Mar 09, 2023
I hate this word Sh*tcoin, we need to come up with something else that's more clean. Today I want to talk about what makes a sh*tcoin and how you can spot such a potential coin. I will talking about alot of people's favorite alt-coins such as ETH, if this will offend you I suggest leaving now. I am mainly interested in Bitcoin (BTC) however I do hold other actual decentralized altcoins but some may consider my opinions similar to those of a maxi (Bitcoin Maximalist). I would like to add that I have been in and out of the crypto space since 2013 and have seen alot over the years, I originally joined the space because of the idea to replace the government money so I could be slightly biased towards BTC.
Now depending where you get your information from you may have heard Proof of Stake (PoS) is the savior of crypto, making it upwards of 99% more efficient, these claims are true but they fail to mention what you are giving up as it comes at a massive cost. First of all you have now come full circle and removed the need for a cryptocurrency in the first place. Why is this? Simple, who runs the nodes? Those with the most stake ie. the rich. So now the rich control the blockchain and can sensor transactions and you and I already know many rich people have alot of contacts so they will collude together very easily to make these changes. Secondly the current system is designed around staking, like I just mentioned you have removed the need for a cryptocurrency. What do I mean by this? PoS basically works like a printer your creating money (coins) out of thin air like the current system.
If you don't understand Proof of Work (PoW) I will gloss over it here. PoW has 2 systems to it the nodes and the miners, the role for these changes depending on the blockchain meaning Ethereum (ETH) PoW is not the same as BTC PoW (I will touch on this lightly). When you create a transaction it is sent to the nodes a miner then collects all transactions in a block and sends it back to the nodes to validate if majority of nodes agree the block is pushed on chain. The difference with say ETH PoW is that the nodes all are forced to run on whatever version ETH Foundation says where in Bitcoin the version or new features that people want added must be approved by the majority of nodes to work.
With this understanding the biggest difference with PoS removes the miner from the equation. In PoW the miner is rewarded for solving the block and anyone can solve the block there are people with 5$ USB miners who solve a block, now yes extremely unlikely. Most miners join what's called a pool and when the pool solves blocks together they are all rewarded where solo mining you are paid 0 until you yourself solve a block. In PoS since you have no miner the nodes are given the reward for solving the block, well the issue here is that you need a certain amount of stake to run a node unlike other PoW coins which anyone can run a node. At the time of writing it costs 32 ETH to run a validator node that's around 50K USD, and you can't even withdraw the money either like at all the function doesn't exist yet. How stupid does that sound!
So you need to be to be rich to run a node on PoS but why does it matter? Well those who build and verify the blocks are the ones who can block transactions. For a transaction to be blocked on BTC the nodes and miners would have to agree, if your miner says person X isn't allowed transactions don't include him but 51% of nodes say no then that block isn't counted. Your wasting money and energy mining for nothing literally... So what if they owned 51% of nodes and they did agree person X should be banned from making transactions. Well at this point the network automatically does what's called a hard fork and becomes 2 seperate chains. An example of this is Bitcoin Cash (BCH) that forked off BTC in 2017. Then it's up to the people to decide which is the preffered version to use, so if people disagree collectively from banning anyone then mainchain BTC would have them banned cause 51% of the nodes say so but everyone else would move to say Bitcoin X where that didn't happen and remove all value from BTC, again making this a huge waste of time and money because even if they attack the new Bitcoin X it will just for to Bitcoin Y and happen again. I know this all sounds complex try to stay with me.
Delegated Proof of Stake (DPoS) chains like Cardano (ADA) are even worse than regular PoS chains. Yes I know ADA claims to be PoS not DPoS, it is not PoS because you are allowed to delegate coins to a node. It's that simple you are more then welcome to disagree with definitions. DPoS allows the rich to run nodes and then you stake or delegate our coins to the nodes which gives them more power to solve blocks faster as they have a higher chance to solve said blocks. Some chains like ADA limit how many coins can be staked per node to prevent this so the rich just create multiple nodes for example as you can see in the link below. Binance owns 62 nodes with 10.44% of total stake at the time of writing.https://cexplorer.io/groups
Why is this worse though? Since everyone is now making money for staking like passive income, well not only are you still printing money doing 0 work your centralizing the network faster by giving the rich easier access to coins without needing to buy 51%. The other big reason is that since they control more of the stake they will keep growing faster than you forever like the current system. Say they stake 10 coins and make a reward of 10 coins per block and they pay out say 10% (even more than your average stock market gain YoY(Year over Year)). Let's then say you stake 1 coin now that 10% is divided amongst all stakers lets say for simplicity there's 100 each at 1 coin (because if they stake 2 coins they will get more of that 10% than you will) so you now make 0.1% of that 10 coin reward per block and again for simplicity sake so did everyone else even though in reality that's not going to be the case. That node operator however made 9 coins and has 19 coins now where you have 1.1 coins. So you went from owning 10% of the node owners balance to 5.7% in just 1 block. The 1% love this method because it keeps them ontop forever...
Another big issue with regular PoS is it slowly becomes DPoS over time because everyone wants to make "passive income" right? ETH quickly got a new "Decentralized Application" (DApp) called Lido which basically you give them your ETH and they stake the ETH in their pool and in return give u a new sh*tcoin instead called stETH, brilliant! -_- So this will long term cause everyone who can't afford 32 ETH to jump to platforms like this and similar platforms giving up stake to big "Decentralized Autonomous Organizations" (DAOs) that are flawed (maybe I will write a post on this some time), however are the same as a foundation and are run by a select few people giving them control of these nodes. I mean someone has to stake the real ETH and run the node so again back to trusting others which Bitcoin was designed to remove. But I know I'm just some crazy BTC Maxi right?https://beaconcha.in/charts/pools_distribution
As we can see from the current distribution at least at the time of writing is total stake of 23.58% of all staked ETH is owned by Lido, amazing how that works isn't it? Followed up by none other than our favorite centralized exchanges. I don't care if you work for Lido and you want to say something stupid like it's decentralized because multiple different people are running nodes or some crap, the bottom line is people have to trust you to not screw them over first of all as you can run with the ETH literally as your giving them a fake stETH coin and second your gaining huge market control of the network.
With PoS the person who owns the coins never has to sell either they will forever own their stake since they own the coins, in PoW hardware is constantly being improved every single year so you need to upgrade your hardware constantly to continue to own your percentage of hashrate. Hashrate is like the speed of which you mine blocks, so if you mine 1EH/s and a new miner comes out that mines faster at say 2EH/s your total percentage of speed will be slower out of everyone elses. This means to attack the network you not only need to hardware once you would also need to keep buying new hardware to maintain control (think government), this is why people who want control don't use PoW.
If you would like to learn more about the flaws of PoS you can read the blog post below as I have covered the main points I wanted to talk about but there are more.https://medium.com/@factchecker9000/nothing-is-worse-than-proof-of-stake-e70b12b988ca
Wow... I mean really guys, we got a diehard community for Proof of Authority (PoA) coins? So much so that even the largest crypto channel on Youtube says he loves it... are people just insane? Do they not understand the point the blockchain was made for? For those saying right now who am I to decide what the blockchain is to be used for I get it, I have no say I agree but let me ask you this why should I use a blockchain that's expensive and slow to run compared to something like a simple database? I mean if I'm going to centralize the blockchain what's the point of it? That's right money... I must have forgot -_-
So for those that don't know unlike other centralized chains that try to hide themselves as being centralized PoA chains are open about it. THey control the network and transactions CBDCs are a good example of PoA type of chains. There are others however in the space that are PoA such a VeChain, Cronos and BNB. Ripple in a way is also like a PoA because the validators have to allow your validator to be allowed to verify blocks. VeChain even has patents, like that just proves even more they are an unregistered security acting as crypto to make themselves more money but I digress.
The point is these are the worst form of consensus and are 100% not decentralized in any way, these will probably be used along CBDCs to make smart contract platform or something similar to DApps with CBDCs to make everything fully controlled. If your "invested" in one of these don't worry we already know you have no idea what your buying no need to tell us to buy your sh*tcoin.
Everyone's favorite controversial topic Initial Coin Offering (ICO), and Initial Public Offering (IPO). IPOs are used by real companies to sell registered securities to people. In the crypto space however we call these "Premines" and basically it means instead of starting the blockchain at 0 coins and each block reward generates new coins you start at whatever value you want and sell them off for profit before the network even starts the first block (and usually give yourself a bunch of coins). The real issue here is you have made your blockchain for 1 reason to make money, your not looking to actually solve a problem your looking to profit and not only that but you want to ensure your profit by selling coins before even launching incase something fails.
People argue ICOs are just the way things are these days or that premines are needed so foundations have enough coins to sell over time to fund development. If you need to keep a bunch of coins to sell overtime I'm sorry but your project sucks... Many coins have launched without ICOs and are successful I will get into at the end. I would argue over 90% of coins have launched with an ICO making pretty much everything a sh*tcoin. Messari can show you the ICO if existing for each coin you just have to look them up. Sadly they want people to not know the ICO numbers and have decided to support these scams by hiding these under a paid subscription. I have provided an image below from Messari comparing different ICOs all of them are bad they should all start at 0.
I do want to make one understanding to ICOs however, and that is that it's very difficult these days to launch a project at 0 coins without some serious hype around it as miners could easily 51% attack the network in PoW and in the case of PoS It's not even possible to launch without an ICO as without someone owning coins nodes can't verify blocks. The issue is that ICO has been the bandaid solution which is stupid in my opinion instead we should be looking into ways to either improve PoW or better yet make a new better decentralized protocol (and no PoS isn't it). Something that doesn't need an ICO to launch and is as decentralized or even more decentralized than PoW. This should be our focus but instead it's about who can make the most money launching a shiny new coin that's why all ICOs are sh*tcoins. Yes even if they are doing something unique because the foundation is flawed. Would you buy a house if the foundation was broken or rotting away?
This should be super obvious but it's not, in fact it's the opposite people get excited by roadmaps as a sign of the price going up when something new launches on the coin. If your project or coin has a roadmap it means it's centralized/controlled by it's foundation as they are 100% able to control the changes to the network, this makes it a sh*tcoin because it to is no different than the current centralized system of using a database. You might be thinking well Bitcoin is run by Bitcoin Core so it to is centralized as all updates are pushed by them, in which you are incorrect. Bitcoin Core is indeed the main node however they have multiple versions available at a time for nodes to upgrade to and if 51% of nodes don't upgrade that change isn't made and it is reverted after 6-7 months (The time they like to launch a major release). Consensus is usually accepted after some time however if Bitcoin Core disagrees with your changes you are more than welcome to fork the current code base and make your changes run it on your node and convince others if 51% move to your version Bitcoin Core would have to adopt the change before making the next release. Good luck convincing other nodes though it would need to be a pretty major change for the better as otherwise there isn't much need to upgrade what isn't broken. Any new Bitcoin Improvement Protocol (BIP) must be approved by 95% to be successful. You can learn more about Bitcoin Core at the link below if your interested.https://blog.lopp.net/who-controls-bitcoin-core-/
Again this should be obvious if your trademarking the name it's more like a brand than an open decentralized project that anyone can change. The biggest case of this was actually with ETH back in 2016 called the DAO hack you can look it up if your more interested. Basically what happened was ETH launched with it's premine and 3 months later it was hacked in which the hacker stole 60 of the 150 million of ICO funds. Ethereum claimed at it's launch that "code is law" however that wasn't the case here they decided they want to hard fork the current codebase with a patch to fix that bug and return all the original investors funds. However others in the community who agreed with the original code is law motto didn't like that idea despite being upset they lost their own money. Ethereum since it would need to hard fork from the main chain decided to instead trademark the name so the original chain couldn't be called Ethereum and instead had to be renamed to Ethereum Classic for legal reasons. Quite ridiculous and a clear sign it's a security if you ask me. Many other projects have since filed for trademarks on the name of their project just proving they are the same sh*tcoins.
My biggest gripe with alot of projects is the foundations themselves. The problem is the premine and the control they have over the project. They are basically like the CEOs or The Board of the project and have 100% control. If a project has a foundation it doesn't 100% make it a sh*tcoin but it's something to look into for sure and see how they opperate so I thought I would mention it.
Lastly I want to touch base with Smart Contracts these are your coins/projects than run ontop of other coins like ETH or ADA. These coins do not have any consensus what so ever so if your thinking well I don't like ETH but I like this DApp on ETH I will buy that instead the foundation it's standing on is flawed it relies on ETH for it to work. Some DApps have there own nodes and what not to store things but these are not consensus models. These coins tend to be the most centralized in my opinion, the coin or in this case the token is on the network itself but that's about it the functions of the actual token are happening elsewhere. For an example here is a link to The Graph (GRT) which you can see implements a minting system to nodes and what not but there are no functions in the contract for indexing or storing all the information they are providing as a service. In other words most of these tokens are just shares of a centralized service. I am not 100% against smart contracts I find things like GRT and Chainlink (LINK) very interesting but they are running on ETH and not their own decentralized blockchains so I am not interested.https://etherscan.io/token/0xc944e90c64b2c07662a292be6244bdf05cda44a7#code
The conclusion is not that sh*tcoins won't make money but more to help educate people that most of coins following any one of these points has most likely or is profiting off you by you "investing" in them. The biggest take away should be that you are looking to buy something that doesn't resemble something that sounds like a company. Me personally I own BTC, LTC and XMR for the time being but there are more decentralized projects then these like DASH (other sketchy stuff happened at launch do research), Ravencoin (RVN), PIVX, Vertcoin (VTC), and even Dogecoin (DOGE).
Yes the list is very small and probably most are not very innovative over BTC hence why many BTC Maxis call everything sh*tcoins... What we need to see is a development focus on true decentralization either with new coins that are actually decentralized which is hard as I mentioned above because launching a new PoW network can get 51% attacked very easily. The better option is to just build ontop of Bitcoin like the Lightning Network. The other question is does your solution/problem require a blockchain in the first place or is it just a trendy thing to do to make some more money? Blockchains are slow and costly you are better off using a database for things like video games for example. I hope this post helps you research more into these hyped up projects just because they do something other than fixing the money system and decide for yourself if they are worth "investing" in. The SEC keeps pushing for crypto regulations sadly this needs to happen just like Martin Act of 1921 banning bucket shops and eventually The Securities Act of 1933. People clearly don't do enough research into what they are buying and will buy anything as long as it promises the price to go up, so these regulations are sadly needed to protect the consumer gullible to these sh*tcoins. I didn't even cover the countless rugpulls where coins can either be bought without a spend function programmed into them or building hype around a project and dumping all their premined coins on the market so only they profit as they also own the code to develop the project (so no new updates will come).
Before I go I want to show you all Nostr social media built to be decentralized without a blockchain! This is how most smart contracts should be in my opinion. That's the reason I started programming my own smart contracts to make sure it was possible to make projects without needing a coin at all and yes it is, however sadly 99% of projects or at least the ones we hear about use tokens as a way for themselves to make profit not because the token actually does anything, in other words it's acting like a share to that project (ie. an unregistered security).https://nostr-resources.com/