ICO / Token Review: PoWH3D is a Pyramid Scheme
This blog is meant to be about blockchain and I tend to stay away from cryptocurrency related topics but every so often there are things out there that the public just needs to be made aware of: enter the latest pyramid scheme - PoWH3D (Power of Weak Hands 3D)
Below a quick overview of why I feel comfortable to make that statement and hopefully sufficient information to help you make a decision on whether or not to invest in this token.
I have been asked several times to give my opinion on PoWH3D or Proof of Weak Hands 3D and whether or not this is a legitimate idea.
If you take a quick look at their website, (https://powh.io/) you will immediately notice the pyramid pictures in the background and also the pyramid shape of their logo, perhaps they are trying to subliminally convey a message?
In case you don’t see the message: this is a pyramid scheme; and one where the creators are quite open about the fact that it is a pyramid scheme. In effect they may have very little malintent with this scheme and may have launched it halfway between a joke and a real scheme, just because people are gullible enough to fall for these types of schemes time and again. That doesn't change the fact that it is in effect a pyramid scheme, joke or not.
For a pyramid scheme to make money for everyone who enrols in it, it would have to expand indefinitely. This is not possible because the population of Earth is finite. When the scheme inevitably runs out of new recruits, lacking other sources of revenue, it collapses. Because in a geometric series, the biggest terms are at the end, most people will be in the lower levels of the pyramid (and indeed the bottom level is always the biggest single layer).
Taking a quick, 5 second look at PoWH3D, and it will show you that it is exactly that.
I don’t know why people still request validation when it is this obvious but let me try to provide some clarity on why I know this is a pyramid scheme and why I know that people participating in this will lose a lot of money in the long term:
The owners have build this PoWH3D as a revamped version of PoWH, which was based on a test Ponzi Scheme smart contract, which was developed by Dr. Jochen Hoenicke; a computer scientist and research assistant at Albert-Ludwigs-University of Freiburg, Germany.
Dr. Hoenicke built a smart contract on the Ethereum testnet called the PonzeToken; which was meant to be a test not an actual use case.
The Premise for PoWH
By buying the PonziToken with ETH (Ethereum) the value of the PonziToken increases by 0.25%, similarly with each sale, the value of the PonziToken would decrease by 0.25% (fixed price manipulation).
Next to this, each purchase of PonziTokens would carry a transaction fee of 5%; and this fee would be paid out as dividend to existing token holders. The way to make money is by a) the price of the token sufficiently increasing so that you could sell the tokens you hold (HODL) at a profit to recover the 5% up front loss, or B) by HODLing long enough for the dividents to pay you back the difference and to then slowly turn this dividend payment into profit.
Because it was written in a smart contract, in theory this scheme could run perpetually — nobody could shut it down, nobody could exit scam with the contract’s funds … again, all in theory and created as a test.
It was obvious to its creator that this was a bad idea and that in order for anyone to make money, others would have to lose money and as such he warned people against using this.
To his credit, Dr. Hoenicke was not involved in the PoWH, nor is he involved in PoWH3D and is actually quite respected in the community, aside from being a research assistant to the Chair of Software Engineering at the University, he is a known and respected white hacker that has received praise and admiration for sweeping and returning over 800 Bitcoin from addresses generated with a security error on blockchain.info’s webwallet, all bitcoin were returned to their rightful owners thanks to Dr. Hoenicke.
He is currently also working closely with TREZOR as a cryptographer.
PoWH was actually launched by others
Some people took the code from the testnet and launched it as an actual coin (PoWH) in January 2018 and claimed to have “The World’s First Autonomous and Self-Sustaining Pyramid Scheme”; they raised upwards of 1,000 ETH in the first 24 hours (which was more than 1 million dollars).
However, as outlined, this was code put together to prove a point on a testnet rather than to support an actual application and as such it had some major security flaws in it, one of these flaws was discovered and outlined by a community member and it was almost immediately taken advantage of by another community member who managed to steal 866 Ether from the Ponzi scheme (the scammers got scammed, and of course all participants lost all their money).
PoWH died an early and well deserved death in early February 2018.
PoWH revamped to PoWH3D
There is no substitute for greed and gullibility and as such one of the original developers of PoWH (PonziBot … yep they have a developer called PonziBot, just to make sure you’re not mistaken about the intend), joined forces with a new team of developers, cleaned up the PoWH code to prevent backdoor stealing from happening again (there really is no honour amongst thieves it seems) and to launch a new ERC20 token managed by a smart contract, called PoWH3D.
10% transaction fee across the board, yep they’ve made it even more expensive to participate. You now pay a 10% fee on every transaction between ETH and PoWH3D; you pay when you buy PoWH3D and you pay when you sell PoWH3D. This means that now you need to make up for an immediate 20% loss of your investment.
They’ve added a referral program (to elevate it from a pyramid to a ponzi scheme) where holders now receive 3% dividends of all tokens purchased using their referral link.
You receive a split of 7% dividends from all tokens purchased and a split of dividends of 10% from all tokens sold.
The tokens artificially increase in value as they are bought and decrease in equal value as they are sold (driving users to HODL rather than speculate).
Look familiar to the original PonzeToken yet?
The most common counter argument is: "have you looked at the code?"
The reality is that you don't need to look at the code to validate that it is a pyramid scheme, according to the creators nobody can change the smart contract now that it has been launched, and looking at the code this seems true (emphasis on seems).
However the statement "Completely decentralized, Humans can't shut it down." may be true, but has zero relevance; a pyramid scheme doesn't need a leader, it just rewards those at the top, whomever is at the top; not being able to shut it down doesn't make it any less of a pyramid scheme.
Also if you look at the code, you will see references to "bag holders", which just happens to be the moniker of one of the defined functions in the smart contract. In pyramids and ponzis the bag holders are the large majority left with the useless investment when the scheme runs its course. The code also doesn't seem to prevent them from stopping the ETH payouts; and yes, people seem to have invested 1,700 ETH in this thus far ...
So Where’s The Catch?
The catch is, in this type of scheme, somebody always has to lose for others to make money and the ones losing is the bulk of the participants.
The dividend pay-out is based on the amount of tokens you hold, so the one at the top of the pyramid with the highest holdings, will get the highest pay-out of the dividend, which he/she can reinvest in tokens (and pay another 10% fee) and as such increase his / her holdings.
The ones at the bottom with limited or small holdings, will only get a small percentage of the pay-out and therefore always be at a loss. And guess what, there are always only a handful at the top and massive numbers at the bottom.
Like any good ponzi scheme, in the beginning this will seem attractive as people see returns coming in fast but as time progresses and when people start to sell off tokens a crash becomes unavoidable.
From their website, obviously none of these actually sponsor PoWH3D
Say you invest USD 5,000, or approximately 13 Ether
as soon as you convert this into PoWH3D the value of tokens you receive is 10% less than what you invested, so you’re now left with 4,500 USD (due to 10% transaction tax)
You know that when you sell your tokens, you will get hit with another 10% tax so effectively you actually have only 4,000 USD in token value to call your own.
You are at the bottom of the pyramid, and as such you receive an interest from purchases of about 0.05% of your investment / day (4,000 @ 0.05% = 2) so you will need to HODL for 500 days at least, just to get your initial funds back.
If anyone decides to sell of a large volume of tokens during this 500 day period, the value of your holdings depreciates and you will need to wait even longer. Typically these types of schemes die in 6 to 12 months time.
From their website, obviously none of these actually sponsor PoWH3D, and hopefully that (/you) isn't actually you.
This is a pyramid scheme, the founders clearly stated this on their website.
If you chose to ignore what is stated by the founders of the website, simply look at the FAQ or the code, it is clearly stated that this is based on a Ponzi scheme.
If you still don’t believe that then reread the above clarification, by now it should be obvious that it is a pyramid scheme.
If all of that wasn’t enough, then realise it is being promoted by Craig Grant who also promoted Bitconnect (know ponzi scheme) and Davor coin (known ponzi scheme) where you had to buy BCC (Bitconnect) tokens with BTC (Bitcoin) when the Bitconnect Ponzi crashed, the value of the BCC tokens depreciated from USD 321 to almost zero virtually overnight and anyone left holding BCC basically lost their entire investment. Craig Grant was their biggest promoter and is currently named as a defendant in various class action law suits for his connection to Bitconnect (you can read more about that here: https://www.coindesk.com/investors-file-class-action-against-bitconnect-following-abrupt-closure/).
If after all that you still feel you should invest in PoWH3D, by all means be my guest, I’ve never stated that you should or should not invest. Just realise what you’re investing in an be prepared for it to crash at a moments notice, and be prepared to lose your investment.
From their website, obviously none of these have anything to do with PoWH3D
Acknowledgements / References
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