Fast moving digital currency markets have seen their fair share of winners and losers who became so swept up by the promise of quick profit, that their better judgement was gone with the wind. The long term consequences of this mentality may be less apparent as the newly popularized digital currency industry rides a wave of public excitement, but surely as all bubbles collapse, so to shall the bubbles that have been formed by that ‘tech-investor-esque’ mentality that has permeated the industry to it’s core. These aggressive early investors demand rapid growth and quick payoff, which has resulted in a litany of business failures throughout the industry.
As markets become increasingly competitive and individuals look for an edge, some are driven to adopt anti-competitive tactics to give themselves an unfair or even unlawful advantage over their peers. These practices place a drain on free markets, and if left unchecked can manifest themselves over time into dysfunctional components of the larger economy, where more is at stake. Sometimes these corrupt business tactics are innocuous mistakes or the result of bad advice, and in many cases it is the result of a poorly performing business owner wanting to keep their head above water by any means necessary.
One such scheme that was popularized in the mining sector, salting, has also metastasized itself in the form of digital currency projects that give a false appearance of success through a variety of means. Not to be confused with the cryptography term, salting in mining is the process of planting minerals in a barren mine to give the appearance of productiveness. In digital currency terms, salting includes (but is not limited to) using early investor money to buy social media support, paying actors and spokespeople to borrow their credibility, using vague/deceptive/misleading jargon to mysticize simple processes, creating fake blockchain addresses, creating pointless transactions to give the appearance of network popularity, using investor funds to provide short term liquidity or volume, creating fake volume on exchanges, exploiting algorithmically dictated scarcity to make a quick and profitable exit, or flat out lying to investors about the project.
As priorly mentioned, criminal tactics such as salting can have widespread effects on an economy. If you are familiar with the Canadian Bre-X scandal in the 1990’s then you will remember that their collapse led to the loss of hundreds of millions of dollars in public pension funds that held Bre-X Minerals stock. Bre-X became synonymous with mine salting after they had convinced investors their mine was profitable by adding gold flakes and dust to core samples. Bre-X delivered these fraudulent core sample findings to investors, who responded in herd-like behavior and sent the stock price soaring. By the time findings of Bre-X’s fraud were known to outsiders, it was already too late and investors were out billions of dollars.
Salting digital currency projects can occur for a number of reasons such as prolonging hardware profitability, appeasing early investors, founders making a quick exit, or just plain trying to keep up with the others who are ‘salting their crypto mine’. Fraudulent analysts, experts, advisors, and consultants are all too happy to participate, because in return for perpetuating the scheme they are well recompensed. Digital currency fraud schemes not taken seriously could eventually grow into serious problems which have even more devastating consequences than the Bre-X scandal had on Canada’s economy.
Disclaimer: The point of this article is not to argue against the very real merits of cryptocurrency and decentralized capital formation, but is intended to stress the importance of a timely and well thought out path to cryptocurrency adoption. By taking this calculated approach, we can minimize the chances of scams like Bre-X occurring in the digital currency industry, preventing financial duress or other hardship, and preserving trust in the future of decentralization.