Scams, MLMs and crypto – in conversation with Jon Walsh

02 Apr Scams, MLMs and crypto – in conversation with Jon Walsh

Louis Nel recently started his podcast and his very first guest was Jon Walsh.

John is SVP header of strategy Europe for a digital company called AMX digital that does programmatic media and he’s also written quite a few articles online for companies like Coinrivet, City.AM and Cointelligence and he writes about blockchain and cryptocurrencies especially Bitcoin and he’s also a serial scam exposure and he supports Arsenal.

What are the red flags that you would say define a scam? 

So it’s pretty simple really. It’s offering returns that are unbelievable you know if it, yeah the old adage – if it sounds too good to be true it’s probably because it is. So, the first red flag is definitely like this amazing offer, you can get this from me and then when you kind of do any research on it you’re looking around on the internet either you’re finding people that are already in it and think it’s the best thing since sliced bread because they’re making money or you find scam reports on it. But what you won’t find is things like The Wall Street Journal or Financial Times or pretty much any respected newspaper writing about it as some kind of amazing new way to make money. 

I think the next thing is also if you understand what’s being sold here it’s generally investment – these kinds of Ponzi schemes and pyramid schemes. Often basically they’re selling an investment. You put so much money in, you wait a period – 60, 90, 120 days, 300 days – and out you get more money. Now that’s an investment. That requires registering with the SEC or the FCA or whatever the financial regulator is in the area that you’re in if it’s being sold in that area. And yeah even if it’s through a cryptocurrency you’ll find that it’s still an investment that’s how the regulator’s look at it. So not being registered, too good to be true, no mainstream coverage and no regulator registration or especially not in a proper environment sort of you know – UK, US, Australia except well even Australia’s a bit dodgy but yeah that’s pretty much it.

A lot of the social proof around schemes and scams is they rely on social proof to proliferate and to spread – so what is the role of social proof in scams and to help scams perpetuate?

So this comes down to a number of things. Firstly, which I think is about creating and building trust. So I want you, if I’m trying to sell you into, you know, I think I’ve got this amazing thing and you’ll make loads of money and yeah I’m gonna make a commission off you but I’m actually really doing it for you. If you’re not smart enough to know what real due diligence is you’ll ask questions like “are you getting paid?”, “who else is being paid?” and they’ll want to show you lots and lots of other people who are also being paid and shouting about it. That form of social proof creates a feeling of okay cool this isn’t just one person trusting me, it’s multiple.

But then you’ve got different types of social proof where people who are pushing these scams unwittingly or want to kind of prove that they are somehow key people of influence in the wider industry and close they’ll go along to exhibitions or conferences on the kind of the wider topic and have their photos taken with people who are respected leaders in this space and then show that off to somehow confer intelligence, confer knowledge, confer trust on me if I’m the one showing off these photographs, so how can I, you know, of course, I know all about it.

And then there’s a third type which is taking what well-known or famous people or well-respected people have said and taking their words out of context or literally paying them to promote something they’ve they know nothing about in a kind of influencer style and I’ve seen that a number of times.

Interesting. It sounds a lot to me like an MLM or multi-level marketing. I mean we’re seeing a lot of MLMs using a crypto sort of flavour now. Why would you say MLMs and cryptocurrency go well together?

Well, I don’t think they do go well together, I’m not the biggest fan of MLMs in the first place as I believe most of them are glorified pyramid schemes.

Now when you involve cryptocurrency which is an attempt at money you can’t put in a multi-level marketing structure. There isn’t enough fat. It’s a commodity, money is a commodity. So it’s like oil but with money and especially – we’ll get into about Karatbars with gold. Gold has a set market price. No one is going to overpay for gold so if there are multi-level commissions going down well it’s not from the sale of gold, it’s from something else. So it is kind of smoke and mirrors. OneCoin is the kind of daddy of crypto MLMs and that’s definitely in the top five plus, possibly in the top three Ponzi schemes of all time where nothing really existed other than promises and selling to people who really don’t know about crypto they don’t know what makes crypto. 

They’ve just heard of bitcoin and then they’ve heard about bitcoin millionaires and billionaires and they want some of it too and they’re not in great situations and then, you know, auntie Jean on social media was selling Herbalife four months ago and Younique makeup a year before that and now she’s doing some gold thing and this now makes more sense because you don’t want makeup and you don’t want diet pills or diet juices so it’s through this social media MLM proliferates and because of that there’s also a lot of dumb people or uneducated people because there are so many people on Facebook or on Twitter but Facebook in particular. 

Facebook actually itself now has a demonstrably older audience. They’re not able to appeal so much to the younger audience on the core Facebook product. But you know it is Auntie Jean and Grandpa Joe that are doing these things now. They’ve grown up, they’ve lived where they’ve always lived and they’ve probably not really had that much success in life that they’re probably not doctors they’re probably not PhDs they’re probably not accountants or lawyers or have actually run companies or physicists or economists so they don’t understand how this stuff just doesn’t really work it’s just all the pipe dream.

So I’m quite happy being on record, I’ve said it multiple times that Karatbars is a scam

I don’t support MLM companies. Stuff like Herbalife – anything that works on a recruitment structure. You’ve said this outright that Karatbars is a scam. Why would you say it’s a scam? And then let’s talk just around general scams and cryptos but more specifically Karatbars.

So I’m quite happy being on record, I’ve said it multiple times that Karatbars is a scam and I think it’s actually a really good question to dig into why would I say that? Why would I be so confident? Well, the onus on proving that they’re not a scam goes back to Karatbars – their teams of commission salespeople or affiliates or whatever you want to call them all over social media trying to recruit more people into it. But there’s a lot of question marks around their business, their assets, their business model, how they work and I could accept one red flag if it was a smallish one except but there’s so many there’s just so many but it pretty much cannot be a scam at this point because if it wasn’t Karatbars would have come out with proof that everything that they’ve said is correct, everything they’ve said is honest and there would be not just nice Youtube videos or Facebook likes but actually the demonstration of audits, registration with security regulators around the world and there would be real proof that they are doing and they have done what they said they are and that simply isn’t there. I’ve been saying this for long enough now and I even recently invited Karatbars to sue me directly for defamation which I believe if what I’m saying is totally untrue and totally incorrect I should be being sued, I should be taken to court.

I’m sullying their good name if they’re a good company and I’m actually from what I’ve been told I’m actually doing damage to the affiliates being able to recruit because people have seen what I’ve said and heard what I’ve said and are not joining and have been influenced by what I’ve said. So, in that situation with a real company, there would be lawyers letters aplenty. I should be dragged in front of the court. I should be made to publicly apologise and they should be taking all of my assets as a way for me as a way to show people that people saying bad things about their company is not acceptable and that’s not the reality we live, in that’s not what’s happening, that’s not what’s going on.

They’ve all drunk the kind of MLM Kool-Aid.

Just about the gold backing. I mean, we’ve seen the price of gold move in the last few weeks and KBC and Karatbars have changed the narrative around the coin where first it was “backed by gold” and now we’re seeing stuff in the marketing “based on gold”. So, why the shift in that narrative?

I’ve seen “linked to gold”. The point that I’ve made is this language is A – not technical and B – not legal. So in the legal contract if you’re saying this A is linked to this B the linkage is not financially based in terms of the one equals the other. That’s not what a link is. The only language in economics and finance is backed by which is why we have secured loans and unsecured loans. We don’t have linked loans. That doesn’t exist.

So, yeah – do they own some gold? Yeah, absolutely Have they sent out some gold to people? Yup. Absolutely. I’m not saying it is zero gold. What I am saying is they do not have the amount of gold that they would owe if there was a run on them. If everybody goes, right I now want to claim they do not have it which means they are lying. Harald Seiz is a liar. And the problem is that everyone else utters what Harald says even when Harald uses odd language and never really says anything people go “it’s amazing, it’s brilliant!”. They’ve all drunk the kind of MLM Kool-Aid.

I like that analogy and I mean it’s just as good as fiat money because I mean a government-backed currency is just backed by the good faith of the government?

Yeah, fiat money is by decree. It has no essential value other than the government saying that they will support it though there’s nothing there, it’s backed by nothing. We actually have zero reserve banking now so yeah, the KBC is no better and I’ll argue it’s a hell of a lot worse than fiat money. Fiat money is a unit of account and it’s a medium of exchange. KBC and even the cash gold is not a unit of account and it’s most definitely not a medium of exchange. Gold is not the currency that is accepted within shops, within commerce, within trade. Globally trade works in dollars so even the gold that people have got there is real, I’m not doubting it’s real. It’s kind of useless. Well, it’s useless, not valueless. So you can take it somewhere and they will buy it off you at a price fine but if you just want to buy gold you can do it at much better places.

I think the heart of this scam is in what they call the “autosave”. It’s kind of like them saying you can buy the gold but rather than look after it, we’ll look after it for you. So we will store it and secure it and it’s safe and you don’t need to worry. So you’re giving them money and getting a promise in return.

Look I’ve got no problem with gold. If you wanna buy gold and I think gold is a perfectly adequate in fact better than an adequate form of commodity to store your wealth in – buy it, own it, save it, put it in the safe. That’s how you do it. Trusting other people to own that gold especially where there’s no proof then there’s no audit, there’s no regulation around them – not a chance. You’re asking for your money to be stolen.

So bitcoin suffers quite a reputational dent when stuff like this happens. So would you say we should rather invest in Bitcoin or can we separate blockchain technology from bitcoin as a payment mechanism?

So the way to understand this is that the first killer application of the Internet all those years ago was email and that email is built on top of the Internet. Cryptocurrency, bitcoin specifically, was the first the killer application of blockchain can run more than cryptocurrency. So, the blockchain industry has its own issues. I’ve worked in it directly for about 18 months doing blockchain education, strategy sessions and working with companies for them to understand it better.

Blockchain has multiple issues all of which are human and none of which a technology really in order to make it work. If you read the bitcoin whitepaper the word blockchain doesn’t appear once. The blockchain is not the special bit about Bitcoin.

I mean the blockchain existed or DLT or distributed ledger technology existed before bitcoin was around

Yeah, and blockchain is a flavour of DLT. There’s a lot of noise around blockchain and having spent a lot of time in it I think that the majority of blockchain use cases are undeliverable. I think we will see a few over the next four or five years that come out and they will be world-changing but it’s not going to be via a single company. It’s going to be done in consortia because that’s how blockchain really works and that’s the problem the blockchain has had so far.

I think that a lot of people do think that cryptocurrencies as a whole are a scam and my feeling is that they’re 99% right. It’s only really Bitcoin that isn’t a scam because there’s no central there’s no bitcoin CEO, there’s no bitcoin board there’s no ad campaign for Bitcoin, no promises are made by bitcoin. There are predictions made by people in the industry and some are bulls and Some are bears and it’s fairly even to be able to listen to both sides and make up your own view and opinion. But bitcoin isn’t an investment program. It’s a new form of money or it’s attempting to be a new form of money. Even Ethereum doesn’t really try to be that. It’s the Ethereum virtual machine and it’s about smart contracts and all the clever tech stuff. I would argue that Ethereum’s main use case so far is the creation of crypto Ponzi schemes. Including by the way Karatbars.

Just wanted to say that, because there’s no mainnet so it’s still an Ethereum coin

Let’s talk about the mainnet briefly. Let’s say that they create their own blockchain. That ain’t how it works. If it’s your own blockchain and you run all of the nodes so you’re controlling every verifying node then other people cannot trust that because it’s wholly centralized. The point of cryptocurrency and the point of blockchain is it’s decentralized and if you don’t have that level of decentralization then you can’t trust it and that’s the killer point. So even if they have created or will create their own blockchain, which I doubt – they may fork someone else’s or reproduce someone else’s but it’s still 100% controlled by them and therefore untrustable.

Very good point. What Harald Seiz and Karatbars says is that they want to bring gold to the people and secure wealth. Let’s talk about the role of money as a wealth store. What is money? What is the nature of money? Because that’s an interesting philosophical question.

Money should act as a store of value, a medium of exchange and a unit of account. If we look at most money these days, fiat anyway, if we use dollars – it’s definitely a unit of account, it’s definitely a medium of exchange – no doubt about that but it’s not a store of value. We’ve seen the dollar erode by around 95 percent in purchasing power in the last 100 years, therefore, we know it’s not a store value. It should fit into those and we see modern money, fiat money doesn’t fit into that.

Then the next way to look at what money is – it should be robust. Durable is the right word. So you have a fire, it survives. You have a flood, it survives. It should not be able to whittle away in the water. It should be highly divisible and that’s the problem with gold. It’s not easy to be highly divisible and I’ll give Karatbars a little shoutout. I think it’s interesting that they’re doing this kind of micro gold measurements of 0.1 or a gram I think that’s interesting. It’s a shame it’s all a scam.

It should be scarce. it should absolutely be scarce and preferably finite. so gold does fit that but dollars and pounds and euros don’t fit that because a couple of clicks of a mouse and we have an extra hundred billion.

It should be uniform or put in a more kind of economics term should be fungible and it’s all accepted as the same. We just accept that your ten dollars and my ten dollars are interchangeable and it doesn’t matter which one we use.

Bitcoin has a maximum supply of 21 million whereas fiat currency – we all know that Reserve Banks and the Fed in the US can just print more money. As a South African our currency, the Rand has slipped a lot in the last couple of weeks. I mean, it’s due to domestic issues but also the global factors are coming into play. As a South African we live with that issue – if we keep our money in our government currency it’s not a good store of value at all.

It’s the same all around the world. South Africa is not unique in this. We have a money problem. For me, I can’t see much beyond Bitcoin as a potential solution. I’m not saying it is the solution, I think it’s a potential solution just due to the nature of how it is in the wild. I think it was very fragile at the beginning and now I think it’s a pretty solid asset and we’ve even seen in the past 48 hours the price of Bitcoin rising by 20 percent and pulling that down again by 10 percent. I think that we’re still starting to see a decoupling very kind

of green shoots of the decoupling between Bitcoin value, Bitcoin price and stock markets and the moment I actually look forward to is where Bitcoin decouples from the rest of the crypto space where people just realize there’s only one thing that represents money and that’s Bitcoin and pretty much everything else is a sum greater or lesser flavour of scam or shitcoin.

Yeah, I mean the Bitcoin maximalists that are hardcore Bitcoin people, they claim that altcoins or other cryptocurrencies are just ways for people to get more Bitcoin so that’s quite to your point. Then this is something interesting I came across the idea of Bitcoin being sort of an alternative investment fund. What do you think of Bitcoin being an alternative type of investment fund instead of investing in traditional stocks or the stock market?

I don’t think you should invest in anything unless you’ve really been able to research it yourself. Whether that’s stocks and shares, whether that’s an ICO, whether that’s a Bitcoin or gold. You need to know why other people are doing it, not just follow a herd. So my recommendation is, well my own experience was that I actually learned about blockchain. I studied blockchain strategy at Saïd Business School which is attached to Oxford University.

I studied blockchain because I actually wasn’t interested in crypto. I had no interest in bitcoin and had no interest in crypto. I was interested in the underlying technology and then I had understood that and I was starting to educate companies and organizations on what it was and how they can potentially use it. It wasn’t until quite late – it was almost a year after the bull, about September 2018 and I started to understand Bitcoin from an economic perspective and so I could glue those two things together – so I get the technology, I get how it worked and now I get the economics. Now I get it!

That’s what I would recommend. It’s OK missing out. don’t have that fear of missing out if you’re uneducated on the topic. Also don’t trust one person. Don’t trust people who have skin in that game already to tell you the straight-up truth especially if they’re earning a commission off the back of it.

I include banks in that by the way. if they’re pushing their own products and they’re not able to talk about other market products well they’ve got skin in that game. They’ve got a vested interest because they have an incentive to get you to buy it.

Absolutely, we live in an era where all knowledge is accessible and open and free so there’s no excuse

But where are you getting the information from? Just make sure that the people who are saying it, when you listen to them they’re talking about common sense and if you don’t understand something and you ask a question and they get annoyed with that question – walk away. There’s something fishy there.

Good point, we should be allowed to ask uncomfortable questions and be allowed to question stuff and yeah that’s the beauty of democracy and of freedom of speech and people should live by those values

You can ask anything of me. I can ask anything of you. If I think it’s too private – I’m not gonna tell you what I have in my bank account, I’m not gonna tell you what I hold in cryptocurrency. I’m not gonna give out my address live on the Internet but I’m pretty transparent. This is me. My real name is John Walsh and I have a real open Twitter and I’m on LinkedIn and you can Google me. I’m a real person. I’m as transparent as I can be without I think opening myself up for OPSEC issues but we’ve probably crossed that line already.

But you’ve got nothing to hide so it’s cool. Just about one question and then I think we can wrap it up – you are based in London. How is life there with the coronavirus and the current state of things?

It’s alright. Apart from kinda empty supermarket shelves, we’re all doing alright. I’m sitting at my home office in my bedroom. I’m lucky enough that we as a family we have access to another property in the north of England which is nice countryside and that’s currently where my partner and kids and dog are and yeah they’re having a great time up there. They’ve got rolling fields all around and there’s no one around for miles.

I’ve got people walking past on my street and in the main, I’m feeling that London is, we’re being very respectful of space. Which is a nice thing because we are used to being in London very close to each other especially on public transport. So you know the general mood is all right. We’ve still got the Prime Minister going on TV every day trying to make the country okay. I’m happy, my family’s happy and most people I speak to are happy. So we’ve got social media, we’ve got Facebook, we’ve got Twitter and everything else that exists today, thank God. And thank God for Netflix. Thank God for Skype.

Thank God for Skype because we wouldn’t have been able to have this conversation, or Twitter, for that matter. So just one last thing. it’s not a question but can you please show us your hoodie and just explain it.

Bitcoin halves every two hundred ten thousand blocks and we started off at fifty and then that halves every two hundred ten thousand blocks. there will be thirty-two halvings all the way down to when we have zero more bitcoins come out. It’s my favourite hoodie. I like maths.

I love it and we’re almost due for that having in about two months or so

I think it’s a little bit under. It is the 21st of March today so I think it’s about 51 days away. we’ve been on this call for almost fifty minutes which means that five new Bitcoin blocks have been produced and bitcoins are a little bit stronger now.

You can watch the full interview on YouTube.