Tue. May 18th, 2021

Many altcoins don’t do anything, and some are scams. But average people are getting rich off them.

It was a Saturday morning and Adam was feeling bold. 

He’d made thousands of dollars on a single trade the night before, and was feeling lucky. But Adam wasn’t trading on the NASDAQ, pumping GameStop stocks or investing in a startup. He was about to sink $2,500 into a cryptocurrency called DeTrade.

It seemed safe. Adam had investigated the coin’s development team on LinkedIn, and watched a video of its CEO laying out a roadmap for the coin’s future. A newswire piece published on Yahoo touted DeTrade’s technology as advanced enough to disrupt cryptocurrency.

Thanks to Bitcoin hitting an all-time high valuation of $40,000, almost tripling its value in two months, cryptocurrency is very much back in the zeitgeist. But while for many people Bitcoin is synonymous with cryptocurrency, it’s not what crypto traders like Adam are interested in. Beneath Bitcoin and Ethereum, the second-best-known currency, is a strange underworld of different cryptocurrencies. 

Called altcoins or, sometimes, “shitcoins,” these are essentially penny-stock cryptocurrencies. And they’re crazy. Bitcoin tripled its value recently, but many altcoins explode 30, 40 or 50 times over within days. Arguably the most famous is Dogecoin, which recently shot up thanks to a potent combination of Reddit and Elon Musk, but there are thousands of altcoins, forming an Indiana Jones-esque Cave of Crypto Wonders. The spoils can be life-changing, but there are traps around each corner. Fortunes can be made and lost in seconds. Cons and fraudsters are everywhere, with traders vulnerable to scams at each step of the process. 

Case in point: Adam’s foray into DeTrade. The touted technology behind it wasn’t real. Nothing about the project was. DeTrade, for all intents and purposes, didn’t exist. The LinkedIn profiles were fake, and the video of its CEO was a deepfake created with AI. It was a scam. Those behind it, operating in the unregulated world of crypto, vanished. Adam lost his $2,500, but he got off easy. In total, those behind the scam took in around $2 million. 

Just a regular day playing with altcoins, says Adam.

Million-dollar joke

Adam got into cryptocurrency in September. When we spoke, it felt like he’d crammed years of trading into two months. He put in $4,000 and lost it in days. Then he turned $3,000 into $90,000. After withdrawing a third of that and then losing just over another third, he now had around $20,000 in crypto. 

Adam had seen some tempestuous trading in recent weeks. One person managed to flip $2,000 into over $40,000 on two different occasions, but lost it all to scams both times. Another put $150 in a coin and doubled his money in 15 minutes. Decent result, but his $150 would’ve turned into $28,000 if he’d waited only one more day. 

But despite the community’s enthusiasm, there’s a small problem. Right now cryptocurrencies don’t really do anything.

bitcoin-graph.png

Bitcoin nearly tripled in price, from $15,000 to over $40,000, in two months. If you invested $1,000 in early November, you could have taken out $2,600 two months later. 

Investing in a stock means ascertaining its value — based on factors like competition, risks and, above all, profit generation — and then putting money into ones that are undervalued. If other investors follow you, the stock rises, giving you an opportunity to take profit. 

Speculation is naturally part of this: The Dot-com Bubble was all about pouring money into “pre-profit” companies in the hopes they’d make money someday. Cryptocurrency, however, takes speculation into the stratosphere. For the most part, cryptocurrency is pure speculation. People are investing in technology that produces nothing, and has no practical application. As I write this, a coin called Meme is selling for $517. That’s a little over four times the price of an Apple share. Doge, a coin marketed after the internet slang for “dog,” doubled in value earlier this month after a pornstar tweeted about it. After the price settled, it then rocketed once more when Reddit wanted to make it the GameStop of cryptocurrency. 

This disconnect between price and purpose has made many experts understandably skeptical. 

David Gerard is one such skeptic. He became interested in Bitcoin in 2013, when it first hit $1,000, and has since written two books on cryptocurrency. His most recent focuses on Libra, Facebook’s ill-fated attempt at digital currency. 

“The driving force of Bitcoin and cryptocurrency is nothing to do with technology,” he told me during a Skype call. “It’s all about the chance that people might get rich for free. All of this is about the psychology of get-rich-quick schemes.” 

In his years working as an IT systems administrator, Gerard’s job has been to examine new technology and discern what’s useful and what’s not. Cryptocurrency, he told me, is not.

“Bitcoin burns a whole country’s worth of electricity for the most inefficient payment network in human history,” he said.

Price fluctuation for the Meme cryptocurrency

After launching at around $8 in August, the obscure Meme coin briefly reached a valuation of over $1,750 in September. If, with fantastic luck, you invested $1,000 at $8 and sold at $1,750, you’d be up $217,000. This is the allure of “shitcoins.”

That’s no exaggeration. Cryptocurrencies are mined using powerful computers, and many enterprising types put together farms of computers used solely for the purpose of mining Bitcoin. As a result, Bitcoin is responsible for more energy consumption than Switzerland.

Gerard says the only thing you can do with Bitcoin is buy it and sell it. He’s even harsher on altcoins.

“They’re absolutely useless objects. Even by the standards of Bitcoin, altcoins are useless,” he said. 

This is precisely what makes them so fascinating. Seemingly, all they can do is get internet punters to bet on their success. But this enables average people to become rich. That Meme coin I mentioned before? It was listed at $2.72 and a month later hit an all-time-high price of over $2,000. 

Imagine becoming a millionaire from a joke internet coin. 

Risk and reward

Crypto Spider has made millions with altcoins. Crypto Spider isn’t his real name. Like most people in the cryptocurrency community, he goes by a pseudonym. 

He’s gained renown in some Telegram groups over the past few months thanks to a “2K to 1M” challenge, where he endeavored to see how quickly, and with how few trades, he could turn the first number into the second. In cryptocurrency, you can follow someone’s portfolio if you have their wallet number, so the community was able to watch this challenge play out in real time.

Within two months, that $2,000 had grown to over $2 million. Much of that money was made off one trade: He chucked $50,000 into a project which, in the space of around a week, magnified 35 times in value, netting him $1.75 million. After passing $2 million, he cashed out. 

“You won’t ever see that type of explosive growth if you don’t trade in altcoins,” he told me, though he also said “95% of these coins are going to be nonexistent in the future.” 

Like Adam, Crypto Spider has no background in finance or trading. He lists college courses in game theory, basic algorithmics and some economics as useful to his crypto exploits — but in essence he’s a self-taught amateur. He declined to tell me his specific age, only that he was “20ish” when he first got into cryptocurrency in 2017.

He admits he was attracted by the “pretty numbers,” by seeing coins magnify in value 30, 40 and 50 times within a short period. He was enthusiastic enough to start a university club around cryptocurrencies, and how they’d be used in the future. 

Crypto Spider says cryptocurrency will play a “major part in the future of finance,” and speaks with the passion of a believer. He breathlessly transitions from how cryptocurrency is a part of the internet’s evolution to the possible use cases of blockchain, the technology behind Bitcoin, in the next 10 years. But despite his enthusiasm, I couldn’t help but notice how chunks of what he said echoed Gerard. 

Racks of servers illuminated by blue and green lights

Cryptocurrencies are mined using powerful computers. More emissions are produced by global Bitcoin miners than by the entire country of Switzerland. 

For one thing, he looks back at all the projects he was excited about in 2017 and realizes most were almost entirely vaporware, technology that’s advertised but never delivered.