I just lately watched ‘Soiled Pop: The Boy Band Rip-off’ on Netflix. I used to be concurrently enthralled and horrified by how Lou Pearlman, the music mogul behind the Backstreet Boys and NSYNC, ran one of many largest Ponzi schemes in American historical past.
Pearlman stole roughly $300 million from buyers, banks, associates, and household. He had satisfied them to put money into firms that both didn’t exist or weren’t as profitable as he claimed. In traditional Ponzi scheme vogue, he used cash from new buyers to pay previous ones earlier than getting caught and finally sentenced to 25 years in jail in 2008.
All through the present, I couldn’t assist however take into consideration how a scalable public blockchain might have prevented Pearlman and different Ponzi conmen like Bernie Madoff from duping their victims. Whereas it’s too late for them, it might forestall the following huge rip-off and save buyers cash and lives.
Public blockchains – the immutable fact machines
In essence, blockchains are public ledgers akin to monetary books. Being public, they’re clear and auditable by anybody.
Opposite to in style opinion, Bitcoin and related techniques should not nameless. Each transaction within the system’s historical past is seen in clear textual content on the general public ledger, and each transaction that happens on it sooner or later will likely be, too.
Moreover, transaction information can’t be altered as soon as they’re confirmed. The ledger’s state is set by decentralized consensus between nodes, and even when information had been up to date, these adjustments could be proven somewhat than overwriting the unique entries.
It’s not troublesome to see how such a system might make Ponzi schemes like Pearlman’s troublesome to hold out. Basically, these scams depend upon holding a number of units of books, creating false transactions to make it look like precise enterprise exercise is going on, and paying older buyers with new buyers’ cash.
Such fraudulent exercise would quickly develop into evident if all information had been seen on a public blockchain—the false exercise wouldn’t present on the ledger, and it could be inconceivable to erase or cowl up previous ones. Anybody with primary sample detection expertise might rapidly discover out that new deposits had been paying out previous buyers.
Higher but, blockchains would make it straightforward to verify or expose claims like the kind Lou Pearlman made to entice buyers. Buyers would want solely to ask for money positions, property, and money movement, they usually might verify claims towards the general public information on the blockchain. It might be so simple as saying, “inform me your pockets addresses,” and verifying their balances and transaction histories.
AI analytics can supercharge fraud detection
Mixed with synthetic intelligence (AI)-powered analytics, blockchain tech makes it a lot simpler for regulators and legislation enforcement to identify scams and alert buyers. Whereas some suspicious exercise may make it previous particular person buyers’ radars, it could be unlikely to take action if regulators with superior analytics instruments had been scanning information and on the lookout for crimson flags.
In a nutshell, public scalable blockchains get rid of the necessity for belief. What scammers like Lou Pearlman or Madoff declare may very well be verified or uncovered as lies, eliminating the necessity to depend on their phrase. There could be one set of immutable monetary books with a transaction historical past that nobody can manipulate.
Given how Pearlman’s Ponzi scheme precipitated his lifelong good friend, Jerome Rosen, to take his life and the way Madoff’s con led to dozens of suicides, we should transfer to a blockchain-based monetary system as quickly as potential.
The following huge Ponzi may very well be working as we speak or coming to a venue close to you quickly, and it may be prevented by shifting to a system the place information will be publicly audited, verified, and falsified. For this to occur, blockchains have to be public, scalable, and able to many transaction varieties.
In Satoshi Nakamoto’s immortal phrases, we want “one world chain” to create the clear, sincere world he hoped to create.
Watch: Breaking down options to blockchain regulation hurdles
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