I don’t like scammers. I think people in the community who are serious about the larger success of digital currency have to help new users navigate a complicated landscape. They should be shepherding them from the thieves, directing them away from the houses of ill repute, and generally giving them good advice. When Mt. Gox blew up I didn’t lose a single Bitcoin. It was clear to me from the beginning that they weren’t a legitimate organization, that they lacked the technical sophistication necessary to run an exchange of their size. They had extremely dubious beginning as a mechanism to exchange magic the gathering cards, hardly the type of provenance one wants to see in a billion dollar entity at the fore front of the Bitcoin community.
If your local bank had previous been a cattle feed store it might raise some eyebrows. However, Bitcoin is so new, and the digital currency ecosystem so undeveloped that very few people said anything at all. In fact, the head of Mt. Gox Mark Karpeles helped found the Bitcoin foundation, and established himself as a trusted entity in the minds of legions of people who frankly didn’t know better. When people asked me personally whether they should invest in Mt. Gox, store their Bitcoin there, or engage in any business whatsoever the answer was always no. I wasn’t particularly loud about that view point though, as much as I don’t like scammers, I also don’t want to throw people under the bus who are legitimately trying to build a better community for everyone.
There has been a lot of movement in the Altcoin space. This is the class of currencies that are essentially forked from the Bitcoin source and share many structural commonalities but often differ in specific implementation details. Alt coin infrastructure makes sense. Bitcoin is a massive large-scale distributed system, and as such is hard to change. The Alt coins let us experiment with other architectures in new and interesting ways. The problem is that it is so easy to start an Alt-coin that we have over two hundred at the time of this writing, many of which have little in the way of new features or innovation. They are for all intents and purposes the penny stocks of digital currency, pushed, and pumped to the unsuspecting masses while their creators sit on the profits.
I have a problem with people advocating digital currency who simultaneously try to pawn off garbage to unsuspecting people. They take Bitcoin which is potentially revolutionary and debase it by introducing people into the underbelly from the get-go. I won’t name names, but my twitter feed is essentially full of shills trying to make a quick buck at other peoples expense. Shame on you guys. You can’t advocate for Bitcoin and the transformative changes it enables while also pumping some ridiculous alt-coin. So without further ado I am going to do a tear-down of a pump and dump scam in digital currency and what it looks like. I’m sure my target will be controversial, but Zetacoin is in my sights. It has all of the earmarks of a concerted plan to increase the price-per-coin while leaving people who don’t know better holding the bag.
This strategy is extremely effective, it relies almost exclusively on hype and misdirection, and is extremely low on fact. This Wikipedia article is a good starting point to understand the dynamics for any micro-cap stock. This type of scam is illegal in the US, and many other jurisdictions, but because Crypto Currencies are for the most part unregulated people are preying on unsophisticated investors. The general flow is as follows.
1 – Buy a bunch of some random non descript alt-coin or start your own. For an existing currency like Zetacoin you probably want to slowly buy into it so as not to disrupt the price. If you buy too much too fast people are going to notice that there is manipulation at play. A good example of this is the number one Zetacoin address by value ZGfz94PBE2D3yhgSSooqMbtSiLNLozYsbv which at this time is worth approximately 1.5 million USD. Here is the link to the very first transaction for that address. Notice how the owner systematically accrues 50,000 ZET every 4 minutes. That is until yesterday at 6:26 PM where the owner starts offloading and reaping the profits, $456,000 of other peoples money at the time of this writing.
2 – Get suckers into the game. Start building a hype machine via your blog, pull people in on Twitter who can push your penny-stock. Just check the #Zetacoin hashtag for an unending stream of non-fact on twitter Some choice selections:
“When people eventually start to dig into what the #Zetacoin community has done they are not going to believe it.”
“#ZBAD’s motto of #BuyHoldBuild is starting to make sense to everyone else. True value of a coin is in application not speculation #zetacoin”
“I’m all about community that’s why i believe in #blackcoin and now #zetacoin”
“#zetacoin is a screaming buy even without knowing anything concrete.Hype/rumours to 2k,the breaking news will easily bring it to 20k #HUGE”
3 – Offer no concrete facts. The thing that is nice about talking about community is that you don’t have to back it up with anything. You don’t have to say where or how Zetacoin is different from anyone else. You don’t have to point to real world examples of use. In fact, you can pretty much manufacture a community of users overnight. Let’s take a look at the Zetacoin “community”.
Zeta-coin.org has a News section with 2 bullet points since 2013. Not seeming very active to me.
Twitter 6445 followers. That seems pretty sizable. The thing is you can buy a few hundred twitter followers for a few bucks, so difficult to tell if that is real community or not. There seem to be only a few very active in the PUMP. Zetacoin themselves say that over 500k has been traded in 24 hours! The vast majority being sold as the PUMPER takes the profit.
Github Has almost no changes since it was forked from Bitcoin. For a developer community working on something game changing this is also a red flag.
Forum. The Zeta-coin forum has less than 100 total posts on it.
OK, what about Reddit Ah. A very little going on, but 157 active readers!…
4 – Be anonymous. Beware when people don’t put their real name on a project, it says a lot about it when the creators are basically unknown. Remember, you have to avoid legal liability later. If there isn’t a name associated with the coin, someone who has something to lose if it goes belly up, buyer beware.
5 – Promise something big in the future. The main proponents talk a big game, that is all part of the hype machine. Examples:
“His project was a complete and utter GAME CHANGER.”
“Within 4 days Zetacoin was the hottest crypto in the community. Within 5 days the twitter feed was running red hot with Zetacoin talk.”
“Most of you have figured out that there is something big, and that there is a third party involved.”
“We have an opportunity to walk the talk that the community keeps mouthing.”
This is called bullshit. Unadulterated, useless drivel. Just look at the charts. Read the block chain. At the end of the day there is no news that should result in a 700% increase overnight. If you are investing in Zetacoin you just made somebody else Rich. Shame on you guys, you know who you are. People need to be aware that what is old is new again, the pump-and-dump penny stock scam is alive and well in Crypto currency!