3 red flags indicating cryptocurrencies may be misleading to investors

3 red flags indicating cryptocurrencies may be misleading to investors – Mail Bonus

Satoshi Nakamoto left a large pair of shoes to fill after releasing the code for Bitcoin (BTC) to the world, helped establish the network and then disappeared without a trace.

Over the years, the cryptocurrency ecosystem has seen many developers and authors’ ethics grow and become cryptic messengers for faithful holders who end up with their best-executed plans ending in catastrophe when protocols are hacked, devastated, or abandoned by whimsical designers.

The year 2022 is hardly half over and the year has already seen particularly bad intentions of good intentions go out of their way, which have jointly helped to plunge the market into a bear market area. Each of these cases is examined in more detail to help provide insight into how similar outcomes can be avoided in the future.

Some developers are anonymous for a reason

Satoshi may have been anonymous when he started Bitcoin, but in most cases since then it has turned out to be a red flag to have anonymous developers.

Many anonymous developers cite personal security reasons for going this route. While this is a valid reason in some cases, sometimes anon developers are hiding from past wrongdoing or planning to cover up their laws in the event of future violations.

A clear example of this was Squid Game (SQUID), a memecoin inspired by Netflix shows that rose by 45,000% within days of launch, only for traders to realize that they could not sell the tokens on any stock exchange.

Investors eventually discovered that all developers were anonymous and all social media channels were closed for comment.

The cryptocurrency community has grown to be rather distrustful of anonymous developers, and this is reflected in the negative reaction to the revelation that the founder of the Azuki nonfungible token (NFT) project participated in three other NFT projects that were eventually abandoned and left with little to show. except worthless jpeg images.

Another example of an anonymous developer being taken prisoner came in 2022 when it was revealed that the anonymous Wonderland (TIME) CFO @ 0xSifu turned out to be an alleged financial criminal along with Michael Patryn, the founder of QuadrigaCX.

The revelation of this connection led to the collapse of several popular projects, including Wonderland and Popsicle Finance, while considerable criticism was leveled at Abracadabra.Money creator Daniele Sestagalli.

Before the @ 0xSifu revelation, all three protocols were implemented, but each protocol is only a shadow of its previous success.

Having anonymous developers removes responsibility from the equation and is increasingly becoming a red flag when dealing with multi-million dollar cryptocurrencies.

Beware of sects

Finance is no stranger to idolatry and cryptography is not immune to this phenomenon.

Long-term cryptocurrency experts recall that Roger Ver was called “Bitcoin Jesus” and promised the fee to fork Bitcoin Core and create Bitcoin Cash (BCH). Billionaire Dan Larimer also comes to mind and investors will remember his help from EOS (EOS) to raise $ 4 billion in the initial currency offering (ICO) boom from 2017 to 2018. In each case, it was an enthusiastic group of followers that propelled each project forward.

Neither BCH nor EOS managed to regain their historic heights in the beef market in 2021, despite all the hype surrounding their future when they were first launched. This is possibly because part of the promotion revolves around the personalities behind the projects.

A more recent example is the collapse of the price of Fantom ecosystem labels after Andre Cronje, developer of distributed financing (DeFi) switched off his Twitter account and announced to the community that he was leaving the cryptographic space completely.

Cronje had become so popular that many people would buy tokens just because he was involved, and when he left, many of these investors handed over their holdings, which had a negative effect on the price of the tokens.

While Cronje was doing what he thought was right and had no ill intentions towards the community, his actions seem to have had a negative impact on the cryptocurrency market due to his popularity within the community and the loyalty of his followers.

The point is to be wary when a developer is considered incapable of doing wrong and remember that cults can have consequences that go beyond their community.

Connected: Court documents show that Do Kwon dissolved Terraform Labs Korea days before LUNA crash

Devolution of power requires the participation of society

Another red flag to be hated by Distributed Independent Institutions (DAOs) and DeFi protocols that operate in a way that seems more central than their name suggests.

It is common for many protocols to claim to be distributed, but still rely on centralized service providers such as Amazon Web Service to ensure that they work properly.

Another relevant example is when a project that claims to offer holders representing administrative rights makes a major protocol decision without consulting the community for feedback and approval.

Terra (LUNA)’s move to add BTC to its treasury as a guarantee for TerraUSD (UST) stablecoin made headlines and was praised by many, but the move was never put to the vote within the Terra community to see what the holders of tokens thought.

While there is a good chance that the plan was approved and Terra’s collapse still occurred, the blame could have fallen more on the community and less on Do Kwon, the project’s leader. It is also worth mentioning that Do Kown had developed a considerable following and was often insulting various people on Twitter.

One of the main theories of the cryptocurrency sector is to follow the devolution of power, and failure to do so often leads to a compromise network and dissatisfied investors.

Want more information on trading and investing in cryptocurrencies?

The views and opinions expressed herein are those of the authors only and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading business involves risk, you should conduct your own research when making a decision.