Things I don't like about altcoins - most of them are scams!
How to recognize a scam from a legit promising cryptocurrency project?
I’ve said it before and I’ll say it again. There is only one true Cryptocurrency in my mind and that is Bitcoin. The rest are mere imitators who are trying to make some money piggybacking off of this brilliant idea. Welcome to my "Things I don't like about altcoins" series where I talk about, well, it's obvious, isn't it?
I don't like that so many of the people behind altcoins are absolute scammers, thereby making their creations scams by association.
I know, I know, what a boomer (all though I'm not), toxic Bitcoin Maximalist (I might be a bit), miserable troll who's just pissed he's not making any money off of altcoins himself (occasionally), ruining the fun for the rest of us.
The vast majority of altcoins are scams. Not all, mind you, not all. Some are well meaning experiments, some even profess visionary ideas for a better future, but most nonetheless. How do I know this?
Well, I've been around this market a few years now and just happen to have a background in the study of criminology. And I have eyes, that doesn’t hurt either. In this short time I’ve seen so many scams, thefts, lies and just all out fraud in this space, it boggles the mind. I almost respect the honesty of a few of these scams, like the one below.
Yes, you’re seeing right. It has “scam” in the name, which makes this joker one of the more honest actors in this space. Ironically.
Some scams are so obvious that one has to wonder how these people haven't been put in jail or how the hell haven't they been shot, after causing so much pain to so many people. Some are less obvious, carefully packaged as good projects, that just happen to go broke at the most inopportune time. Coincidences are a funny thing. Others again simply so technologically complex that one doesn't even know it's a scam until the day of the inevitable rug pull. But mostly, they’re just dreamers with a silly idea and no real chance of making it happen at anything resembling a proper scale. All the money donated in that effort then is but a “donation” to the founders and not much more than that. Poor guys need that new boat, don’t you know?!
The scams come in many shapes and sizes and it is almost impossible to differentiate some of them from legitimate, good projects.
But luckily most of us don't have to. 99.99% of them will meet the same ending. Going to zero! So why bother dealing with them, unless you have to? For instance if you are a hedge fund in Crypto and it's literally your job to do so.
But if you happen to be in such a position, you have the support of IT professionals, programmers, auditors, lawyers and most importantly capital that enables you to travel to these teams and meet them yourself. You also have the wisdom, at least I hope you do, to properly disperse your allocation among the vaporware and get in when the profit is almost guaranteed - before the retail do. Without that, I'm afraid you're just shooting in the dark. Maybe you'll hit something, maybe you won't. Maybe something will instead hit you.
Who among you can say they have all of the above? And if you don’t, how exactly would you define your market edge in the altcoin market?
I know that by labeling most altcoin projects as scams I'm doing a few “knights in shiny ideological armor” an injustice. And I agree that there are problems that need fixing, some of which could indeed be fixed by blockchain technology, although I'm not entirely convinced why you would need a separate chain and coin for that. Most of the problems could probably be solved on layer two solutions, based on the Bitcoin blockchain, with the added security of the latter, but it’s incredibly hard to make money this way. It’s much easier to just publish some mumbo jumbo idea and rejoice in all the “free money” that starts pouring in.
So why then are there so many new chains/coins/projects, with their shiny innovative properties and solutions?
To make money for the founders. That's it. For 99,99% of all altcoins this is the only reason. And make no mistake, the problem of how to finance founders and more importantly developers for a project is very much a real problem in this space. Traditionally this was solved by creating a legal subject, a start-up company for instance, that was financed by venture capital for the most part. And as much as I don't necessarily love the idea of giving these big funds a head start, this is probably still the better way to go about it. I do love the idea that retail gets to partake in this game, but I believe the system of how we go about it thus far, has been flawed to say the least.
Why are there so many scams in this space?
Because it's the frontier line, the wild west, the uncharted territory. It's a mostly unregulated financial space that is easily accessible to everyone. The educational or financial bar for entry is essentially zero. Which is good. I love this absolute freedom. But it does come with its share of traps, monsters, viruses and other dangers. Some of which we are facing for the first time, some of them as old as time. It's a state of anarchy, with virtually no sheriffs to keep you safe, no rules to manage the bad actors. And in such an environment you are the only one responsible for your safety.
With the innovations, come new ways of exploiting, stealing or simply losing money. It's at the same time the easiest way to make a lot of money for the little guy and the easiest way to lose it all. Akin to Wall Street with even less rules and oversight, but this time open to your mother, grandpa and your teen kids. Of course bad things will happen.
There is an old, slightly cruel saying in my part of the world: "The sheep are made for shaving" and here we have a world full of lost sheep and no shepherds to watch over them. Of course there are wolves out there, picking them off one by one.
In reality, this space is too raw for most casual users. It will lure them in with the promise of wealth and spit them out with barely their pants on their asses.
In addition to it all, this is a highly technological space, for which most aren't educated enough. There are so many dangers at every step, so many beasts lurking in the shadows, that most people should stay as far away as possible. Harsh, but true.
And if they cannot, if they simply must be part of this new revolution, they really should do their homework and take it one step at a time. Start extremely small, assume they will lose everything they expose to the world of cryptocurrencies and give it a few years. Try, fail, get back up again a wiser person, rinse and repeat. Always make sure you can survive, no matter what. We all know this, but no one wants to hear it or abide by it. Risk only what you are willing to lose. The golden rule.
So how does one recognize a scam coin project?
Like I said, some are obvious, but others are not. So for you and me, sitting behind our computers, far away from the people involved in these projects, it is fundamentally impossible with any degree of certainty. One can get closer by trusting reliable sources, people in the know, the experts. But since the lore of wealth is so strong and men are so weak, these are less and less reliable sources, failing one by one as virtuous beacons of light and truth.
I wouldn't trust anyone 100% in this space. Sooner or later most are found out for taking money to promote a project or having some financial gain, investment in the project.
Here are some obvious signs of a scam. Treat them at the very least, as red alerts:
If the project promises fixed regular income or profit for coin owners (that is a pipe dream in these markets).
If the project promises too good to be true yields and profits (these are not sustainable, ever, no exceptions).
If the math of their model simply doesn't seem to hold water (no, 1,000.00 % yield isn't real, nor is a valuation of 10,000.00 USD if there are a gazillion coins in circulation).
If the people behind them have been involved in failed projects, other scams or are in any way questionable individuals (red alert in itself, fool me once shame on you...).
If the project demands/expects way too much money in the beginning, it's a cash grab (anything more than a few million is unnecessary).
If the project has no address, no legal form, nothing that would in any way make them legally liable for anything (the exception here being truly decentralized, no premine, no founders, anonymous community projects).
If the project promises an overly ambitious real world effect or to revolutionize a problem or market overnight (instant solution and success is impossible to predict).
If the people promoting the project are loud, screaming influencer idiots (run away, you're the mark).
If you're one the first few lucky individuals that were granted this “special insider information” about this “once in a lifetime golden opportunity”, before more people join (yeah, you're not that lucky, just gullible I’m afraid).
If a project has no problem that it's solving, no reason to exist (other than moving money from your pocket into theirs, that is).
If a project has no viable/necessitated/integrated use for its coin within the ecosystem, except some silly fancy wordplay stuff (the use case is them taking your money).
If the project has a silly name, a silly logo, silly mascot and a silly use case (it's a joke coin, just a shiny bait to take your money from you).
If the only thing the project has is a one page whitepaper or even less (yeah, at least in the old days they bothered to write those fictional scripts).
If the project or a coin is named after some well established iconic person, company, idea, movement, country, city, status (it's just using your mental/emotional attachment to these ideas/names as bait to take your money).
If the project is too complicated for even the old dogs in this space to understand (then its solution is probably made up).
If the project says it's a scam project in the description. Don't laugh, there are quite a few of them (then you can believe what they say).
Finding a good, promising project, that will survive the test of time and all the obstacles in its way, with honest, capable founders and developers, solving a real world problem that needs a new solution, is not like finding a needle in a haystack, but more like finding a drop of oil in the ocean.
While theoretically not impossible, it's highly unlikely that you will be the one to find it and ride its rocket of wealth to the moon. And we were only talking about scam projects. We haven't even touched on the actual, viable, promising projects and all that stands in their way before taking over the world with their idea. There are legitimate reasons for some altcoins to exist and actual voids they can fill. They do serve a purpose and despite all that I have said in this short little rant, I do think that there will be some survivors, who will end up changing the way we do things fundamentally and making it big in the future.
I just believe that the odds of you and me finding them and capitalizing on them, is virtually zero. And so in my mind a giant waste of time. But hey, to each his own, I suppose. If you enjoy losing money buying scams in the market, who am I to stop you? Have fun, just don’t mistake it for rational investing.
Disclaimer: nothing here is financial advice, just a fellow trader meditating on his trading journey, sharing the lessons he learned and debating some personal opinions that are only that, opinions and nothing more.
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