10 Ways To Recognize Scams And Protect Yourself

Did you know it is estimated that 98% of ICO’s are considered scams?  

Did you know that most mining is not profitable?

Did you know that most new coins are nothing more than pump and dump schemes? 

With all the fraud in the cryptocurrency market, is there really any opportunity to profit?  Yes, as long as you do your research and stop listening to all the “experts” who are nothing more than the latest generation of snake oil salesmen. 

Protect yourself and others with these 10 tips to reduce your risk: 

1. Does the new coin or opportunity guarantee you a return? Any opportunity that can guarantee any type of a return is probably a ponzi scheme. Stay Away.

2. Is the management team clearly listed on the website? Go to LinkedIn and type in their names. Are they part time? How long have they been in cryptocurrency? Does the team have a mix of developers and business people? Was their last venture profitable? Check Google as well.

3. Are they focused on developing a single solution or does it list a hodge podge of random ideas? Most teams have finite resources, so you want to find ones that are solely focused on bringing one good idea to market.

4. Do they have a clear roadmap of deliverables and have they met the timelines established? Also, make sure the deliverables are more than a website and white paper.

5. Is the website well thought out and informational? Be wary of ones with quotes about cryptocurrency from famous investors, entrepreneurs or technologist, unless it specifically mentions the company by name.

6. Does the white paper provide project details or is it mainly high minded ideals and sales copy?

7. Does it solve a real world problem where decentralization makes sense? Not every business needs a blockchain.

8. Look at their GitHub. Is there activity on it? Have they made any commits? You don't need to be a technology expert to determine if there is real effort being put into development.

9. Join their Telegram, Reddit and Discord groups. If they don't have them, stay away. In the groups: first, ignore the hypesters, you want to find the FUDsters (Fear, Uncertainty, Doubt). There will be two types of them: 1) the baseless claims: ignore them 2) the ones who present rationale arguments against the project. Study those more closely to see if they are accurate. When Bitconnect was at its peak, there were plenty of people says it was a ponzi scheme, but they were ignored or chided for missing a great opportunity. What happened? Head of Bitconnect arrested in Dubai. This is just one of thousands of stories, but the most recent arrest.

10. Lastly, listen to people who have been in the market for more than a year or two. Real cryptocurrency people are not trying to sell you an opportunity to get rich. They will educate you on it, so you can make good decisions for yourself and will probably give you an unbiased opinion based on their experience. They have seen the cycle repeat itself too many times. We want to see cryptocurrency succeed and the best way to do that is by educating people to avoid the scams that give it a bad rap.

Bonus: if you are considering mining ask the following: what is the hash rate of the pool, where is it located (looking for cheap electricity), what has been the historical number of blocks found per day?  These are basic questions any of them should be able to answer.

Remember, never invest more than you are comfortable losing even if you think it has potential and meets the criteria. The technological landscape is evolving quickly and even a good idea could be obsolete tomorrow. Good luck and welcome to the exciting world of cryptocurrency.

Let me know your thoughts? Any tips I missed?

Crypto Isn't Much Of A Bubble

Everywhere you go it seems that people are discussing cryptocurrencies.  Most people are divided into one of two camps; it's either a bubble rivaling the Tulip bubble of the 1600's or poised for a massive run-up to the next all-time high (ATH).  I do not think either of these views are accurate and the truth is somewhere in the middle.  For this discussion, I am going to focus on Bitcoin, since its market cap accounts for 50% of the total crypocurrency market.

How Big Is It?

A colleague sent me this article yesterday that puts the size of the various markets into perspective.  The whole cryptocurrency market is that dot on the in the top of the diagram. 

Today, the market cap of all cryptocurrencies is roughly $300B, compared to the dotcom bubble, at its peaked, was at $3T before crashing in 2000.  That means crypto today is only 10% the size of the dotcom bubble at its peak.  I talk about this more in my previous post on the Age of Money Revolution.

When anyone talks about systemic risk, it is pretty clear that market is not big enough, at this time, to pose a significant risk, and the Federal Reserve has stated this conclusion as well, in May 2018, "Overall, however, the still relatively small scale of cryptocurrencies in relation to our broader financial system and relatively limited connections to our banking sector suggest that they do not currently pose a threat to financial stability."

Number of People Involved

Is everyone really getting involved in crypto?  The short answer is NO.  In fact, the number of people that actually own and do any type of transactions is quite small.  In 2017, the number of bitcoin wallets increased 2X, from 13.7M to 27.7M.  Assuming that each holder has at least 2 wallet addresses, one cold and one hot, then it can be concluded less than 14M people globally (about 0.32% of the global population) have bitcoin. 

How Much In Avg Wallets?

As January 3, 2018, slightly over 50% of all wallets had less $3.00, 75% had less than $73.00 and 90% had less than $539,  so even though everyone is talking about, very few actually own any and the value of coins, per wallet address, is overall very small.  A point of note: the exchanges do hold the largest wallets, so the actual number of people and amount held per individual  is probably slightly larger, but it is difficult to draw any conclusions.  I would hope that anyone with significant holdings follows my previous advice and has moved most of it off of an exchange to a wallet they own. 

HODL Waves

On of my favorite graphs, HODL Wave, was developed by Unchained Capital.   The graph shows the time since the last UTXO (unspent transaction output or last time the coin was spent/created).  In July 2018, you will notice that about 8% of all bitcoins in existence were traded, and during the frenzy of August 2017, it peaked at 24%.  Further, roughly 18% of all coins did not move in 2017, even with the market hitting an ATH. 

Cryptocurrencies are one of the only assets classes where this type of information is possible, due to the public blockchain. 

Bringing It Together

Regardless of all the headlines and people talking about cryptocurrencies the actual number of people that own crypto is relatively small and the size of the market cap pales in comparison to even the next largest one, Gold.  

This is why I conclude that we are not in mist of a bubble, nor significant price increase due market demand.  If I were to lean either direction, I would speculate that we have significant opportunity in the next 24-48 mo's for the demand to increase, as more people get involved, and thus higher prices and a larger market cap.

Where do you see prices and market cap heading?  Share your thoughts in the comments.

Is The Future of Gaming Decentralized?

The advent of blockchain has opened up new opportunities for games developers, but what  is all the fuss about and what makes them different than existing game development? 

Perhaps, you have heard of CryptoKitties, NimiPet or Decentraland, or maybe this is the first time you are reading about it.  Either way, it is an opportunity you should be aware of, in case we see more companies adopting the blockchain for gaming.

Big Question

I have been following Decentraland recently (full disclosure: I own a small amount of the coins) and was discussing it in a recent interview, when the interviewer asked me "I don't get it, what value does it bring having it on the blockchain over a traditional centralized model?"

How's It Different?

It is different in two ways: Control and Profits

n a decentralized game, no single organization controls all the rules of the game and profits go to developers of the best content. A player votes with their time and money. 

When a game is built by a company, the company can control all the aspects of the game including who can play it, the features, the rules, and the profits.  Furthermore, the company can change any one or all of those aspects are their discretion.  That may sound fine to many people, since the company paid for the development, but it can negatively impact players that have "invested" in the game through time and initial or in-game purchases. As a player you either accept the changes or leave the game. 

A few years ago, I was playing a war game and the developers constantly changed the rules of the game by limiting operating areas and strategies, adjusting weapons performance and introducing new weapons.  Each change would cause an uproar in the community, but increased developer profitability, in that it cost the player more money and time just to stay even.  Those who have played any multi-player game know that you develop a sense of camaraderie with the other players and that makes it difficult to leave, so you stick around until it becomes more painful, experience or expense, to continue than to just quit.  

CryptoScientist University

Let me provide a more detailed example.  Lets imagine I decide that the game community would benefit from a virtual cryptocurrency university, so I purchase the "land" and start developing the features, rules, economy, courses and all other aspects that would benefit my students.  When I purchased the land, no controlling organization would tell my what I can or cannot build or how much I can charge.  It is all at my discretion.  All of the profits I am able able to generate through courses or advertising are paid to me for my effort.  Think about how this is different than the current revenue models on social platforms.  All the user data and profits are owned by one company, generating enormous profits for them. 

If my university is popular, I could even choose to issue my own currency that is used when you enter my area, but could also be exchanged when you leave for the "global" currency. 

Numerous Options

I have essentially created a virtual island and so have hundreds of other people, giving players choices of how they want to invest their time and money.  Some people may develop neighborhoods, resorts, nightclubs, shopping districts, amusement parks, other universities or whatever they can imagine. 

If my university is widely popular, perhaps a real world college would want to purchase it.  I can now sell it for any price that I choose and again the profit comes to me.  In games controlled by a single company, the terms and conditions  either limit or prohibits sales, so when you leave you also leave behind everything you purchased or earned along the way.  This changes the economic model from a monopoly to one of competition.  

Users

The question then becomes, if you can build your own popular university or whatever, why not just build the software you control, since that is what you are doing on your plot of land.  The answer is user base.  I would need to market to a niche audience or spend significant upfront investment to build hundreds of islands, hoping to attract and retain enough users to make a return.  The decentralized model distributes the development cost and risks, but attracts a larger user base because of the wide variety of offering within a single platform.

Limitation of Decentralization

The three overarching negatives, based on the current state of development are scalability, content distribution, and security/usability.

Scalability

Blockchain scalability has caused platform issues affecting all users.  When Cyptokitties was enormously popular, one selling for as much as $117,000 , the Ethereum blockchain experienced a six-fold increase in pending transaction, which impacted all owners of the currency, not just the gamers.  This caused concerns that serious business opportunities where being crowded out by the gamers.  

Decentralized Content Distribution

Content distribution through a P2P network has traditionally posed two primary issues: download speeds and availability.  . Both of these issues, could negatively affect the users and the overall popularity of the game.  As the technology continues to develop, it is expected that new solutions will solve these issues.

Easy to Use/Hard to Lose

In game wallets will need to be secure enough for gamers to hold private keys and authorize micropayments, yet easy enough for gamers, with a wide range of experiences, to understand and use. 

Wrap-Up

Decentralized games built on the blockchain could change the game development industry in tremendous ways by rewarding gamers for their effort and developers for their content, but for that to happen, strides will need to made to mitigate the limitations.  I think it wiil be an area to watch for new opportunities.  In a future post, I will analyze the impact of decentralized games on blockchain security.

Let me know what you think about decentralized games and their future in the comments below.