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.