I was at my first altcoin conference, in Los Angeles. It seemed oddly appropriate because “crypto” white papers are the equivalent of Hollywood movie scripts. Everyone has a shitty one that they desperately want people to read.
“You realize I think these things are scams, and I’m not going to spare your feelings. Also, you can’t use my name or likeness, I’ll just review the paper and tell you everything that’s wrong. But if you’re still interested, my rate is $$$ per hour.
I wanted to be straight with them and felt bad about taking their money when I was sure they wouldn’t like my report. Yet they persisted like a Hollywood talent agent.
“That’s good, I’m sure you’ll love our token after reading the newspaper.”
Their level of delusion and naivety matched that of an aspiring actress fresh off the bus in Iowa. Did they watch my YouTube channel? Follow me on Twitter? I had been ripping altcoins to shreds for months.
“Are you sure? I really don’t want you wasting your money.
“We’re sure you’ll want to join us after reading it.”
I knew I wasn’t going to like this play until I read it, the same way I knew I wasn’t going to like one of those thinly disguised Scientology promotional films.
Airdrops and Premines
Talk to any altcoiner and they are obsessed with airdrops. These are supposedly “free” tokens, but they are really ways for altcoin creators to recruit a community. They’re like the free samples at Costco that make you feel guilty buying the whole bag. It’s corruption and any self-respecting person feels obligated to give something back.
This consideration comes in the form of word of mouth. Airdrop recipients will usually say good things about the project, just as they would the grandmother handing out the samples. But just like the sample, the airdrop bypasses the logic circuits of the altcoiner and gives them a stake in the project, making them much less objective. They start to have the illusion that this coin is going to be the one to replace bitcoin or other nonsense.
Premines are worse. These are large amounts of tokens created for venture capitalists and insiders at a massive discount, often over 60% of the supply before it is sold to the public. Paradoxically, the people who participate in premines are even more dedicated than those who participate in airdrops. It’s because they pay for the token and become emotionally attached, like a shitty lamp they bought at a flea market. The sunk cost fallacy destroys objectivity.
Personality cult
Like a terrible script that has no discernible plot, the reasons for altcoins’ existence tend to be quite convoluted. There are a lot of technical manipulations, but that doesn’t stop these altcoins! The pump should continue. When the usefulness of something like a really slow world computer is questioned, something else has to be put in its place.
Typically, the emphasis shifts from the usefulness of the piece to the talent of the founder. No, it’s not a world computer and the code is not law, but our founder is a brilliant prodigy! The founder is presented as a modern-day Albert Einstein, honoring us with his genius expressed in a decentralized blockchain. In a way, the unicorn-themed men’s handbag is seen as a sign of genius rather than a personality disorder. People are starting to believe that the token creator can do anything from running a decentralized organization, speeding up a desperately large database, or curing you of your seasonal allergies.
The personality cult around the founder is not only unhealthy for the community, but also for the technology. Very rarely does such technology come under reasonable scrutiny. It would be an affront to their leader. Instead, there is a propaganda war to discredit anyone who reports legitimate technical faults. If you don’t know what I mean, try critiquing XRP, and you’ll get an army of trolls that come together faster than a college fraternity when you advertise free pizza. You might as well criticize L. Ron Hubbard; no matter how correct you are, the fanatics are going to chase you.
Decentralized in name
The main technical flaw, of course, is that altcoins are centralized. They are creator controlled and VC funded. But no altcoin can truly claim to be innovative without an impossible angle on decentralization. The reason is practical. They would be regulated if they didn’t include that word. They claim their tokens are decentralized like Hollywood claims nude scenes are artistic.
For the token to pump, however, they need the cooperation of exchanges, and this is where the centralization becomes really evident. Token founders will pay exchanges a certain amount of tokens to list it. This has been a huge profit center for exchanges like Binance, which has many users pumping the token. The listing is usually a huge event, like a Hollywood premier. And like movie box office receipts, most pump up briefly and then crash.
At least people watching the movie only make $20. The suckers buying these bags don’t even have stale popcorn to show for.
Insider trading
Yet the general public persists in buying these failing tokens again and again. Why?
The reason is that they promise the possibility of a quick profit. There are so many push-ups out there that if timed correctly would fetch many multiples of the initial investment. Altcoin buyers hope they can do this consistently. It doesn’t matter that the odds are slimmer than Vitalik Buterin’s shoulders.
This hope of getting rich, similar to winning the lottery, is what keeps those pumps going. VCs laugh down to their hardware wallets.
Conclusion
As I expected, the white paper I was reading was a disaster. It was a reputation system that they put on a blockchain and required a token for staking. I pointed out how the system could be played, how using bitcoin made more sense, and how it really didn’t solve anything. My edits to make it reasonable must have sounded like a studio executive demanding a rewrite of the script.
The report devastated my altcoin customers. Their plans for world domination through premining and a cult of personality would have to wait. They were quite upset because they really thought they could influence me. Was I responsible though? They were, after all, delusional before I met them.
I was just the guy who pointed out their delirium.
This is a guest post by Jimmy Song. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or bitcoin magazine.
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