Popping The Lead Balloon

Ed Zitron 7 min read
Popping The Lead Balloon

When I previously wrote about the problems of “crypto skepticism,” I assumed that if one of the reporters deriding those investigating crypto was proven wrong, they would stop immediately assuming all criticism is out of animosity.

Why? Why did I believe this? What possessed me to believe that anyone covering this industry, let alone flippant crypto-enthusiast Kevin Roose, would have the introspection to say they made a bad call?

Last week, the eagle-eyed Liron Shapira dug into Helium, a web3 darling promising a decentralized network of WiFi routers that would pay those who operated them in HNT token. Mere inches from the surface, it became obvious that nobody had investigated this company with any significance, as Shapira revealed that Helium, which received $365m of investment led by Andreessen Horowitz, was making a whopping $6500 a month in revenue from actually sharing internet access, its primary function.

To make matters worse, Helium users had regularly complained on the Helium Subreddit about poor returns from the expensive Helium hotspots, with one miner complaining that their $200 hotspot would take 8333 years to repay. He also noted that Nova Labs siphoned off millions of dollars in HNT tokens per year, and Helium founder and CEO Amir Haleem confirmed that there was more revenue - $2 million a month in fees generated by the network are predominantly “hotspot onboarding fees,” meaning “the money people pay to try and make money on the network that doesn’t make money.”

A quick (and simplified) Helium 101: users buy Helium hotspots from agreed-upon companies, and are then paid in HNT token for proof of coverage (the part of the Helium network they sustain coverage in) and in transferring data over the network itself. It’s a little more complex than I’m laying out, but the truth is nobody is making much money anyway.

This led Scam Economy Podcast host and reporter Matt Binder to thoroughly investigate Helium, which only made things worse - that this was a WiFi-based multi-level marketing operation (to paraphrase Binder). Helium makes its money by selling hotspots that people then connect to their internet connections, which theoretically generate a payout of HNT tokens based on doing their part in sustaining the Helium network. The problem is relatively obvious - the more Helium hotspots that come online, the fewer rewards that any given Helium hotspot will see. This isn’t just an unsustainable company - it’s one that had a very firm, obvious ceiling, which when reached would ruin the entire scam for everybody except those at the top of the pyramid. Helium needs to keep people joining their service with their vague promise of profits that will never appear, because the network rewards for being part of the decentralized wireless network are dwindling along with the value of the HNT token.

Thankfully,  Helium has corporate customers, such as Lime, the unprofitable scooter company nobody likes, and Salesforce, the software you use because you have to.

If your natural reaction was to say, “no they don’t,” you have won 100 Smile Points:

Helium is often heralded as one of the largest success stories in the Web3 space, even landing a coveted article in The New York Times earlier this year. Since 2019, the decentralized wireless network service, which bills itself as a peer-to-peer network for the Internet of Things, has touted rideshare company Lime as one of its marquee clients, claiming the company uses its service to geolocate rentable escooters. There are numerous mentions of this partnership on its website, along with the presence of Lime's company logo, and in press coverage with various news outlets.

There's just one problem: That partnership never really existed.

"Beyond an initial test of its product in 2019, Lime has not had, and does not currently have, a relationship with Helium." Lime senior director for corporate communications Russell Murphy said to Mashable.

To be clear, 2019 is three years before 2022, when Kevin Roose put out his hype-laden piece about Helium being “a use for crypto after all.” Today, an update was made to the post:

I cannot express how much bile I have inside me for the phrase that Helium’s partnerships “came under scrutiny from crypto skeptics.” Kevin Roose failed - he failed to interrogate even the simplest parts of the Helium network, he failed to confirm the partnerships with Lime, he failed to confirm anything other than his own biases - that he believed crypto had a use, after all. Instead of doing the right thing (entirely dropping the article), the Times chose instead not to hold their writer accountable but somehow ended up treating the people that sought out the truth with scorn, calling them “skeptics” as if being skeptical of a company you’re writing about in the New York Times is somehow suspicious or malevolent.

Lime and Salesforce’s logos have now disappeared from Helium’s site, reported in a way that I can only describe as “delightful”:

In a New York Times story from February, the use of the Helium network by Lime is cited as evidence that Helium is "a real product used by real people and companies every day." In fairness, the Times story also mentions that Helium is used by the Victor mouse trap company as well — apparently for its line of IoT-enabled mouse traps — and the reality of that partnership does not appear to be in dispute at this time.

The piece also confirms that Helium outright lied about Salesforce:

August 2, 2022, 10:25 a.m. ET. Eddie McGraw, a spokesperson for Salesforce, gave the following statement: "Helium is not and has never been a Salesforce partner."

I am, on some level, quite annoyed at myself for making the same mistake as Roose when I wrote about his work before - I accepted that Helium must provide some return for users because otherwise it was an actual scam - and after all, they had real partnerships, right?

This is the problem with reporting for the New York Times - people trust you! Your job is to be a trustworthy steward of the news, someone that does in-depth reporting not to confirm what you want to confirm but to confirm what is happening. When I spoke with Liron Shapira about his thread in private, I remarked about how little he had to dig before the entire Helium story fell apart, and it’s remarkable - and worrying - how little it appears that Roose (and others) have dug into exactly what this network is, what it does, and who it does it for.

In mere minutes of research, it’s obvious that something is very wrong with the Helium network, as users are reporting “much lower earnings” or entirely inactive Helium miners, and others claiming they’re making about .25 HNT ($2.25 as of writing) a day, with one user claiming they make 0.05 (44 cents) HNT a day. There is a known issue where users spoof the locations of their devices (so that they’re able to have multiple hotspots in one location) to reap the rewards, something that Helium claimed to have fixed but very clearly has not:

Me stupid - situated in Europe - bought an 4 dBi antenna, which I will still put it up on my roof in 12 m height. Bought cables, grounding, clamps. I will have spent ~ 1 grand (!) when I am done to put up a single miner on my friggin roof, which will hopefully give me something in the ballpark of 30-50 USD per month (Europe, so 14 dB instead of 27 dB - double f***d by spoofers and regulations). 24 months amortisation time.

Hey man, don’t feel too bad. In two or three years, you will have nearly recouped your investment, as long as you don’t factor in the time you invested!

Regardless of where the price may be at any given time for any given token, it is apparent that the wheels are coming off the crypto industry. Coinbase, on the heels of a massive insider trading bust, is now under investigation by the SEC for potentially listing unregistered securities, along with two new lawsuits that allege America’s favorite crypto exchange made “fraudulent and deceptive representations regarding the company’s business”:

In both complaints, plaintiffs claim that Coinbase made fraudulent and deceptive representations regarding the company's business, operations and compliance efforts between April 14, 2021 and July 26, 2022. According to the complaints, Coinbase neglected to disclose that client cryptocurrency was kept in escrow at Coinbase, making it part of a bankruptcy estate subject to bankruptcy proceedings in which customers would be treated as general unsecured creditors of the company.

Furthermore, Coinbase reportedly refused to disclose that it permitted U.S. citizens to trade digital assets that—despite its knowledge and complacency—required SEC registration as securities. As such, the lawsuits claim that Coinbase's public representations were always, to a significant extent, false and deceptive as a result of the preceding actions.

In a far more chilling revelation, Forbes revealed that the SEC is, in fact, investigating every single American crypto exchange. This includes Binance, a company that is currently in hot water after WazirX - India’s largest cryptocurrency exchange, a company they claimed to acquire in 2019 - was raided by India’s Enforcement Directorate (India’s anti-money laundering agency). The problem is that Binance is now claiming - despite a blog post, despite several tweets, and despite reporting at the time - that they never owned WazirX. Even more confusingly, WazirX, an exchange that has billions of dollars in transaction volume, only appeared to have $8 million in actual assets when Indian authorities froze them. It may be that they seized from a holding company rather than the exchange itself - it isn’t clear, and it’s still weird.

If I have one prediction to make about this entire situation, it’s that we have only scratched the surface of how rotten the cryptocurrency industry is to its core. While I don’t believe that all of it is outright fraudulent, I believe that the things we’re going to hear in the next few months will reveal that multi-billion dollar enterprises were built with such disregard for the law and consumer safety that it will end careers and send people to prison. Voyager and Celsius are proof that you can build popular, beloved companies on complete fabrications and, for the most part, get away with it.

My darkest prediction? We are going to find a major exchange that is insolvent. It won’t even take a full-scale bank run - there will just be a point at which too many customers ask to liquidate too much cryptocurrency at just the wrong time, and the decimal points cannot be moved quickly enough. Once that happens, there will be a massive cascade effect that could bring about the worst crash in history.

Then again, perhaps I’m wrong. Thankfully, I have never correctly predicted anything in cryptocurrency. You’ll probably be fine.

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