The simplest form of investment scam is that you promise people some attractive return on their investment […] There are two basic approaches, which are:

A reasonable return, or
An insane return.

The first approach was made famous by Bernie Madoff […] The advantage of this approach is that it can attract sophisticated investors: Madoff was able to raise money from rich people and funds-of-funds because, in their obviously flawed due diligence, they concluded that the returns he promised were plausible. […]

The second approach […] you mostly don’t want sophisticated investors. It is plausibly harder to trick sophisticated investors than it is to trick unsophisticated ones. This is like why advance-fee scam emails have lots of typos: “By sending an initial email that’s obvious in its shortcomings, the scammers are isolating the most gullible targets.” Promising a 1,000,000% return ensures that you never end up talking to anyone but the most gullible possible marks. […] Here’s a good Securities and Exchange Commission enforcement action against an alleged vaguely crypto-ish fraud: […]

According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of Michigan, Chandran, Davidson, Glaspie, Knott, and Mossel falsely claimed that investors could generate extravagant returns by investing in a blockchain technology called CoinDeal that would be sold for trillions of dollars to a group of prominent and wealthy buyers. […]

Chandran, a recidivist securities law violator and convicted felon, claimed to own a unique blockchain technology that was on the verge of being sold for trillions of dollars to a group of reputable billionaire buyers (“CoinDeal”). Chandran further claimed his business required interim financial support until the sale transaction closed. Together with and through other named Defendants, Chandran targeted mostly unsophisticated investors with false and misleading promises and representations that investments in CoinDeal would soon yield extremely high returns from the imminent sale of his business. Ultimately, there was no sale, and no distribution of proceeds, because CoinDeal was a sham. […]

Chandran typically provided status updates on the supposed deal, including but not limited to: the involvement of foreign central banks and the United States Department of Homeland Security; the latest board meetings of the consortium of wealthy buyers; the role of certain political figures; and the causes of “temporary” delays to the sale closing. These updates were designed to lull investors and induce them to continue investing in CoinDeal. […]

Then of course the “deal” would not close and there would be excuses, which included “the engineer … called in sick yesterday” and “the bank wants a new set of documents.” […] My favorite part, though, might be the section about Linda Knott. According to the SEC complaint, she didn’t know these people, and wasn’t in any real sense a part of their alleged scam. She just used their alleged scam as a substrate to run her own alleged scam:

In February 2021, Knott learned of CoinDeal through one of Glaspie’s teleconferences […] Knott started collecting funds for CoinDeal through an investor group called Together We Profit. Together We Profit was a loose arrangement of individuals interested in participating in CoinDeal. … Knott facilitated investment by lowering the barrier to entry for CoinDeal by allowing prospective investors to participate for as little as $27, which was lower than the amounts permitted by Glaspie. […] While Knott assured investors she would transmit all of their funds to CoinDeal, that was false. She enriched herself by misappropriating approximately $79,000 or more for personal use and purposes unrelated to CoinDeal.

{ Bloomberg | Continue reading }

…Axie is tied to crypto markets. Players get a few Smooth Love Potion (SLP) tokens for each game they win and can earn another cryptocurrency, Axie Infinity Shards (AXS), in larger tournaments. The characters, themselves known as Axies, are nonfungible tokens, or NFTs, whose ownership is tracked on a blockchain, allowing them to be traded like a cryptocurrency as well. […]

Axie’s creator, a startup called Sky Mavis Inc., heralded all this as a new kind of economic phenomenon: the “play-to-earn” video game. “We believe in a world future where work and play become one,” it said in a mission statement on its website. “We believe in empowering our players and giving them economic opportunities. Welcome to our revolution.” […]

Andrew Yang called web3 “an extraordinary opportunity to improve the human condition” and “the biggest weapon against poverty that we have.” By the time Yang made his proclamations the Axie economy was deep in crisis. It had lost about 40% of its daily users, and SLP, which had traded as high as 40 cents, was at 1.8 cents, while AXS, which had once been worth $165, was at $56. To make matters worse, on March 23 hackers robbed Sky Mavis of what at the time was roughly $620 million in cryptocurrencies. Then in May the bottom fell out of the entire crypto market. AXS dropped below $20, and SLP settled in at just over half a penny. Instead of illustrating web3’s utopian potential, Axie looked like validation for crypto skeptics who believe web3 is a vision that investors and early adopters sell people to get them to pour money into sketchy financial instruments while hackers prey on everyone involved.

{ Bloomberg | Continue reading }

{ large, printable PDF }

On Sept. 16, 2008, the day after Lehman Brothers filed for bankruptcy, the Reserve Primary Fund “broke the buck”: Its net asset value fell below $1 per share. The fund — often called the first money-market fund — held $785 million of Lehman commercial paper that was suddenly worthless. Although the paper represented only 1.2% of the fund’s total assets of $64.8 billion, demands for withdrawals escalated, and the fund lost two-thirds of its assets within 24 hours. This triggered a general run on money-market funds that stopped only when the U.S. Treasury issued an extraordinary guarantee of essentially all money-market fund liabilities. The episode underscored how important that $1 net asset value is to investors.

Certain cryptocurrencies known as stablecoins are today’s economic equivalent of money-market funds, and in some cases their practices should have us worried that they could break the buck, creating significant damage in the broader crypto market.

One such stablecoin is Tether. With a market capitalization close to $60 billion, it is almost as big as the Reserve Fund was in 2008. Each Tether token is pegged to be equivalent to $1. But, as with the Reserve Primary Fund, the true value of those tokens depends on the market value of Tether’s reserves — the portfolio of investments made with the fiat currency it receives.

Tether recently disclosed that as of March 31, only 8% of its assets were in cash, Treasury bills and “reverse repo notes.” Almost 50% was in commercial paper, but no detail was provided about its quality. “Fiduciary deposits” represented 18%. Even more troubling: 10% of total assets were in “corporate bonds, funds & precious metals,” almost 13% were in “secured loans (none to affiliated entities),” and the remainder in “other,” which includes digital tokens.

{ Bloomberg | Continue reading }

oil on canvas { Picasso, Still Life with Skull, Leeks, and Pitcher, March 14, 1945 }

Recognizing that most are not familiar with decentralized finance, or DeFi, details are in order. DeFi does not use an order book like regulated exchanges. Instead, it has over 72,000 liquidity pools. Anyone can be a liquidity provider to these pools or even start one and earn interest (more coins) for their effort. Traders use these liquidity pools to trade cryptos. The entire protocol is run by computer code called an automatic market maker. No humans are involved in the trading on these exchanges.

The largest decentralized exchange is Uniswap. To access it, one must use an electronic wallet away from a regulated exchange and connect it to uniswap.org. This exchange allows customers to trade several thousand different cryptos. Uniswap founder Hayden Adams tweeted that Uniswap executed $6.3 billion of trades on Wednesday, well above Coinbase’s first-quarter average of $3.7 billion. Uniswap experienced no downtime and no slow service. No customer lost money because the exchange let them down.

{ Bloomberg | Continue reading }

oil on canvas on two joined panels { Ellsworth Kelly, Orange Red Relief, 1959 }

related { Around 4.5% of all bitcoin mining takes place in Iran }

related { Crypto-mining gangs are abusing the free tiers of cloud computing platforms — They have been operating by registering accounts on selected platforms, signing up for a free tier, and running a cryptocurrency mining app on the provider’s free tier infrastructure. }

Twelve years on, cryptocurrencies play almost no role in normal economic activity. Almost the only time we hear about them being used as a means of payment — as opposed to speculative trading — is in association with illegal activity, like money laundering or the Bitcoin ransom Colonial Pipeline paid to hackers who shut it down.

Twelve years is an eon in information technology time. Venmo, which I can use to share restaurant bills, buy fresh fruit at sidewalk kiosks, and much more, was also introduced in 2009. Apple unveiled its first-generation iPad in 2010. Zoom came into use in 2012. By the time a technology gets as old as cryptocurrency, we expect it either to have become part of the fabric of everyday life or to have been given up as a nonstarter. […]

Yet investors continue to pay huge sums for digital tokens. […] Their collective value has, however, at times exceeded $2 trillion, more than half the value of all the intellectual property owned by U.S. business.

Why are people willing to pay large sums for assets that don’t seem to do anything? The answer, obviously, is that the prices of these assets keep going up, so that early investors made a lot of money, and their success keeps drawing in new investors.

This may sound to you like a speculative bubble, or maybe a Ponzi scheme — and speculative bubbles are, in effect, natural Ponzi schemes. But could a Ponzi scheme really go on for this long? Actually, yes: Bernie Madoff ran his scam for almost two decades, and might have gone even longer if the financial crisis hadn’t intervened.

Now, a long-running Ponzi scheme requires a narrative — and the narrative is where crypto really excels. […]

are cryptocurrencies headed for a crash sometime soon? Not necessarily. One fact that gives even crypto skeptics like me pause is the durability of gold as a highly valued asset. Gold, after all, suffers from pretty much the same problems as Bitcoin. People may think of it as money, but it lacks any attributes of a useful currency: You can’t actually use it to make transactions — try buying a new car with gold ingots — and its purchasing power has been extremely unstable. […]

It’s conceivable that one or two cryptocurrencies will somehow achieve similar longevity.

Or maybe not. For one thing, governments are well aware that cryptocurrencies are being used by bad actors, and may well crack down in a way they never did on gold trading.

The good news is that none of this matters very much. Because Bitcoin and its relatives haven’t managed to achieve any meaningful economic role, what happens to their value is basically irrelevant to those of us not playing the crypto game.

{ Paul Krugman/NY Times | Continue reading }

related { Whatever Bitcoin Is, It Isn’t Acting Like Money }

In February, after reading a Reddit thread about Dogecoin’s potential, Mr. Contessoto decided to go all in. He maxed out his credit cards, borrowed money using Robinhood’s margin trading feature and spent everything he had on the digital currency — investing about $250,000 in all. […] The value of his Dogecoin holdings today? Roughly $2 million. […]

He is also emblematic of a new kind of hyper-online investor who is winning by applying the skills of the digital attention economy — sharing memes, cultivating buzz, producing endless streams of content for social media — to the financial markets. These investors, mostly young men, don’t behave rationally in the old-fashioned, Homo economicus sense. They pick investments not based on their underlying fundamentals or the estimates of Wall Street analysts, but on looser criteria, such as how funny they are, how futuristic they seem or how many celebrities are tweeting about them. […]

These investors, mostly young men, don’t behave rationally in the old-fashioned, Homo economicus sense. They pick investments not based on their underlying fundamentals or the estimates of Wall Street analysts, but on looser criteria, such as how funny they are, how futuristic they seem or how many celebrities are tweeting about them. Their philosophy is that in today’s media-saturated world, attention is the most valuable commodity of all, and that anything that is attracting a great deal of it must be worth something.

{ NY Times | Continue reading }

Apparently someone sat Elon Musk down and told him where Bitcoins come from […] The funny move here would be if Tesla Inc. had dumped all its Bitcoins at the highs. […] The source of value for Bitcoin is not its use as a currency or economic importance; the source of value for Bitcoin — for everything — is simple proximity to Elon Musk. […]

Mark Zuckerberg shared a picture of his pet goats on Monday, introducing them to the world as Bitcoin and Max.

{ Bloomberg | Continue reading }

related { Tesla’s Musk halts use of bitcoin for car purchases }

For a few minutes during trading on Wednesday, for example, the price of Ethereum Classic jumped well above $100 on the Coinbase exchange. The digital token was trading at less than $80 at other venues, offering an obvious opportunity for investors to make money simply by buying in one place and selling in another.

{ Bloomberg | Continue reading }

if you want to build a global taxi service that people can hail from a smartphone app, one way to do it is to coordinate with the taxi commissions of hundreds of cities to get regulatory approvals and make sure that you comply with local requirements, and another way to do it is to completely ignore those regulations and just launch your app everywhere. The second approach might expose you to ruinous fines or shutdown orders or bad publicity or prison, but it also might work; you might end up so popular in so many places that the local regulators can’t ban you and will have to accept your proposed terms. […]

If you want to build self-driving cars, you will need to test them. […] [a] way to test them is to just send out a bunch of cars to drive themselves everywhere, without asking for permission, and see what happens. […]

Federal agencies say he’s breaking the rules and endangering people. Mr. Musk says they’re holding back progress. […] When asked to comment on the specifics of this article, Mr. Musk replied with a “poop” emoji.

{ Matt Levine/Bloomberg | Continue reading }

previously:

Driverify [cryptocurrency]: Developed by Tesla’s self-driving-car division. Cars mine Driverify with spare computing power while idling, and spend it bidding against each other for right-of-way if they arrive at a four-way stop sign at the same time (users can preprogram how aggressively their cars bid in these auctions). […]

Banned [by the SEC] because: in the Phoenix suburb where the system was being tested, a pedestrian and Driverify-equipped car reached an intersection at the same time. The car dutifully wired a bid, but the pedestrian failed to respond. The car interpreted this as a bid of zero and ran into her.

{ Astral Codex Ten | Continue reading }

related { NASA suspends SpaceX’s $2.9 billion moon lander contract after rivals protest }

The horses in these online races are NFTs, or “nonfungible tokens,” meaning they exist only as digital assets. […] But unlike the vast majority of NFTs each digital horse constitutes a “breathing NFT.” […] “It can breed, has a bloodline, has a life of its own. It races, it has genes it passes on, and it lives on an algorithm so no two horses are the same.” […]

One player sold a stable full of digital racehorses for $252,000. Another got $125,000 for a single racehorse. So far, more than 11,000 digital horses have been sold on the platform.

{ NY Times | Continue reading }

image { “Disaster girl” makes $500,000 in NFT sale of her viral meme }

NYC man sells fart for $85, cashing in on NFT craze […] Ramírez-Mallis and his fellow farters compiled the recordings into a 52-minute “Master Collection” audio file. Now, the top bid for the file is currently $183. Individual fart recordings are also available for 0.05 Ethereum, or about $85 a pop.

{ NY Post | Continue reading }

unrelated { Illegal Content and the Blockchain }

Under U.S. law, as soon as a work of art in any medium is created, the creator owns the copyright in that work. […] When we talk about “copyright”, we’re really talking about multiple rights (sometimes called a “basket of rights”). These include the right to control who makes copies of the original work […]

Typically, when someone buys a work of physical art, they are only purchasing the physical object. They are not purchasing the copyright in the work. […]

So if you own an original oil painting, you can display it in your home or wherever you want, and you can sell or loan the painting to someone, but you can’t make copies of it, sell prints, or make new works based on the original. […]

if you buy an NFT, my presumption is that you are only buying ownership in the NFT itself. You are not buying the copyright, unless there is a written contract […]

if I buy an NFT, and then I post it to Instagram with the message “Check out this cool NFT that I just bought!”, that’s creating many more digital copies. But this is true for all kinds of visual art these days, and the artist is free to go to Instagram and file a copyright takedown notice, requesting that the post be removed.

{ David Lizerbram & Associates | Continue reading }

image + header { The meme economy }

Blockchain technology is going to change everything: the shipping industry, the financial system, government … in fact, what won’t it change? But enthusiasm for it mainly stems from a lack of knowledge and understanding. The blockchain is a solution in search of a problem. […]

Once something is in the blockchain, it cannot be removed. For instance, hundreds of links to child pornography and revenge porn were placed in the bitcoin blockchain by malicious users. It’s impossible to remove those.

Also, in a blockchain you aren’t anonymous, but “pseudonymous”: your identity is linked to a number, and if someone can link your name to that number, you’re screwed. Everything you got up to on that blockchain is visible to everyone. 

The presumed hackers of Hillary Clinton’s email were caught, for instance, because their identity could be linked to bitcoin transactions. A number of researchers from Qatar University were able to ascertain the identities of tens of thousands of bitcoin users fairly easily through social networking sites. Other researchers showed how you can de-anonymise many more people through trackers on shopping websites.

The fact that no one is in charge and nothing can be modified also means that mistakes cannot be corrected. A bank can reverse a payment request. This is impossible for bitcoin and other cryptocurrencies. So anything that has been stolen will stay stolen. There is a continuous stream of hackers targeting bitcoin exchanges and users, and fraudsters launching investment vehicles that are in fact pyramid schemes. According to estimates, nearly 15% of all bitcoin has been stolen at some point. And it isn’t even 10 years old yet.

And then there’s the environmental problem. The environmental problem? Aren’t we talking about digital coins? Yes, which makes it even stranger. Solving all those complex puzzles requires a huge amount of energy. So much energy that the two biggest blockchains in the world – bitcoin and Ethereum – are now using up the same amount of electricity as the whole of Austria.

Carrying out a payment with Visa requires about 0.002 kilowatt-hours; the same payment with bitcoin uses up 906 kilowatt-hours, more than half a million times as much, and enough to power a two-person household for about three months. […]

And for what? This is actually the most important question: what problem does blockchain actually solve? OK, so with bitcoin, banks can’t just remove money from your account at their own discretion. But does this really happen? I have never heard of a bank simply taking money from someone’s account. If a bank did something like that, they would be hauled into court in no time and lose their license. Technically it’s possible; legally, it’s a death sentence. 

{ The Correspondent | Continue reading }

acrylic, fluorescent acrylic and Roll-a-Tex on canvas { Peter Halley, Iss, 2019 }

Some luxury brands have started adding surveillance to their arsenal, turning to blockchains to undermine the emergence of secondary markets in a way that pays lip service to sustainability and labor ethics concerns. LVMH launched Aura in 2019, a blockchain-enabled platform for authenticating products from the Louis Vuitton, Christian Dior, Marc Jacobs, and Fenty brands, among others. Meanwhile, fashion label Stella McCartney began a transparency and data-monitoring partnership with Google for tracking garment provenance, discouraging fakes and promising to ensure the ethical integrity of supply chains. Elsewhere, a host of fashion blockchain startups, including Loomia, Vechain, and Faizod, have emerged, offering tracking technologies to assuage customer concerns over poor labor conditions and manufacturing-related pollution by providing transparency on precisely where products are made and by which subcontractors. […]

Companies such as Arianee, Dentsu and Evrythng also aim to track clothes on consumers’ bodies and in their closets. At the forefront of this trend is Eon, which with backing from Microsoft and buy-in from mainstream fashion brands such as H&M and Target, has begun rolling out the embedding of small, unobtrusive RFID tags — currently used for everything from tracking inventory to runners on a marathon course — in garments designed to transmit data without human intervention. […]

According to the future depicted by Eon and its partners, garments would become datafied brand assets administering access to surveillance-enabled services, benefits, and experiences. The people who put on these clothes would become “users” rather than wearers. In some respects, this would simply extend some of the functionality of niche wearables to garments in general. Think: swimsuits able to detect UV light and prevent overexposure to the sun, yoga pants that prompt the wearer to hold the right pose, socks that monitor for disease risks, and fitness trackers embedded into sports shirts. […]

According to one potential scenario outlined by Eon partners, a running shoe could send a stream of usage data to the manufacturer so that it could notify the consumer when the shoe “nears the end of its life.” In another, sensors would determine when a garment needs repairing and trigger an online auction among competing menders. Finally, according to another, sensors syncing with smart mirrors would offer style advice and personalized advertising.

{ Real Life | Continue reading }

related { Much of the fashion industry has buckled under the weight of the coronavirus — it appears to have sped up the inevitable }

related { Spite fence | Fontainebleau Hotel Corp. v. Forty-Five Twenty-Five, Inc }

Bitcoin Is Worth Less Than the Cost to Mine It

The production-weighted cash cost to create one Bitcoin averaged around $4,060 globally. […] With Bitcoin itself currently trading below $3,600, that doesn’t look like such a good deal. However, there’s a big spread around the average. […] Low-cost Chinese miners are able to pay much less — the estimate is around $2,400 per Bitcoin — by leveraging direct power purchasing agreements with electricity generators such as aluminum smelters looking to sell excess power generation.

{ Bloomberg | Continue reading }

art { Marcel Duchamp, 3 stoppages-étalon, 1913-14 | MoMA, NYC | Centre Pompidou, Paris }

Brooklyn-based blockchain software technology startup and Ethereum development studio ConsenSys has acquired asteroid mining company Planetary Resources, Inc. through an asset-purchase agreement. […]

ConsenSys is a production studio that creates enterprises in a wide range of business areas based on the Etherium platform for cryptocurrency and other blockchain applications. It has spawned 50 ventures, or “spokes,” including an online poker site, a legal services site and a “transmedia universe integrated with blockchain technology” called Cellarius. […]

Planetary Resources was founded in its present form in 2012, with initial backing from billionaires including Larry Page, Eric Schmidt, Ross Perot Jr. and Charles Simonyi. Its original mission was to identify and mine near-Earth asteroids for valuable resources, ranging from water that could be converted into rocket fuel to platinum-group metals that could conceivably be sent back to Earth.

Over the course of six years, the venture raised tens of millions of dollars and explored other potential revenue streams, including space telescope manufacturing, space selfies and an Earth-observation constellation called Ceres. […] But an anticipated funding round failed to come together, leading to a wave of staff cutbacks.

{ GeekWire | Continue reading }

related { Cryptocurrency Pump-and-Dump Schemes }

photo { Model of a Tyrannosaurus Rex, 1936 }

KODAKOne is a Flawed Concept that Will Never Deliver Promised Benefits. The KODAKCoin Team has Zero Credibility. Kodak KashMiner is a Scam. KODAKOne is a Sham. Below we provide the basis for why we think the equity is worthless.

Kodak Says Scammers Are Already Selling Fraudulent KodakCoins

Most digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value as they’re replaced by a small set of future competitors, according to Goldman Sachs Group Inc.’s global head of investment research

{ Shares of Eastman Kodak surged 40 per cent to $4.40 on Tuesday after it announced that it had partnered with Wenn Digital to launch a blockchain-based image-rights management platform, KODAKOne, and KODAKCoin }