Going for Broke in Cryptoland
They have names that make them sound delicious, like Cookie Coin. Or headed for outer space, like Pluto Coin. Or space-bound and delicious, like …
They have names that make them sound delicious, like Cookie Coin. Or headed for outer space, like Pluto Coin. Or space-bound and delicious, like AstroCake, which was described this way: “Created 5 minutes ago. SAFE.”
Hype coins, as they’re known, sit squarely on the flashy, speculative end of the cryptocurrency business. Every day, dozens of them are created around the world by developers promising fortunes to would-be investors. It usually ends poorly. The vast majority of these tokens are worthless within a couple of weeks. The developers, on the other hand, can make tens of thousands of dollars, sometimes a lot more.
Despite this track record, hype coins have become the investment of choice for millions of people, most of them men in their 30s, or younger, and convinced that the economy writ large is rigged against them. Some are the same traders who have been leaping into stocks like GameStop and AMC Entertainment. To them, crypto is both a source of hope (in imminent riches) and fellowship (many coins have chats on Telegram, an encrypted messaging app, that can sound like faith-based support groups).
It’s hard to think of another financial craze in which so many people poured so much into entities with so little intrinsic value. Few hype coins have any utility as currency. Good luck buying lunch with one. Many are minted in numbers rarely seen outside astronomy books — trillions, quadrillions — which dooms them to vanishingly tiny prices.
From the outside, the hype coin party is a mystery. To understand it, you have to join it.
Which is surprisingly easy. You may have heard that Bitcoin, the granddaddy of crypto, is “mined” by power-gobbling supercomputers, a process that verges on the utterly incomprehensible. Making a hype coin, by contrast, is more like ordering a pizza online. The entire process is automated and speedy. The fixings — in this case, what to call it, how many coins to make and so on — are up to you.
So one day in May, I created my own cryptocurrency. I did it on a Zoom call with an excitable 36-year-old in Taiwan, Dan Arreola, who had posted a tutorial on YouTube about how to make, and promote, a “scam coin.” It has more than 240,000 views.
“The lowest cost to launch a token is $8,” he said during our call.
That’s if you use a site for the tech savvy. For everyone else, there is Cointool. After a few minutes of tweaking, and about $300 in fees, I pressed a button. Instantly, 21 million coins were minted.
I christened them Idiot Coins.
The name was the first of many “do not buy” signs to potential holders, as crypto investors are called. I didn’t actually want this coin to soar in value. I wanted it to flop, spectacularly. The point was to demonstrate that creating a hype coin doesn’t take expertise and that many are flimsy and dangerous. Idiot Coin would be a crash test dummy designed to underscore the wisdom of seatbelts. And while laws provide guardrails for these investments, they are mostly ignored. Developers operate with little oversight.
Their main worry is marketing, the fine art of convincing people that a coin will enrich all comers. There are many colorful pages in the hype coin P.R. playbook, and I copied each one — with a twist.
I had a website built, with a How to Buy section that warned against it. (“Step 1. Do not buy Idiot Coin.”) I wrote an announcement for CryptoMoonShots, a Reddit page, where newly born crypto is unveiled. Usually, the coins are breathlessly flogged for their imminent moonward trajectory. I took a different tack.
“Def NOT going to the moon!” my announcement read. “Might not get an inch off the ground!”
On July 2, I activated this modest little promotional contraption. Then I stood back and hoped for the worst. Ideally, the level of enthusiasm would not exceed that of the person who left this message on the CryptoMoonShots announcement:
“My favorite all time Bollywood movie is 3 Idiots. So I’ll buy 3 Idiot coins.”
Not a Cop in Sight
Credit…Illustration by Erik Carter
The dream of instant riches has been around for as long as money. Only the source of the fortune changes. Gold, tulips and mortgage-backed securities have all taken a turn as the surefire investment vehicle of choice for investors in a hurry.
Now it’s cryptocurrencies. The uninitiated may have the sense that a couple of dozen of them are out there. The actual number is closer to 70,000, according to a site called Token Sniffer. About 100 are created each day.
Many are now worthless, but nearly 80 cryptocurrencies have market capitalizations above $1 billion, and they have won the affections of more than just investor bros. So far this year, U.S. venture capitalists have pumped $4.2 billion into at least 280 cryptocurrency deals, data collected by PitchBook shows. In late June, the venture capital firm Andreessen Horowitz raised $2.2 billion for a crypto-focused fund, its third.
There have been a few breakout stars. Most notably, there is DogeCoin, which started this year by appreciating 14,000 percent in five months and today has a market cap of $26 billion. This despite its origins as a larky tribute to an adorable, Internet-famous pooch from 2013.
Most hype coins, though, end in “rug pulls,” a maneuver in which developers and their allies cash out their tokens as they peak amid a burst of carefully orchestrated advertising. The price plummets; trading ends. On the Coinopsy website, there’s a list of a few thousand “dead coins.” The most common causes of death are “scam” and “abandoned.”
Since mid-May, a grinding downturn has lopped about one-third off the value of the total cryptocurrency market, largely as a reaction to new restrictions that China imposed on its financial system. Many hype coins have dropped 90 percent.
The true believers are bleeding but undaunted. The rise of crypto feels inevitable to them as the perfect rebuke to a banking system they neither like nor trust. Plus, hype coins have elements of a spectator sport. There’s a sense that the louder a coin’s fans shout — on social media, rather than in the stands — the richer they will get.
Frenetically boosting a coin online is known as “shilling,” and everyone in the cryptosphere knows people who shilled one night and were flush the next morning. Like Jaishil Tolia, a 31-year-old dental student from the north of England. In the hours after the debut of a hype coin called Bonfire, on April 18, he had invested $30,000, largely because he liked the look of the logo and the energy of the Telegram community. He and other holders then left #BonfireToken, and other pro-Bonfire tags, all over the web, like a swarm of graffiti artists on uppers.
By the time Mr. Tolia woke, Bonfire had “gone parabolic,” as they say in crypto circles. His coins were worth $1.4 million.
“I’d made a million dollars before, but over the course of three or four days,” he said in an interview in May. “I’d never made a million dollars overnight.”
This is a hazard-filled path to wealth, and not just because of the ever-present threat of rug pulls and other variations on the theme of pump and dump. Cryptoland is often likened to the Wild West, but that’s unfair to the Wild West. It had sheriffs, courts, the occasional posse. There isn’t a cop in sight in Cryptoland. If someone steals your crypto, tough.
Friends and allies are essential in Cryptoland. I met mine in March when I joined a WhatsApp thread of enthusiasts that is based in the London suburb of Chingford. Every day, about 200 people in The Crypto Crew, as it’s called, trade tips and offer advice. They serve as a help desk to anyone stymied by the baffling architecture and terminology of the crypto universe. They crow when coins go up and urge patience when they go down.
Before the current downturn, about once a week, someone in the Crew would pipe up with the name of the latest hype coin and a question in the vein of, “Hey, you guys have any thoughts on this one?”
In early May, it was Bonfire. It had recently gone up 700 percent. On the chat, a couple of members swooned. The skeptics were not far behind.
“Does Bonfire have a use case?” a member asked.
“Yeah it sets your money on fire,” quipped another.
Whenever a hype coin is mentioned on the thread, there is a related question: Anyone know how to buy it? I decided to give it a try.
You might imagine that a visit to Cryptoland is all about shiny surfaces and precision, like running around the inside of a Swiss watch. It’s more like a bog where all the roads are unpaved and half the signs are written by lunatics. The websites are mostly slow, buggy and confounding. Nearly every step requires a pause to watch a YouTube tutorial.
As bad, Cryptoland is swarming with scammers. Some are waiting for an errant keystroke so your money can be intercepted, never to be returned. Some make look-alike copies of apps that you need to download, which makes your assets easy to grab. Some produce knockoffs of currencies you want to buy. Dozens of coins are called Bitcoin, for example.
Estimates of losses in Cryptoland are hard to come by, and range from hundreds of millions of dollars to $1 billion a year. Harry Denley, director of security at MyCrypto, a cryptocurrency management company, says that every day between 30 and 50 people get in touch with him, looking for help recovering as little as $500 to as much as $1.2 million. In nearly every case, there’s little he can do.
“If you try to seek help from the same people who sold you the coin,” Mr. Denley said, “they will tell you you’re an idiot for buying it.”
The first of many scammers I encountered in Cryptoland showed up near the end of my quest to buy Bonfire. By then I had lumbered through about a dozen steps and, finally, landed on PancakeSwap, a decentralized finance exchange — defi for short — where crypto can be swapped without an intermediary.
When I finally hit the “swap” button, my Bonfire seemed to vanish. For an hour. Then two.
So I hit the link to the Telegram account on PancakeSwap’s home page. There I met the administrator, someone identified as Cake Johnson.
I explained the issue. No worries, he wrote back.
“There is a problem with your in-node string,” he explained, helpfully providing a link that would “correct” it.
The link took me to a page that asked for the 12-word password for my crypto wallet. Known as a seed phrase, these passwords are standard and crucial security in Cryptoland. Lesson 1: Never share these words, anywhere, ever.
“Info you input is visible only to you,” Cake wrote when I returned with skeptical questions. “We use 365 encryption for protection of privacy.”
Uh-huh. I introduced myself as a reporter for The New York Times and asked for an email address for the press office at PancakeSwap. Cake never answered another text.
The experience was like discovering a guard in a bank lobby trying to pickpocket the wad of cash you just withdrew. A note to PancakeSwap’s email address was eventually returned by someone identified as Chef Hops.
Cake wasn’t an actual administrator, Chef Hops wrote, just someone pretending to be.
“It is an unfortunately frequent occurrence,” he wrote.
My Bonfire coins, it turned out, were simply delayed by online congestion. The journey from PancakeSwap to my crypto wallet took four and a half hours. Which pointed up another surprise about Cryptoland. It’s absurdly slow.
Soon after the coins arrived, Bonfire’s run-up ended. The value of the coin, and every other cryptocurrency, started to plunge.
Hype Is Other People
This was actually Bonfire’s second near-death experience. The first happened a few days after its birth in April, when it became clear that its developer had conceived the coin as a pump and dump. That developer had sold nearly all his coins after Bonfire’s initial rise. But Mr. Tolia and a team of like-minded holders decided they would try to rescue the coin from oblivion. Nobody would get paid, for the time being, but that didn’t matter. This was a mission.
At the time, Bonfire had a market cap of more than $26 million and within a few weeks about 200,000 holders. Mr. Tolia leveled with them. On YouTube and Telegram, he explained that they had all bought into a scam. Now, he argued, Bonfire could become a community and, with enough patience and focus, a thriving business. He pitched the idea that the coin could serve as the backbone of an alternative to Facebook, one with real privacy and no ads.
Most holders were delighted. Mr. Tolia was hailed as a hero and a saint on Bonfire’s Telegram account. He was ecstatic. He had spent years studying dentistry, in part because so many others in his family had joined the profession. But it had never felt like his calling.
“I’ve always wanted to do something big,” Mr. Tolia said in an interview in May, “something with a futuristic vision.”
To him, Bonfire was also an amazing tale, crypto’s answer to a reanimated corpse. This would make a great documentary, he said.
If so, a major plot twist was coming. China’s move against crypto sent the price of Bonfire into free fall. By June, many Bonfire holders were selling. They were often denounced for spreading “fud,” a ubiquitous acronym in the cryptosphere that stands for fear, uncertainty and doubt. On Telegram accounts, repeat fud spreaders are booted out.
By June, it took about 7.7 million Bonfire coins to equal $1. While brutal for Bonfire’s early holders, infinitesimal prices are part of the appeal for many hype coin fans. The first Bitcoins ever traded were reportedly valued at a fraction of a cent. If the price of a coin like Bonfire ever reached a penny, holders would be spectacularly rich.
Unfortunately, the 1 cent mark is impossible. That’s because staggering quantities of tokens are typically minted — 650 trillion in Bonfire’s case. Were they worth a penny each, the market cap of Bonfire would far exceed that of Apple and Amazon combined. Plus Walmart.
The core audience of hype coins doesn’t seem to care.
“I bought more at this price, got 35 billion tokens,” someone nicknamed Hodler said on Bonfire’s Telegram in June.
“You’re a legend,” replied Rosie. “Buy more!”
Given the scale of the losses, the tone of the chat remained largely sunny. There was endless talk of the power of the Bonfire community, about how the projects envisioned by Bonfire in the “road map” were going to turn it into a phenomenon. It was just a matter of time.
The optimism seemed perplexing. It made far more sense when, a few weeks ago, I happened across the Telegram account of FEG Token. (The acronym stands for “Feed Every Gorilla.” Gorillas are nearly as popular as dogs when it comes to coin names.) More than 100 people were on its Telegram group voice chat one July afternoon.
They sounded uncannily like Bonfire supporters. They spoke passionately about the FEG community. They were convinced that FEG would change the world. (Its offerings include a defi exchange said to be safer than others.) They thought the story of the coin would make a great documentary.
FEG’s price had belly-flopped from its high in May. By early July, it took 148 million FEG coins to equal $1. Devotees were undeterred. FEG still had a market cap of $176 million, according to Coinmarketcap.com, with about 600,000 holders. Many on the chat that afternoon remained stoked.
“I would love to make more money quicker too,” one attendee said. “But this is an actual project that is going to revolutionize defi and make people safer.”
“They’re saying it’s a ten year road map,” someone else said.
I introduced myself. After a brief verbal frisking — it was weird to have a reporter drop in — the group was friendly and happy to answer questions.
Why invest in crypto? A guy identified as Bogdan Danci spoke up.
“I live in the Netherlands, and the banks, the whole centralized system crashed in 2008 and we lost a ton of money,” he said. “Why should we pay for a bunch of gamblers in the banking system? Our whole nation got scammed. That’s why I moved into this space.”
Many here have the sense that inflation is eating away at fiat currency, and that the stock market is a dangerous bubble. Some people believe that boomers and other older generations have a death grip on the world’s wealth and will never hand it over. Crypto is an end run around that problem.
“You’ve got to look at inequality to understand why young people are buying into crypto,” said Travis Kling of Ikigai, a crypto asset management firm in Austin, Texas. “Especially after Covid, when the rich got even richer. These people feel like the financial system doesn’t work for them. Politicians are crooked. Big Tech takes your data. This is a recoil from all of that.”
Crypto also offers something deeper and more gratifying than a regular investment. It offers meaning. The more time you spend in a cryptocurrency chat the more elements it seems to share with a religious sect. Belief is required. Heretics, in the form of those Telegram dissenters, are banished. And if you stick around long enough, the proselytizing begins.
“Once you start seeing the potential of this project for the rest of the world,” Mr. Danci told me during the Telegram chat, “you will want to start promoting it yourself because it is really game changing.”
“Resistance is futile!” someone piped up, with a laugh.
Investing in crypto holds out the prospect of a jackpot and the chance to bond over a shared catechism. It’s like a church social in a casino. One attendee said he spent about 10 hours a day on the FEG chat.
“I talk to these people more than I talk to the friends I grew up with,” he said.
Minting a Stinker
Before making my hype coin, I needed to answer a basic question: Would doing so break the law? I was about to create something that sure sounded like a security and put it up for sale for the entire planet. It seemed like the kind of enterprise that might draw unwanted attention from the Securities and Exchange Commission or regulators in Britain, where I live.
The S.E.C. has brought few enforcement actions against crypto scams, but on Tuesday its chairman, Gary Gensler, asked Congress for more authority to oversee the sector. For now, no one in the hype coin business sweats about jumping through legal hoops. A member of the Bonfire team, Andrew Cunningham, said the company had hired lawyers, but only to study issues like trademarks.
I consulted two lawyers who had expertise in the area: one in Manhattan, Philip Moustakis, and another in London, Dan Hyde, author of a book on international crypto law. Both told me that coin creators could be sued by regulators in either country. In the United States, the trouble would start if the coin met the legal definition of an “investment contract,” which it would if it came with an expectation of profit and the profit resulted from the efforts of a promoter.
The wisest course, the lawyers said, was to ensure that Idiot Coin was utterly hopeless.
No problem. This coin would be a fiasco.
Albeit one created by a savvy veteran. Mr. Arreola, the auteur behind the “Let’s Make a Scam Coin” video, had not made a guide for con men. It’s a warning to investors, proof that all it takes to fabricate new crypto is a computer and some nerve.
After a few emails to Taiwan, we ended up sharing a screen on Zoom.
“I think there is already a Dummy Coin,” he said as we tossed some possible names around.
I put seven million of the 21 million Idiot Coins up for sale on a defi exchange called BakerySwap. What were they worth? That was up to me. I lobbed $30 worth of a crypto called BNB into Idiot Coin’s “liquidity pool.” This is the money that buyers would use to swap their BNB for Idiot Coins. After every swap, the price of Idiot Coin would rise.
That was the theory. Most developers stake liquidity pools with $10,000 or more. By putting up such a piddling sum, I was all but dooming the coin. It was like a machine that was too low on oil to get whirring.
Still, I wanted to go through the hype coin publicity motions, all of them facilitated by an assortment of freelance vendors and websites. First, I made it appear as though a bunch of investors had already snapped up Idiot Coins, a charade made easy by Cointool. The site’s “Batch Wallet Generate” button instantly created 100 crypto wallets, each with its own 12-word security phrase. For about $70, I put 100 Idiot Coins in each wallet. There was no way to tell that those wallets had been made by the same person who had created the coin.
Now I needed to pitch this stinker to crypto buyers. That meant hiring a TikToker to post an Idiot Coin-exalting video. Through a site called Collabstr, I found my dream performer, Samuel Malki, who performs under the name Malki Means King and has 5 million followers. He raps while fanning himself with stacks of fake $100 bills, wearing outrageous eyewear, a gold crown and cartoonish fake teeth. It’s a parody of opulence, confected with props and attitude.
“I actually live with my parents,” he said during a video call on Instagram.
I hired a web designer to build an Idiot Coin website. A Meet the Team section includes a photo of a bull terrier owned by friends. The site also has a “White Paper.” It’s supposed to lay out exactly why the world and investors need this coin. Mine implores investors to scram.
Finally, I wrote that deflating CryptoMoonShots birth announcement. On a website called Fiverr, I found someone known to me as Expert Troll to post the announcement for a fee. (I lacked “Karma points” on Reddit to post it myself.) To ensure that the announcement appeared high up, I bought 100 Reddit “upvotes” on a site called Soar.
In all, the coin and its artificial hoopla cost about $1,000. I had the coin looked over by an auditing firm in Ukraine, Zokyo, to make sure it wasn’t hackable. Finally, at the appointed hour, on July 2, the CryptoMoonShots announcement went up. Mr. Malki posted his TikTok. Coinforidiots.com went live.
Nothing happened. Or rather, almost nothing. Four people, or bots — it’s hard to tell — bought a grand total 73 Idiot Coins, yielding a small fraction of a penny in sales. It was a total bust, thankfully.
Nobody was financially harmed, but one group seemed disappointed. I had hired yet another member of the web’s gig economy, this one from Nigeria, to post links to the Idiot Coin Telegram account on social media. About 300 people from across the globe showed up. Many were confused. Others sounded like members of a flock desperately in search of a preacher. They wanted an earful of the gospel of impending affluence.
“Why are you so pessimistic about this coin,” someone named Dylan asked.
I was letting down these people by refusing to promise them riches.
“Should we buy or not!” asked Pro Developer_1.
Not, I replied.
“OMG,” wrote Geogae Mike. “Am I in the wrong group?”
Ready, Aim, Firestarter
In an interview in early July, Mr. Tolia had the somewhat rattled demeanor of a man who had been on a bumper car ride for three days. There had been turnover among the still unpaid leadership team of Bonfire — marketers, graphic designers, app developers and so on. A deal with a possible investor had fallen through. A doctor had put him on medication to treat nausea caused by reflux. Holders unhappy with the price of the coin had menaced a major Bonfire investor — details were not offered — and Mr. Tolia believed others might demand that he spend more of his own stash on marketing.
“Bunch of loonies,” he said of the aggrieved.
The door to a career in dentistry would remain open. He may never embrace the work with much ardor, but dentists don’t fret about getting cold-cocked by angry holders.
On YouTube a week later, Mr. Tolia seemed pleased to announce that Mr. Cunningham, the Bonfire team member, would become the new chief executive of Bonfire Token. That evening, the two men unveiled Bonfire’s first product, Firestarter.
It’s a launchpad for new tokens, and when Mr. Cunningham gave viewers an online tour, it looked positively spiffy. The idea is that coin developers will pay for access to Bonfire holders and the expertise of its management team. New coins will also be vetted, weeding out scams.
A few commenters on YouTube gave Firestarter a thumbs down. Maybe they saw a flaw in this shiny new platform, designed to appraise shiny new coins. In a business dominated by scammers, who would spend money for a seal of approval?
That was a minority opinion. Most people were thrilled.
“All I know,” someone identified as G wrote on Bonfire’s Telegram chat the same evening, “is I’m holding no matter what til the end.”