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Smart Ponzi Games in the Blockchain

Summary:
On the FT’s Alphaville blog, Izabella Kaminska points to a paper by Italian academics arguing that the Ethereum technology tends to incubate Ponzi schemes. 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.

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On the FT’s Alphaville blog, Izabella Kaminska points to a paper by Italian academics arguing that the Ethereum technology tends to incubate Ponzi schemes.

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.

Dirk Niepelt
Dirk Niepelt is Director of the Study Center Gerzensee and Professor at the University of Bern. A research fellow at the Centre for Economic Policy Research (CEPR, London), CESifo (Munich) research network member and member of the macroeconomic committee of the Verein für Socialpolitik, he served on the board of the Swiss Society of Economics and Statistics and was an invited professor at the University of Lausanne as well as a visiting professor at the Institute for International Economic Studies (IIES) at Stockholm University.

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