Cynic’s Guide to Buying Altcoins: It’s All About the Tech (And Developers)

By | July 31, 2020

The Chainlink token has had a fantastic ride the last few months but it looks like the party may be over.

Last week Zeus Capital released a 58-page report titled: The Chainlink Fraud Exposed.
If you don’t want to read all 58 pages, (link provided), here is a summary.

As you can guess from the title, Zeus Capital thinks some shady stuff has been going on with Chainlink.

For example, by tracking transfers between wallets, it looks like the founders of Chainlink are selling the token on various exchanges without full public disclosure.

And even though the token is priced at more than $7.00 USD, there are various back-door methods that allows suppliers and vendors to acquire the token at prices as low as 20 cents.

But I must admit, I didn’t find those parts of the reports very interesting.

Because, when wheeling and dealing in altcoins, most (if not) all of time, the founders of ANY altcoins tend to reserve a large pool of coins for themselves (see TRON, Ripple, etc).

And they tend to sell down their holdings the moment they have an opportunity (Litecoin is the classic example of this).

Remember, dear reader, altcoins are not SECURITIES, but unregulated bits of data flowing around on the internet.

I could write a story every week on a different altcoin where it is obvious the founders are dumping the coin. But that would get boring very fast. It’s also why I don’t even look at 99% of the altcoins out there.

So why I am writing about Chainlink?

The tech part of this story is fascinating to me.

Why You Should Care About Oracles (No, Really)

Step back for a moment and think about the potential of Ethereum. It’s not just a blockchain database. It has the ability to store and execute trustless smart contracts.

For example, suppose I want to bet on the Toronto Raptors beating the Boston Celtics in an upcoming NBA game.

Never mind it should be obvious that the  vastly superior Raptors are bound to beat the overrated Celtics. I found a sucker who will take the other end of the bet.

There is the capability in Ethereum to write a contract that allows me to bet one Ethereum on the Raptors, and for the sucker to place one bet on the Celtics.

The contact will execute after the game is played and the Raptors will inevitably win.

But here is the problem. How will the contract “know” which team won? How does the inevitable Raptors win get “registered”  by the contract? Most importantly, how both parties to the bet know the data can be trusted?

This is an incredibly significant problem, perhaps the MOST significant problem with regard to the embedding of real-world contracts in the Ethereum network.

Here the need for an oracle, which can be defined as a trusted entity to bring real-world data in the blockchain.

But of course building a trustless oracle is not easy:

“The key problem of the oracles is their incentive to take bribes from users or become users themselves and rig the outcome of a bet in their favor. Relying on malicious or incompetent oracles results in the outcome of a smart contract being compromised, rendering the whole smart contract concept pointless. For instance, a hacker might take control of an oracle to influence the payout of a smart contract. Or if two parties bet on a sporting event, the loser might be able to simply bribe the oracle to report the wrong winner” – page 6 Zeus Capital report on Chainlink

Chainlink network is supposed to provide a solution to this problem.

The Chainlink method for providing trustless oracles is quite ingenious, by creating nodes that have to stake chainlink tokens that can be confiscated in case any of the information provided is incorrect.

Of course, there is one problem with the nodes (well there are many, but this is the chief problem): the staking mechanism is not working.

That means you cannot trust the Chainlink oracle system yet. It is still in test mode.

Therefore, what is the real value of a Chainlink token?

The Zeus capital guys say a Chainlink token is worth at most 20 cents (and have most likely taken a short position, hence the report).

Currently, the market says seven dollars plus. Who is right?

It’s All About the Developers

Now we get to the heart of analysing the future prospects of a altcoin (or token). Its not about what the token can do today. Its about the promise of tomorrow.

And for the project to move forward, you need developers. No developers, no bugs fixes. No feature enhancements.

Or, as Steve Ballmer would say: Developers, developers, developers.

How big is the development team at Chainlink?

Well, there are three of them: Steve Ellis, Chief Technology Officer,  and Dimitri Roche and Alex Kwiatkowski , both software engineers.

That’s not nearly enough warm bodies for a project with a multi-billion dollar market cap.

For me, that makes Chainlink a hard pass (for now).


However, it’s not enough to leave the story thinking the Chainlink token is a risky buy.

The Zeus Capital report makes the point repeatedly that there should be cheaper solutions to the oracle problem then the services provided by Chainlink.

Which makes sense but begs the question: Where are they?

The more you look at the issue, the more you realize that oracle services are a crucial step on the way to crypto becoming useful in the real world.

And the first company/token that provides reliable oracle services to the Ethereum will be very valuable indeed.

If it is not Chainlink, it’s going to be somebody else.

And when I find that “somebody else” early enough and put my money on the table, I think I could do very well.

That a-ha moment made reading the 56-page report worthwhile.

This story is part III in a series. Part II is herePart I is here.