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"There's a Shit-Ton of Money Somewhere in All This Mess. I Just Have to Find It."
Ian Eck | Photo: Courtesy CASASCIUS | January 31, 2014
A conversation with a Wolf of Bitcoin on pumping and dumping online currencies.
Cryptocurrency is hot, and according to some very smart people in the Valley, it's about to get hotter. No surprise then that these so-called Napsters of finance have gotten the libertarian fanboys all worked up. As a result, hundreds of new cryptocurrencies, known as altcoins, have popped up. Some copy the bitcoin protocol more or less (litecoin, dogecoin), some try to tweak the idea a bit further (primecoin, peercoin), while others aim to reinvent it entirely (ripple, ethereum). Enter what we like to call the Coin Wolves, a group of cryptocurrency insiders who have begun to engage in pump and dump schemes, in which they use their community influence to artificially raise prices before selling out at the peak. The phenomenon has become common in the altcoin world. For instance, on January 28th at 1:00 pm, betacoin jumped 300% (from .00004 bitcoins to .00013 bitcoins), before crashing down to .00003 bitcoins by 1:10 pm. Some people made out pretty. Most didn't.
We recently got in touch with an altcoin speculator who has participated in such schemes. In the past month alone, he's made off with what he says is about $10,000 in profit (which is technically still tied up in bitcoin). Here's what he had to say:
You claim to have made a lot of money off of altcoin speculation. Can you explain this process?
It works a couple different ways. I bought dogecoin initially because I liked the community. This paid off when a bunch of people decided to fund the Jamaican bobsled team with dogecoins, and the value of doge blew up. I was lucky to sell at the right time. That was when I really got interested in alternative currency speculation.
How do the pump and dump operations work?
There's a couple of influential guys in the world of altcoins that tell the community when a pump will occur. They tell their followers that, at a specified time in a private forum, they will reveal the name of the altcoin to be pumped. The trick is that insiders already know the coin in question, so they're buying discreet amounts of it during the hours leading up to this greater pump. When the time comes, and the altcoin is revealed to the public, there's a huge rush to buy the coin and sell at the peak. It's a pure gamble for the majority of people involved, but the guys who already owned the coin can usually make off with a comfortable profit. Even so, the whole pump and dump process only lasts about 10 minutes, and the exchange site cryptsy gets a little overloaded I think, so it gets sketchy for everyone.
What's the social circle of cryptocurrency like? Who are all these people and what do they do?
I don't know any of the big guys personally. I assume they're bitcoin miners.
Do you feel bad about taking people's money?
I like that quote from Rounders: It's immoral to let a sucker keep his money. If these people want to speculate about things they don't know about, that's their right. And it's my right to use my knowledge to the best of my abilities. Plus it's not like Wolf of Wall Street where we're taking away poor people's life savings. These cryptocurrency guys are already in the game. They know the risk. They know it's a gamble.
But living in a city so full of commotion over tech profits, you don't feel even a little guilt? I mean it's not like you're providing a service to anyone.
I feel the same way about it as I do about buying a stock. It's my money that I'm putting on the line. So I don't feel bad about the profits
Do you think bitcoins are here to stay or is it too early too tell?
I think the bitocin protocol is here to stay. I'm not sure about the currency necessarily, but the idea of decentralized finance is just too powerful to ignore. This idea of a public ledger that requires no governing body and is accessible to anyone in the world, instantaneously, to make transfers and contracts without fees, restrictions, or lawyers—it's just the logical next step in the internet's improvement of society. People are already talking about entirely autonomous corporations that are run by algorithms—that calculate risk as well if not better than humans.
So you think the hype is warranted?
What about all these altcoins, some of which are basically just internet memes? You've made some money off speculation, but is there real value in any of them?
Some of them, I think. But there's obviously a lot of crap. It's like when all the search engines were first popping up. The average person wasn't completely sure about how they worked, but they saw the power in them. The people that did understand things the best made the best product and succeeded and made a lot of money, while thousands of others failed. And the thing is, Google wasn't the first search engine, it was just the best. Although with currency it's trickier because their usability relies on stability, and that relies a lot on the amount of users. So the first-to-market players, in this case bitcoin, have a bigger advantage. But that doesn't mean something better can't come along, because bitcoin isn't perfect.
What altcoins look most promising long-term?
I like ones that are backed by startups or well-respected people in the cryptocurrency world. Things like ripple, mastercoin, protoshares seem more ambitious than most. I like dogecoin because it's got the best community. And there's one with a lot of hype that's about to be released, called ethereum, with a good team behind it. They're trying to take decentralized computing to its full potential, where basically anything can be created in the image of bitcoin—file-sharing, data-storage, securities markets—all created through a network with no central authority. I don't fully understand it and it might be overhyped. I don't know. But it's fascinating. And there's a shit-ton of money somewhere in all this mess. I just have to find it.