In 2017, the cryptocurrency market saw a massive boost in mainstream interest, along with an influx of cash from new buyers.
These inexperienced purchasers aimed to ride the wave of blockchain-based currencies to make a lot of cash in a short amount of time.
The number of new investors who did not understand the basic concepts around the technology was high, however, and this encouraged the creation of scam tokens and other schemes.
Even thought the prices of cryptocurrencies like Bitcoin have fallen, a number of questionable projects occupy high positions in the market capitalisation rankings.
These are bolstered by a combination of speculation, investors deceived by scammers, and “crypto traders” who aim to play the market to make quick profits.
Riccardo “fluffypony” Spagni, the lead maintainer of Monero, told MyBroadband that most consumers do not understand the technical aspects behind a cryptocurrency and are terrible judges of whether a blockchain project is a good investment.
“Consumers are the worst people to value the technical proficiency of a project,” said Spagni.
“I think that the over-inflated market caps for a lot of really poorly-designed projects speak for themselves.”
Spagni said he would not look at market capitalisation or what people are spending their money on as an indicator of success in the cryptocurrency space.
With the cryptocurrency market becoming a hotbed of scams and fraudulent projects in 2017, setting up a legitimate crypto startup can be difficult.
Spagni, together with US entrepreneur Naveen Jain and Ticketfly founder Dan Teree, has created a blockchain incubator called TariLabs in Johannesburg, which will contribute to the upcoming Tari blockchain protocol.
Jain said there are challenges faced by the South African blockchain startup, and how cryptocurrency projects are perceived in general.
“It is extremely difficult to build a blockchain project in an environment so full of scams,” said Jain.
“I would argue that it is one of the biggest challenges the space faces today.”
He said the Tari project aims to change the world, and is not a get-rich-quick scheme like many other projects in the industry.
“We’re not focussed on making a boatload of money overnight and selling our cryptocurrency on some exchange to the greater fool.”
Tari is not conducting a public token sale and has instead garnered investment from venture capital firms, he said.
When asked why scams and fake projects were so prevalent in the market, Jain said the free movement of capital paired with the large number of people who don’t understand how the systems work were contributing factors.
“All the same rules of building great startups apply to blockchain projects as well, it’s just that the ecosystem has not learned some of those lessons yet and so there are a lot of people who are charlatans and fraudsters,” he said.
This could change in the near future, however.
“Markets get smart really quickly, so I’m hopeful that over the coming months or year that a lot of that fraud shakes itself out.”
“Fraud happens in most markets and the blockchain ecosystem is not immune, but it should get better as the space evolves.”