[sputknick]

When I first learned about crypto currency on HN back in 2012 I was excited. It sounded like a fun technical project that could do good in the world. I bought some along the way, followed projects. Along the way it changed. Yesterday I saw a spam post on Reddit about joining a "pump and dump group", which I had to research. It's groups of people who coordinate a buy of a specific currency, spread false news about this currency to create a mania, drive up the price, sell it at a profit. Not only is this probably illegal, it's immoral. Maybe this is how people who were in the internet in 1992 felt in 2000?

[omegaham]

On the bright side, the idiots who join these groups hoping to scam others tend to lose their shirts as well. The person orchestrating the pump-and-dump scheme bought the currency at $X per coin in question long before, and he's using the people in the group as patsies. "Buy the coins at $X + $Y, and the rise in price will make it so that you can sell the coins to some other idiot for $Y + $Z!"

If there aren't enough "outsider" idiots to buy the coins for $Y + $Z before the correction happens, the "insider" idiots lose their shirts. The original person, of course, makes a tidy profit.

---

I learned this the hard way playing Runescape as a 16-year-old. 2007 was an interesting time for that game.

[aphextron]

>I learned this the hard way playing Runescape as a 16-year-old. 2007 was an interesting time for that game.

Playing that game over the years was the most thorough education in trusting strangers on the internet anyone could ever need

[zeusk]

For me, it was an introduction to basic finance topics like abitrage and trading; also the enormous scope of scams people can pull.

I made my fortune in high frequency trading of rune sets after they introduced Grand Exchange and steel smelting prior to it.

[shiado]

I was one of those assholes that ran a bot farm to devalue your labour. RS was a great place to learn about the race to the bottom, economies of scale, and other random economic topics as well.

[omegaham]

The most interesting part of RS was that the more raw the product, the more it was worth - you could get more XP out of it.

And before the Grand Exchange, buying in bulk cost more than buying small amounts, because buying large amounts of materials required you to sit on World 1 spamming "buying iron ore whatever each" for hours.

[swarnie_]

I'm not sure the historical data still exists but would this be around the time of organised market manipulation? The spiking gold rings 500% then dumping just before you told everyone else to springs to mind.

[omegaham]

Yeah, it was when the Grand Exchange locked in market rates - you couldn't trade at any price outside 10% of the established price.

At the same time, ClanChat was introduced, allowing enormous groups of strangers to coordinate their activities.

[csomar]

They usually accumulate old cryptos or whole-buy them at ridiculously low prices (almost 0). So their biggest expense is actually marketing.

[dlau1]

Keeping track of crypto amidst all the hype recently, it's abundantly clear to me that the recent explosion of speculation based trading is a signifier that cryptocurrency is a bubble just waiting to burst.

I don't think this is bad in any right. It looks (and I grew up in the bay area through turn of the century) just like the dot com bubble. The promising part of this is that the underlying technologies being developed, a way to distribute information and business logic in a way where there is an indisputable fully traceable truth, is huge. I think of blockchain-like platforms like Ethereum as the ARPANET to our internet. The opportunities to supplant existing fully centralized systems such as stock exchanges, escrow systems, supply chain/provenance tracking, etc. with a fully decentralized or hybrid approach is huge.

In the end though, I think it will come down to where governments draw the line in the sand. The sad but true reality is that the regulators with the guns will always have ultimate power.

[WillReplyfFood]

The interesting thing is to cash out now- and invest into the amazon of cryptocurrency, when all is going down.

[newsbinator]

If anybody knew what the Amazon of cryptocurrency is, we'd all be investing into it.

For all we know that crypto is here, it just hasn't been evenly distributed yet.

[alphonsegaston]

I’m pretty sure that’s what Ripple is trying to position themselves as. Whether they pull it off, who knows.

[newsbinator]

Every crypto is trying to position themselves as the survivor (by way of real world 'utility') for when the bubble bursts. They all want to be Amazon, rising from the ashes of a crashed market.

Ripple's underdog challenger, Stellar XLM, is trying to claim the same mantle. So are thousands of other 'utility coins', of course, including ETH, XRB, VEN, ICX, and even the "privacy" coins, like Monero.

The fact is this is uncharted territory. We don't know for sure whether we're at the leading or trailing edge of a bubble, and we don't know for sure that any, some, or most crypto will still be around in 5-10 years.

Interesting times!

[United857]

The vast majority of crypto will ultimately collapse, just like the vast majority of dot coms failed and crashed the entire market.

But... those that survived with solid fundamentals have often gone on to thrive spectacularly -- e.g. Google, Amazon.

I can see something similar ultimately happening in the crypto space.

[samsonradu]

Yeah, heard this 100 times already. But why does it have to be like the dot com? What if it just stays a niche market for 50 years? What you say implies that crypto is as full of potential as the internet was to make it possible for businesses to grow as big as Google, Amazon. Not mentioning of course a lot of other factors that made Google, Amazon big like political influence, globalisation, lack of competition/regulation in certain areas etc.

Not trying to be pessimistic but genuinely curious why so many people make the analogy to the dot com period.

[usrusr]

> What if it just stays a niche market for 50 years?

That would still be a collapse, just a silent one. Niche market means that everybody has on some subconscious level accepted that a large stack cannot be liquidated and plays along by "hodling" so that they can continue feeling rich. This is what is eventually happening to most collector's items: trading volume drops faster than the price and before you know it, there isn't enough trading going on to regularly call out an updated market price. The last occasional buyers will happily buy at close to the price from the last time there was an active market, but potential sellers are not even trying to sell in bulk, knowing how little money they could expect. It's less frustrating to just forget about it than selling for a dime.

[le-mark]

Did you just "coin" HODL as a verb, hodling? Because I gotta say I have not read that usage before. Hodling is my new word of the day.

[snerbles]

"HODL" originated from a drunken rant on Bitcointalk during the 2013-14 bubble and MtGox exchange collapse.

https://bitcointalk.org/index.php?topic=375643.0

[usrusr]

And it's such a fascinating term! Holding is what Warren Buffett does, after having applied his unique evaluation skills before buying, hodling is what a True Believer does. "If you are not a True Believer and cash out early, you are not deserving of eventually entering the paradise of a bitcoin bet retirement."

And to people who self-identify with the term, I think it might also be a kind of rhetorical last line of defense for when someone criticises their trust and belief: "those may be fine arguments or not, see I don't care, I HODL which means I just don't take it as serious as you. Mind your own business and let me dream my dream". Could also be motivated as a psychological hedge for the day after, "sure, it was expensive, but look at fun we had!"

[Chris_Jay]

The dot-com period was just the latest example of what happens when a new technology is widely adopted. Automobiles famously went through a similar period early last century. Many new entrants crowd into the field, there's a free-for-all as everyone tries to make the killer app, then through a weird alchemy of vision, execution, and luck a few brands eventually buy up or force into bankruptcy enough competitors to dominate the field. In recent history at least, explosion and consolidation of new players is the norm when a new technology is introduced.

As to your second question - which I would rephrase as 'why would this technology be widely adopted?' I would say, if the role of a trusted third party can be automated, it will be because nature abhors inefficiency. And trusted third parties aren't a niche field - not just banks but also a large part of any civil service can now replace humans with algorithms. That's a lot of disruption.

[kindfellow92]

> Not trying to be pessimistic but genuinely curious why so many people make the analogy to the dot com period.

Because most people are not creative nor critical thinkers and the extent of their brilliance is superficial pattern matching. To most people the dot-com bubble seems to fit all the patterns so by their logic it must have the same outcome. If you think critically about the differences of the crypto craze and the dot-com era, you’ll see how irrational it is to make a strong comparison.

Bitcoin is not Pets.com. Bitcoin is Google.

[joeyspn]

> Bitcoin is Google.

I'd say it's probably AltaVista or Yahoo!...

[adrianmsmith]

I don’t think Bitcoin is Google, with the limit of 7 transactions per second, it just can’t scale enough to be the Google of currencies.

[kindfellow92]

Do you think the only thing that makes cryptocurrencies valuable is transaction rate?

[newsbinator]

It's hard to say 'Bitcoin is x'.

Perhaps the Bitcoin/Cryptocurrency situation is a close repeat of the dot-com boom/bust/rebirth.

Perhaps it's a close repeat of Tulip Mania.

Or perhaps it's a new category, and the rise of the next technology a decade from now will be a callback to what happened with Bitcoin.

This'll all seem obvious in a year or three. For now, we speculate and wait.

[Simon_says]

> superficial pattern matching.

> Bitcoin is Google.

Is this satire?

[aussie1233]

Looking at the market cap, it's about half Google. Probably much larger (2x) by and of year according to Tom Lee.

[kindfellow92]

You’re right. I meant, if anything Bitcoin is Google, but it’s not even that.

[yen223]

Google provides a valuable service that saves me time.

Bitcoin, uhh...

[kindfellow92]

If you can’t see how Bitcoin provides millions of others a valuable service, you have a poor imagination.

[Nursie]

Or there may not be any long term winners in this arena as people realise just how bad most if this stuff is for actual transactions and consumer protection.

[Chris_Jay]

I would liken it to Apple myself. First mover advantage does count for quite a bit in software.

[ruytlm]

Pump and dump schemes, among others, are a good example of why unregulated does not necessarily mean good.

[sputknick]

Agreed, I think that's my favorite lesson from the crypto experiment. Sure there are people who use regulation as a gatekeeping function, or as a way to magnify their power, but regulations really do exist for the good of the people.

[2muchcoffeeman]

It’s a bit like finding a piece of code that does something crazy.

If you ask around, there could be a really good reason for it.

I don’t think we’re going to have a usable crypto currency until economists get involved, or we simply relearn all the lessons we’ve learnt to date.

[VMG]

Yes, crypto is not complete until there are synthetic CDOs!

[Agebor]

CDOs are in the research phase currently: https://ethresear.ch/t/collateralized-debt-obligations-for-i...

[sanxiyn]

Now we at least have futures market, which is a progress.

[tankenmate]

You can do CDOs in Ethereum today if you want.

[indubitable]

"Hedge fund schemes, among others, are a good example of why regulated does not necessarily mean good."

One extreme negative, or extreme positive, derivative of a view does not condemn nor justify it. You need to consider the merits as a whole, not with piecemeal bias confirmation or condemnation.

[pfisch]

I guess. I mean the regulated stock market has dark pools and super fast algorithms jumping in front of people's trades stealing from them.

I actually feel like the playing field is more uneven between individuals and firms in the regulated stock market vs the btc exchanges.

I also think the bitcoin exchanges are backroom dealing and insider trading, but I feel like they are less sophisticated vs the "legal" theft that is taking place on wall street.

I mean bitcoin exchanges are certainly the wild west, but I honestly don't care if people want to run pump and dumps on unsophisticated investors. That is something you can pretty easily defend against by doing your own research. There are far more nefarious things going on on both bitcoin exchanges and the real stock market.

[jstanley]

> I actually feel like the playing field is more uneven between individuals and firms in the regulated stock market vs the btc exchanges.

This is definitely true. I first got into bitcoin as a way to do algotrading on an exchange without having to navigate whatever processes are required in order to be allowed to do so in "real" markets.

[codecamper]

I agree. People who chase whatever is going up deserve to lose their shirt at least once.

[olalonde]

I'd argue that there is no Bitcoin community to speak of anymore (just like there isn't an "internet community"). The technology evolved a bit but it is still essentially the same.

[earenndil]

https://bitcointalk.org/ is pretty major. There's also a large chinese crypto website the name of which temporarily escapes me.

[Blaiz0r]

See https://www.scuttlebutt.nz/

[mkirklions]

We got our first 0.01 bitcoin in 2011. Libertarian conference, wife gave her email, got crypto. I literally was stealing Gary Johnson's nametag during this time.

Bought my first whole bitcoin in 2015.

Until the end of last year, I had a good feeling about crypto.

The alt-coin madness has me scared for family and friends. They arent listening when I tell them Bitcoin and diversify. They go all-in on pump and dump new coins like TRON and IOTA.

Im actually scared.

[teekert]

I see it too, I even have family asking for spare accounts on exchanges! All exchanges are overloaded, not allowing for new accounts, it's crazy.. I just keep telling them: treat it like a casino, don't put money in you can't live without, say goodbye to your money at day 1.

That said, IOTA is actually pretty interesting from a technical standpoint, you should read about the Tangle ;)

[mkirklions]

IOTA would be fine, but how many other coins have 0 transaction fees now?

While I dont own any Raiblocks, they are using like 7 severs to confirm. Supposedly fixes all fee/speed problems.

I worry most about the ownership of non-mined coins. The founders nearly always pre-mine or grant themselves significant amounts of coins. The faucet that is crypto mining is all based on work/energy.

[cheeze]

Pump and dumps as well as these groups were definitely around in 2012. I agree that cryptocurrencies have drastically changed (IMO for the worse) but pump and dumps on shitcoins are nothing new.

[pfisch]

How did it change? People have been scamming with bitcoins forever. Mt. Gox was a scam exchange. There were a bunch of people scamming even before that.

[sputknick]

I see it as different. Mt Gox was a legitimate business, with honest employees who were poor at implementing security. Someone saw an opportunity and stole. That exists even with regulation. My issue is with the rise of people who's intent from the beginning is to decieve. Similar to the scam coins that will never deliver a working product.

[lozenge]

Mt Gox was insolvent long before it officially was. Mark tried to trade using money that didn't exist in order to bring it into the black, but he never managed. Look up wizsec's analysis.

[burger_moon]

Here's a summary that patio11 wrote on wizsec's analysis.

https://gist.github.com/patio11/598ec35c6c1675c97d93383f41b3...

[pfisch]

https://bitcointalk.org/index.php?topic=100514.0

Look at all these btc ponzi schemes from 2012

Also I thought Mt Gox had a bot buying tons of btc on their own exchange pumping the price.

[sputknick]

Oh wow, I didn't know the scamming went back that far. On the other hand... With Ponzi schemes, isn't it obvious from the start what they are? Maybe I give humanity too much credit.

[mercer]

I think the what a lot of people don't realize about ponzi schemes or pyramid schemes, or scams in general, is they don't rely purely or necessarily on fooling the 'victim'. Very often greed is enough of a motivator.

I've experienced at least one really big country-spanning pyramid scheme where lots of people participated, completely aware that it was a pyramid scheme. They just figured they'd be able to 'get out' before the thing would collapse. Obviously that often didn't work out...

[lmm]

Often they're started by people who have... not exactly honest intentions, but more people who believe their own hype than outright fraudsters. See the opening paragraphs of https://www.bloomberg.com/view/articles/2015-12-17/martin-sh...

[Cthulhu_]

Not always; I can imagine with MtGox they slowly became one, after becoming insolvent and figuring out they could pay their customers by getting more money in.

[Cthulhu_]

> Not only is this probably illegal, it's immoral.

But it's decentralized~. Bitcoin was initially hyped by "crypto-anarchists", to be free of government regulation, transfer costs, etc - well that's what you get. Something something cake and eating.

The only cryptocurrencies that will prevail within the next five years are the regulated ones. The rest will be used for shady purposes like tax evasion and paying for ransomware, and they'll get hit hard regularly by hacked or dodgy exchanges. I'm fairly sure the current crypto exchanges operate as a ponzi scheme right now, they won't be able to convert back to fiat with enough volume.

[c3534l]

> Not only is this probably illegal

Definitely illegal.

[c3534l]

Because I can no longer edit this post, I just wanted to say that I tried doing research and I'm less sure than I was initially. But I will add that just because the SEC currently does very little regulation of crypto, that doesn't mean that federal laws don't apply to it. It just means you're more likely to get away with it and there's more uncertainty about what's allowed and how crypto is thought of legally.

[elsewhen]

do you have any insight for how this is illegal considering that cryptocurrencies are currently unregulated.

[aiCeivi9]

Lack of regulations doesn't matter, they could be still charged under generic fraud & deception laws, it is just harder. It was the same with MLM - new laws or explicit bans were introduced as it was too hard to prosecute with existing legal framework.

[gonzo41]

The interesting thing to consider about bitcoins is its value isn't all hype, The cost of electricity use to produce them adds a value to it. Strengthens that emotional bond for the owners. Provides a feedback loop for users etc.

It's just sad this tech will end up being used mostly for black money.

[konschubert]

> The cost of electricity use to produce them adds a value to it.

That's not true. What makes you think so?

[aussie1233]

You should reach Satoshi' s whitepaper to understand that.

[zach43]

Can you provide a summary of Satoshi’s argument here? I’m failing to see how the usage of electricity, which is an entropy-losing process, leads to added value through bitcoin

[konschubert]

I think I understand Bitcoin well enough to detect that you don't know what you're talking about.

One could argue that a higher current difficulty increases trust in very recent transactions, thereby raising the unitility of Bitcoin as a medium of exchange (ha!) and thus affecting the price.

But that effect is small and we're talking about the difficulty during the last 10 blocks, at most.

Anything before that is for the past.

[wu-ikkyu]

>The cost of electricity use to produce them adds a value to it.

This is a sunk-cost, not added value.

[aussie1233]

You should reach Satoshi' s whitepaper.

[wu-ikkyu]

I have, please elaborate.

[teekert]

I don't understand how this is immoral. Everybody knows that everybody is just in it because they hope someone else will come along later and pay more for a coin than they did. Who cares about pump and dump and pyramid schemes? Someone dumb enough to put money she/he can't miss into the system is probably also dumb enough to put said money into a gambling machine or any other scheme (prince from Sudan?). Meanwhile people have fun and true innovations may come out (the crypto of monero/zcash combined with the master-node structure of DASH or a Tangle based system like IOTA). Why all the emotion? Literally everywhere on the internet and classic media people say: Don't do it, it's a bubble. If people can't listen, they need to feel, if you don't allow people to feel they become unhappy anyway, they may even be driven to TOR based decentralized exchanges where they are even more likely to get schemed.