Scams are only sometimes so blatantly obvious; as a matter of fact, most people tend to fall for them.
About 44% of people from ages 20 to 29 lose money to fraud, but there is some good news! Only about 20% of people aged 70 to 79 fall victim to scams.
As Oscar Wilde once said, “With age comes wisdom” however, often, that wisdom does not come soon enough, especially in the case of those investing in “crypto.” Bitcoin is not under the crypto umbrella; crypto refers to every coin or token that is not Bitcoin.
Bitcoin is in a league of its own; crypto, on the other hand, is brimming with scams that range from NFTs, garbage defi projects, smart contracts (that happen to be quite dumb), and the list goes on.
To help identify a “crypto” scam, let us walk down the scam hall of fame. Below are the underlying patterns for the greatest deceptions of the 21st century. Enjoy!
Step 1 – Shill a nonexistent product
Have you ever heard of the conniving Bernie Madoff scam? How about the dastardly Elizabeth Holmes Theranos scam? The fundamental commonality between these scams is the shilling of a nonexistent product.
Madoff and Holmes had no legitimate product; they sold their investors complete and utter vaporware. Madoff never invested a dollar in stocks or any financial products; he shuffled billions of dollars around from one person to another through a single bank account.
Similarly, Theranos never had a viable machine for its blood tests. Right from the start, both of these projects were doomed to fail, but what kept the founders going? Was it insatiable greed or an ardent desire for clout? It may be a bit of both.
Now let us glance at the most prominent “crypto,” Ethereum, also known as Eth or Ether. Eth is not even a legitimate cryptocurrency. By definition, a cryptocurrency is decentralized; therefore, it cannot have any central authority.
Ethereum had a 63% premine, in other words, 63% of Ether tokens were distributed to the Ethereum Foundation and its early investors before the network went live. Doesn’t Eth Sound more like a security than ultrasound money? Moreover, it is practically impossible for users to run a full Ethereum node due to the sheer size of the memory space required to run a node.
Not to mention the fact that the Eth Foundation uses the difficulty bomb to coerce miners to act according to their whims. In 2016, the Eth foundation executed a hard fork, which forced nearly all users to move to the forked chain. Ethereum has no working product; it is not a cryptocurrency due to its centralization, and now with its move to proof of stake, it will never be decentralized.
In a proof-of-stake system, the people with the most stake control the rules of the network. Therefore the folks with the 63% premine will continue to run the show.
If Ethereum is the largest altcoin by market cap, then ponder how well the rest of the “crypto” market fares in terms of offering an actual product or even being decentralized, for that matter.
Step 2 – Max out the Mendacious Marketing
After shilling the nonexistent product, it’s time to move on to marketing. For the pro scammer, the marketing involves not just the product itself but, more importantly, the self-branding.
Bernie Madoff was masterful in creating a phantom caricature of himself. Bernie and his brother, Peter, would invite SEC staff to their offices in New York to show what an acceptable and compliant business they were running. This aurora of authenticity enabled Bernie to attend SEC roundtable meetings, become the NASDAQ Chairman, and acquire a seat on several trading committees.
Madoff donated millions of dollars to Jewish universities, cancer research, theaters, and other notable charitable causes to further hone this charming and sincere persona.
Once the scam artist has the right personality, it becomes relatively easy to sell the product. Madoff garnered clients by creating a veneer of a legitimate financial product and then promising outstanding financial returns through a split-strike conversion investment approach. In reality, as mentioned earlier, Madoff just funneled the client’s money into a single bank account and would wait for more investors before giving returns out procured from newcomers.
Finally exposed in the 2008 financial crisis, many of Madoff’s friends and associates were aghast. Bernie seemed genuine and brilliant, but looks can be deceiving.
Elizabeth Holmes took a similar approach; through sheer charisma and over a decade of mendacious marketing, she had her startup valued at nearly $10 billion. Holmes started her biotech company in 2003 at the tender age of 19.
Fortune magazine featured Holmes on its cover in 2014 as a revolutionary figure of the healthcare industry. On her rise to notoriety, the Theranos founder garnered praise from many notable venture capitalists, including A16Z Cofounder Marc Andreessen. Andreessen went far enough to dub Holmes as the next Steve Jobs. A16Z also happens to be one of the most aggressive Venture capital funds allocating astonishing amounts of money into Ethereum marketing via Web3 vaporware. Now, let’s look at the marketing behind the Web3 champion Ethereum.
Ethereum tends to pivot towards new marketing narratives during each Bitcoin bull market cycle. So far, we have seen several Eth marketing gimmicks ranging from Initial Coin Offerings(ICO), World Computer, DEFI, and the most recent- NFTs.
This latest iteration of Ether’s nonexistent product, an NFT, is nothing more than a digital receipt that requires a centralized third party like Open Sea to verify it. A monkey Jpeg can be minted numerous times on one blockchain or across several blockchains. There is nothing inherently scarce about NFTs. Even more egregious is that NFTs defeat the whole purpose of a blockchain; requiring a third-party app like Open Sea to verify something nullifies the entire purpose of decentralization. Several layers of trust are necessary for NFTs to work in their current form:
A. The integrity of the NFT artist, the artist, can mint the same JPEG NFT on the same or across numerous blockchains- no one can stop them.
B. Open Sea’s integrity, this third-party application has already been hacked several times
C. In its current form, NFTs are not legally binding-no judge, lawyer, or police officer will care about enforcing the property rights of an NFT that anyone can screenshot, like a monkey JPEG.
But Disney and the NBA endorse NFTs! Digital receipts have to be a true innovation! Unfortunately, it does not matter which megacorporation shows a thirst for these Jpegs on blockchains; if you look under the hood, anything external to the blockchain’s digitally native token is not capable of being secured by the blockchain. It does not matter if it is JPEGs, audio files, real estate deeds, etc.
So many corporations are jumping on board the NFT bandwagon for profits, straight and simple. While highly profitable to mint and sell NFTs, buying one is a fool’s errand.
When you go to an NBA game, and they sell you large cups of soda, it is not an act of altruism; the soda is not for your health; the NBA will sell you as much soda as you desire for the sake of profits. The same fiat maximization approaches apply to NFT shills; corporations are not selling them to you for your financial well-being but for that tantalizing greenback fiat.
Congratulations to Vitalik Buterin and the Ethereum foundation for marketing complete and utter vaporware to the masses.
Even more impressive is the personality cult that Vitalik has managed to spawn for himself. The Ethereum Co-founder has donated over a billion dollars to various charitable causes.
Buterin was once featured on the Time magazine cover and hailed as the “Prince of Crypto.” Creating an aura of benevolence and ingenuity is part of the playbook for a top-tier scammer.
Step 3 – Keep the Scam running for as long as possible
Madoff made off with his scam for nearly five decades. The Ponzi started in the 1960s and fell apart during the 2008 financial crisis. Over those several decades, the scam raked about $65 billion; Madoff defrauded 37,000 people across 136 countries.
Some notable figures that succumbed to Madoff’s charm and Ponzi were director Steven Spielberg, actor Kevin Bacon, and Nobel laureate Elie Wiesel.
Theranos had a much shorter run; Elizabeth Holmes kept her scam running for only 15 years. Some notable names invested in the Biotech startup were the media mogul Rupert Murdoch and Oracle founder Larry Ellison.
In terms of market size, Ethereum has already far superseded Madoff’s and Holmes’s scams combined. Ether had a market capitalization of over $500 billion at one point, reaching this sheer size in less than a decade.
Titans of Silicon Valley like Naval Ravikant, Marc Andreessen, and Balaji Srinivasan are openly fanboying for Ethereum. Thousands use Ethereum for vaporware NFTs, exploitative Defi contracts, and degenerate speculation on tokens. Now the question is, how long will the Ethereum scam go on? Only time will tell.
Stacking some sats and self-custody of your coins is the best approach to preserve the fruits of your labor for generations into the future. You will sleep far better at night than those that dabble with “crypto.”
