Table of contents
- Commonly Leveled Scam Allegations Against Cryptocurrency
- “Crypto Scams Are Common Internet Scams.”
- “Web3 Frauds Are the Same as Traditional Financial Frauds.”
- Conclusion
There are many stigmas surrounding web3 and cryptocurrency, but the most prevalent is that it’s a scam.
Let’s dive into this subject and shed light on this topic.
Commonly Leveled Scam Allegations Against Cryptocurrency
Here are the most common accusations about crypto and web3, let’s debunk them!
"I Spent All of My Money on a Token Whose Value Plummeted"
This is the most common thing I see on Twitter from newcomers to cryptocurrency. There's a distinction between web3 and crypto. In web3, you use the tokens, rather than simply purchasing them and waiting for them to rise or fall in value.
Purchasing a token on a centralized platform, like Coinbase, without knowing what it does entails risks. Even well-known tokens, like Bitcoin and Ethereum, are highly volatile.
To understand a token's price action, you must first understand its tokenomics: how it's minted, who it’s allocated to, and what the incentive is for holding it. Even knowing all of this information is insufficient to predict a token's price in fiat (fiduciary money), but supply and demand can be predicted in some ways.
The solution is simple: buy what you need. It's up to you if you use a product and enjoy it enough to take a risk on it. You can try a variety of products and chains, and simply skip the ones that aren't right for you.
"Web3 Is Nothing More than a Speculative Bubble."
It's ironic that that's the exact same sentence that's been said about the Internet since the 1990s.
The truth is that web3 developers and users are experimenting. Some experiments are successful, while others aren't, and some are simply outrageous.
The most frequently discussed topic is decentralization, or allowing anyone to participate in whatever they want by using credentials other than those used in web3.
Some people choose to invest in a specific project or blockchain because they believe it will:
Produce something fantastic,
Achieve widespread adoption,
Provide early believers with high returns.
That's the speculative part. Expectations may be exaggerated or undervalued, but the web3 ecosystem is so vast and diverse that it's impossible to know every single project or predict which ones will succeed.
When a web3 project delivers a great product, begins to succeed, and gains new users, interest in blockchain technology grows.
However, we may not know for decades whether their current valuation is correct. Web3 projects will fail and disappear, just like regular start-ups, while others will thrive.
The good news is that you don't have to buy anything to see what web3 is all about.
"NFTs Are Money Grabs"
To be clear, let’s talk only about legitimate NFTs from creators. There's more to say about NFTs, and about illegitimate projects that steal art, but let’s only focus on artists who have switched to NFTs.
There's an odd hostility toward artists who decide to experiment with NFTs. When this artist, for example, announced this, they received a lot of backlash:
Their first NFT sold on Foundation for more than 20 ETH (around 40K at the time), and they received proposals to work on gaming projects from several accounts. Why?
Because people who built or simply held Ethereum made a lot of money from this opportunity, and have a tendency to support artists they like or speculate on the value of the art.
By joining the Ethereum chain, this artist gained access to a global capital of millionaires.
They're in a completely different league than when they were selling beautiful commissions for $20.
These were people who spent real money on an artist's first NFT.
Seeing people who have been struggling suddenly become wealthy can be upsetting for some. If you’re upset when you see an artist you like making money from their art, having their talent truly recognized, being able to pay the bills, and create more with this newly acquired peace of mind, it's time to reconsider if you're truly a fan.
More could be said about NFTs to fill an entire article, but this is the general idea.
"Gas Prices Are Too High for Ordinary People to Use Web3."
That's correct for Ethereum. However, more and more Ethereum projects are optimizing their contracts to save gas.
The chain is overcrowded, it's saturated, and it prevents regular people from trying it out.
Fortunately, web3 isn't only Ethereum. There are many alternatives to Ethereum that have low gas fees because the creators designed them with this in mind.
As a result, anything you can do on Ethereum can also be done on another chain.
"Crypto Is a Ponzi Scheme that Will Fail."
Yes, it would crash if everyone who used cryptocurrency suddenly decided that every single blockchain and token had no value and refused to use it. Similarly, if everyone abruptly left Twitter, the platform's utility and valuation would suffer.
There's a misunderstanding between a Ponzi scheme, early believers, and curious users who are rewarded for taking a chance on something new and undervalued.
What’s A Ponzi?
A Ponzi scheme is an investment fraud, in which recent investors are paid with the funds of earlier investors, making them think the profits come from legitimate business activity.
In a Ponzi scheme, the investors think they own a real asset, that unfortunately doesn’t exist. The profits are guaranteed as long as new investors come in.
Ponzi schemes are sometimes confused with pyramid schemes, which rely on marketing and affiliation systems to reward early adopters.
Ponzi Schemes and Cryptocurrency
The truth is that scammers have used cryptocurrencies to try to build a new generation of Ponzi schemes through Initial Coin Offerings (ICOs). New generations of Ponzis are also being built in stock markets, real estate markets, and anything else that can be speculated on.
Learning about new ponziomic structures can be frightening because you quickly realize that no asset is immune to a speculative bubble.
Crypto tokens are recorded on a blockchain, so tracing their activity in real time can reveal red flags and give their users indicators to make a decision.
For example, if someone is promising to raise money to build something, but their wallet activity says otherwise.
The best advice is to avoid investing in anything that promises high, consistent returns, unless you understand how it works, whether it's crypto, real estate, or snake oil.
"Criminals Use Cryptocurrency to Launder Money."
It's actually quite difficult to launder money on a public data register. There's always a way to track the money, even if you use Tornado Cash to mix it.
If you learn more about money laundering, you'll be surprised to learn that using fiat is the most effective way to launder money.
“Crypto Scams Are Common Internet Scams.”
Some scams are crypto-specific, such as fake wallet extensions or fake tokens, but the majority of internet scams are more widespread.
Some malicious actors in web2 will attempt to steal data, such as credit card or banking information. In web3, they try to steal tokens.
Anyone in web2 can copy-paste art from any artist, create an e-commerce website, and sell prints and merchandise. In web3, they’ll be sold as NFTs.
Malicious actions carried out in web2 can be adapted on web3. The only difference is the methods and tools used. Also, hiding in web3 after scamming is more difficult, particularly for inexperienced scammers.
“Web3 Frauds Are the Same as Traditional Financial Frauds.”
Every investor’s worst nightmare is having the founder of the business they invested in disappear with all their funds. This has occurred in traditional investment markets, and the web3 market is no exception.
However, there are two distinctions:
It’s easier to establish a founder track record in web3, due to blockchain transparency.
For the same reason, tracking funds and their origins is simple.
This is why blockchain technology is especially well suited for financial products..
Conclusion
As seen, crypto assets are mostly neutral. It’s how we utilize them that’s important.
What we call web3 is the way we use the internet, but relying on blockchain technology instead of centralized service providers to earn, spend, and transact assets that have real-world value.
This technology, at its core, is mostly neutral, but the people building or exploiting it aren't. There are common scams in Web3, yes, as well as many exciting, liberating, and innovative tools being built.
This article is a part of the Hashnode Web3 blog, where a team of curated writers are bringing out new resources to help you discover the universe of web3. Check us out for more on NFTs, DAOs, blockchains, and the decentralized future.