The crypto market is in many ways a classic pyramid scheme: early adopters are incentivised to recruit other "HODLers" by telling them a particular cryptocurrency is going "to the moon". Those others rush to buy, driving the value up and giving the earliest adopters the ability to sell for the heftiest gains.
As we saw happening to a frightening degree in late 2017 and early 2018, people who didn't get in early rush to get hold of the next cryptocurrency or "token" that comes along. Those flogging a token, of course, say it's different from all the others and normally claim that it can be actually useful for something. But really, most of the people who were buying these tokens couldn't care less about the purported "use-case". They just wanted make to make some money. Fast.
Initiative Q is actually different though. For a start, "Q" is not actually a cryptocurrency. Instead, it's a private currency that won't even use the blockchain technology which is supposedly the point of most tokens. Guess what it it will use instead? A regular old centralised database! Remarkable.
David Gerard, author of Attack of the 50 Foot Blockchain, did an excellent job of unpicking the new exciting currency back in June, when the first wave of hype was swirling around the project. As he explained then:
The Q token is a centralised private currency issued by Initiative Q. It’s presently worthless, and not exchangeable even on Initiative Q’s own servers — but they aspire to it being used in their nonexistent future payment network. At that point, they intend it to be freely exchangeable with dollars....
But as far as I can tell, they’re completely sincere! It’s just their ideas that are bad — or don’t actually exist yet.
Initiative Q was invented by "serial entrepreneur" (why can't they just be called entrepreneurs any more?) Saar Wilf, the founder of a strangely named payment security start-up called Fraud Sciences, which ended up being acquired by PayPal in 2008.
Its "economic and monetary models" were developed by Lawrence White, a well-known economics professor at George Mason University who favours the idea of free banking and wants to abolish the Federal Reserve System, so... his involvement in this project makes sense. (As we have noted before, the involvement of world-renowned economists doesn't turn bad ideas on new global currencies into good ones.)
Like any successful pyramid scheme, in the last couple of days it appears to have reached some kind of critical mass. Alphaville has been contacted by a handful of people in the past 72 hours -- all of them young(ish) men -- about the project, and the Twittersphere is abuzz with Q chat.
You need an invitation to reserve yourself some Q, and then once you're registered you can invite to invite 5 other people for even more of the so-far-non-existent private currency (the invitation-only model helps build the hype), with the following message (emphasis ours):
Initiative Q is an attempt by ex-PayPal guys to create a new payment system instead of credit cards that were designed in the 1950s. The system uses its own currency, the Q, and to get people to start using the system once it's ready they are allocating Qs for free to people that sign up now (the amount drops as more people join - so better to join early). Signing up is free and they only ask for your name and an email address. There's nothing to lose but if this payment system becomes a world leading payment method your Qs can be worth a lot. If you missed getting bitcoin seven years ago, you wouldn't want to miss this.
The combination of a need for recruitment and the riches which flow from it is a classic sign of a pyramidical structure. When we were initially invited to join, there was this line:
The idea is that if millions of people join, Q could become a leading payment network, and, according to well-known economic models, that means the value of the reward would be around $130,000".
You can read about those well-known economic models here. But that line no longer appears in the invitation email, so maybe the $130,000 was a bit of an overestimate.
We have contacted the company to ask them why that line has gone, and for other comment, but did not get an immediate response. We will update the story if and when we do. A response arrived after publication. The reward is now estimated to be lower (as the pyramid is larger), a mere $85,000, at pixel. No explanation for cutting the text, rather than just changing the value in the promotion messages.
Clearly enough people have wondered about the structure, for the company to tweet:
Is Initiative Q a pyramid or MLM scheme">No. Pyramid schemes collect money from new members and distribute it to earlier members. In contrast, joining initiative Q is completely free. So, clearly, there is no money to hand up the “pyramid” to earlier members.
— Initiative Q (@InitiativeQ) September 3, 2018
That clears up that then. So why wouldn't you get involved?
Here's Gerard, again:
The signup list collates the following information:
-- people who think get-rich-quick schemes can work;
-- people who will get their friends to sign up for a get-rich-quick scheme;
-- a full network graph of said people.
Any number of disreputable people and companies would throw their hats in the air at getting hold of a database like this. Affinity fraud loves this sort of list of pre-screened suckers.
Initiative Q has said it doesn't "share the data with any other 3rd party" but, as Facebook users know, privacy policies can evolve. It is always worth remembering that if you're not paying for it, you are the product. Claims of "a self-fulfilling prophecy" are the sort which only get fulfilled in the next life.
Update: We did hear back from Saar Wilf, Initiative Q founder by email. He said (of an exercise marketed by telling people to "think of it as getting free bitcoin seven years ago") that:
Clumping it with the cryptocurrency nonsense completely misses the point - we're doing something way more interesting. It's a way for the world to come together and solve economical problems that impact every person on the planet, which until now were unsolvable due to financial structures created centuries ago.
Related links:
The John Taylor-backed “stablecoin” that's backed by, um, stability - FT Alphaville
The “academic’s cryptocurrency” is an elegant waste of time - FT Alphaville