
Hundreds of Bitcoin Wannabes Show Hallmarks of Fraud - smacktoward
https://www.wsj.com/articles/buyer-beware-hundreds-of-bitcoin-wannabes-show-hallmarks-of-fraud-1526573115
======
hudon
\- The space is littered with fraud.

\- Wallets have bugs that lose hundreds of millions of dollars

\- Energy consumption forecasted to hit 0.5% of the world’s electricity
consumption by end of 2018

\- Promoters yelling “decentralize everything” while exchanges, development
teams and mining are all highly centralized

\- No legal use case found to date

Blockchain is a parasite on society.

~~~
econochoice
Despite all of this, I don't think we've hit peak blockchain fetishism yet.
There's still a lot of room to make solved problems worse with a blockchain.

~~~
yks
There is a lot of social capital to acquire by making solved problems worse
(e.g. "reddit redesign") so blockchain will probably see much wider adoption
soon.

On the bright side, there will be a lot of social capital to acquire by
"fixing blockchain" with revolutionary "centralised databases" afterwards :)

~~~
mrgordon
Yes I think some of the coins caught onto this with DPOS. Have a couple dozen
block producers who will run fast servers and can be voted out. Then don’t
worry about total decentralization and your performance is 100x the
competition.

------
tptacek
In the end, the "reputable" ICO-backed companies will mostly (perhaps
entirely) turn out to be no better. Enron was a real company that did real
things. During the time it operated, hundreds of aspiring future Enrons were
born in the penny stocks, took down a few thousand in profits, and died.
Skeptics of Enron could have pointed to those overt frauds and said "sure, the
space is littered with frauds, but look at Enron over here; there are real
companies too". In the end, it didn't matter; in fact: Enron was the more
disastrous of the two threats.

~~~
sygma
Interesting comparison, but I think it breaks fairly quickly. If Enron were in
fact like Bitcoin, they could not have committed institutionalized and
systemic accounting fraud. The books are fully open and transparent. It's fair
if you think that Bitcoin will fail at becoming anything significant in the
history of the Internet, but calling it a fraud seems unjustified.

~~~
jeffreyrogers
I read the person you're replying to as talking about cryptocurrency backed
companies, not cryptocurrencies like bitcoin in general.

------
zby
Early stage is just not very well suited for dispersed ownership. The
investors need to do a lot of work to dig up and verify the information and
this only makes sense if they have big stakes in the company. This is a
general problem with crowdfunding ([https://medium.com/@zby/proof-of-
work-8d8265def194](https://medium.com/@zby/proof-of-work-8d8265def194)). Then
there are specific problems with ICOs - which have no legal meaning and give
no guarantee to the investors at all.

------
headsoup
There are many replies in this thread that seem to be forms of 'yeah but there
are issues with other stuff too!'

Not a convincing rebuttal.

------
bsenftner
It's the gold rush that killed crypto-currencies. They are dead, but their
gold rush enthusiasts are going to hang on for a decade hoping to recoup their
pride.

~~~
tramGG
Last gold rush for crypto was in 2013 so ~5 years.

~~~
Liquix
There was definitely a substantial influx of new (often clueless) investors in
the past 12-18 months.

~~~
johnpowell
When Bitcoin hit around 14K my mom had heard all about the rise on MSNBC/CNN.
So she asked me how to buy bitcoin. She needed to replace her radiator. She
had about 500 and needed 1200 so she thought it was a reasonable gamble. So I
had her send the money to me and I told her I would invest for her.

I did not..

But I did inform her that when it crashed I just stuck her money in my savings
account. And nothing was lost. I was willing to eat the loss if it had gone up
when she wanted to cash out.

And I did buy her a new radiator. I don't have to give a shit about mothers
day for the next decade.

~~~
mihaifm
Not sure what your point is here. Predicting price movements is not an easy
task, even for experienced traders. If you bought at 14k and sold at 20k, you
would've made money. Nobody really knows the direction the market is going,
otherwise we would all be rich now. Some trades make better profits than
others based on experience, but for the most of us it's just pure luck.

------
root_axis
One of the most under-appreciated problems regarding the "soundness" of
blockchain tokens is that they are trivial to create and so everyone does so.
A given blockchain token is only nominally distinct from a potential fork of
itself that literally creates blockchain money out of thin air.

The bitcoin-cash fork is a perfect example of how blockchain tokens can be
trivially summoned out of the void with identical properties to the parent
token which spontaneously "creates value" when the sum total value of the fork
and the parent exceeds the value of the parent pre-fork. What this tells us is
that blockchain markets are very inefficient and the vast majority of money in
the system has near zero understanding of the intrinsic properties that
underpin the token's ability to even exist as a thing that can be traded on an
exchange. Once the market is saturated with an understanding of how these
tokens are actually infinitely abundant and not at all scarce as we know it,
we are going to see a catastrophic correction.

------
mmgutz
It basically boils down to the world is full of suckers.

I'd like to find alternatives to Bitcoin and Ethereum that are actually
innovating. For most coins, forking is the extent of their technology.

~~~
mempko
This! I wish other projects tried harder.

------
ballenf
Article is non-paywalled for once.

Exhaustive analysis of ICO white papers shows about 1/4 contain major red
flags. The bar the WSJ set is pretty low (as in easy to pass without raising
flags). Any white paper that didn't plagiarize long passages, re-use others'
headshots or fail to name principals, or fail mention risk basically passes.

It's also worth noting that the multi-billion dollar figure cited for total
funds raised through ICOs is about as reliable as the ICOs themselves, since
it's based on self-reported figures from ICOs that frequently appear out of
thin air with multi-million claims of funds raised so far.

~~~
chatmasta
And that’s not even considering the many white papers that are original work,
but completely wrong. Many of them propose fundamentally incorrect and
exploitable systems. But of course none of the papers are peer reviewed, so if
the idea sounds cool to some armchair tech nerds on reddit, off to the races
you go!

Want to see something truly scary? Pick a coin, any coin, that has had a major
vulnerability discovered by researchers in a peer-reviewed publication. Then
go onto that coin’s subreddit and watch in amazement as a bunch of security
illiterate redditors bend over backwards to invalidate the paper’s claims with
conspiratorial nonsense and cries of spreading FUD.

Blind loyalty is bad enough in meatspace. In the cryptocurrency realm, it’s
simply dangerous.

The crazy thing is that any one of these coins could have a double-spending
vulnerability, which by its very nature would likely be undiscoverable. There
could very well be some clever hacker somewhere exploiting double spends and
slowly bleeding money out of exchanges.

~~~
Shorel
By the nature of the technology, there's no double spending on a blockchain.

Because every node has the same database. All and every one of the miners
maintain a copy of what's essentially the same DB, the same distributed
ledger.

But there are plenty of stolen keys and seeds for wallets and if someone gets
your wallet, all your money will be moved to someone else's. This, sadly,
happens frequently.

~~~
chatmasta
4 days later, #1 front page of HN: [https://www.ccn.com/bitcoin-gold-hit-by-
double-spend-attack-...](https://www.ccn.com/bitcoin-gold-hit-by-double-spend-
attack-exchanges-lose-millions/)

~~~
Shorel
Yes, I was flabbergasted by this one.

------
geraldbauer
FYI: Beware Investors! At the Bits & Blocks Press Bookself I've collected
books/booklets to warn about blatant crypto frauds and fudge. See Best of
Bitcoin Maximalist - Scammers, Morons, Clowns, Shills & BagHODLers - Inside
The New New Crypto Ponzi Economics [1] or Crypto Facts - Decentralize Payments
- Efficient, Low Cost, Fair, Clean - True or False? [2] or Get Rich Quick
"Business Blockchain" Bible - The Secrets of Free Easy Money [3]

[1]: [https://bitsblocks.github.io/bitcoin-
maximalist](https://bitsblocks.github.io/bitcoin-maximalist) [2]:
[https://bitsblocks.github.io/crypto-
facts](https://bitsblocks.github.io/crypto-facts) [3]:
[https://bitsblocks.github.io/get-rich-quick-
bible](https://bitsblocks.github.io/get-rich-quick-bible)

------
wufufufu
Can someone smarter than me try to write a formal proof that you can only have
2 of the following: distributed, fast, secure?

~~~
hdespiritu
There's decades of academic work in the form of "impossibility" results
showing that handling byzantine fault tolerance in distributed consensus is
alot more computationally expensive than omission/crash fault tolerance. The
following (FLP impossibility result) being one of the most famous ones:

[https://groups.csail.mit.edu/tds/papers/Lynch/jacm85.pdf](https://groups.csail.mit.edu/tds/papers/Lynch/jacm85.pdf)

~~~
neffy
Yes, that's the root of the problem. A deceptively simple sounding result.

------
fredgrott
To be fair, How many startups listed on Angel list ar in fact frauds?

No, not just illegal stuff like intershipsp for no pay but more major stuff
like outright fabrication of founder bios, etc.

~~~
gooseus
Legitimate frauds? Or "Fake it till you make it" type frauds who think their
idea is legit and just inflate some numbers and their capabilities to get the
money they need to prove it?

What matters more, it seems to me, is that both the cryptocurrency and tech
startup world are filled with bad investments which are going to make the next
economic bust exponentially worse.

~~~
favorited
> think their idea is legit and just inflate some numbers and their
> capabilities to get the money they need to prove it

how is that not "legitimate fraud?"

~~~
duskwuff
Because there's at least an actual idea, and an intent to execute on it. A lot
of the fraudulent ICOs, on the other hand, don't even have that -- their real
business plan is "take the money and run".

------
mythrwy
The anti blockchain sentiment on HN is something like the anti-Trump hysteria
in the period leading up to/immediately after the election. Tons of grandiose
"it's SO horrible" posts, tons of downvotes.

I predict it will shake out about the same way also.

Blockchain and bitcoin aren't going anywhere in the near future. Some people
have, and will continue to have, a use (for whatever reason). The "I hates it
precious!" screeds won't change this. In the end it will turn out it's not the
savior the proponents claimed it would be nor the demon incarnate the
detractors claimed either but just another instrument of the powers that be.

Why folks can't take less emotional views on these two phenomenon is beyond
me. It really is. You don't like Bitcoin? Fine, ignore it. I simply don't get
the mouth frothing hatred.

~~~
tdb7893
I think the negative sentiment is largely because of how much the bitcoin
evangelists promise. There's a lot of hype and lofty goals tossed around but
cryptocurrencies have been around for nearly a decade (If I remember bitcoin
started early 2009) and they mostly seem to be used for fraud and speculation
now. I'm not saying that the technology is fundamentally useless but the
mismatch between delivery and retoric has made me sour on it.

A good more concrete example of this is the DAO from Ethereum. A lot of
verbage was wasted beforehand saying how it was going change everything about
corporations and investment but as far as I can tell little has changed.

~~~
lostmsu
You mean mostly media talks about fraudulent use cases. Or otherwise, how do
you know mostly they are used for fraud?

~~~
tdb7893
The reason I think it's mostly speculation and fraud is that the only people I
know who have crypto currency in real life have it as a speculative investment
and that combined with the fact that it doesn't work well as a payment
processor (historically it's been slow and expensive and even mainstream
companies that used to take it seem to have often discontinued support). I
actually don't think they are mostly fraud, I think they are mostly
speculation and fraud is just the outcome ofof a speculative market with
little regulation. I would be happy to hear about more use cases but most I've
heard about have either been small toy use cases or "in the works".

