PoWH: The Never Ending Pyramid Scheme
One of the biggest dApps to date is a pyramid scheme that advertises itself as so
Cryptocurrencies have been ripe with scams, illegal markets, and fraud since they started. I want to make it clear that while the inherent nature of cryptocurrencies isn’t to be gateway for fraud, they’re being used as the tool as with any system in the real world. In any case though, they are happening and people are being taken advantage of.
The main reason it occurs though is because people are using centralized systems to hold and store their cryptocurrencies — which was never intended to be done by it’s creators. In fact, cryptocurrencies were created to allow you to always have control of your money all the time so no government, entity or system could steal it.
Today we’re going to be talking about pyramid schemes, their history with cryptocurrencies and how they can actually be useful if they’re created the right way.
Bitconnect: The First Big Crypto Pyramid Scheme
Bitconnect started in 2016 as a pyramid scheme designed to look like a legitimate bitcoin lending service. It pulled people in with insane returns compared to any traditional market. To make it worse it created a referral system that graphically actually looked like a pyramid.
Many people who were in early on actually did in fact make extremely large profits from “shilling” the project through Youtube, their friends and other social media platforms. But in the end a lot of people lost money because the company that took in all of the Bitcoin exit scammed everyone who had left any money in the system.
When they finally shut down the service at the beginning of this year they gave everyone their worthless token, Bitconnect. While it was still operating it was worth over $3 billion. But only days after the collapse, the entire market cap was obliterated.
POWH3D: A Trustless Pyramid Scheme
While Bitconnect was still operating, a group of anonymous programmers, known only as Team JUST, were creating essentially a smart contract based version of Bitconnect but with a twist. A version of Bitconnect that could never be exit scammed, always payed out dividends for your investment, and was completely decentralized by nature. They built an unstoppable smart contract based pyramid scheme and they cheekily advertised themselves as such.
Marketing itself as Proof of Weak Hands 3D (PoWH3D) it is a joke in itself about the state of the cryptocurrency ecosystem. Many teams market themselves of having a new proof system to run a new type of blockchain network that will kill all of the other networks. Proof of Weak Hands is a joke on people HODLing a certain coin. By holding P3D (the token generated by the POWH contract) you would get a proportional share of 10% of the volume of purchases and sells of the P3D token.
To force the feeling of FOMO (Fear Of Missing Out) the token also has a changing price based on how many people own the token. If everyone sells their token then other holders will get dividends as the price goes down and vice versa. On top of all of this to enter an exit the token you’ll be paying a 20% fee all together, inducing the want to hold on long term.
It was a system designed to push on the greed of people and to attempt to make the holders of the token rich, whoever they may be.
Implications of P3D
P3D can be looked at as more than a pyramid scheme from a financial derivative stance. It has many properties of a token that have never been created before at this scale.
Bonded Token
It is the first bonded token to ever exist with over $18M in ether as reserves for token holders to withdraw as of the time of writing this article. The rules of the system are clear and can be invoked at any time without human intervention as well.
Universal Basic Income Scheme
Investors of the token not only get dividends from the token volume alone but also from other games Team JUST creates. Currently both of their other products are lottery-like games, kindly named FOMO3D. Each games has been pushing in large amounts of dividend volume into P3D since they came out. This makes P3D one of the first working models for a Universal Basic Income token.
Shareholder Owned Lottery System
Public lotteries tend to distribute large amounts of the actual income to different government agencies and groups. P3D gives users dividends from the FOMO3D lottery games, distributing large amounts of the total income to buying tickets to shareholders. This makes it the first token-based, shareholder owned lottery system.
Disclaimer: This is not an advertisement for P3D or FOMO3D. It is simply an informational piece on an intriguing decentralized application. The smart contract may also have bugs that could allow you to lose some or all of the ether you entrust to the smart contract.
About the Author: Petros is a Blockchain Engineer at a crypto venture studio, Block 16. We are a full service blockchain agency that does crypto-economics, network syndication, marketing services and blockchain development. If you would like to reach out to me send an email to petros@block16.io.
