Bitcoin

Goldman’s Own Bitcoin And The $20M Bitcoin Ponzi Scheme

Could Goldman-coin be next?

Well, it won’t exactly be called that, but maybe something along those lines.

New reports indicate that Goldman Sachs is looking to develop its own version of bitcoin to be used for trading stocks, bonds and other types of assets across a distributed ledger-like settlement system. This information comes via a patent application.

The actual virtual currency is coined, haha, SETLCoin, according to the patent application, and its goal is to streamline security trading and the settlement of such trades. The patent was filed last year, but was just recently published and available for public viewing.

The selling point, according to the patent filing, is the ability to manage trades faster and cheaper. Currently, those settlements take days before all of the necessary items change hands. A digital currency could change that process. But on the flip side, there’s a slew of regulatory issues that may have to be considered.

Where Goldman’s digital currency comes into play is to eliminate the time between trades, which is where deals have the potential to fall through. In some cases, a Quartz article on the subject points out, there are companies that go bankrupt during the trading process and that leaves them without delivering on the deal.

Goldman Sachs claims that its SETLCoin guarantees “nearly instantaneous execution and settlement.”

And while everyone is comparing this virtual currency to bitcoin, it’s certainly not that. But it is interesting to see the investment banks hopping on the digital currency bandwagon. Citi, of course, announced a similar initiative a few months back  — the Citicoin.

Bitcoin Ransom Strikes Again

Greece has made major headlines twice in recent months related to bitcoin. Both the type of thing that expect but for different reasons.

First, bitcoin made headlines when the Greek debt crisis hit, as the so-called “bright spot” for the financially struck country and the people living in it who might be searching for a way to get money out of the country.

Now, bitcoin is back in the news in Greece, but this time the headlines are about bitcoin hackers. New reports show that Greek banks were breached by hackers three times in five days. And held for ransom. And we will give you three guesses with respect to what the hackers wanted in terms of ransom payment.

Bitcoin, of course.

The hacking group demanded a bitcoin ransom during the attacks — saying that if they weren’t paid that they would take down the banks’ websites. And they delivered on those threats, as they crashed the sites and disrupted electronic transfers.

“No bank responded to this extortion, so the same hackers tried again at the weekend and today,” a police official said, according to the Financial Times. “But we had strengthened our defense in the meantime, so no disruptions took place.”

In the case of three banks, they were demanded to pay out 20,000 bitcoin. A central bank official noted that their cyber experts are monitoring the situation and will continue to track the bank’ systems. They were also to add security capacity with help from local Internet service providers.

“In effect, they say: ‘Give us bitcoin or we will take you off the Internet,’” Paul Vlissidis, technical director at cybersecurity group NCC, told Financial Times. “They claim to be able to do significant amounts of damage.”

Vlissidis added that the level of ransom demanded by the group — often the equivalent of only a few thousand pounds — was “targeted at a level where there’s a temptation just to pay it and make it go away.”

The $20M Bitcoin Mining Ponzi Scheme

Another day, another bitcoin mining scheme that’s got the attention of the Feds. This time, the SEC has its eye on a Vermont man and companies purported to be involved in illegal bitcoin mining operations through a Ponzi scheme that resulted in 10,000 people losing $20 million.

The SEC claims the man involved created two bitcoin mining companies only to lure potential customers in with a get-rich quick scheme. But that was only used to defraud those investors, the claim said.

The complaint, which was filed in federal court by the SEC, lists the civil fraud charges that the government is accusing of Homero Joshua Garza, who they claim violated federal security laws. According to a Forbes piece on the case, this is the second case involving a bitcoin-based Ponzi scheme that the SEC has gotten involved in.

The SEC claims that he used his company to purchase bitcoin mining equipment that could be used to resell it later to its customers. Since the bitcoin mining process became popular, many have gotten involved in the industry, which means many have also failed to make a legit practice out of it. Bitcoin mining involves adding the transaction records to bitcoin’s blockchain. It involves applying computer power to try to solve complex equations that verify a group of transactions in that virtual currency.

According to the SEC’s complaint, the investors paid for a share of computing power that never existed.

“As alleged in our complaint, Garza and his companies cloaked their scheme in technological sophistication and jargon, but the fraud was simple at its core: They sold what they did not own, misrepresented what they were selling, and robbed one investor to pay another,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.

Here’s a breakdown of the details, as provided by the SEC:

  • From August 2014 to December 2014, Garza and his companies sold $20 million worth of purported shares in a digital mining contract they called a Hashlet.
  • More than 10,000 investors purchased Hashlets, which were touted as always profitable and never obsolete.
  • Although Hashlets were depicted in GAW Miners’ marketing materials as a physical product or piece of mining hardware, the promised contract purportedly entitled the investor to control a share of computing power that GAW Miners claimed to own and operate.
  • Investors were misled to believe they would share in returns earned by the Bitcoin mining activities when in reality GAW Miners directed little or no computing power toward any mining activity.
  • Because Garza and his companies sold far more computing power than they owned, they owed investors a daily return that was larger than any actual return they were making on their limited mining operations.
  • Therefore, investors were simply paid back gradually over time under the mantra of “returns” out of funds that Garza and his companies collected from other investors.
  • Most Hashlet investors never recovered the full amount of their investments, and few made a profit.

Only in bitcoin-land.

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