What I Don't Like About Altcoins: They Serve One Purpose - Funding the Founders
Thousands of altcoins spring into life every year. Do you know why? Are they solving real-life problems or filling someone’s pockets?
The following post will most likely be a hard pill to swallow for most crypto enthusiasts, but it’s my opinion nonetheless, and I will try to explain the reasoning behind it in this post.
First, there was Bitcoin - a decentralized, international digital currency designed to free us from enslavement under the fiat systems, central banks, and governments.
It was a novel idea that slowly but surely took hold of many people’s hearts and minds.
The best thing about Bitcoin? There is no known founder.
No one person is calling the shots. There is no one that “the powers that be” can call in front of their little circle (congress…) and harass. No one person is making all the important decisions. No one person can just change the core principles, inflation numbers, and protocols from POW to POS, for example.
Bitcoin is an idea, a movement, a decentralized option into which we can all choose to (or not) plug in and participate.
It is the original, the daddy, the standard.
If Bitcoin were gold, altcoins would be random rocks painted in yellow, backed by a bunch of screaming salesmen trying to convince you that they’re the new big thing, the better gold, and whatnot.
If Bitcoin were an iPhone (for the millennials and Gen Z’s), altcoins would be cheap Chinese knockouts you get spammed into your email accounts.
If Bitcoin were a celebrity account on Twitter, altcoins would be all the fake scam accounts spamming the comment section offering to “give back 10 ETH if you send 1 ETH.” The same math and principle apply.
I’ll go a little bit easier and say I can see three functions or purposes for altcoins:
Stablecoins can be useful for trading and some transfers or micropayments.
It’s useful to have a sandbox for testing ideas. Some alternative protocols and cryptocurrencies can help experiment with new ideas and technologies, which, if successful, are then deployed as layers upon the Bitcoin blockchain.
The free money funding of anyone who makes, markets, and works on altcoins is where 99% of all coins and projects fit. They’re magical money-making machines for founders, transmuting air into money. Alchemy in practice.
This time we’ll focus on the third point, the free money and funding.
Bitcoin has one massive problem, and that is that there are very few ways in which developers, companies, and people who want to work with Bitcoin can actually make money, apart from the expectation of its growing value over long periods, which is irrelevant as a business model for anything other than investing.
What do I mean by that?
Let’s say you want to work on building apps around Bitcoin. Whatever they may be—wallets, micropayments, custodial, payment providers, etc.
You have to get funding from investors, just like a “normal” start-up company would.
You pitch an idea and hopefully get sufficient backing giving you a few years of leeway for paying the bills. Developers cost money, a lot of money. And we all know that years go by before any tech company makes enough revenue to cover the bills, electricity, and employees.
The truth, though, is worse; most never make a cent in profit - ever!
But we like to focus on the big winners in the market and drool over their wealth, neglecting to notice thousands that failed.
This conventional approach is probably the only correct or plausible approach at this moment in time. But it’s not free money, and it’s not immediate. It’s a difficult and long path. The right ones usually are.
What does the process of acquiring funding look like for altcoin projects with tokens?
They gather around, brainstorm ideas and then write up a white paper with which they attempt to collect investment money from retail and some investment funds focused on crypto.
Lately, they didn’t even bother with writing those anymore. They focus more on marketing and influencers pushing their project to their followers.
In exchange, they do not offer ownership of the company or any right to speak off. There are no options or stocks, not even an IOU - nothing!
Usually, the founders are the only ones who own the company, if there even is a company, and there is no distribution of ownership to anyone else. People are then funding this project, coin, protocol, whatever, investing their money, and the developers, marketers, shillers, and founders now have free, easy money to do with as they please.
Lots of money. Too much money. And no rules, obligations, or legal requirements on how to use them. Nothing!
What do you think happens to most of these funds?
What incentive do these founders now have to keep working when they mostly know it’s a lost cause and they’ve just been given life-changing money with absolutely zero accountability or responsibility?
They can simply take that money and spend it as they please, on themselves, without any danger of being prosecuted for it or having any other consequences other than perhaps, but not really, as time has shown a reputational hit.
What incentive do they have to make anything useful with that money? To invest further?
What incentive do they have to continue developing their project if it hasn’t caught on and it doesn’t look like they’ll be printing additional money from it?
Think on this, for the love of God, think!
And what do the so-called investors get?
Tokens. Coins. They buy worthless digital currencies with zero intrinsic value, no network effect, and no product that requires them. All that is left is a promise that the coin or token will grow in price as the project gains traction.
Their price increases in bull markets as the tide lifts all boats, even the most damaged, idiotic, useless ones. In bear markets, most simply lose all or almost all of their value. Founders and developers flee and look for new ways to skim money from the naive retail. Rinse, and repeat.
When you buy into an ICO or whatever scheme is the current market trend, you are not investing your money. You’re giving it away.
You’re buying some worthless coin that you hope will go up in price because people will think that something significant or valuable will come out of it.
And make no mistake; you can earn a lot of money by doing this if you get there among the first and sell at the right time. No one is denying that!
I’m not saying that this game doesn't make sense for some gamblers, traders, and investors. You just need to understand what the game is if you are to profit from it and get your head out of the ideological clouds.
It’s not the clouds; it’s the fog you’ve been sold on.
So how else could these projects and the people behind them get paid, if not for selling some tokens, reserving a premine, or some other form of giving themselves lots of money first?
Not easily, that’s for sure.
Most projects can’t make money; they don’t have nearly enough customers or users.
And even if their idea and project are excellent, it would take years before they would make any money consistently, just like any other tech start-up.
The most straightforward answer is that they, too, should go the same route. Open a company, register, find regulated founders, and then get to work.
But let’s be honest for a minute here.
How many of the thousands of projects and coins have a sustainable business idea that solves real-life problems?
I can’t think of any. Even the oldest “smart contract, build anything, internet computer” blockchain Ethereum hasn’t done anything sustainable and profitable since its conception.
At best, it was an onramp for ICOs and a playground for a plethora of ideas, including one that might someday actually be useful, de-fi. In reality, it’s a playground for scammers and gamblers. Let’s be honest with ourselves.
The companies that make money in this industry are all legal entities providing real-world solutions like wallets, apps, payments, exchanges, custodial solutions, education, etc. They went about it correctly, at least from a technical and legal standpoint.
Unfortunately, even those appear to be run by complete idiots with scamming mentalities and, most of all, with zero risk management, so they, too, keep falling like flies.
This truly is a despicable market, full of bad actors, greed, and exploitation. You know, like Wall Street. The assholes Bitcoin was created to replace in the aftermath of the Great Financial Crysis of 2008 have returned with a vengeance and spawned a whole new generation of money-sucking exploitative vampires.
Only this time, instead of driving fancy cars and wearing suits, they wear funky shorts, dance on the stage like idiots, and pretend to be good samaritans whose sole purpose is to better the world.
Wolfs in sheep's clothes are still wolves. And they still want to feast on your remains.
Stay safe out there.
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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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