What’s the Biggest Threat to Crypto Investors?

What’s the biggest threat to crypto investors?

Is it some reckless regulators seeking to snuff out a money revolution and put down an anti-bank insurrection? Maybe someday.

Is it the extreme price volatility, scaring away the most worthy investors? Sometimes, sure.

But the most persistent threat is none of the above. It’s more subtle, harder to spot.

I’m talking about intellectual dishonesty, a force from within.

Pulling a Wool Over Unsuspecting Eyes

Every week, we see multiple new projects hit the market.

Nearly everyone seems to claim it will solve every problem that every other project has yet to conquer.

What most fail to reveal is that nearly all of the proposed solutions have been tried before — not once, but dozens of times.

The truth is, most players in this industry are biased in some way — either in favor of their own coin or against someone else’s.

Sure, they avail themselves of some of the best Distributed Ledger Technology (DLT) in the space. Yes, they often put out good whitepapers to explain their work. But what they fail to disclose is how much of their work is copied from another project and how little is truly innovative.

Their hidden agenda: To cash in on someone else’s work and take advantage of the public’s inability to truly understand the technology.

And it’s not just crypto newbies who get duped. Some crypto veterans also make fundamentally mistaken assumptions about the projects they invest in.

Liars with a Hole in Their DLT

It reminds us of the early 1900s, when the definition of a goldmine promoter was a “liar with a hole in the ground.”

Since then, traditional financial markets have matured. With few exceptions (such as penny stocks promoted by fake advisers), scams, lies and deceit are far less common.

Listed — and even unlisted — companies can’t doctor up their financial statements without severe consequences.

An entire industry of analysts scrutinizes nearly every word that comes out of a CEO’s mouth.

Data is public, readily available.

And most investors have a basic understanding of what they’re getting into.

This knowledge-and-data infrastructure is what the cryptocurrency does not yet have but desperately needs. Let me give you just a couple of examples I’ve come across that should help drive the point home.

Bitcoin Cash (Weiss Rating, “C-“)

Bitcoin Cash promoters are pretty well-known as repeat prizewinners in the overpromise/underdeliver category.

Just recently, for example, in a “major” announcement, they claimed they would hard fork (change their code) to improve on their fundamental design and come “one step closer to solving the scalability issue.”

The proposed upgrade? Increasing Bitcoin Cash’s block size from 8 megabytes to 32 megabytes.

Their pitch: It will process four times more transactions, cut block time from 10 to 2.5 minutes, and make the network eight times faster overall.

Cool, huh? Not quite.

First up, the 2.5-minute block time is pretty much the standard for newer coins nowadays.

Second, even after the upgrades, Bitcoin Cash would still be too slow for mainstream adoption.

Third, these changes wouldn’t do a darn thing to solve the scalability problem.

Talk about kicking the can down the road and solving virtually nothing.

But here’s the subtler sleight of hand …

Their real problem is that very few people use this coin to begin with. In fact, our latest data indicates that their network only processes about 20,000 transactions per day. Meaning, the upgrade is not even necessary.

Why make a big deal about increasing your network capacity when your network is running far under capacity?

I see only one reason: Because they know it grabs headlines. They know self-declared “experts” will write about it on social media. And they also know misinformed investors will commit hard cash.

Skycoin (Weiss Rating, “C”)

Skycoin has also been getting some attention lately, but not in the same way.

I say that because this project is actually quite innovative, and I hesitate to put it in the same category as Bitcoin Cash.

The trouble here is that the developers have made some questionable design choices, and it seems most people are too lost in the complexity of the technology to notice the disconnects.

Here is Skycoin’s unique selling proposition: It claims to be the most decentralized coin on the market today.

Yes, it was originally designed with decentralization paramount in mind. However, in an ironic twist of events, the developers decided to create a little box filled with hardware called “Skyminer,” allowing users to run their own personalized cloud service. (If you want to understand how it works, I encourage you to watch this video.)

In the video, the developer admits that this will probably lead to the creation of large data centers that stack up the hardware boxes in order to optimize their features.

But that’s not something you can do at home. It means that, for this project to go mainstream, it would have to be heavily centralized. And this threatens to defeat Skycoin’s entire selling proposition.

Bitcoin Lovers Bashing Ethereum

As you’ve probably noticed by now, in the crypto world, one of the worst things you can say about a network is that it’s centralized. And sure enough, that’s the favorite insult Bitcoin advocates level at Ethereum, their arch competitor for market cap.

They say it’s a centralized coin because of an incident known as the “DAO Hack.”

I’ll spare you the gory details, but here’s what happened in a nutshell.

Back in the early days of Ethereum, a project called the “Decentralized Autonomous Organization” (DAO) had a bug. A hacker found it. He stole millions of dollars’ worth of Ether. And a significant portion of the community was impacted.

Ethereum developers could come up with only one solution, and it was radical: They decided to reverse history. To undo the damage caused by the bug, they reverted back to older code. This caused a big brouhaha and ultimately split the Ethereum community in two.

This has been the rallying cry of anti-Ethereum folks ever since. They rail against Ethereum, dubbing it a centralized coin that failed to follow the sacred rule that “code is law and should never be changed.”

“Remember the DAO Hack!” they shout as if defending the legacy of the Alamo.

Anything wrong with their memory of that near disaster? No, except for the fact that they also have a convenient forgettery. They forget that, back in 2010, the Bitcoin network experienced a very similar episode: A hacker exploited a flaw and created billions of Bitcoin out of thin air.

So guess what! The Bitcoin people did exactly the same thing the Ethereum crowd would do six years later. They decided to reverse history, undo the hack altogether, fix the bug and move forward.

But all this is history. In a world steeped in cutting-edge 21st-century technology, blood feuds are not only medieval; they’re downright dishonest.

Bias, Bias and more Bias

The truth is, most players in this industry are biased in some way — either in favor of their own coin or against someone else’s.

Sometimes the bias stems from a financial commitment, sometimes just from an intellectual one. But regardless of the source, nearly everyone recognizes the bias. Most even admit it about themselves.

On one side of the spectrum, you see developers lining up to tout their projects as the best thing since sliced bread.

On the other end, you have folks called “Bitcoin Maximalists,” who believe Bitcoin is the one and only true crypto-god. As far as they’re concerned, everything else — including Ethereum — is just a scam.

Developer teams on both sides get away with it. That’s mainly because, for the lay investor, Distributed Ledger Technology is geeky gobbledygook.

Sadly, too many crypto promoters have discovered they can make promises that are patently ridiculous, and few will know the difference.

That’s the main reason we set out to rate cryptocurrencies and do so with maximum objectivity.

We figure it’s the only way to help bridge the gap between a new technology shrouded in mystery and an investing public enamored with its potential.



About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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