The rise of cryptocurrency and blockchain over the past decade has been nothing short of spectacular. From humble beginnings on a cypherpunk mailing list, Bitcoin led the way, showing millions of users around the world that value could be transferred digitally anywhere at any time without needing the permission of a bank, government, or anyone else. Bitcoin’s success has spawned a worldwide movement. But, perhaps unsurprisingly, it has also spawned an army of alternative cryptocurrencies. After all, its software code has been open-source from day one, meaning that anyone in the world can access and tweak the code to make their own cryptocurrency.
Ethereum has been by far the most successful alternative cryptocurrency and has become a movement of its own. Ethereum is popular for a variety of reasons, such as being the main blockchain for using Decentralized Finance and Non-Fungible Tokens. However, one of Ethereum’s earliest achievements was introducing the ability to easily and cheaply create and release ERC-20 tokens, alternative cryptocurrencies in their own right. ERC-20 cryptocurrencies have the benefit of running on top of the Ethereum blockchain, meaning that issuers of the tokens receive all the benefits of the Ethereum blockchain and don’t have to build a blockchain of their own.
Thanks to the open-source nature of Bitcoin and to the ERC-20 token standard, creating a cryptocurrency has never been easier. As a result, there are thousands of different cryptocurrencies currently in existence. Many of them have exciting use cases that are already changing the world for the better such as wealth preservation, information and identity management, self-sovereignty, and more. However, if you spend enough time in the cryptosphere, you’ll also come to realize that not all cryptocurrencies fulfill what any society might commonly recognize as a “worthwhile” purpose and that others are downright malevolent. The worst of these have been given a name to match the gravity of their crimes: scamcoins.
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Scamcoins: Digital Snake Oil
Cryptocurrencies have been wildly successful, but they are still very new and remain a novelty for most people. While there are plenty of people, including yours truly, who are attempting to make crypto education widely available to the masses, it can still be rather difficult for new entrants to know exactly where to go to learn the basics. As can be expected under such circumstances, the financial fortunes created by cryptocurrency have attracted a wide range of individuals who want to game the system for their own benefit while taking advantage of others. This is where scamcoins enter the picture.
A scamcoin is a fake cryptocurrency with the sole purpose of making money for its creator while stealing money from its investors and supporters. There have likely been hundreds of scamcoins over the years, but thankfully the vast majority have not been successful in defrauding a significant number of people. That said, there have been several scamcoins that have left their (negative) mark on cryptocurrency in general and on the specific people who had the misfortune of investing in them. Let’s take a look at a few of them together:
One of the earliest high-visibility scamcoins was Bitconnect. Bitconnect functioned as a ponzi scheme, a common method for deploying scamcoins as we’ll see. It saw early success due to the promise that investors could receive significant returns, sometimes as high as 1% per day, by entrusting assets to the platform. The platform’s native token, the Bitconnect Coin (BCC), benefitted from the platform’s early accomplishments, rising from an ICO price of $.17 U.S. dollars (USD) to an all-time high of around $463. However, the platform quickly shuttered its services and became insolvent after several government regulators around the world issued cease and desist orders, among other regulatory actions.
Similar to Bitconnect, PlusToken also operated as a ponzi scheme promising massive returns to users of its cryptocurrency wallet. While it mainly attracted investors in China and South Korea, it saw a massive influx of investment nonetheless and is estimated to have taken in around $3 billion USD worth of Bitcoin and other cryptocurrencies. Over the past several years, dozens of individuals related to the ponzi scheme have been arrested and several received jail time as a result of their involvement.
Both Pincoin and iFan were released by the same “developers” during the height of the ICO (Initial Coin Offering) fever in early 2018. The cryptocurrencies were supposed to be a lynchpin in an online collaborative platform that would offer decentralized hedge funds, peer-to-peer marketplaces, social media services, and more. Tens of thousands of investors were lured in by the proposed offerings and by the mouthwatering 40+% monthly returns that would supposedly be generated. However, a few months after the project’s ICO, the individuals behind the scam ran off with investors’ money, over $600 million USD worth based on cryptocurrency prices at the time.
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A Scamcoin by Any Other Name
You’d be forgiven for thinking that scamcoins are a thing of the past. After all, cryptocurrency companies are going public at an astonishing rate and regulators around the world are taking a serious look at cryptocurrency and making decisions on how to regulate the space. Even so, a significant amount of exuberance remains within the space and there are certainly still people looking to take advantage of it for their own gain at the expense of others.
In that vein, I’d like to review a subset of cryptocurrencies that are based on Dogecoin, one of the more popular cryptocurrencies to come out of the ongoing bull market. These Dogecoin clones may or may not turn out to be scamcoins, but they do seem to be taking advantage, perhaps maliciously, of people’s desire to find an asset that can replicate Dogecoin’s price performance from the past few years.
Before we jump into discussing Dogecoin knockoffs, let’s do a quick primer on the original. Dogecoin was released in December 2013 by two developers, Billy Markus and Jackson Palmer, as a joke version of Bitcoin. For those who don’t know, Dogecoin received its name from the popular Doge meme based on the Shiba Inu dog breed.
Now, Dogecoin itself likely couldn’t be classified as a scamcoin. Both of its founders left the cryptocurrency without making significant amounts of money. The cryptocurrency doesn’t offer any built-in investment returns (outside of mining the cryptocurrency) or any services supposedly built on top of it like the scamcoins we reviewed earlier. In fact, the biggest complaint people usually levy against Dogecoin is that it doesn’t seem to have much of a purpose at all outside of being used for speculation. However, whether you’re a fan of Dogecoin or not, it does have a certain amount of staying power, having risen to a market capitalization of around $85 billion USD earlier this year.
Dogecoin’s success coupled with the fact that it commonly appeals to mostly novice participants in the cryptocurrency space has generated a whole host of lookalike coins. Only time will tell whether Dogecoin’s army of knockoffs are truly scamcoins or not. Some may turn out to have legitimate use cases, or at least may have been created by developers who were truly trying to create new memecoins like Dogecoin rather than trying to defraud investors. However, the sheer amount of nearly identical cryptocurrencies to Dogecoin certainly doesn’t instill a lot of confidence in their prospects. Here are just a few for your reference:
I commonly tell readers and others with whom I discuss cryptocurrency and blockchain to do a significant amount of research before investing in any cryptocurrency. This is doubly true for any project that’s primary claim to fame is being a copy of a successful cryptocurrency that came before it. One of cryptocurrency’s biggest benefits is that it is open to anyone to use (or abuse) without needing to ask for permission. That said, I recommend that you familiarize yourself with the project’s goals, its community, and its developers before taking any serious dive into the cryptocurrencies shown above or other Dogecoin clones.
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