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From Bitcoins to “Shitcoins,” Meet the Latest Crypto-Currency Craze and the Scams It Is Spawning

What was promised as an important technical innovation has instead become the most extensive platform for fraud, gambling and scams the world has ever seen.

Todd Fine May 11, 2023

The latest craze in crypto is a token on the Ethereum blockchain celebrating the meme “Pepe the Frog” and intended to challenge the Dogecoin favored by Elon Musk. The ticker $PEPE has become a rabid mania on Musk’s Twitter, and, despite being created by an anonymous team who likely intended to snatch a quick buck, it reached $1.5 billion in market capitalization in less than a month. It embodies the ultimate degenerate rush of the ever-shifting crypto endeavor: so-called “shitcoins.”

While a seemingly trivial and jovial fight for memetic supremacy, the raging one-off shitcoin and “memecoin” run-ups encapsulate the attention economy of frenetic insanity that Ethereum enables. What was promised as an important technical innovation to protect free speech and universal access to computing has instead become the most extensive platform for fraud, gambling and scams the world has ever seen, leaving innumerable victims suffering in silence and without sympathy. 

What investment could be easier than betting on the madness of crowds?

Every single day on the Ethereum blockchain, thousands of computer programs, called “smart contracts,” are launched that intend to deceive and harm their users. Sometimes they involve NFTs as programs that assign “ownership” to various image files but are often used to make false or overzealous promises about their value. Sometimes they are DeFi protocols, unregulated bank accounts or savings and loans that earn their own token which can be traded like a stock, yet which often are scams or are hacked. Sometimes they are so-called “shitcoins,” technically primitive tokens that in some almost mystical way represent a proxy for the overall Ethereum network. In some sense, their only value comes from the memetic power of the ticker symbol, although the same names can be used over and over again. Hundreds of other “devs” have already tried to launch a Pepe coin with much less success.

The Pepe meme’s well-known association with the online alt-right also raises questions about why this particular meme now strives for cultural hegemony on the blockchain. While it does seem that the memecoin is being propelled by pure speculation and nostalgia for Pepe in general, there is something uncomfortable and risky about focusing on this particular — and rather played out — meme, especially given the serious allegations that Ethereum’s most popular NFT project, Bored Ape Yacht Club, is inspired by esoteric fascism.

Eventually most “projects” on Ethereum end in a fast or a slow “rug,” proving that most activity on so-called Web3 is no different from confidence games of old. $PEPE may not “rug” quite yet, but we already know that its early investors are openly planning to unload their million-dollar bags to the naive “exit liquidity” of cartoon frog fans betting on a dream.

Thus, it is at the level of the Ethereum blockchain where we should interrogate $PEPE, and the hundreds of other tokens, like $MUSK and $SEC, minted every day like candy. Every single transaction has fees ranging from $20 to $50 that go straight to the largest Ethereum holders who stake their tokens. They benefit all of the time, even as they are “validating” transactions intended quite clearly to defraud. In one sense, the current “shitcoin meta,” a term that describes the most lucrative area of speculation at any given moment, more accurately represents the mass marketing of a new gambling opportunity for customers of the maniacal Ethereum casino.

The Pepe meme’s well-known association with the online alt-right also raises questions about why this particular meme now strives for cultural hegemony on the blockchain.

Boosters act like Ethereum is a new and free online metaverse, where pure internet demand determines activity. The truth is much different. The token distribution of ETH is highly centralized, giving big holders the ability to manage and orchestrate Ponzi schemes at ease, using every illegal practice, especially pumping-and-dumping and wash trading, that is — at least in theory — disallowed on Wall Street. Pepe promoters point to the $6 billion valuation of the Ethereum Doge alternative, $SHIB, as evidence that $PEPE can go much higher, yet there are serious questions about the centralized nature of $SHIB ownership, which puts its accurate valuation in doubt.

Moreover, gambling over the value of memes says something profound about the frothiest financial capital that is moving increasingly into speculation and quantitative trading on the probable success of new ponzi schemes, rather than productive investment. What investment could be easier than betting on the madness of crowds? And, after riding Gamestop and AMC, young investors in particular have brought a certain predictable level of logic and discipline to their madness.

When one steps back and considers it, however, you have to ask why these primitive programs, or “smart contracts,” on a primitive distributing computing platform should be valued so highly. In my mind, it is like being overly protective of your saved score on an early Atari video game. It may be a remarkable achievement, but will anyone care after the Nintendo Entertainment System comes out?

On the other hand, Ethereum may still triumph as a “settlement layer” for a new digital economy. By not investigating and prosecuting the open scams and crimes on Ethereum, the federal government has given its clique of owners, or “whales,” unimaginable amounts of wealth to use to finance and propel their endeavor, alongside more and more creative cons. SEC regulators have dithered at accurately describing Ethereum activity, and it is obvious that the FBI does not have the resources (nor perhaps the expertise) to keep track of the scams orchestrated.

Now that serious crypto regulation is on the table, Ethereum must be part of the conversation since its leadership refuses to assert any moral authority. Stepped-up enforcement of existing laws by an invigorated and quick-moving FBI, rather than pure security and commodities regulation, should be the focus. Starving fraud and financial crimes enforcement when the U.S. government needs to take control and fundamentally reform a rotten system from top to bottom — addressing the root cause of crypto’s popularity — is insane. Ethereum is now the most vicious corner of the cryptocurrency space, and its victims should not be forgotten. 

Todd Fine is a PhD candidate in History at the CUNY Graduate Center. He also writes about NFTs for arts and crypto publications.

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