the academics add, not all the smart-contract based Ponzis are even public. Many are “hidden” and run by operators who hide the associated addresses — so what we’re seeing may just be the tip of the iceberg.

Here’s the conclusion of the paper, with the most interesting bits highlighted by us:
Blockchains and smart contracts might really be the next “disruptive” technology, as many companies, newspapers, and researchers start to believe. However, they can also offer new opportunities to tax-evaders, criminals, and fraudsters, who can take advantage of their anonymity and decentralization. In this survey we have analysed the impact of Ponzi schemes on Ethereum, the most flexible and widespread platform for smart contracts so far, with a market capitalization that has reached $8 billion....MUCH MORE