Disclaimer: This is not financial advice. I am not a financial advisor. What follows is my personal, subjective, biased opinion.
In 1998, Ronald Reagan’s Surgeon General Dr. C. Everett Koop co-founded the health website drkoop.com. Less than one year later, they went public with a $88.5 million valuation. Within a month, the stock skyrocketed, bringing overall valuation to $400 million and AOL to the table. The two companies formed a four-year strategic partnership with a $89 million budget.
There was only one problem: People did not trust a health website that ran on ads. In December 2001, Dr. Koop shut down operations, making it one of many flashes in the dot-com pan.
History does not repeat itself, but it rhymes. In order for new markets to mature, they must wash out the Dr. Koops of their day. Whether they’re bad ideas, shady businesses, or outright scams is often impossible to say. What we do know is that the more red flags wave atop the new market hill, the further we’re away from a legit industry ready for the masses.
After lending ponzi scheme Bitconnect shut down in January 2018, one of the biggest red flags still waving in cryptocurrency is actually blue. A top 20 project by market cap, the privacy-optional Verge has weathered storm after storm thus far. But has it led to a clean vest?
To find out, let’s look at the full chronology of the controversial history of Verge.
Verge emerged from the fog as DogeCoinDark in October 2014, quite literally, as even the conditions of its founding are confusing, starting with the name.
Another project named DogeCoinDark had been launched a month before, basing its code off Bitcoin, PPCoin and NovaCoin. According to Bitcointalk member earlz, the newcomer used patches of AXIS, RC and thus Shibecoin’s code, neither properly forking off Bitcoin nor Dogecoin, but mixing a proof-of-stake and a proof-of-work coin’s foundations.
Notable is also the original announcement thread title:
“[ANN][DOGED] DogeCoinDark [POD] — Scrypt — Global Darknet is LIVE! UNTRACEABLE!”
Privacy is great. Advertising your coin as a specific means of payment for an illegal market place isn’t. The size of the founders’ premine wasn’t entirely clear either and the first 450 blocks were mined quickly, though large rewards for early adopters are common.
DogeCoinDark was then verified by a then-popular service called Proof of Developer, bringing to light another interesting fact: the founder was working alone.
Verge’s lead developer is Justin Erik Valo aka Justin Vendetta aka Sunerok. While there’s no official source to back his claimed years of experience in networks security in blockchain, there are public arrest records showing eight minor incidents from 2003 to 2010. More records cite trespassing, stating a false name, and possession of schedule 1 narcotics.
None of this is to say a man with a criminal record can’t turn around and build a business, but it definitely casts a shade in light of the coin’s original dark web theme. What’s more, having a single guy run the show for a small crypto project may be acceptable, but what has grown to a $1.5 billion dollar currency after the February 2016 rebrand needs a team.
Ah, but there is. Except Verge has been, and still is, a community supported coin, meaning there is no steady, full-time team and no office building you can walk into to ask questions. I get that some of the main supporters might not want to reveal their names, but this creates a sort of half-pregnant situation. Investors don’t get transparency and the company doesn’t get the according credit for it. At the same time, the team can’t remain fully anonymous, which leads to an ever-changing, nondescript team page.
It’s near impossible to keep track of staff changes, let alone determine who’s actually currently working on Verge. Out of eight team members mentioned in an official blog post in October 2017, four (!) have been removed from the website six months later, which was just relaunched and should thus be up to date. Sasha, Emanuel, CYANO and Kieran Daniels are gone.
The last of these, Kieran Daniels, left amid yet another controversy, as Reddit user fireguy7 points out. He shared screenshots of a Facebook conversation with Kieran, who claims the team was reduced to one member: Justin.
To add fuel to the fire, CEO of Instapage Tyson Quick chimed into the discussion, adding that Daniels falsified details of his previous engagement at the company, where he claimed to have “scaled the company from 2,500 to 250,000 users before successfully exiting in January 2015.”
“CEO of Instapage here and I want to set the record straight. Kieran did not play an important role in our companies growth, was doing BD, and was fired.”
Regardless of how big or small the team may be, coding activity sure has died down.
Open-source projects can easily be tracked via their GitHub, which, in Verge’s case, shows 1,000 commits by 49 contributors in the past 15 months, most of them centered around the end of 2017.
This puts Verge barely in the top 100 of ‘coins most worked on’ over the past twelve months and just in the top 150 for the past three months, according to Github activity ranker CryptoMiso. Furthermore, it seems so far all past contributors except Valo pop for one blotch of coding activity, then disappear.
Wraith protocol was announced early in September 2017 and originally set for release within the month. Verge was always intended to be used as a private currency, but the protocol was supposed to add additional features on top of a guaranteed layer of privacy, which the users could activate at will.
While the team claimed this would ‘make Verge truly untraceable,’ logic would dictate enabling any kind of public information would hurt this aspect. Regardless, launch of the protocol was delayed four times, even the final deadline, December 31st, 2017, came and went. Eventually, it was rolled out in January, but quickly criticized for lack of both originality and usefulness.
Luckily, John McAfee came along.
The McAfee Incident
On December 13th, McAfee mentioned Verge in one breath with established privacy coins Monero and ZCash to his over 500,000 Twitter followers. He reaffirmed his pick and even shared a 150,000% increase target in a DM with a follower.
While the price did increase from less than $0.01 to $0.15 within just a few days, McAfee then turned right around and denied his $15 prediction, putting it on an alleged hack of his Twitter account. Furthermore, he began to actively discredit the currency and scoffed at Wraith protocol around the turn of the year.
Sure enough, another Verge influencer, XVGWhale, stepped in, sharing a text conversation between himself and McAfee, in which the latter asks for over $1 million as compensation for his ‘good deeds.’ He too claimed to be hacked two days later, which McAfee laughed at. XVGWhale’s Twitter account still remains in the same state today, while he’s created a new one.
The result? Nobody knows who paid or hacked who, and likely no one ever will, but the $0.27 all-time high and $4,000,000 market cap took the coin to mainstream fame regardless.
Hackers noticed too.
In a November 2017 incident, a wallet app service recommended by the Verge team, CoinPouch, lost around 125 million XVG of its users. Whether a node setup server-side on CoinPouch by Valo malfunctioned or was compromised, once again, one cannot say. CoinPouch blamed Valo, Valo blamed CoinPouch, and the account the coins went to seems to be a scapegoat, indicating the hackers might have sold through an exchange.
Coinpouch has never published its investigation report and even removed its app from the app store, just like Verge broke ties with the service. Meanwhile, the address in question remains one of the top 100 richest Verge wallets, who collectively own 96% of the total supply, most of which has been mined already. Only 6,000,000 XVG have been moved from it since the incident.
But why hack a third party if you can game the coin itself?
The Accidental Hard Fork
On April 4th, 2018, Verge announced it had suffered a small hash attack but that the exploit had been solved. As it turned out, neither were true at the time. The attack wasn’t small and the issue hadn’t been fixed.
A few hours before, a long-time XVG miner pointed out coins could be minted at will thanks to spoofing timestamps on new blocks. What’s more, an attacker had already been doing so every second for about 13 hours. Rushing to fix the problem, Valo pushed out new code, which seems like it was copied and pasted from Peercoin, and changed clock drift to prevent the spoofing.
While that did solve the issue, it created another one. Valo didn’t realize the code he’d posted caused the coin to hard fork, making all wallets and clients who updated to the new version unusable, which, again, was noted by OCminer, not the team itself.
Unaware or indifferent to the gravity of the situation, Valo decided the chain neither needed a rollback to undo the falsely minted blocks, nor another fork to reset the compatibility problem — at least not the same day. Things have since been resolved, yet the event raises many questions about both the team’s technical ability and their communication policy in crises like this one.
Or the next one.
The Ransom Crowdfund
Verge is community-funded. A noble approach in theory, in practice it often forces the funded to hassle everyone into donating when time to raise money for a certain cause is limited. Verge’s second to last crowdfund happened in early October, 2017. The target was 1,000,000 XVG, or about $6,600 at the time. The goal was achieved within the week set for the raise, with over 1.8 million XVG donated so far to the address.
But March’s crowdfund was a little different. In the announcement, Verge hinted at a potential, major partnership, the name of which were to be released if the campaign was successful. Except this time, a few thousand bucks wouldn’t cut it. The goal was 75,000,000 XVG or ~$3,000,000 within a week. No matter how you look at it…
Asking for this much money in such a short time period while holding the announcement of an eventual partnership hostage is just bad business.
Here’s how the crowdfund played out:
- Two days in, 10,000,000 XVG had been raised.
- Three days in, the company announced the name of the partnership would be revealed on the day of the crowdfund close, March 26th.
- Four days in, Valo put the amount raised at 16.6 million XVG, claiming they’d use some of the money to integrate with the Ledger hardware wallet.
- Five days in, the team announced three reward tiers to further incentivize contributions, giving away thank you notes, mugs, custom artwork and Skype calls, all done by Valo.
- Six days in, 18.3 million coins had been collected.
With one day to go and less than 25% of the goal achieved, even the diehard community began doubting the campaign could succeed. However, on the last day the funding wallet suddenly jumped across the 75,000,000 XVG threshold. One of Verge’s existing partners, Tokenpay, ultimately donated 66.5 million XVG, or almost 90% of the target.
While everyone held their breath for the huge announcement, Valo once again needed some sleep first. The next morning, he announced the postponement of the announcement to April 16th, one day after tax day in the United States. Of course he didn’t do so without dropping a good old exit scam joke first. Not classy, but at least a classic.
Whether the team needed the 3-week buffer to actually secure a deal, we cannot know, but it provided lots of room for further controversy regardless.
- A call for donors to upload all their info to win prizes — not a very private thing to do while advertising a privacy coin.
- The mining attack described above.
- Another pushback of the announcement to April 17th.
- Valo revealing his inability to access his funds on Coinbase.
- $1.5 million disappearing from the funds wallet into wallets hosted by the Binance exchange. This being trackable doesn’t speak for Verge’s privacy.
- The VP of Engineering of Ledger denying any agreement, partnership, or integration plan with Verge after Valo claimed that’s what the moved funds were for.
In spite, because, and somehow through all of this, the price of Verge spiked from $0.04 to $0.10 leading up to the announcement. When it finally came, however, it did so to shocking effect.
The Porn Partnership
On April 17th, all major media reported Verge partnering with Pornhub to enable the cryptocurrency as a payment option for adult content on the site. Yahoo reported:
“Cryptocurrency Verge has signed a partnership with adult entertainment site Pornhub. Customers will be able to pay for all Pornhub on-demand purchases via the new method — something fans of the site have been wanting for a while. Pornhub said a crypto payment method topped a list of suggestions on the site’s feedback forum.”
It makes sense. Most people don’t want to admit they watch porn, fewer pay for it, but no one wants it to show up as a charge on their credit card. What’s more, the official statement cited MindGeek as the actual partner, a large adult content holding company, which owns and operates a large network of sites beyond Pornhub, including Brazzers, YouPorn, and others.
For all the criticism Verge deserves, this use case is both big and legitimate, which’ll likely have a big halo effect for the crypto community at large.
Meanwhile, the price has fallen 35% from its recent $0.10 high. ¯\_(ツ)_/¯
On The Verge
Warren Buffett has repeatedly shared his policy in hiring people:
“Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without integrity, you really want them to be dumb and lazy.”
While that isn’t to say people with integrity can’t come under fire, if you watch any person or group of people, over time, you’ll see patterns emerge. That’s why one of my general investing principles is to stay away from coins that are repeatedly surrounded by outrage, controversies, and scandals. There are always two sides to the equation, but whichever side keeps getting dragged into the dirt, chances are their slate wasn’t clean to begin with.
One of the easiest ways to keep your portfolio clean is to collect red flags, set an elimination threshold, and, once you hit it, remove that coin as a potential investment. Few will survive the scrutiny, which will make your investment decisions a lot easier.
I don’t know if Verge is a legit project or a crazy nerd’s masterplan to outrageous riches. But I look at the data, the events, the people and their behavior, and I can’t help but remember Dr. Koop. Don’t trust the flash until it’s out of the pan.
There’s a joke in German:
“Yesterday, we stood at the edge of the cliff. Today, we are one step further.”
We should watch all investments from afar for a while before making the jump. But sometimes, staying on the verge forever isn’t such a bad thing.