Real-Time Self-Government In The Cryptocurrency Frontier: Socialism, Fairness And Morals
By Daniel M. Ryan
The "Free And Fair" Drawing Board's Acceptable Gimcrack
As explained in the previous part, the "Free and Fair" frenzy in the spring of 2014 started off with the one-applicant, one-stake model. That proved to be easily gamed, so qualification criteria were added. The applicants' Bitcointalk accounts had to be a minimum of one to two weeks old on the date of the initial announcement and also had to rack up twenty to fifty posts, depending on the dev's taste. The dev of Community Coin got around the inevitable gaming of this arrangement via seasoned sockpuppet accounts by reviewing each application manually. This procedure, in addition to being slow and unwieldy, elicited the usual complaints about decisions made by human judgment.
Another soon-to-be dev took notice and cobbled together a serviceable gimcrack: a script that checked to see if a Bitcointalk account has enough posts and age to qualify. The trick that worked, public-relations-wise, was the script checked via looking for a certain forum signature.
Like many forums, Bitcointalk allows for a signature that appears under all the member's posts, even the first. When the user changes the signature, that change is propagated to all the posts the user made, even the earliest. This scheme showed some sense. Even if sockpuppeteers inevitably took advantage, they could only do so by changing their forum signatures to effectively advertise the coin all over Bitcointalk.
But the main reason why this qualification checker got praise was because it was automatic. No "arbitrariness," no human judgment, was involved. The coin that first featured this application form was a success in a way, as the selection process attracted little flak and controversy, but the coin itself was only a minor success. The altcoin that followed in its footsteps proved to be a major one…until its dev let her greed get the better of her.
The Sharecoin/Sharex Saga: How A Promising Business Model Was Killed By Short-Term Greed
Back when the Community Coin rocket ship was still heading upwards, a newbie who called herself ziplibrary signed up for Bitcointalk. It was mid-afternoon, April 27th, 2014.
A half an hour later, she had posted an announcement for a new "Free And Fair" altcoin called Sharecoin. Its motto was, "We Share – We Grow." True, Sharecoin itself was just another proof-of-stake altcoin clone; it may have been cloned from Community Coin. But what made Sharecoin unique was its tie to a new altcoin exchange. April 27th was not just the debut of Sharecoin, it was also the announcement day for the new exchange Sharex, scheduled to open for business May 15th.
The "free and fair" system that ziplibrary used was the same script that was used for that earlier coin; it probably was ripped off from the latter. But in the day when Sharex and Sharecoin were rolling, almost no-one cared. The distribution went through with little controversy or grousing – except about those sockpuppets that temporarily qualified for stakes. With regard to those, there was a lot of grousing. Accordingly, ziplibrary disqualified more than half of the original applicants through checking recency of signup for Bitcointalk, activity on the forum and for common account IPs.
The main plank of Sharecoins's value was unique. There was no Great Altcoin Narrative with this coin, nor was one needed. Sharecoins had a present value: with 20,000 of them, you could buy one "feeshare" in Sharex. Feeshares are a gimcrack used to get around the securities laws: legally, they're nothing more than a digital token. No partial ownership comes with them, nor any formal legal rights. The only thing backing them is a promise from the issuer to send a small part of the profits or revenue from the issuing business as per the offering agreement. Given that the Holy Grail of cryptocurrency is "trust-free solutions," feeshares seem a little misfitty. But when you're building on the frontier, you tend to leave certain principles behind as you get your hands dirty. And there were extant securities regulations to get around.
With respect to Sharex's feeshares, there was only one way to get them: send 20,000 Sharecoins back to the dev. Since the Free and Fair allocation for the first thousand qualified applicants was more than 60,000, a Sharecoin stake got you three feeshares if you were one of them. (The rest got about 59,000, putting them 1,000 below the three-feeshare threshold.) Since each feeshare entitled you to 0.001% or one hundred thousandth of Sharex's revenue, Sharecoins had a fundamental value from the get-go. If Sharex had grown to a major second-tier altcoin exchange, Sharecoins' fundamental value would have gone from piddling to something substantial.
Although the distribution model was in line with altcoin socialism, there was not even a hint of socialism in this plan. In fact, it was a plan that an MBA student would have been proud to have come up with. Since the fundamental value of Sharecoins was feeshares in Sharex, widely and freely distributed to qualified applicants, it was clear to the applicants that their Sharecoin stakes would only garner a decent haul of Bitcoin if they hit the Alternate Cryptocurrency board and promoted Sharex. At least, I got the message loudly and clearly; so did several others.
"We Promote For Free – We All Profit!" Including, of course, ziplibrary herself.
At the time, I was still pitching in with Community Coin but I needed no authorization whatever to start pitching in for Sharex as a sideline. As became clear, ziplibrary's growth strategy for Sharex was standard for new exchanges in altcoin land: beat the bigger exchanges to the listing punch. Consequently, she hovered over the Announcements sub-board, looking for new altcoins she deemed to be hot and listing them. And, people like me would hit the threads for those altcoins to promote Sharex.
Many of those alts were "free and fair" coins. Many of them were also flashes in the pan, whose trading volume proved to be piddling. Initially, the only altcoin with any decent trading volume of Sharex was Sharecoin itself. It had captured a lot of imaginations in the altcoin world, and its value reflected that.
Therein arose the first unintended consequence with what was a brilliant plan.
The value of almost all altcoins is really piddling per unit. They're customarily traded with Bitcoin as a reference currency, just like U.S. stocks are traded in greenbacks. In Bitcoin lingo, one hundred-millionth of a Bitcoin is called a "satoshi." The value of altcoins tend to be so low per coin, the standard way to quote and trade their value is in satoshis. Many of them are so low, there's no point in assigning a dollar value per unit; there's too many zeroes on the right side of the decimal point for the figure to be meaningful. For example, one Dogecoin is currently worth about US$0.00044.
In addition to the feeshare value, ziplibrary had come up with another way to hold up the value of Sharecoin. She put together a "multipool" with an algorithm that would shift the member miners' hashing power to whatever minable Litecoin-type altcoin happened to be the most profitable. The same script would dump any alt that its membership successfully got the reward coins for onto a top-tier exchange. There was no mine-and hold: it was all mine-and-dump, dump for Bitcoin at the prevailing high bid. The Bitcoin proceeds, she planned to use to set up a buy-wall for Sharecoin itself. This twist was not original with her, as you'll find out below, but it was an added feature that was attractive.
Her plan was to start off the buy-wall for Sharecoin at one satoshi and then work up. That's right: she expected Sharecoin to make its big trading debut at one one-hundred-millionth of a Bitcoin. At most, she expected it would start off at well below ten satoshis. That's precisely why she sold Sharex feeshares, each entitling the holder to one hundred-thousandth of Sharex's revenue, at 20,000 Sharecoins each.
Unfortunately for her plan, Sharecoin proved to be hotter than she had anticipated. On its big trading debut on Sharex, it quickly hit a range between 200 and 500 satoshis – or about fifty to a hundred times' what she had originally anticipated.
This hot debut had the unintended consequence of making Sharex feeshares a lot pricier than she had thought they would be. One Sharecoin holder that was good with a spreadsheet calculated the implied value of Sharex as a whole, using the then-current market value of a Sharecoin, and came up with a number that was in line with an established major exchange. For him, and for some others, the numbers were way out of whack.
ziplibrary explained, but decided not to alter the terms of the deal in mid-stream. Myself, I wasn't bothered. Like some others, I costed out the value of three feeshares as "free" because my giveaway stake could buy three of them. So, I used 60,000 of my original haunch and bought three of the feeshares. But, the price was sufficiently out of whack for the first tranche of feeshares to remain mostly unsold. And later, Sharecoin itself sunk to about 200 satoshis – but not after I bought 100,000 more on Sharex and tucked them into my wallet. These were mine to keep. Granted that the numbers didn't add up, but Sharex was already being noticed in the altcoin world as an exchange on its way up. Three feeshares seemed like a good speculation, albeit a long-shot one. Plus, returning 60,000 of my Sharecoins to ziplibrary for feeshares seemed – well, fair.
And indeed, Sharex had begun to attain critical mass. It was only a matter of time before ziplibray's dogged but crapcoin-filled listing policy made Sharex the first exchange to list a smokin'-hot altcoin.
That altcoin was Qora.
Qora was one of those presale coins that had captured the imagination of the altcoin punters. Based on Nxt, the Qora dev said that it was going to have new Java code. Consequently, the dev bent the open-source custom by keeping Qora closed-source for a certain lead time. It was one of the presale winners, which produced a fifty-bagger in short order for the shrewd pre-sale buyers who were savvy enough to offload their purchases near the top of the excitement. Even now, after a grinding bear market that inevitably accompanies ardour turning into boredom, the original pre-sale buyers who held on (but didn't buy any more in the excitement) are up more than ten times in Bitcoin terms.
And for a brief but vital lead time, Sharex had an exclusive on Qora. The established exchange Poloniex did list it soon after, but Sharex had secured the vital first-lister advantage. After fishing in the Announcements section, and catching rock bass after rock bass, ziplibrary had landed one big trout.
At that time, I was quite sure that the 100,000 Sharecoin I had bought, downloaded and tucked safely in my wallet staking away, would be worth a heckuva lot more than I had paid in a few months' time. In that, I was soon to be proven wrong by an announcement that rocked the altcoin world.
Busoni, the head of Poloniex, said that someone had lifted Sharex's entire balance of Qora to Poloniex in an attempt to sell it. As would soon become clear, the robber was none other than ziplibrary herself. She had robbed her own exchange. And had Busoni not stepped in by putting a freeze on the stolen Qora, she would have gotten away with it.
As sad stories go in the altcoin jungle, this one is somewhere between tragic and tawdry. ziplibrary, really, had thrown away a lot more than she had attempted to rob. She had an exchange that was on the growth path to becoming one of the majors in the second-tier level. She destroyed it simply because she was too short-term greedy to keep her fingers out of the till. Had she had merely normal inner strength, she'd be well on her way to real affluence now – but she didn't. Instead, she destroyed both her exchange and Sharecoin itself.
If you ever wondered why police officers refer to criminals as "stupid," the above sad story is a perfect illustration of it. Despite being one of the better ones early on, ziplibrary had gotten greedy to the point of being long-term stupid. And thanks to the elephant's memory of hard-bitten altcoineers for even purported scams, she permanently poisoned what was really a brilliant business model.
The MultiCoin Scam Turns Off The Stupidizer
I lost a minor amount of Bitcoin on a minor scam called Multicoin, but I did get a compensatory benefit from it: Multicoin turned off the Stupidizer grinding in my brain.
There have been at least three Muticoins in altcoin land's checkered history. The Multicoin that's currently alive is not the same one as the Multicoin that woke me up. That particular Multicoin is securely in the altcoin underworld, where the lonely shades of altcoins gone display the message "No Block Source Available" in their client wallet. That message means that there are no more peers in the coin's network; it's the sign of death.
Multicoin was a me-too coin following in the wake of the then-hot Blackcoin. Blackcoin was a so-called "ninja launch" coin, with a short proof-of-work mining phase that transitioned to proof-of-stake. Back then it was the first to launch that way, so the term "ninja launch" didn't exist.
But it also had another unprecedented feature, which was rather clever: it was the first proof-of-stake coin with a dedicated multipool. As noted above, a multipool attached to a coin uses the hashing power at its disposal to find rewards in proof-of-work coins, sell those coins for Bitcoin and then use the Bitcoin to buy up the coin it's backing. The people who hooked up their computers to the Blackcoin multipool and contributed hashpower would be paid by their hashpower contributions exclusively in Blackcoin. The pay coins came from taking the Bitcoin proceeds and automatically buying them on an exchange at low ask. The team behind this operation turned out to command a lot of hashpower.
Consequently, one of its advertised features for Blackcoin was continual buying pressure from the multipool – necessary to compensate the miners in that same Blackcoin for their supplied hashpower - that would help push its price up.
As is common with coins that later capture altcoin speculators' excitement, Blackcoin debuted with a disappointing early run once it became listed. Its multipool feature also met with a lot of scoffing, plus the obvious question: "If the multipool members turn around and dump their Blackcoin for Bitcoin, isn't this price-support scheme just a wash?"
So, early on in its trading history, Blackcoin eased down to 600 satoshis. But then, in large part because its promoter was darn good at his trade, it rocketed up in a two-stage flight whose peak was well above 45,000 satoshis. Anyone lucky enough to buy it in early March was sitting on at least a 75-bagger in Bitcoin terms on April 14th.
That success inevitably caused a flood of me-too coins. One of them was the Multicoin that was announced on April 13th, 2014 by multiman.
This one had a more complex distribution scheme than most. multiman said that the distribution of the 300 million Multicoins would take place over thirty days starting April 16th. After the end of each day's "round," ten million would be sent out. Five million would go to the participants in multiman's Multicoin-dedicated multipool, split by the amount of hash power each participant contributed. The other five million would be split in a pre-sale arrangement by share of Bitcoin sent in, relative to the day's total. If 5 Bitcoin were sent in during a 24-hour round, someone who sent in 0.1 Bitcoin would get only 100,000 Multicoins. On the other hand, if only 0.1 Bitcoin were sent in over a round, then someone who sent in 0.05 Bitcoin got 2.5 million Multicoins. The implied promise was that multiman would use the Bitcoin he collected to provide buy support for Multicoin once it got listed.
This one started off popular, but soon fizzled. When I breezed in, and started making a few small sends, the total BTC haul per round had shrunk from its first day of 5 bitcoins to less than 0.1 Bitcoins. The scheme seemed fishy to me, but its then-unpopularity meant that I could pick up hundreds of thousands of Multicoins for only 0.01 Bitcoin or a few million for only 0.05 BTC. It was a long-shot gamble, but it seemed worth the risk since its unpopularity meant that I could get a lot for only a little.
I came back to the table three times, only sending less than 0.1 Bitcoins in total, when I found out that multiman had absconded. In truth, I wasn't very surprised as the scheme did seem rickety. One of the things I noticed while looking it over was multiman making a big deal about how he was not holding any Multicoin back for himself; he was set on distributing all of them to his multi-pool contributors and to his "investors."
But soon after I realized that more of my Bitcoin had once again gone bye-bye, the Stupidizer that Mr. Brainwipe had installed in my brain sputtered to a halt. With the Stupidizer off, I asked myself the question that any business-minded person would consider screamingly obvious:
If a guy is selling all his coins away, or indeed giving them all away, then what incentive does he have to stick with his coin when the going gets tough?
The answer is just as obvious: none, except his personal honour. As the record shows, multiman –whoever he really is - decided that ~$15,000 worth of Bitcoin was worth more than his honour.
This all-but-blindingly obvious point puts the continual complaints about "greedy devs" who allegedly hog more than their fair share of their own coins, in a different light. The light of common sense, if you will.
A Helpful Denouement
The Stupidizer in my brain was already sputtering to shutdown when I got a friendly private message from another Bitcointalk user who had decided to help me. He suggested that I sign up for every new Free and Fair coin that came down the pipe, using sockpuppets as well, and then quietly dump them on an exchange before they tanked. He said he had garnered 2 full Bitcoins that way.
It was almost as if I had been a new hand at a socialist factory, one owned and operated by the State, and a friendly old hand pulled me aside and gave me step-by-step instructions on how to do the minimum amount of work necessary to keep me and the rest out of trouble - and no more. With a friendly wink and clap on the back at the end of his cheat-sheet instructions, not to mention the location of a secret distillery that sold cheap hooch for our idling time.
On July 22nd, Reason magazine published a summary of a study that concluded, "'The longer individuals were exposed to socialism, the more likely they were to cheat on our task.'" I can say from my own experience that the unconscious socialism elicited by "Free And Fair Distribution" does lead to a result that would surprise the study's authors not at all. In a very real way, it's a mark of shame on our age that so many people were surprised by its finding.
Daniel M. Ryan is a long-time contributor to Enter Stage Right and has returned to the fold. © 2014 Daniel M. Ryan.