Skycoin: Anatomy of a cryptocurrency scam

What if someone told you there was a cryptocurrency that could help you fight the repeal of net neutrality by getting paid to be on a badass futuristic internet? Furthermore it’s uncensorable, can’t be centralized, and is impenetrable to hacks.

Enter Skycoin, the sounds-to-good-to-be-true coin with so many problems its likelihood of being a scam is somewhere between “probably” and “even more probably.”

On the one-hand, it meets all the requirements for a legit cryptocurrency. It’s got a nice website , a whitepaper that passes a novice glance, and a positive community presence (perhaps a little too positive, which is explained by this bounty program ). Plus it’s been around since 2012 making it old AF in the crypto world.

But why does Altcoinom list it as a scamcoin due to pre-mining ? And, as blogger Ilya pointed out , its whitepapers don’t make sense:

We reached out to Skycoin’s PR Catherine Byerly to find out whether the company was legit. She hooked us up with the company’s COO Bradford Stephens, who told us he’d been hired six weeks prior to help the team market its product.

Let’s begin with the low-hanging fruit. The hardware pitch looks ridiculous.

Credit: Skycoin

When I spoke to Mr. Stephens, I told him that I didn’t understand why anyone would need to buy a miner for a coin that’s 100 percent pre-mined. Let me say that again for the people in the back: Skycoin is 100 percent pre-mined.

The company says so right in this official Skycoin blog post , which also says this:

That’s a bit of double-talk, but maybe it’s a typo or Skycoin uses the term “undistributable” lightly. Either way, you’re being sold a device called a miner to work with a coin that’s already been mined.

Stephens told us “Miner is probably the worst word to call this, it’s actually a web access node.” He claims that using this will enable a person to share network resources with other people. I figured this was the “brand new internet” part, so I asked him where the bandwidth came from.

He said “Initially, it will use the existing bandwidth you have in your home.” Wait, what?

The highly touted “Skyminer” is, according to this press release , not just the backbone of the Skycoin network (called Skywire), but the only way to earn Skycoin aside from bounties:

The only way to buy a Skyminer (which isn’t a miner, mind you) is to send the company 1 BTC.

If you’re willing to spend about $10,000 (at the time of this writing) in bitcoin to get a cobbled-together Orange-Pi cryptocurrency miner (that isn’t for mining) you should probably demand a clear and concise explanation of how this is going to make you money. The white paper(s), which we’ll get to later, does not do that.

Why do you have to pay 1 BTC (no other method of payment is accepted) you might ask? Well, we didn’t have to ask because Stephens offered up the answer unprompted:

That pretty much says it all.

And, of course, there are the white papers .

First let’s take a look at the whitepaper written by “johnstuartmill” and “an anonymous user.” As pointed out by the aforementioned blogger Ilya, there’s a few instances of gobbledygook in it, where it appears the author just sort of needed to fill some space:

Well, that’s weird.

But upon further inspection there’s bigger problems:

Where’s this separate algorithm?

And perhaps most concerning is this line:

The algorithm the developers do show is incomplete for “clarity of exposition,” and is supposedly available in its full form on GitHub. Except it isn’t, there’s no other papers or algorithms at the sites mentioned.

We asked Stephens where this algorithm was:

It’s impossible to know what kind of algorithms they’re using, and the whole white paper itself is about blockchain consensus algorithms. There’s nothing in there about replacing the internet and turning cheap computer rigs into get-rich-quick boxes, as best as we can tell.

It’s worth pointing out that Stephens mentioned several times that the problem with the company, in general, is that it was full of innocent tech nerds who didn’t understand the big bad business world. He told us:

There are of course, several other whitepapers on the site, but those are from a legitimate team of researchers from a university in China that were published in 2015. Anyone can download them for free on ArXiv .

Stephens told me that Houwo Chen, one of the authors on the Chinese papers, was a founding member of the Skycoin team. We’ve reached out to Tsinghua University to confirm this and will update this piece once we do.

When you sell someone a $600 cryptocurrency miner that isn’t for mining and only works on a network that doesn’t exist, and you charge them $10,000 for it — it looks like you’re peddling snake oil. Using existing bandwidth to power what’s essentially a hardware VPN isn’t creating a new internet, it’s just subletting your ISP bandwidth. And that’s not a sustainable business model at all.

So is it a scam? I’m 99 percent sure of it.

It looks like a pre-mined ICO that’s waiting for a good time to… fail. We won’t mention the words “exit scam,” because the company is built on the back of its Skyminer hardware. All it has to do is keep convincing people to shell out $10,000 for magic beans (in the form of Skycoin) and all will be well in the mysterious world of Skycoin.

We’ll end this with the same words Skycoin COO Bradford Stephens used to end our conversation with him:

Trade with care.

Cryptocurrency malware will pop up in ‘most unexpected places’ in 2018, researchers say

One of the more unfortunate trends that shaped up as a result of the massive blockchain boom last year was the sudden proliferation of crypto-jacking scripts – malware designed to steal your CPU power to surreptitiously mine cryptocurrency. And new research suggests the trend is here to stay in 2018.

A study conducted by ad-blocking service AdGuard indicates that so-called crypto-jacking threats will likely continue “ to be found in the most unexpected places” over the course of this year.

Previous AdGuard research had discovered that there are over 33,000 infected websites on the internet, accumulating a total of one billion visits and over $150,000 in mining rewards.

The study further notes this new epidemic partially has to do with the dwindling effectiveness of ad monetization.

“ The code of mining scripts was being found on websites, in apps, games, browser extensions, and of course in advertising banners and other elements,” the researchers write. “Ads often get infected with malware or mining scripts by hackers that break into ad networks, so even ads of well-known and reliable advertisers can be dangerous.”

While cryptocurrency mining scripts have often been leveraged with unethical intentions in mind, some legitimate websites appear to be also considering adapting their business models to capitalize on this new trend. Indeed, popular publisher Salon is currently experimenting with this approach .

Unlike Salon though, some other websites – like The Pirate Bay and CBS’s Showtime – were caught secretly running scripts to lend visitors’ computing cycles to mine crypto.

It is disappointing to know that crypto-jacking will only spread more over 2018, but the good thing is that there are measures you can take to thwart such attempts before they’ve happened – you can find more about that here .

Alternatively, you can just download the latest version of Opera, which comes with built-in protection against crypto-jacking.

Vitalik Buterin: Ethereum needs to evolve or ETH will become valueless

The future of Ethereum has come under scrutiny with claims that the collapse of its cryptocurrency is inevitable. And co-founder Vitalik Buterin agrees, for now.

In a piece published on TechCrunch , cryptocurrency entrepreneur Jeremy Rubin stipulates the price of ETH – the network’s underlying digital asset – is bound to plummet.

“In Ethereum as it presently exists, this is absolutely true,” Buterin said in a post on Reddit. “[A]nd in fact if Ethereum were not to change, all parts of the author’s argument […] would be correct.”

Cryptocurrency entrepreneur, Jeremy Rubin, made the claims in an article on TechCrunch . Ethereum , the author argues, has problems with scaling and smart contract security that lead to an inability to out-do competitors. All this will inevitably lead to a collapse by “economic abstraction.”

Economic abstraction is a phrase used to describe the payment of transaction or smart contract fees ( gas ), in a token that is not native to the Ethereum network. Rather than paying gas in ETH, the owner of a smart contract would pay in the token native to their contract, likely based on the ERC-20 standard .

The concept of economic abstraction is crucial to Rubin’s arguments: if all smart contract owners are able to deliver their contracts and pay gas fees in ERC-20 tokens rather than ETH, it would render the asset redundant. It will also decrease its value.

There are a number of issues with Rubin’s line of argument. Vitalik Buterin himself even responded to the article on Reddit, rebutting several claims made by Rubin.

Indeed, Buterin does concede that Rubin is, in part, correct. But Buterin clarifies that Ethereum can survive by being able to evolve and develop.

However, Buterin affirms that the Ethereum community is considering two proposals, which, if actioned, would enshrine ETH at a native protocol level.

Basically this means that ETH would be required to pay Gas. In doing so this creates a structure by which the “…value of ETH… is very much nonzero,” Buterin states on Reddit.

Depending on how long it takes the community to enact these proposals, Ethereum might have an uncertain few weeks or months ahead.