Scams, ICOs, SEC, SmartCash, and Bitcoin Confidential
As I'm writing this, smartcash is down more than 99% from it's all-time-high price but price alone should not raise any scam alarm because a lot of coins including big ones have corrected quite a lot in their history, although not as much as smartcash has so far. Nevertheless price depreciation can be a reflection of hidden truths from everyday investors. In this post I'm not going to mindlessly call smartcash or bitcoin confidential a scam. In fact, I'm not going to call either a scam and leave that call up to the readers since scam can indeed have different definitions.
Having said that, I'm going to explain why buying either smartcash or the sister coin, bitcoin confidential is not a very wise idea and carries a tremendous amount of risk. Firstly, we need to get a bit of history and see how smartcash started and why their model is very similar to ICOs. As you know, smartcash started with mining 70% of the block rewards to hardcoded addresses controlled by the founders of smartcash. These coins which were 70% of the inflation were then used to pay for bills and salaries of people that were employed by the founders. The founders also paid themselves salaries and there's even evidence that they not only overpaid themselves, but also stole funds from these budgets every month meaning they took money out that they were not supposed to take. But for the sake of simplicity let's say they did not steal anything from the budgets and it was all used to pay bills and salaries.
The problem with this model is that it is not that different from an ICO. The founders of smartcash may want to argue that they never had any premines or ICO, which would technically be true. However, their model is basically premine or ICO backwards! In other words, instead of premining coins before launch, they made a system that would continually pay them 70% of the inflation. So instead of premining the 70% of the supply before launch, they pre-set the mining algorithm to mine 70% into their accounts after launch. Though a very clever thing to do in order to escape one of the technical definitions of ICOs by the SEC, all it takes is for the SEC to wisen up and widen their definition of security or ICOs in order to cover coins or digital tokens that launch with hardcoded addresses to continually mine a big portion of the inflation to the founders addresses.
Bitcoin Confidential, the sister of smartcash has the same issue as it continually pays 30% of the inflation to the founders. Not only that, the initial distribution of bitcoin confidential was 1:10 on the smartcash chain which was heavily weighed in favor of the founders of smartcash. This enormous initial inflation or forkdrops caused a massive sell pressure but the price somehow held and BC is now even more expensive than SmartCash if you multiply its price by 10 given the airdrop was 1:10. This has raised a lot of eyebrows and rumours are circulating around that the founders of smartcash have been dumping smartcash and buying BC and are kind of slowly exiting into the sister coin. No matter how accurate these rumours might be, the price of BC holding stronger than smartcash itself, should make everyone question a few things here.
So what is the major problem with both SmartCash and Bitcoin Confidential? The major problem with both of them is that they resemble an ICO which has launched illegally without being registed as a security under America's laws. This means that one day, the SEC could come out and do a press release about both of these coins which would most definitely slowly or suddenly send them both to zero. There is simply no fix to this issue as far as I can tell. Even if the root of the problem is fixed tomorrow with a hard fork, the past cannot be erased and even if the SEC does not pick this up, the issue cannot go away. The root of the sell pressure is because of the massive so-called budget. The masternode ROI is almost 8% now per year! That is very low... The sell pressure is not from average holders who are either holding or running masternodes. It's from the budget or whoever has been involved and been getting paid from this budget. That is the root of the sell pressure and under this model, it won't go away. And it will eventually drag smartcash to ridiculously low prices. Yes... even lower than where it is now.
If you want my opinion, avoid buying any coin with centralized or hardcoded budgets. If you want to invest in coins with governance or budget, go after the ones similar to Dash where any extra inflation needs approval from holders. And the consensus mechanism is on-chain and not in the hands of humans. Power corrupts and that is enough reason to not put your trust in humans. Remember that this is the world of blockchain. We are not supposed to trust. We are supposed to verify!
This is all my opinion and not financial advice. DYOR!