Bitcoin devotees and other cryptocurrency fans say that maths gives their radical ideas so much potential. But starting a new value system also requires a level of faith in the people using the maths. As "shitcoin" scams pile up, it's becoming clear that new currencies need trust too. And they don't have it.
Nowhere is this more evident than the chaotic Paycoin saga. Paycoin, an alt-coin launched late last year, was marketed as a more stable alternative to Bitcoin. In the months since its launch, however, Paycoin founder Josh Garza has become a figurehead for crypto-chicanery. The contentious response to Garza and his coin highlights how volatile the fickle fraternity of digital dreamers can be.
Garza has been accused of suckering people into investing in Paycoin and his businesses under false pretenses and then straight-up stealing money. Online forums like Reddit and Bitcointalk paint him as man peddling a "promise ponzi," getting people to invest in schemes and then failing to deliver before moving onto the next one. There is an entire subreddit called joshgarzaisafraud.
But Garza and Paycoin loyalists claim the altcoin, which debuted last December to frenzied speculator interest, is getting deliberately tanked by crypto-extremist trolls and hounded by bitter blackmail tactics.
Badbitcoin.org, a group that calls out fraudulent crypto schemes, has actually fiercely defended Paycoin, calling its detractors "haters" and "FUDsters" — FUD stands for "fear, uncertainty and doubt."
But are the FUDsters really vengeful trolls, or is entrenched scepticism the only rational stance in a community walloped with scams?
Just look at Mt. Gox, once the top dog Bitcoin exchange. CEO Mark Karpeles lost $US473 million in his customers' money in a full-on meltdown. Time after time people promote their hot new alternative coins as panacea to the problems of Bitcoin, convince people to invest time and money in their fledgling currency, and then "pump and dump," aka take the money and run. There's an entire category of investors known as "Coin Wolves," who use their influence in the community to run up prices on coins, so they can sell out during the peak.
MyCoin, VootCoin, XICoin, CryptoDouble are all scam projects from recent years that have left people poorer and more suspicious. So when it looked like Paycoin's creators were reneging on a number of promises, it's understandable that people would fear fraud.
Paranoia is sharp from all angles. Whether or not they have lied about literally everything else, Garza and and his CTO John Caceres are right on this point: Their efforts have given rise to a community of suspicion.
Before ascending to the dubious Olympus of altcoin-supervillainy, Josh Garza rose to prominence in the crypto world by building GAWMiners, a Bitcoin mining hardware business. Mining is one way people can get Bitcoin: If you use hardware to solve complicated mathematical problems, you're awarded with a portion of Bitcoin. Compared to sketchy competitors like Butterfly Labs, which sold obsolete equipment or just never fulfilled orders, GAWMiners had a fairly solid reputation.
GAW fuelled enthusiasm for Paycoin by implying it would establish a $US20 price floor for the currency. This made many people think they'd have no problem buying low and selling high, and excitement grew at the prospect of an easy buck. Early trades valued Paycoin at around $US24. Then it plummeted dramatically.
Now, Paycoin is currently valued well under a dollar. The SEC is inquiring into GAW Miners. Shapeshift.io, a crypto exchange where people traded Paycoin, made an unprecedented move and took the coin off its exchange for "a high threshold of evidence as fraud."
Garza later backpedaled and insisted that while he had, in fact, estimated that the coin wouldn't go lower than $US20, he had never promised. This pissed people off. And when buzzed-about partnerships with big vendors like Amazon didn't pan out, they got even angrier. Add a failed side projects into the mix — a service called "Hashlets" didn't work out, with former friends calling the price "exploitative" before GAW shuttered it — and the roiling contingent of people speaking out against GAW kept growing.
Shapeshift.io CEO Beorn Gonthier told me he's never seen anything like the hatred for Paycoin. "The extent of the outrage caused us to look into Paycoin ourselves," he said. "We didn't want to succumb to the mob mentality, and indeed much of the antagonism toward Paycoin was mob mentality." Yet despite his wariness about bandwagon jumping, Gonthier felt obligated to ban the coin from his exchange — he found it too untrustworthy to trade.
Whether GAW is a struggling business addled by an angry mob or a convoluted string of scammy tactics — or a little bit of both — anti-Paycoin people are not backing down. Last month, someone leaked a trove of Garza's emails, including the ones I'd sent to Paycoin. The first batch made Paycoin look terrible, with emails detailing plans to rip off an investor named Rishab Jain called out as especially damning.
But when I wrote Jain to find out how he felt about the deception, he was pissed for a different reason than I'd assumed: His "hacked" emails had been faked. "Most of these emails were edited or entirely created in the past few days from people who don't like Garza I guess," he told me.
OK, so there were clearly people into tanking GAW so much that they'd fake hacked emails to make them look bad. Then again, I know some of the emails are legit because they include the ones I sent. And just because people want to tank a company doesn't mean they don't have a good reason.
After the hacked email debacle, people started complaining that they were unable to withdraw funds from Paybase, GAW's exchange platform for Paycoin. Garza vehemently denied that he was leeching money from Paybase, but later the exchange announced it was shutting down on April 30, according to users — another GAW plan shuttered after resentment festered.
The whole altcoin industry is hobbled by fraud, aggrandizement that sets up huge flame-outs, major security flaws, and the persistent problem that their currency systems remain difficult to use on a daily basis. The biggest name in cryptocurrency is still, by far, Bitcoin, and while it is making inroads at mainstream acceptance — albeit far more slowly than supporters would like — even the movement's OG coin is saddled with security problems that breed paranoia. Researchers recently identified hundreds of scams since Bitcoin gained popularity, pinpointing over $US11 million lost to fraud. In a climate like that, it's easy to see why Garza's often-shifting promises are regarded with such intense suspicion.
As for Paycoin, it's still uncertain exactly where it all fell apart. "It could be a scam, or just a foolish economic experiment, or even a good economic experiment that was just executed poorly," said Beorn. "We don't have enough evidence to judge these things, but we did have enough evidence to remove the coin from ShapeShift because a clear term and promise of the coin had been violated."
The maelstrom around Paycoin is emblematic of one of the cryptocoin community's biggest weaknesses — the culture's erratic vacillation between bombastic ambition and sharp failure. It's a movement that, by necessity, needs optimism and trust to survive, but with the continuous stream of disappointments, flame-outs, and heists, people are quick to cry scam. And they're right often enough to keep doing it.
GIF: Tara Jacoby