There are more than 2,000 different cryptocurrencies today. Whereas some of them may well be integral to our lives, based on probability alone, almost all of them won’t.
Given that most people really don’t have a clue about cryptography, they’re ill-equipped to pick out the great projects from the mediocre, the hopeless, and the downright scams. This has given rise to the term “shitcoin” – i.e. a cryptocurrency that, for whatever reason, stands little chance of delivering on the goals it set out to. In this article, we’ll be focusing on these so-called shitcoins in an effort to understand exactly what one is and why anyone entertains them, let alone invests in them.
What is “Shitcoins”?
Ultimately, the definition of shitcoins is subjective. There is no defining characteristic that makes something a shitcoin. Most people agree that Bitcoin is not a shitcoin. It has a use case, was launched fairly, and does not exist solely to enrich others. However, some people, particularly those supportive of one of Bitcoin’s forks (namely BCH and BSV) will happily use the term to describe Bitcoin.
As far as we’re aware, YouTuber and cryptocurrency technical analyst Tone Vays coined the term shitcoin. For him, literally anything that isn’t Bitcoin falls into the shitcoins category. Some of the worst offenders were even blessed with an episode of his CryptoScam series where he explained exactly why he thinks they were dreadful investment opportunities and bad ideas from the very beginning.
Generally speaking, Vays takes issue with a cryptocurrency if it appears that its only reason to exist is to benefit those that created it. For him, this includes practically everything in the industry!
Here are some of the reasons the architect of the term shitcoins might use it:
- Premine – If a company or individual created every coin or token prior to the network going live, this is a cause for concern for Vays. The issue is that these projects will often hold back a set amount of the total to enrich its creators.
- ICOs – Premine is often behind another cryptocurrency phenomenon called the initial coin offering. These efforts at crowdfunding were all the rage in 2017 and 2018. The company behind an idea would create a load of tokens on a platform like Ethereum and then sell them to investors. Those buying them would hope that the project was successful in its aims and that the value of the token would increase. ICOs generated huge wealth for many of those holding them. However, Vays claims that such fundraising is just selling unlicensed security, which is illegal. Unfortunately for many investors, the US SEC agrees with him!
- Proof-of-stake coins – Vays also claims that any coin that uses proof-of-stake over proof-of-work to secure the blockchain falls into the category of shitcoins. For him, the system does not allow for the same level of security for transactions as Bitcoin’s proof-of-work and is thus ill-suited for networks that potentially support tens of billions of dollars’ worth of value.
- Developer rewards baked in – Some cryptocurrencies allocate a portion of each block reward to go towards the project’s development. In theory, this sounds like a great idea. Bitcoin developers often work part-time on improvements and would surely be able to focus more of their energies on Bitcoin if they were funded. However, Vays reasons that such developer rewards at the protocol level are contentious. Issues like who decides who is rewarded are behind his logic.
- Clear scams – Although Vays uses the term “scam” very liberally, the most blatant scams are clearly “shitcoins”. Over the years there have been many. BitConnect, OneCoin, and PlusToken are amongst their number.
Which Coins are Shitcoins?
Since shitcoins is such a subjective term that’s widely used and has no real definition, it’s impossible to list which cryptocurrencies fall under the label. Any effort we made to do so would almost certainly annoy someone!
Whereas the likes of Tone Vays would say anything but Bitcoin and Craig Wright would say anything that isn’t Bitcoin SV, your paid group leader would probably claim that only the coins he or she is about to dump on you are a non-shitcoin.
With huge money on the line, the crypto coins industry gets incredibly partisan. To make matters worse, people who have literally zero clues about economic game theory or cryptography will use the term liberally about things they haven’t personally invested in.
Why is there a Market for Shitcoins?
Most people that enter the cryptocurrency market today are attracted by greed. They want to get the kind of percentage gains that investors before them were able to make. This rapid increase in the price of Bitcoin and altcoins is responsible for luring those looking for a quick buck to the industry. Couple this greed with the fact that cryptography and game theory are not familiar concepts to a lot of people and you should start to realize why people buy shitcoins.
A person desperate for profits in a market in which the seemingly impossible has already happened on more than one occasion is an ideal shitcoin investor. Their desire to get-rich-quick makes it hard for them to possess the knowledge needed to sort the good from the bad for themselves.
This means they must rely on marketing materials and shills. Of course, the marketing material of a company creating “the next big thing” will say that said project is the worthiest thing in the world. Similarly, the likes of John McAfee, a once highly influential speaker on cryptocurrency, was outed as being paid to promote the ICOs of various crypto coins. Many of the organizers of these fund-raising efforts took the money of those gullible enough to invest in the hills and left the buyers holding nothing but a shitcoin.
Should I Trade Shitcoins?
Trading and investing are very different concepts. It really doesn’t matter what the asset is. If you’re good at spotting trend changes in prices, you can successfully trade that asset. Very few traders plan to hold a position for any real length of time and provided the entire market doesn’t determine said cryptocurrency is a shitcoin before you sell at a profit, it makes no difference if the cryptocurrency will one day rocket to the moon or crash and burn like many before it has.
A skilled trader will not care if it’s gold, copper, corn, Bitcoin, Russian rubles (or any fiat currency for that matter), or some niche microcap altcoin. If they can spot a likely trend reversal, they’ll jump in and take advantage of it. However, that doesn’t mean we recommend anyone start trading shitcoins.
Cryptocurrency markets are savagely volatile and a lack of experience of trading more traditional assets is often a road to ruin. Digital assets with tiny market caps are even more volatile than those of the more mainstream cryptos. An abrupt dump at the wrong time can utterly devastate a complete noob.
Conclusion: Do Your Research and Invest Wisely
However you choose to define shitcoins, with more than 2,000 different cryptocurrencies out there today, it’s obvious that most of those projects currently are not about to be profitable. If you’re determined to find the next microcap coin to explode, do so with great caution. If you can get in before all the shitcoiners get onto the next “big thing” and out again before they all realize it’s going nowhere, you are free to do so. Just be aware of the dangers of such a strategy. It can easily result in massive losses for you.
Alternatively, do plenty of research into your investments and buy more mainstream crypto coins. Many analysts are anticipating 10x gains or more from Bitcoin in the next few years and possibly larger gains for smaller projects that get widely adopted. Always remember that very few greedy investors end up with the profits they dream about and there are much safer bets out there than [insert shitcoin here].
If you do find altcoins that you believe have a bright future and want to invest, you can use the Godex exchange for trading Bitcoin for altcoins. You don’t actually need to set up an account to use the exchange either. Just transfer funds from your Bitcoin or altcoin wallet to the exchange to begin trading. There are plenty of other exchange platforms too but most will require that you submit various proof of identity before you can start trading.
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Disclaimer: Please keep in mind that the content of this article is not financial or investing advice. The information provided is the author’s opinion only and should not be considered as direct recommendations for trading or investment. Any article reader or website visitor should consider multiple viewpoints and become familiar with all local regulations before cryptocurrency investment. We do not make any warranties about reliability and accuracy of this information.