The game is zero-sum

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In this post I will analyze the main driving forces of markets scriptactive and explain why with high probability in the near future they will not disappear. In particular, I will talk about incentives that encourage rating sites isn’t critical approach to compiling their lists and to include in the reports “garbage” trading volumes.

The main stakeholders in this market are stock exchanges, issuers altcoins, cryptocurrency and forks, as well as rating websites. Their common goal is to capitalize on the same group of consumers, retail investors, of which “squeeze out” capital. There’s no mystery there, but I decided to tell more about all existing relationships so that investors better understand the essence of the game in which they participate.

The diagram below illustrates the essence of the relations between the four above groups.

“Value” refers to financial flows or a simple utility, for example, from rating sites investors receive value in the form of information.

This scheme can be somewhat complicated to understand, so I’ll give explanations for each group separately.

Exchange

In this industry there are two types of exchanges: Fiat platform and Aldon casino (decentralized p2p exchange I’ll leave aside). Fiat services are typically regulated, comply with KYC (“know your customer”) and AML (“anti money laundering), may monitor the progress of the trading, and generally behave like full-fledged banks. Textbook examples of such sites are Coinbase and Gemini. All these characteristics do not apply to exchanges, which I would like to talk further – Fiat platforms usually play by the rules and, in General, tend to maintain friendly relations with the regulatory authorities.

I want to touch on the theme of Aldon casino. As a rule, their work is regulated to a small extent or not regulated at all, and the addresses of their registered in exotic places like the virgin Islands or the Seychelles or Malta, and they can change from one jurisdiction to another to escape the all-seeing eye of regulators. Here the brightest example is the exchange Binance. Such services tend to be quite reckless attitude towards compliance with applicable laws, principles of KYC and AML, fictitious trading and reporting. Fiat currency in the trades they can not use at all: in such cases, to gain access to other assets traders use Bitcoin and Ethereum.

To use such exchanges as a rule, quite difficult. this industry is that those who can be interesting “useful” (utility) tokens, and they provide resources, usually do not use these exchanges. In fairness it should be noted that these people are not the target audience of such sites. To buy BTC via Fiat exchange, to register cryptomeria, send BTC, to deal with a log of orders to perform transactions and juggle keys and wallets too complex for most neophytes tasks. Such platforms are designed for intraday traders and speculators wishing to access global – casino altcoins. Fall is here and big players, but the majority are retail investors interested in multiplying their capital. Nothing new.

The developers of altcoins and team members

The exchange maintains a bilateral relationship with the developers of altcoins and their issuers. Overall, from a technical point of view, the creation of Aldona – not too difficult: in recent years, with numerous or ERC20-generators (and ) there have been many such cryptocurrencies. The goal of the teams working on the creation of altcoins are largely social, not technical. Their task is to create and strengthen community – namely, in expanding the range of customers token or koina and increase the level of loyalty of existing customers.

Community development is also in some sense is synonymous with the word “marketing”. It is accomplished through a variety of channels, and this topic can be devote the separate, more detailed post. Developers are faced with a delicate task: to create something quite innovative – or provide visibility of the innovation, if to be realistic – so that investors believe that the project is moving at a reasonable pace towards your goals. Developers are encouraged to create hype around partnerships, new releases and goals, as well as the gradual results of news and messages in small portions. Every unexpected piece of information causes a positive shock that induces investors to buy further and justify their previous acquisitions.

The most exciting event for such small investors is the inclusion in the listing of new exchanges. Given that the latter are fragmented pools of liquidity and all want to trade a new currency, unexpected listing of the asset can cause a rapid and short-term price growth. For anybody not a secret that the developers and issuers pay exchange altcoins (read: bribe) for listing their projects. Many of them lay in the project budget appropriate Commission. These schemes were based and the business model of the project Binance. How the market can justify the receipt of these fees? Very simple: by positioning itself as a liquid and active platforms for trading.

In the end, issuers typically have the largest amounts of their coins and also benefit from the hype around the listing. Often their conduct on exchanges like Binance provides a team of insiders will be able to successfully withdraw their investments. Thus, developers and marketers are happy to pay substantial fees, the size of which can reach hundreds of thousands of dollars in BTC equivalent. It’s fun and exchange, especially platforms of the second echelon, which allow such schemes to create the appearance of deep liquidity.

Rating sites

And here come in the rankings, occupying the industry’s privileged position. At first glance, they provide investors with a useful service and get little in return, except income from advertising. However, the reality is somewhat bleaker: the rating sites played a major role in the game, the essence of which consists in pumping out of money from retail investors and their redistribution into the pockets of the creators of altcoins and exchanges.

What is the business model of rating site? Platforms like CoinMarketCap, CoinGecko, CoinRanking, Cryptoslate, CryptoCoinRankings, CoinCodex, CryptoCoinCharts, etc., sell advertising, and in some cases post affiliate links. Some of them sell API more advanced traders wishing to obtain reliable information about prices. Many (if not all) exchanges use affiliate schemes, referral links can be a good source of income for intermediaries between active traders and exchanges.

Sometimes rating sites remove the double benefit of receiving payments for banner ads exchanges or trading platforms and embedding it in your own affiliate links. This can make a lot of money, if you have the necessary resources. Investors visit the sites in search of links to sites where they could trade they are interested in Konami, especially if we are talking about small projects with low liquidity. Rating sites are the entry points for investors, so their audience is in a virtually hopeless situation and become easy prey for monetization through affiliate links. They are placed, for example, CryptoCoinCharts and CoinCodex, but some aggregators allow you to trade the cryptocurrency directly with the rating sites.

However, some exchanges are not limited. Everyone who visited the website CoinMarketCap in the period from April to November last year, easy to remember banner BitConnect. This infamous project, built on a Ponzi scheme, with a strong element of the partnership program: it existed by attracting new users by referral and paid for it with existing partners. However, one BitConnect is not limited to: after that on the website CoinMarketCap has been a few banner ads of fraudulent schemes. Fortunately, we the owner of the account @bccponzi documented the events and urged the attackers to justice.

Ethconnect now also with a banner on

— Madoff wasn’t on the blockchain (@bccponzi)

The CoinMarketCap™ experience: not one but three actual ponzi schemes being advertised simultaneously.

— nic carter (@nic__carter)

Expand the branches – I presented evidence that all these schemes are “guaranteed” is fraudulent.

In addition, CoinMarketCap good money on banner ads with affiliate links on Bitpetite clone BitConnect. This is a screenshot straight from the website of the project:

Coinmarketcap is making some decent money on their Bitpetite banner, these are 24h/weekly/monthly total referrals for them (min 10% fee)

— Madoff wasn’t on the blockchain (@bccponzi)

The surge of traffic in the now-deceased Ponzi scheme brought the rating sites monthly income, ischislyaetsya six-figure sums. Yes, this is involved and the same CoinMarketCap, which millions of users and dozens of foundations have trusted their data. But that’s not all: the projects like BitConnect relied on the fact that sites like CoinMarketCap is not too critical approach to the selection of information and published data that illustrate a marked increase in the cost of tokens BCC. Of course, it was unsubstantiated illusion: the main trading volume of the BCC (95%) were generated on a single “exchange”, which was located at bitconnect.co. By publishing these volumes without any reservations, CoinMarketCap directly contributed to the fraudulent scheme BitConnect through which investors lured about $ 100 million.

Read more the problem described in this thread:

Of course, our source for price, volume, and supply, comes from… Bitconnect”s own exchange. Hosted on its own website.

— nic carter (@nic__carter)

Of condoning fraud by placing banner ads summersky projects guilty not only of CoinMarketCap, the largest and most popular aggregator. In some cases monetization is made through affiliate links within the banner itself.

The portal CoinMarketCap not only contributes to fraud and earns so money: this privately operated from apartments in long island city, has already proven its inability to make complex judgments about the liquidity of the exchanges. Forgive me a small digression and let’s move on.

Scam

The main problem lies in the interaction of rating sites, stock exchanges and issuers, especially in matters relating to trading volumes. This happens in the following way:

  • Issuers want their tokens were traded in liquid markets to close their positions on them or to make artificial pumping (pump) their prices.
  • Exchange want to be viewed as liquid that issuers of coins they were paid a fee for their listing.
  • The activities of the exchanges, working on the principle of Aldon casinos, is practically not controlled, so they can get away with almost anything.
  • Many exchanges involved in fictitious trading purpose of money laundering, which helps them to create the appearance of larger trade volumes and strengthen its image, in terms of liquidity.
  • Rating sites monetized through affiliate links and advertising. They lack the resources to monitor every exchange, so they are not too critical approach to published data.
  • Stock exchanges, a practicing dummy trading, increase due it its position on the rating sites, positioning itself as a successful trading platform.
  • Exchange profit, the rating sites in the profit, the issuers of coins in the profit – and all this at the expense of retail investors (which, however, can have its benefits, but rather only in the short term).
  • Negligence of rating sites is the main reason I write this post. Other aspects are quite well documented. While Fiat exchanges increase the level of professionalism and prove to regulators their integrity, market altcon casino remains full of unspoken fraudulent schemes. If an unjustified change in methodology of the rating sites community is well known, especially after their amateurish nature in General, still speak too little. Representatives of cryptocurrency hedge funds were horrified to learn how many organizations defined their positions in accordance with the data of the website CoinMarketCap, which blindly aggregates the false information received from Aldon casino. The main problem lies in the uncritical publication of information obtained from obviously unfair exchanges (about this scourge well Sylvain Rib). Platform CryptoExchangeRanks used an innovative methodology comparing the stated trading volume with the actual volume of web traffic to the appropriate resources, and found several especially .

    Investors who need reliable information, not many choices. They can choose to selectively trust the exchanges, independently collect data or to use resources like Blockstream/ICE. The level of professionalism in the market is gradually increasing, and it is hoped that projects like CoinMarketCap will soon leave in the past.

    The future of the market

    The main problem with the three altcon-casino / issuers / rating sites is that their financial incentives are closely intertwined and users know too little about each of its components. In many cases, the exchange is called as such is wrong: they are more similar to non-brokerage firms twenties of the last century, the “boiler” of the eighties or is not controlled by poker sites beginning two-thousand, who performed fractional reserves or to provide insider information about closed cards unaware of this players.

    Frankly, most of the cryptocurrency exchanges has nothing to do with traditional exchanges like the NYSE or NASDAQ. Many investors understand this, but some mistakenly believe in their honesty and even a long time keep their coin on these exchanges. Exchange, in turn, strengthens its position in the market due to the violent and obvious fictitious trading. However, to close them or to regulate their activities is difficult: in the end, clearing and settlement occurs in beyond the censored networks Bitcoin and Ethereum.

    The demand for global-altcon casinos still exist, so will exist and this kind of dubious exchange. While investors rely on Amateur rating sites as a source of information on venues for trading in the exchanges will be motivated to inflate the data on their liquidity. If the exchange will continue to include in the listing chipofya projects, allowing the issuers of these tokens to close their positions on them, the latter will have an incentive to continue marketing the game and create a fake road map, tricking investors. Investors should be wary of such organizations and to make decisions solely with all the necessary information.

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