Ponzi Allegations and Patent Applications: Bitcoin Headlines

Yessi Bello Perez
Dec 4, 2015 at 21:15 UTC
Updated Feb 4, 2019 at 22:24 UTC
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Bitcoin in the Headlines is a weekly analysis of industry media coverage and its impact.

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This week’s coverage is a testament of just how varied things in the bitcoin space can really get.

On the one hand, many mainstream media sources ran stories on the US Securities and Exchange Commission’s indictment of the now-defunct cryptocurrency mining firm GAW Miners for alleged securities fraud.

At the opposite end of the spectrum, Wall Street investment bank Goldman Sachs – which participated in Circle’s $50m funding round earlier this year – made headlines after a patent application for its own cryptocurrency came to light.

SEC action

As reported by CoinDesk, the SEC charged GAW Miners, ZenMiner and CEO Josh Garza with the fraudulent sale of unlicensed securities and the operation of a Ponzi scheme. The indictment comes months after the collapse of the firm, which floundered under growing scrutiny of its mining operations and the launch of its own cryptocurrency, paycoin.

The news of the SEC action spread quickly in the mainstream media, including Reuters, Fox Business and the BBC.

Writing for Ars Technica, Cyrus Farivar wrote a piece entitled ‘Over 10,000 People Were Duped By Bitcoin Mining Startup, Feds Say‘.

“The implosion of GAW Miners marks yet another example of incompetence and possible criminal behaviour associated with companies selling bitcoin mining hardware. Previously, CoinTerra, Butterfly Labs, and HashFat also faced similar legal battles,” he noted.

In early 2014, the journalist continued, GAW Miners was first introduced to the bitcoin community by reselling mining rigs sourced from outside the United States. The company then pivoted to hardware hosting, cloud-based mining and, later, the launch of paycoin.

The journalist added:

“For over a year now, there has been active speculation among the Bitcoin community that GAW may be a scam or at least that it could be engaged in illegal behaviour.”

The BBC also ran a piece about the allegations facing Garza. It said:

“Bitcoins are “mined” when computers solve equations that verify user transactions made with the currency. But it is claimed that Hashlets did not have enough processing power to carry out the number of verifications required to properly reward investors.”

The outlet then went on to state that fraud in the bitcoin world was on the rise, citing a lawyer from London-based Selachii, a law firm that works on digital currency issues.

“There are several high-profile bitcoin exchanges I am aware of which appear to be Ponzi schemes,” attorney Richard Howlett told the BBC. “On occasion, a rogue exchange might shut down overnight and claim it was hacked,” he added.

Howlett went to claim that more than 1,000 people affected by both rogue exchanges and mining companies have submitted complaints.

“Until the industry is regulated, this pattern will continue to increase,” he said.

Although it is not the first bank to have applied for a patent in the crypto space, Goldman Sachs’ patent application for a securities settlement system based SETLcoin, a new cryptocurrency, also made headlines this week.

Dated 19th November, the application submitted to the US Patent & Trademark Office application, outlines a “Cryptographic Currency For Securities Settlement” that would enable peer-to-peer participants to exchange cryptographic tokes representing securities, with near-instant settlement.

The Financial Times covered the submission, saying:

“Goldman Sachs has made a patent application for a cryptocurrency settlement system in a move that underlines bank hopes that the architecture behind bitcoin can revolutionise global payments.”

Quartz ran a piece titled ‘Goldman Sachs Wants to Create Its Own Version of Bitcoin‘, which noted the lack of speed in the current settlement process, whilst addressing financial institution’s increasing fascination with blockchain technology.

It added:

“While SETLCoin is a virtual currency, it isn’t bitcoin, which adds to the growing evidence that financial institutions are less interested in bitcoin itself and more intersted in the technology behind bitcoin, known as blockchain.”

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