Look out for snake oil

The space is new, hyped, and full of misleading information

Published May 6, 2019Updated May 7, 2021

So I mean for today, you could have, some Bitcoin business have a tab, so you pay them and then you work your tab there and presumably you cash your tab out if you don’t use it.

If you have repeat custom… or maybe the shops in the local area could make a shared tab or something in anticipation of… you know somebody in the local area … technology expert could make a local Bitcoin tab that’s interoperable between the shops and some sort of app to do it.

A snake oil salesperson sells, or promotes, a valueless or fraudulent solution. The cryptocurrency space is full of such people and broken solutions.

Not really cryptocurrencies

There are many projects in the cryptocurrency space that, curiously enough, aren’t actually cryptocurrencies. Some even go so far as to call them cryptocurrencies even though they don’t fulfil the criteria. For example, I don’t consider these real cryptocurrencies:

Some might be useful, but they don’t have the same properties as cryptocurrencies like Bitcoin, and they don’t work the same way.

For example, stablecoins depend on a third-party issuer and redeemer—the very thing cryptocurrencies are meant to remove. Second layer solutions have fundamentally different security trade-offs and they work differently; they’re built on top of—but they are not—cryptocurrencies.

Be very skeptical of sites like CoinMarketCap that says it lists the “Top 100 Cryptocurrencies by Market Capitalization” because most of the coins listed aren’t real cryptocurrencies. Like how Tether is currently #3 on the list (2020-09-21), but that’s meaningless since they can be printed out of thin air, significantly warping the market cap.

The blockchain hype

There’s the phenomena where a technology gets hyped up and businesses all over rush to adopt it in any way they can, even if it’s totally the wrong solution for their problems.

Removing the consensus mechanism from a cryptocurrency, so they can just use the blockchain, removes what makes cryptocurrencies useful. The blockchain data-structure by itself is neither new nor interesting, yet that’s all people seem to focus on.

Be aware of “the blockchain” being used only as a buzzword.

Warning signs to look out for

When evaluating cryptocurrencies, here are some red flags to look out for:

There are many traps to fall into in this space. I think the best antidote is to try and learn as much as possible, and never be afraid to question everything.