In the past couple of years, we saw the emergence of dozens of cryptocurrency projects that are nothing short of revolutionary. Many of them contribute to making the blockchain ecosystem a more viable, user-friendly space. Moreso, some are taking advantage of blockchain technology to solve systemic problems and regenerate communities and natural habitats.
However, for every great project, there are dozens of scams and poorly thought-out ventures, better known as shitcoins. Literally, thousands of new coins have been released in the markets just last year. The sad part is that the majority of these cryptocurrencies have no real value. They exist to bring profits to their creators, first and foremost, and bring little-to-no benefit to the blockchain ecosystem.
In this article, we will try to deconstruct the anatomy of a shitcoin and help you recognize them at a glance. Additionally, we will present you with the risks that come with shitcoins, as well as their ethical impact on the blockchain space as a whole. This should help you shield yourself from a bad investment, or at least allow you to have a clear view of what lies ahead.
What Is a Shitcoin?
Defining what is a shitcoin can be quite subjective. Ask a Bitcoin maximalist about shitcoins and he will tell you that every altcoin can be considered as one. On the other hand, Ethereum proponents will put BTC in the shitcoin basket because of the relatively poor number of use cases of the original cryptocurrency. Even some top 10 cryptos aren’t spared from the shitcoin monicker, as XRP has been called one because of the high level of centralization of its network.
However, if we remain objective, we can attempt to give you a clear definition of a shitcoin. A shitcoin is a cryptocurrency that has no intrinsic value or use. They can even be detrimental to potential investors as shitcoins will mimic successful projects, albeit without any fundamentals to back them. They can be a product purely created to scam people out of their money and perpetrate pump and dump schemes on unsuspecting investors.
How Did Shitcoins Come Into Existence?
Great examples of shitcoins are meme coins like Dogecoin. The creators of DOGE released this cryptocurrency as a joke. They wanted to mock the overly-serious profit-making capitalist principles of the cryptocurrency market. So they pushed out a low-value crypto, with no capped supply. However, this backfired quite dramatically, and DOGE became an immensely popular profit-making vehicle.
Because of the involvement of social media personalities such as Elon Musk, DOGE has become the quintessential shitcoin – all fluff and no substance. Despite terrible fundamentals, the price of DOGE has skyrocketed mainly because of the hype surrounding it.
What’s worse, this popularity gave birth to dozens, if not hundreds of copycat meme coins such as Shiba Inu (SHIB), Floki, and other dog-themed cryptos. Most of these have even less value than Doge, with quadrillions tokens in circulation and a fully centralized supply.
Having said that, you should know that shitcoins aren’t just meme coins. Unfortunately, they represent quite a large spectrum of the cryptocurrency market and aren’t always that easy to discern.
Anatomy of a Shitcoin Cryptocurrency
There are some telltale signs that will help you assess the viability of a digital currency. When analyzing a new coin, you should look at three major characteristics, starting with:
The first things you want to look at in a cryptocurrency are its functionalities. To have value, a cryptocurrency needs to have a discernible purpose and practical use cases within its ecosystem. Moreover, if it’s a new coin, these use cases should be at least on par with what is already on the market. Ideally, to justify its existence, a blockchain token should improve upon already available use cases and provide new ones. This is an essential characteristic to help it come out on top in this dog-eat-dog environment.
The most important tool in analyzing a coin’s fundamentals will be the white paper. Not only does a cryptocurrency need to have a white paper, but this white paper should be well written, thought-out, easy to understand, and contain vital information such as:
- The coin’s purpose.
- The architecture of its blockchain and consensus mechanisms.
- An in-depth view of its tokenomics, reward systems, and issuance protocols.
- A realistic roadmap of achievable goals.
Additionally, the cryptocurrency should have a decent website that allows you to get acquainted with the project before delving deeper into it through its whitepaper. Stay far away from projects that have typos on their websites and whitepapers. These are most likely shitcoins, or worse, blatant scams.
Your next step for assessing the viability of a cryptocurrency should be to check out the team responsible for the project. Of course, to be able to achieve this, there needs to be a team behind the coin in the first place. Most shitcoins won’t share the real names of the people working on the project, and team members will usually hide behind pseudonyms.
While an anonymous team is not an immediate red flag, it makes that much harder for the investor to evaluate whether the coin is a scam or not. The best way to go around this is to dive deep into the social media rabbit hole. Try to investigate whether team members have been previously involved in rug pull scams or pump and dump schemes.
On the other hand, if the team has a few celebrated names in their roster, there’s little chance the cryptocurrency is a shitcoin.
Finally, you should have a closer look at the tokenomics of the cryptocurrency in question. There are quite a few characteristics to analyze here, including:
- The coin’s supply – shitcoins will usually have either unlimited supply or an incredibly large one, which is ultimately worse. A shitcoin with one quadrillion tokens in circulation can never achieve true store of value, as it will never be sufficiently scarce.
- Market cap – because of the huge supply of most shitcoins, market caps are often inflated. It’s easy to break into the top 100 cryptos by the market cap when there are trillions of tokens in circulation.
- Supply distribution – a viable cryptocurrency should have thousands of different holders. A common shitcoin characteristic is a concentrated supply, where most of the tokens are distributed between just a few addresses. Usually, these are the founder’s wallets and allow the team to control the price by dumping huge quantities of tokens onto the market.
- Liquidity – liquidity is incredibly important, as it will determine whether you can easily sell your tokens if the price starts to plunge. To assess a crypto’s liquidity, you can check the daily trading volumes and compare them to established cryptocurrencies from the top 50.
Keep in mind that not all of these should be considered as an immediate sign that a cryptocurrency is a shitcoin. However, a combination of a couple of these and there’s little chance for redemption.
How To Make a Shitcoin 101
Making a shitcoin is actually not that complicated. And learning how they are made will be the best way to learn how to detect and avoid them! Here’s the usual modus operandi of a shitcoin building team:
- Choose a popular smart contract platform.
- Pick a theme for your shitcoin. It can be a meme coin or represent the next uprising in the blockchain space.
- Bring on the hype! Create a website with obscure buzzwords like “disruptive”, “transformative”, “Web 3.0”, or “Defi 2.0”.
- Write up a confusing whitepaper with unprecedented token economics and revolutionary ideas that are extremely hard to understand. Offer solutions to non-existing problems.
- Make sure there are at least a trillion coins so that even a small price movement of a fraction of a cent can make you rich!
- Promise crazy yields of at least 10.000% APY. Offer staking and yield farming mechanics for even more shitcoin rewards.
- Start building a fake community on social media to keep the hype going. Use airdrops and giveaways as there’s nothing people love more than free money.
- Start pumping the coin’s price through wash trading between a dozen of addresses. Keep the price low, so it doesn’t trigger attention from regulators.
Considering that 90% of the new coins released on the markets follow this MO, we can’t really blame new investors for thinking that everything related to crypto is a scam.
How To Buy a Shitcoin?
Before you go on and start investing in shitcoins, let’s start this section with a disclaimer. By now, you should have realized that shitcoins are viable for only short-term investments and you shouldn’t count on them to survive a hypothetical bear market. If their price drops significantly, it’s very unlikely that they will ever recover.
With that out of the way, buying shitcoins is more or less the same as buying any other cryptocurrency. You can use three main purchase methods, including:
- Decentralized swaps are usually the first place to look for shitcoins. Teams don’t have to go through a listing procedure, making it a lot easier to release tokens on the market. As long as someone creates a liquidity pool, the shitcoin will be available for purchase.
- Even reputable exchanges like Binance, Okex, Gate.io, and Coinbase will have their fair share of shitcoins in their listings. If there’s sufficient demand, centralized exchanges will list some of the worst projects available.
- You can participate in various ICOs, IEOs, and IDOs and purchase shitcoins with BTC or ETH before they even hit the markets.
All in all, it’s really easy to buy shitcoins, but the question remains whether you really want to. There’s a huge chance that once it becomes popular, the price has already run its course. This means that you might be investing at a market top, and it’s only downhill from there.
Shitcoins make out a big part of the crypto markets, whether we like it or not. The appeal of making incredible returns with a small investment allows these coins to proliferate like bad weeds. That said, they remain incredibly risky investments, and the fewer shitcoins in your portfolio, the better. If NFTs pose certain ethical dilemmas, shitcoins don’t, as they are 100% unethical, to begin with.