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.