Crying Wolf? Why You Can’t Ignore Crypto Scam Claims

Marc Hochstein is the managing editor of CoinDesk and the former editor-in-chief of financial industry publication American Banker.

The following opinion piece originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday, exclusively to our subscribers.

As children, we all heard the story of the boy who cried wolf and learned that the moral was not to raise false alarms, or else no one will believe it when you report a real emergency.

But there's another, less obvious and more unsettling lesson of the fable. It's the takeaway for the recipients of a distress call (the villagers in the story): Even if someone pulled your leg in the past about a supposed clear and present danger, there is still the possibility he might be dead serious this time. So if you write him off because of his track record, there's a chance your sheep will be devoured.

This is a big problem for anyone trying to simply make sense of the crypto space, much less make money in it.

Everything's a scam

Bitcoiners, especially bitcoin maximalists, have a habit of calling anything they find a little dubious, or that they simply don't like, a "scam."

It's a serious charge – fraud is a crime, after all, punishable with jail time – but on Twitter and in crypto forums it gets thrown around like high school kids in the locker room calling each other dorks and losers. Though, to be fair, the "S" word is sometimes used in a way that's unmistakably playful.

In a footnote to his hilarious and thought-provoking 2014 essay "Everyone's a Scammer," Michael Goldstein of the Satoshi Nakamoto Institute writes, "'scammer' is a heuristic, not an accusation."

If you believe bitcoin is going to the moon, as Goldstein does, then a merchant who accepts it is a scammer, even if her alpaca socks are as warm and cozy as advertised, and a HODLer seeking to buy it off you is a scammer too, even if the fiat he's offering in exchange is real.

A scam, in this broad definition, is any attempt to part you from your bitcoin.

Another way to think about this issue is that perhaps telling mom-and-pop investors "all altcoins and ICOs are scams" is the equivalent of telling kids that porcupines shoot their quills. It's not literally true, but if they believe it, they'll steer clear of a hazard and you'll have done a mitzvah.

In crypto, those hazards may include bad ideas pursued in earnest, good ideas poorly executed and outright scams. Some argue that the first two categories might as well be subsets of the third, for all practical purposes.

Risk of defamation

That's all well and good for the Wild West of crypto, but in civil society, the word "scam" implies an intent to deceive. Calling someone a scammer can damage that person's reputation (unless, of course, the charge is leveled so often, at so many people, that no one gives it much weight anymore). Without solid evidence, the label is potentially defamatory.

It's possible to raise doubts about an idea or business model, or a team's ability to execute on it, without jumping straight to fraud accusations. (Sometimes those lines of inquiry might eventually lead to the uncovering of fraud; one of the first articles poking holes in Enron's facade merely suggested that the company's business was overly complex and its stock overpriced, understatements in retrospect.)

But a four-letter insult is the easiest way to make oneself heard in the shouting match of online conversation, which I suspect is another reason why it gets used so casually.

Plus, if the CEO of the largest bank in the U.S. can call bitcoin a fraud, while his institution is building a private blockchain based on ethereum (a protocol that probably would never have existed without bitcoin), then why should anyone bother choosing their words carefully?

Wolves not far

Getting back to the villagers who ignored the shepherd boy, though, there are a lot of dodgy schemes in this space.

Just this month, a startup raised $374,000 through an initial coin offering on ethereum, then disappeared, according to Vice. There's a long list of stories like that.

Often the first people to question the operators are the same ones using histrionic language on other topics. Which means that you can't just shrug your shoulders and roll your eyes when the trolls cry "scam." Sometimes they're right.

Sorting the signal from the noise may be harder in this industry than almost anywhere else.

Lone wolf image via Shutterstock