Case Study in likely Blockchain ICO scam
Plucked from the headline of this weekend is a new Initial Coin Offering or *ICO* for a ‘new’ blockchain that raised almost 16 million dollars. The name of the new venture is “QTum”.
Things to ask yourself.
What does it do better than what came before it?
Is the advantage big enough to make all the time effort network effect trust – already in the prior system to become null?
There one factor that is more important than any technical advantage for any blockchain. It is THE most important factor of any blockchain. Social Consensus.
Social consensus is the (perhaps) unspoken agreement that ‘everybody’ agrees to use one particular blockchain because it meets the needs. It is the network effect. The time invested in learning and growing a blockchain and developing an ecosystem. Anybody involved and invested with time, money, and resources will NOT switch given a big enough lead. Any new participants will decide on which ecosystem they will plant their flag based on those that came before them and already have relationships and the history of trust already established. Nobody will want to uproot, or build on something untested alone.
We can see this with the Ethereum fork. The two networks operate almost identically. But 80% plus went with ETH, the other 20% Protest movement – continued with Ethereum Classic. There is virtually no development on the smaller ‘classic’ version because it didn’t capture the hearts and minds of those that were doing most of the actual work.
So we now have QTum. It’s an Etherum ripoff. As these blockchains are open-source anybody can copy the code, make a few adjustments and with that- they have a new blockchaincoin. Most of the coins lower than say rank 50 on Coinmarketcap.com are simple ‘rip-offs’ of bitcoin given a new name and icon. There were little to no actually useful changes compelling enough to make the thousands of developers, merchants, exchanges, heart and minds – feel the need to uproot and move.
Qtum white paper lists differences but it’s always comparing itself to its derivative (Ethereum) and speaks of a few perceived advantages that are still untested. For somebody who already knows and follows ethereum will recognize the changes listed are on the roadmap for ethereum as well but are in current testing phases and bug bounties by thousands of developers. The whitepaper is FUD and very misleading on many counts.
Qtum – repackages this as innovative because a dozen programmers tested it? The announcement of the crowd sale reports it gained 16 million dollars – but was withholding the token reserves for ‘elite investors’. (Good old boys) And their designations. This looks like backroom scamming.
Etherum has the Ethereum Enterprise Alliance- backed by some of the biggest established industries and companies in the world, sponsored by Microsoft themselves who have invested hugely into the ecosystem and pledged to continue to support Ethereum alone – not any wannabe clones. ANTI-Fragmentation was the point.
There was nothing significant that would make all the dAPPS, dAOs and ecosystem stop in their tracks and switch. Two audiences were taking these coins – the ‘insiders’ – the pumpers, and the patsies who don’t know better.
I’m a huge fan of blockchains but remember – most will fail (90%?) The biggest reason is a lack of social consensus – with no viable or believable roadmap to take it away from somewhere else. Newbies won’t understand this for some time as the study of blockchain technology is complex technically, socially, economically, historically. and there are far too few to teach them the good from the bad.
Then take note of the sponsors and put them on your ‘do not trust’ list.
Now you hav.e at least one tool to remember when you evaluate.
I have been aware of and dabbled in this stuff since Bitcoin became Bitcoin, but I'm no expert really. Missed the Bitcoin bus, thought it was a waste of time, and when I decided to maybe get on the bus, I still hesitated. I thought about buying an ASIC miner back in 2013, but did the math and still held back. Watched other cryptos come out, always with some reason why they were better, stronger faster than Bitcoin. Bitcoins transaction a second are also a downer. But the thing that makes Bitcoin good is what also makes it not so good. Privacy. All transaction are recorded in the blockchain. Yes there are anonymisers out there, like mixers and even darkwallet, but they are not truly anonymous. I work in Network Security and I have seen a product that follows every transaction and stores it, even stuff you send through a tumbler/mixer is tracked. Unless you have a TRULY anonymous VPN connection AND use TOR it can be traced back to you directly. Even with using these tools, your wallet can give you up. There are extra steps to mitigate that even, but in the end you still can be found if TPTB want to find you. Will you be found? Probably not. You would need to get on their radar like Silk Road did before they spend the resources on it.
You just buy legal stuff with it and aren't worried about it, right. Perception. Bitcoin is really doing well, but one day, a human trafficking ring or something as nefarious is going to get rolled up and if it becomes public knowledge that they followed the Bitcoin to catch them, then you will have a trust issue with the currency itself. Alternatives will benefit for sure. I have personally hung my hat of ZCash. It just came out in October 2016, but it's hovering in the $100 range. It caught my eye back when it was around $30 in early February. It is tougher to get running if you aren't technical, and I had a bit of trouble and I'm a Linux guy. I do fully command line, because my server is headless and has no GUI. I could add one, and may very well do that in the future, but for now I'm staying CLI. There are GUI wallets, but you also need a GUI on your Linux distro as mentioned above. It has public transactions, but it also has fully private ones too. You can mine it via a CPU, but that really is waste of electricity and time in the long run, but that is what I did, just to cut my teeth on it. GPU mining is the way to go. As a comparison my Xeon 2.4 GHz 8 core server with 48GB of RAM will only do 6 hashes (SOL's) a second, but my first AMD card would do about 450 H/s. Now that I have two, I can hit 1K H/s or about a ZEC a week.
I promised my wife that I wouldn't add any more cards until I paid for the first round of hardware. Ironically I bought my first card brand new on Amazon for $250. Two weeks later it had jumped to $350 with the same vendor. My second card was bought pre owned from eBay for $295. Prices are getting higher on hardware, I think because of the renewed interest in crypto mining. Like Ethereum, ASIC can't really be used to mine it.
Ethereum is interesting and I have done a profit calculation on www.cryptocompare.com and I still make more money at the ZEC current price than ETH, even though they are at a similar price point, but just to hedge my bets I may make a second rig to handle ETH. We'll see. Problem is with a large enough rig a single 120VAC 15amp circuit in a typical house won't cut it, so I would need to run a 240VAC circuit eventually, but that is down the line. One thing though, is that with exchanges, I can move back and forth between the currencies, without too much cost if necessary.
One thing I didn't share above is my opinion on why new currencies come out it seems like every few months. Greed and Ego. I don't really mean it in a negative way, but that is a succinct way to put it when it is all boiled down. Folks think/want to make something better and with "Founders Shares" if their particular currency starts to gain traction, a big payday for the developer. Nothing wrong with either of those feelings though. I want to make money and while I don't develop crypto currencies, in my job I want to make things better. I want my tools to block an intruder into my network and if they do get a foothold catch him. So I identify with what they are doing. Many industries go through this. At one time there were over 100 car makers in the US. How about aerospace companies? Computer hardware makers, etc.? A few will shake out and dominate in the future, but which ones?
Just thought I would share a bit, didn't mean to ramble.
Most altcoins are a scam. In the long run, very few will survive. Most don't have a true purpose. They can be broken down into a very few use-case that makes them different. Many of those functions will be merged into the big few that will make it. They might be a fun gamble when they are fairly new, but after that, they are just horse running around a track with people betting on them.
At the end of the day, the horse went into a circle. Some people were bet better than the others – and the races can be easily fixed by those already with connections and influence to purchase a Whale amount of coins to bully and fleece the uneducated of cryptos. New, inexperienced alt-coin gamblers are sure to loose the fixed game of alt-coin trading, New suckers will try, a few will get lucky to draw in more suckers just as a couple of lotto winners get televised to sucker in millions more who are bad at math
Most coins don't solve a problem. Even privacy base coins solve a problem that will exist only a short amount of time. Dash, Monero, zcash etc) will all be obsolete soon when Ethereum merges zero ring signatures inside it and becomes as private as any of the best. So in a couple of years, what problem do privacy coins solve? They won't likely have the massive amount of programmers working from the same programming language used by enterprise swat teams. They will still require a blockchain protocol level that will be essentially a pointless racehorse circle with less and less gamblers interested in it.
Money-based currencies won't have the network effect and wide-scale adoption as bitcoin and ethereum which can act as money. With improvements in speed and throughput coming (which are now being tested and soon ready as side-chains). There will be little reason for alternative methods of payments to exist. They are little side-shows that are being released. They likely won't have network effect or wide-scale adoption and the massive amount of money and developers to continue to build around them…so what problem do they solve in the long run?
Tokens being buiit on top of ethereum – in some cases do solve problems and have unique features that, because they are built as layers on top of ethereum, don't have to reinvent the protocol layer below (They don't need their own TCP/IP and network packet switching and routing) , they can concentrate on a problem – use case and solve it.
It is still young so the playing field is more open, but for every problem that is identified and needs to be solved, there are some that are ahead of the game. This is where it is interesting. Competitors see the interesting uses and race to also solve it – but time is usually not on their side. It is possible to put together a better team with better marketing and get a bigger ICO that might be enough to catch up to a less organized team. That's the horse race I"m interested in because there is an actual prize at the end and they didn't go in circles – they accomplished something. And I'm most interested in the ones that changed the paradigm, and changes the world. This requires study and years of experience and technical understanding and wisdom to discern the good from that bad. With so many streaming of developments and knowledge of teams and competition – it is not easily learned or taught. It has turned into an art form.
Mining, as far as I"m concerned – it just feeding a racehorse that just runs in circles. The ones that people bet on in the racetrack but doesn't solve anything and won't be useful. They will likely be forgotten in five years like all of the altcoins of 2014 where most are bitcoin and solved no problems-. Yet miners wasted thousands in equipment and people spent valuable money gambling it into funny sounding coin names like Barbeque Coin and hundreds more. When you've been in the space for a few years you see the patterns repeat and know that mining is worthless at the end of the day for almost all coins. The only useful mining is for the bitcoin network which serves as the physically near-impossible network to crack. This serves the purpose of protecting bitcoin using the natural law of thermodynamic energy of intensive and wasteful conversion of electricity into the central bank of the internet. That contest has gone to big business who get diminishing returns, and barely break even when equipment and near free electricity are considered.
Currently, Ethereum mining will be useful – for about a year perhaps until it is no longer needed. Even then, it is also being taken over by the big Chinese miners with near free electricity. They have incentive as they will continue to mine the Ethereum Classic spin-off of Ethereum and can continue after the one-year cap on Ethereum itself. But Classic also solves no problem that Ethereum doesn't already do as it's just a copy of Ethereum with no real reason to exist in my opinion. It's just hyped by Barry Silbert as suddenly overnight LOVED it – although the day before he HATED ETHEREUM – which was its carbon copy. Very shallow pumping for his investment funds who aren't a technical crowd to see right through it. 2014 again. You'll be lucky to earn back your money sunk into equipment that will soon be obsolete – unless and until it can be redirected to the next newest, but in reality – scam coin.
There is my wisdom for you.