Originally Written here: https://www.publish0x.com/the-0xfactor/hex-is-a-scam-hex-is-a-ponzi-hex-is-a-shitcoin-xpekrw
The Twitterers have tweeted, the Youtubers have streamed, the Bitcoin OGs have decried all while the investors have continued to invest in the notorious Ethereum token HEX founded by the ever ornately dressed egotist Richard Heart. The effect? Apparently not much as the cryptoasset seems to be enjoying a 700% rise in value amidst an onslaught of FUD, rage and even outright libel.
The abrupt assertions made on this token continue to flow, its as bad as Bitconnect, Richard Heart is a scoundrel, its investors are fools so they declare. Its a "Scam" and a "ponzi" and a "shitcoin" all in one. What these people are not saying, though, is HOW its a scam and a ponzi and a shitcoin all in one.
"But look at the 'Origin Account'!" they push. "Its making a lot of ETH!!! What will it do for your bags?"
Let's not resemble the Knights Who Say Nee. Let's be smarter than the crowd that jumps on the FUD wagon and makes assertions we can't prove. Instead, in this article we can do a deep analysis of what HEX is and if it truly does match up with one or even all three of these accusations made against it.
Is Hex A Ponzi?
What is a ponzi scheme? I liked the way Wikipedia explained it below:
Definition on Wikipedia
"A Ponzi scheme (/ ˈ p ɒ n z i /, Italian: ; also a Ponzi game) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from product sales or other means, and they remain unaware that other investors are the source of funds."
Can we apply this definition to HEX? No. HEX, like many respectable cryptoassets such as ETH, EOS, Steem, Energi, Monero and others has perpetual inflation built into its reward system. Inflation on blockchains and in decentralized applications is usually the primary tool to motivate a particular action from some group of participants that is deemed to be beneficial to the system. ETH2, EOS, Energi and Steem cannot promise you that their cryptoasset will be worth more US dollars, as HEX cannot, but they can promise you that if you perform the action the protocol deems positive, you will receive more of that cryptoasset. HEX makes this same promise, if you obtain HEX and stake it for a long time and do not unstake early, you will be rewarded with more HEX tokens.
Many people here likely are familiar with the blockchain Steem, so I'm going to use it as a comparison. Did you know that in Steem's early days it was being called a scam and a ponzi as well? Most people do not see it as anything other than a legitimate blockchain platform now, so what gives?
Steem was referred to as a ponzi and a scam for requiring people to accumulate STEEM and lock it up into an account, originally for a very long duration. The idea was similar to a Certificate of Deposit system, wherein the interest would give you the power to reward someone for growing the overall value of the network by producing high quality content. For working hard at finding and deciphering quality content from garbage content you too earned a reward for scoring content. Together, authors, curators and stakers would make the network grow in value.
This concept sounded pretty exciting and mutually beneficial at the time, but over time it did not perform well. Why could that be? One reason is that authors, witnesses (similar to validators/miners) and the founders needed to USE their income, they were there to make money and not invest and they have bills to pay. This leads to constant downward pressure on price.
HEX was designed to not boost a social network and make it widely popular or to reward content producers and network securing participants, but to behave like a certificate of deposit at the bank behaves and to exclusively reward those investing their asset to obtain more of that asset.
When you lock up your US dollars at the bank for a duration of time, specified at the start, you will receive a specific amount of interest when you return to the bank and unlock your money, resulting in you having more money than you did before, and hopefully much more money than the national inflation rate happens to be.
Similar to how US dollar certificate of deposits aim to make more USD for the investor above the inflation rate so that the person locking up their USD does successfully profit from this passive investment, HEX would ideally pay you out enough newly minted HEX to make up for any possible USD price fluctuations on conversions of HEX to USD. How does it aim to do this?
Well, there happens to be an argument some make when claiming that HEX is not a certificate of deposit ("CD") system, and that is to say that when someone deposits USD in a CD it gets loaned out to someone else. The MakerDAO decentralized application borrows from this concept in the design of the DAI stablecoin. However, it is not entirely accurate, because this is not exactly how the lending system works in banking. Still, its an interesting complaint against HEX.
True, the HEX dapp does not actually lend the staked HEX to anyone. But the Steem blockchain also does not lend any STEEM when it is staked, instead, it benefits the value of the circulating supply of STEEM indirectly by being locked up. Steem's success as a platform is tied to the USD value of STEEM, because authors, witnesses and developers need to pay bills, so the ability for Steem to mint a highly valued asset is essential to it continuing active and prosperous. In a similar way, this is how HEX staking "lends" to those not staking their HEX, by temporarily tightening supply availability, which in theory should improve the supply and demand ratio in favor of those owning HEX.
So, no, staking HEX does not loan out the asset to someone that will grow value by conducting business, but it kind of does lend out a form of artificial market scarcity. This just might increase the per token value, and it could potentially strengthen HEX's fundamental value as something sort of like a reserve currency and later on benefit from DeFi lending applications with HEX or a stablecoin backed by HEX collateral. None of this is guaranteed, of course, but if you were to aim for a money play, that is that you hope your token or coin would become a used currency around the world, a built-in CD-like feature would not be a bad idea.
A ponzi requires you to believe that a system such as a business makes money from a product or service and that you will profit from the sale of those products/services. In other words, the person kind of has to believe they are somehow participating in a business venture when in reality they are just receiving a portion of newcomer revenue until new arrivals stop flooding in. Can this happen in HEX?
The short answer is no, but read on for the detailed answer. Let's say HEX grew to amazing valuations as thousands of people swarmed into the dapp and staked there HEX for "mad gains" as HEX hodlers like to say. Everything seems peachy at first, but then the HEX OGs begin to DUMP!!!! Oh shit, oh snap, oh no... Right? No, not really, because if you're patient enough you'll win in the long run.
How can you win with massive dumping? By sticking it out and staking. The HEX dapp inflation design benefits the loyal and punishes the disloyal with its inflation rewarding system. If 99% of the HEX supply floods the exchanges but you and a small group of other people making up just 1% of supply remain staked, you'll see a 369% interest rate on your staked HEX. This is bad news for dumpers that might have their unstaked HEX sitting on exchanges a long time before a buyer comes around. But let's say a buyer does come around, or that the seller is dumping at cheap prices and causing the price to keep going down, what will the buyers likely do with the HEX they buy?
If 99% of the HEX in existence is sitting on exchanges and the staked HEX is receiving a 369% interest rate on newly minted tokens, what would you say is the most rational thing for a buyer to do with their newly obtained HEX? I'd say staking for that huge interest rate makes the most sense, and the longer you stake the better deal you get on your rate of interest. As Warren Buffet once said, “The stock market (or crypto market) is designed to transfer money from the active to the patient.”
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Is HEX A Scam?
Okay, so its not a ponzi, but how do we know its not a scam? After all, the spooky "origin account" that everyone thinks is owned by Richard Heart but technically no one knows is getting a shit ton of ETH! True, if you are sending ETH into the Adoption Amplifier in a bid for a share of the HEX supply you are giving that ETH to either a mysterious group of people, a trust fund or possibly even to just one dude. On top of that, the origin account is not even promising us work, effort or a marketing campaign! Clearly a scam, right?
Well, not really. People buying cryptoassets are kind of coming to cryptocurrencies with the wrong mindset. You're not to have expectations on any of these assets such as STEEM, HEX, ETH, BCH, BTC or anything really. They are suppose to be functioning, useful products at the point of your purchasing them. Your willingness to purchase a cryptoasset should be because you believe in what it is today, and what you can use it for right now. Future development and growth potential is cool, if it comes, but you need to understand that decentralized applications legally need to work right out of the box. You don't have a right to expect more at the point of purchase and you need to accept responsibility for your own actions on what you choose to buy.
Its not illegal for developers to code after an ICO or airdrop, but technically if a development team, marketing team or any organized corporation is promising to do stuff that will improve the value of a coin/token during a token sale, that would make that cryptoasset a security, and that's not what you want. Securities and cryptoassets should be separated as assets, because their purposes are suppose to be different and a crypto "currency" really can't survive under securities regulations which greatly hinder transfer-ability.
So why is HEX not a scam? Because its code is available for the whole world to see. Its features and functions exist and work right now and you can use them at this very moment. It is a token that just works right out of the box. If you wish to own it you can buy it off Uniswap, get some free by signing with your BTC wallet if you owned BTC at the right time, or by sending ETH into the Adoption Amplifier in hopes of getting disproportionately more HEX than you would from an exchange or Uniswap.
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Is HEX A Shitcoin?
Meh, I suppose you might call it that. But what is the definition of a shitcoin anyway? Bitcoin maximalists claim everything that isn't BTC is a shitcoin. I think most people realize how stupid and ridiculous that is. But let's think about this, what actually makes something a shitcoin? Is Dogecoin a shitcoin? All you can do with it is transfer some here and there and receive it back, but then again, that's all you can do with Bitcoin. Let's say an ERC20 token served no other purpose but to be a Store of Value or a currency, does that make it a shitcoin? If so, why doesn't that make Bitcoin a shitcoin too?
I think it is ridiculous to say that one crypto "currency" is shitty simply because it wasn't the first cryptocurrency. Does HEX solve a big problem faced by the world today? I'd say no. It is just a speculative cryptoasset with interesting features that might attract people interested in owning a highly theoretical and high risk "store of value" type of asset. But at the end of the day isn't that what the MKR token is in the MakerDAO protcol? Seems to be a fine thing for them to do it. Isn't that really all Bitcoin is doing? Trying to steal gold's throne as the uncorrelated asset and hedge against the Austrian economist's nightmare that is the current global economic system.
So, you'll have to excuse me if I like STEEM, HEX or even dare I say WACKED tokens. Maybe they are "shitcoins" to you, but then again, maybe I'm just a shitcoin hodler 4 life t-shirt wearer. Maybe I like my kitties cryptokitties, and maybe I buy and store art on Ethereum. So fuck you dude on the Senate that said, "there's Bitcoin and then there's shitcoin" because Bitcoin bores the fuck out of me, and it seems to me, that its time for the "shitcoins" to rise.
Sorry, I see a lot of words, but no solid arguments.
That's ridiculous. Explain what you disagree with and I'll show you how you're wrong.
Challenge accepted. Haven't looked too deep at HEX project yet, just heard a bit, and you know that saying... if it walks like a duck...
I will dig a bit deeper and i will get back to you.
Very well, I'm always up for a debate, so by all means do your research about it.
I'll make it easy for you and direct you to the most informative literature on how HEX works that I know of:
https://docs.google.com/document/d/1P0ZDaBQx4ghkdX5IUwZb1n8ThvYf7i22MSt9Gm00JRU/edit
That said, here's the thing. Like you mentioned, there were "a lot of words" in my article and you then say "but no solid arguments" while you just responded to me that you don't know much about HEX.
You did not make any valid arguments against any of my arguments and recognize that you need to do research before responding to me. Can you see how terribly rude and inappropriate it is to dismiss my thorough post offhandedly without any solid arguments of your own?
I'll welcome a debate, but it is quite frustrating for a person to respond "if it walks like a duck..." because that is not a valid argument. How is something I said provably incorrect? You are clearly devoting yourself to a bias against HEX without a hard rational behind it.
But that's okay, come prepared and be ready to defend your arguments because I came out of the womb with a soapbox. Yes, I'm sure it was painful...
Ok, you are right, and i apologize for that.
I haven't looked too much into hex mostly because what i read and watched about showed me that it have all signals of a common cryptocurrency scam: nothing to do with it besides making it grow by itself, not a proof-of-stake like blockchain where staking have a reason to exist (SP allow you to distribute a share of the rewards, staking secure the network or vote for representatives of the network), loud people shilling it, people defending it like it is the most amazing invention of the last century...
So, that is what i called the "if it walks like a duck..." saying. This project have scam written all over it.
Maybe i am wrong, and i will have to research a bit more to build counter arguments, but so far, i will stay away from it.
And here is some examples of "lots of words, no solid arguments":
So, that's a start. I will take some time to read some stuff about the HEX project and get back to you.
Well, that might be a casual use of the word ponzi that one might use, but its not the correct use of it. For example, if you were to apply this definition of a ponzi to a cryptocurrency it would be applicable to many blockchains such as Bitcoin, Bitcoin Cash, Dogecoin and really any blockchain that is only used as a means of exchange. In fact, that is precisely the argument that Peter Schiff makes against Bitcoin, calling it a ponzi, as many no-coiners also call it.
"But Bitcoin has USE!!! It can transfer value from one place to the other side of the world!!!"
Yes, but Bitcoin is only valuable if enough people keep agreeing it is. You can't build something with Bitcoin, you can't eat or use bitcoins in any way other than means of exchange. Its nothing if people don't agree it is something. HEX is precisely the same as Bitcoin in this way, nothing more than a digital record of numerical totals that can be moved around the world, the same as most blockchain native coins and ERC20 tokens.
HEX is an idea that you could build a currency on Ethereum, which the founders of Ethereum actually did intend. The idea behind HEX is simple, it aims to be an international currency just as Bitcoin does and a store of value just as Bitcoin does and the reason it is suggested to be useful in this way is that it was designed with game mechanics that reward people for locking up their HEX, which in theory will result in scarcity.
Could it fail to be substantive to work? Sure, maybe, but the idea is interesting. Bitcoin and Ethereum are forced to reward people securing the blockchains, but what if you had the security automatically? Then you could reward other types of behaivor. HEX was designed to reward actors that do things deemed more beneficial for its internal economy. Its a money play.
A ponzi is called what it is because it has a very specific feature of it, which is that return on investment to early participants comes from later participants and not from any real value. But a lot of kinda worthless shit gets appraised for stupid amounts of money.
A sucky Nintendo game that no one enjoyed playing as a kid went for $80K in one auction. A car that was known for having a manufacturing flaw that tended to cause the car to catch on fire and burn the driver alive sold for $3 million dollars... Do things have to have a "concrete" utility to have value? Fuck no...
Here's the problem with applying that to a cryptocurrency. It makes sense to apply that to Bitconnect because it literally couldn't pay you the interest it promised forever, there would be an end and it was destined to be an ugly end.
HEX is a smart contract that rewards you not with USD, BTC or ETH but more HEX when you stake it for a set amount of time and do not unstake too early. So, you cannot fail to get paid what you are promised.
The dump argument would not apply because I already explained how dumping is strongly discouraged in HEX due to how much more you are rewarded to stake when everyone else is staking.
HEX promises you that if you stake HEX you will receive more HEX at the rate of between 3.69%-369% depending on how many people are staking. If 99% of the HEX is being dumped on exchanges for BTC/ETH/USDT then the 1% still staked is getting a 369% interest rate. This design motivates people to not have their HEX sitting on exchanges but staked, increasing scarcity and likely price.
Its not promising you more USD, BTC or ETH, it is promising you more HEX and it can always fulfill this action.
It is experimental for sure. But think about this, why is inflation a negative to people? Because they are not the ones getting the inflation. If you were getting the inflation than you would be richer and when you're the one getting hit by the inflation you would be getting poorer.
This is why my post brings up the Steem blockchain a lot. You are on the Steem blockchain, so I imagine you don't see it as a scam. Yet, its whole reward system revolves around inflation. Similarly, HEX does this too. In fact, all blockchains use an inflation system, including Bitcoin, to motivate certain participants to perform some action believed to be beneficial to the network. HEX does that with its inflation, rewarding those that lock up their tokens for longer, and discouraging those keeping their HEX liquid. Steem does precisely this very same thing.
Here's the problem with that argument, we know the attack vectors. The founders of HEX can't undo the smart contract, it exists how it does. It also went through 3 auditing companies that verified its economics. You can find those auditing companies by going to Hex.Win the website and checking the "Tech Specs" page.
The code can be checked for malicious techniques. The ways in which the founders get rewarded are obvious, they are getting both large amounts of HEX and ETH right now. But after the first year, the founders only get 50% of the penalty fees when people do an emergency unstake, unstaking early than they agreed to do. To me, that is very fair, most people will not unstake early, and founders should get something for their trouble.
There were 3 audits by well known thirdparty auditors. They won't like for a dapp. You can check out their reviews and I mentioned in a response above.
Very true. However, given the incredible success of HEX so far, especially with all the naysayers out there that call it a scam before looking into it, I'd say HEX already passed that threshold.
But I will say this, I'm way more into Ethereum than HEX. To me HEX is not the be-all-end-all of crypto. Its just an ERC20 with interesting game mechanics that I think will eventually be seen in the top 100, potentially earning me a nice ROI.
What drives me to debate with people on HEX is more that people discount it without really hashing out its details. No, its not the cure to cancer, but like Steem its a fascinating economic experiment.
I hope you enjoyed reading this book. ;)
Not applicable. These projects never promissed any gains for just having the coins. Gains are coming from open market trading.
Yes, as anything in the world. But Bitcoin have a solid technological structure, and have already proven it's protocol security and reliability for around 10 years now. There is a reason people believe bitcoin have value. It's not only "buy and get rich".
No it isn't. HEX is a smart contract built on a valuable blockchain (Ethereum). It doesn't have anything of value except grow within itself.
Again, Bitcoin have a technological infrastructure that solve real problems like centralization, trustless exchanges, and transaction cost (and a few others).
There is no scarcity if there is inflation. Bitcoin scarcity comes from a maximun amount of coins that will enter circulation. HEX will alwasy generate more HEX. Locking it up doesn't make it more scarce.
Really? I read that i have to lock it up for one year before unlocking. Meanwhile, in one year, the creators of the scam have already dumped his whole stack on the market, bringing the price near zero.
What does it matter if you are recieveing more HEX than before if it's price is near zero? You would only be recieving a lot of coins that are worth nothing.
Ponzi Scheme 101:
I convice person A that i will make his money grow, but he need to find 5 more people to invest.
A gets 5 more people, but they also have to find 5 people (people Bs) each to invest.
People Bs money goes to the creator, and pay the "investment" profit to A, who then start to look for more people to invite.
People Bs get 5 more people each (people Cs) to joint the amazing investment. Now there is 25 more people on the system.
People Cs money pay the creator, pay people A profit and people B get a bit from the leftover.
The process continue until there is no more people joining the "amazing investment".
HEX is just more of the same, with a new shell.
Think what will happen when the dump start, and people start to see there is no reason to have a worthless coin that pay more worthless coins?
So, what is paying this interest? On bank deposits you money will be used to finance some one else, and you will get a share of the interest paid by the borrower.
HEX just print more "money". And since there is no use to have HEX, it's just a increase in supply.
At some point, there won't be enough people interested in buying it for the "amazing gains", and whoever got in first will start the sell, and the price will go to zero.
There is emotional value for the person that bought it. I might not be worth for you, but this guy probably had a emotional attachment to this item that made him want to buy it.
I don't think there is anything emotional about HEX.
Yes, but you will eventually get paid in something that is totally worthless.
I don't think you understand. How inflation works.
Nobody receive inflation. Inflation/deflation is a measure of how much value a currency have lost over time.
It's calculated by how much money is needed to buy something now and how much it will cost at some point in the future.
Let's say you buy a burger for 10 USD. One year later, the same burger costs 11 USD. That's 10% inflation.
STEEM doensn't pay inflation. Inflation happens because of there is always reward being paid. an 8% year inflation on STEEM means that, not considering other factors, 1 STEEM will buy 8% less stuff because there is 8% more STEEM circulating, therefore more steem need to be sold to reach the same value than one year before.
Bitcoin have a decreasing inflation (called deflation), because there is a limit of how many BTC will exist, and the rate that they are issued lower with every halving.
2 Audits are published, so there is only 2 so far.
Have you read them? Here is a resume:
Audit 1
The contract work as coded, with 3 minor problems. Here is one problem that is really interesting:
"This function is not accessible to users but internally it is called to close a stake from
endStake or goodAccounting. Running out of gas will cause the user to be unable to
close the stake. Fail to close a stake will cause the owner to lose funds on late
penalties."
So, there is a possibility that at some point in the future, users won't be able to close their stakes. Interesting...
Basically with is saying here is that, the longer you stake, you will have to pay more gas to unstake, even reaching the max time of 50 years, where the gas needed to unstake will be even higher than the amount an Ethereum block can hold.
So, you keep on recieving a soon-to-be worthless coin, and you even pay more to withdraw to longer you wait?
Audit 2
Only answer the question: Will people get more HEX if they stake for longer of shorter time?
The answer: Longer.
There is no evaluation about economic sustainability here. This just give a "reasonable" reason for people to hold the coind for a longer time (while the creators dump their stakes on the market).
Also, both audits are from the same company that was paid by HEX creators, so, that is only one opinion funded by it's owners.
Let me know when you find an independet audit.
Really? What have HEX offered so far for people to think this is not a shitcoin? not much really.
The only thing happening here is "buy more to get rich faster".
It's not. It's a clear SCAM with a new look.
Anyway, that's enough for me. It's pretty clear it's another elaborate scam looking to lure people without much knowledge about economics and value, based only on the promisse of easy gains.
And as every scam, it will be higly profitable to those joining early, and a big loss for those who come later.
Don't doubt. It will break sooner or later.
If you get money with it, fine, just don't lure people that have no clue how things work to these kind of things.
It's your money. Burn it as you will.
And holy shit...
Didn't took me 2 seconds to find out who is promoting HEX:
https://coinrivet.com/infamous-bitconnect-shill-trevon-james-turns-attention-to-hex/
I think I don't even have to look too deep now...
Trevon James didn't create it. Remember, a decentralized application can't control who uses it.
Let's focus on the merits of it directly. After replying to the low hanging fruit I'll address your larger comment now.
I never said he created it. He and his partner craig something is promoting this the same way they did with bitconnect. And we all know how bitconnect ended...