ChainCoin’s price, seemingly out of nowhere, went from $0.05 USD per coin at the start of July to around $4 USD right now. That’s an 8000% increase in less than a month. What’s ChainCoin and how did it grow so fast?
ChainCoin is a cryptocurrency launched in 2014. While Bitcoin uses the SHA256 hashing algorithm, and Litecoin uses the Scrypt hashing algorithm, ChainCoin uses the X11 hashing algorithm. X11 uses less electricity to compute and is more resistant than SHA256/Scrypt from brute force attacks, though it’s considered impossible to brute force attack Bitcoin. Another cryptocurrency using X11 is Dash.
ChainCoin also has master nodes. Master nodes require a 1000 ChainCoin stake to run (1000 coins in your wallet). In return, 25% of newly mined ChainCoins are given to master nodes. Master nodes essentially decrease liquidity and the idea is it should stabilize the currency’s value.
ChainCoin’s sudden growth
This whole affair started in HighOnCoins’s Slack channel. HighOnCoins is a YouTube channel run by Max Lee. Apparently, Max convinced his Slack community to prop up ChainCoin’s price by buying and holding the digital coins.
He’s rationale is that by raising ChainCoin’s price, it’ll attract more users and push the coin to the mainstream. It’ll also help stabilize the coin’s price and make it less vulnerable to Bitcoin’s/Ethereum’s price swings. What do the holders get in return? They get to run master nodes and generate a steady income (assuming the coin goes mainstream).
The folks in his Slack channel agree to do this and they start buying ChainCoins. This causes the coin’s price to grow rapidly. Max then releases a YouTube video announcing his plan to the world. In the video, Max is seen wearing a green cap, drinking beer, and smoking. He explains his plan and then admits that it sounds awfully like a pump and dump scam. But according to him, the twist is that it’s not and it’s actually a “Pump and HODL” scheme. HODL means HOLD but purposefully mispelled, commonly used in the cryptosphere to indicate bullish enthusiam.
Again, Max tells his viewers that he believes if enough people prop up the currency, it’ll receive mainstream adoption and early investors can make consistent income running master nodes. Perhaps as a show of conviction, Max says that this plan is only for hodlers and if you’re not a hodler, he wants you out. Perhaps he’s forgotten he has absolutely no control over who buys and sells the coin.
This video generates a ton of buzz and with ChainCoin’s already rising price (from the HighOnCoins Slack community), more and more people start buying. This causes
Is this plan going to work?
Some of you don’t like hearing this, but this “Pump and HODL” plan is very likely going to fail. Anyone buying ChainCoins now hoping to see its price rise to hundreds or even thousands of dollars will be hurt. That is not to say Max and his community have ill-intentions, I don’t believe they do. However, there are a few flaws in “Pump and HODL” that needs to be discussed.
ChainCoin is not innovative
There’s nothing innovative about ChainCoin. All of its features exist in some way or another in a more popular currency. ChainCoin is really just another zero-value, forgotten altcoin that was incidentally chosen for “Pump and HODL”.
Without offering anything compelling, why would ChainCoin be used? It’s certainly too late for it to act as another Bitcoin alternative; Litecoin, Dash, and many other altcoins already dominate this space.
ChainCoin is not being actively developed
ChainCoin doesn’t have active community leaders. The last tweet on ChainCoin’s Twitter announces their development fund and is almost 2 months old.
ChainCoin also doesn’t have active developers. Before “Pump and HODL” started, the last commit made to ChainCoin’s GitHub repo was on May 9th, almost 3 months ago.
Finally, ChainCoin has failed to meet several of its Q2 2017 goals found on its official roadmap. The official roadmap has not been updated.
So you’re telling me that a coin that doesn’t offer anything innovative, has been all but abandoned by its original developers, has a chance at mainstream adoption? To be honest, I’m not so sure.
Game theory says this plan won’t work
The classic game theory game known as the Prisoner’s Dilemma demonstrates that many of ChainCoin’s early investors will likely sell when they can make a sizable profit. This is not to say many of them had malicious intentions from the beginning, it’s just an interesting game theory implication.
The prisoner’s dilemma goes like this:
Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communicating with the other. The prosecutors lack sufficient evidence to convict the pair on the principal charge. They hope to get both sentenced to a year in prison on a lesser charge. Simultaneously, the prosecutors offer each prisoner a bargain. Each prisoner is given the opportunity either to: betray the other by testifying that the other committed the crime, or to cooperate with the other by remaining silent. The offer is:
- If A and B each betray the other, each of them serves 2 years in prison
- If A betrays B but B remains silent, A will be set free and B will serve 3 years in prison (and vice versa)
- If A and B both remain silent, both of them will only serve 1 year in prison (on the lesser charge)
In this example, the punishments for A and B are the exact same for each of the three cases. Even in such a situation, game theory says that the best course for both A and B is to betray each other.
Now consider “Pump and Hodl”. Let’s say A and B are two investors of ChainCoin. A is Jim, a ChainCoin early investor and B is Bob, a new investor. We have four cases since there’s an asymmetry between A and B this time:
- If Jim and Bob each betray the other, Jim loses more as Bob paid nothing for his ChainCoin.
- If Jim betrays Bob but Bob remains silent, Jim makes lots of money and Bob loses lots of money.
- If Bob betrays Jim but Jim remains silent, Jim and Bob both don’t make any money since Jim paid nothing for his ChainCoin and Bob just took back the money he put into ChainCoin
- If Jim and Bob both remain silent, both of them will make money from running master nodes
We see that in this case, there’s a serious asymmetry between Jim and Bob. Bob’s pay offs and punishments are either equal or much much worse than Jim’s.
So given the case of two symmetrical agents, with equal punishments and rewards, game theory says the two agents will betray each other. What do you think will happen in the “Pump and HODL” example? I’d say either Bob and Jim betrays each other or Jim betrays Bob. Either way Jim is rewarded. Bob has no incentive to betray Jim because either way he’d be punished.
TLDR? Game theory says Jim always wins and the new ChainCoin investor, Bob, is going to have bad time…
I don’t believe Max or his Slack community have any ill intentions. I doubt this is a pump and dump scheme. That being said, this “Pump and HODL” plan has quite a few flaws and I don’t think it’s going to work. If it does, I’m happy for the early investors, if not… well I hope people don’t lose too much money.