THOUGTS ABOUT HEX IN 2020
INTRODUCTION
First of all, I have to say this is just an opinion and is in no way meant as an investment advice. I will try to look at some of the facts that I am aware of regarding this project, but keep in mind that there are probably a lot of things that I am not aware of. I will try to present my point of view, with the request that everyone does their research regarding HEX project and its founder (Richard Heart) and does not take my word for granted.
IS HEX A SCAM?
The word “SCAM” is being thrown a lot around this project, so I guess it is only logical to address the question of probability that this project could be a scam and what is actually meant by scam.
Here I have to say that I agree with Brad Mills who said: If you call everything a scam, you dissolve the meaning of the scam and you will miss the scams like Bitconnect, Onecoin and stuff like that.
WHAT IS A SCAM?
There are plenty of definitions for “SCAM” available on the internet, so I will explain what I understand to be a SCAM. In my opinion SCAM is deceptive or fraudulent act or operation, conducted with the breach of duty of care.
In order to show that HEX is a SCAM, such deceptive or fraudulent act or operation by the founder or HEX team has to be proven. In case that this is not proven, the person making the false allegations may also fall under the umbrella of deceptive or fraudulent act or operation.
There are several methods that can be used in order to come to a conclusion if HEX is a scam. I have seen people asking the founder (Richard Heart) this question directly. I see no point in asking the founder, if this project is a scam. If it is a scam, he would definitely not let you know, unless he would be a complete idiot. From what I have seen thus far, the guy maybe a lot of things, but he is definitely not an idiot. So, let us look at some the facts that we are aware of, and keep in mind that there are probably a lot of things that we are not aware of.
LEGAL AND ILLEGAL ACTS OR OPERATIONS
We all know that there is a huge difference between legal and illegal acts or operations, but in general we associate all scams with illegal activities. That is why it is very important to point out that not all deceptive acts or operations (whether done intentionally, negligently or otherwise) are illegal, while majority of the legal systems prohibit and punish intentional fraudulent acts or operations defined as fraud ( https://en.wikipedia.org/wiki/Fraud ). Therefore, even if deceptive act or operation is deemed as legal (e.g. use of a loophole, breach of a moral rule etc.), it can still be considered as a SCAM. Legal ramifications will of course be very different if a SCAM is the result of illegal activities.
To put it in other words, even if a SCAM in the broadest sense of the word, is proven, this does not mean that all connected legal ramifications that are usually associated with SCAMS will automatically follow.
The use of the words “legal ramifications” at this point is not only intended in criminal sense (meaning that there will be jail time or similar punishment when acts or operations are illegal), but also in civil sense (meaning that there will be civil consequences - e.g. cease and desist order, payment of damages etc., when acts or operations are violating law).
DUTY OF CARE
If the first step in deciding that something is a SCAM is discovery of deceptive or fraudulent act or operation, the second step is discovery of actions connected to duty of care. In my opinion the existence of (deceiving or fraudulent) intent on the part of the person carrying out deceptive or fraudulent acts or operations, is a crucial part when deciding, if (deceptive or fraudulent) act or operation is a SCAM. If a person that is carrying out acts or operations truly believes that what he or she is doing, is not deceptive or not fraudulent, it is my opinion that this actions or operations cannot be considered as a SCAM. This of course does not mean that everything this (e.g. blinded, stupid etc.) person does is OK or acceptable.
It has to be added that in civil proceedings, negligence may be sufficient standard when deciding, if deceptive or fraudulent act or operation was carried out. Therefore, the persons who are carrying out acts or operations, would have to prove that there was no negligence on their part . This is not probatio diabolica, but it presents quite a difficult burden of proof.
SECURITY TEST
There was a lot of talk regarding the question if HEX is a security and is therefore a SCAM. E.g. you tube video with Tone Vays and lawyers – Bitcoin Law Review – Is Hex a Scam?
In my opinion the result of “SECURITY TEST” (Howie test) regarding HEX, has no real bearing on the decision if HEX is a SCAM. As far as I can understand the project the contract is final and already exists on the blockchain. Through the contract the HEX coins/token are minted – created by every individual that either:
- proves that his or her wallet held bitcoin at the snapshot day,
- gets referral tokens, due to a link that this individual created,
- send Ethereum to a specific address
The coins/tokens cannot exist without the essential work of an individual who actually receives the tokens and there are no third parties involved in the minting/creation process. If the HEX coins/tokens are staked, they cannot be traded or sent, for the entire staking period, by anyone.
If I understood the project correctly there is no service or work provided by the HEX team or the founder. Thus far I did not discover any comments that would be made by the HEAX team about promises of services or work. I came across some of the statements from the founder Richard Heart who explicitly stated that he makes no promises of work and that nothing should be expected from the team or him or from the sent Ethereum. Given the above I cannot see why HEX would be considered a security. Nevertheless it has to be stated that only authorities can perform the official “SECURITY TEST” (Howie test) regarding HEX and they will have the final say in the matter (therefore one can never be 100% sure on any decision of the authorities that will be made some time in the future).
However, I did discover that the website https://hex.win/ has an explanation regarding the question: Is this a security? There it is explicitly stated: “No. There is no money paid to a common pool with the expectation of profit from the work of others”.
If this statement would be considered as a promise/guarantee , and it would later be discovered that HEX is actually a security, that could be understood as deceptive or fraudulent act or operation. if this is not a promise / guarantee, some explanation should be added on the webpage to make it clear that this is the opinion of the HEX team or the person who built the webpage (if it already exists – I must have missed it). Of course, the discovery of actions connected to the breach of duty of care (intent, negligence) regarding the potentially false promise/guarantee would still have to be made, before the final decision.
ADOPTION AMPLIFIER
One of the allegations I came across when researching this project, was that Ethereum sent by individuals through Adoption amplifier (“flush address”), will be used by the founder or the HEX team and this is a proof that HEX is a SCAM (https://cryptoslate.com/is-this-the-beginning-of-the-hex-exit-800-eth-withdrawn-and-sent-to-bitfinex/).
In my opinion the concealment of all information regarding the person who has the private keys of the wallet that holds Ethereum sent through the Adoption amplifier, and the possible sale of Ethereum for private gain by the founder or HEX team, cast a bad light on the project. As far as I am concerned, there was no need to bring the Ethereum into this project. Adoption amplifier could be designed in many other ways, in order to engage the people in the project daily, weekly, monthly etc. so that they could receive the HEX. People could be required to perform some kind of tasks (solve a puzzle etc. – maybe one that would benefit the world) and would not have to spend Ethereum in order to receive HEX. The founder admitted in a debate with youtuber Tarmo, that the HEX project could exists without the Adoption amplifier.
The Adoption amplifier was acutaly added later, due to founders discovery that the airdrops are not the best method of receiveng tokens/coins.
The Tarmo podcast is very informative in my opinion, and I suggest you listen to it in full. Richard Heart also pointed out that in the real world, the people that found sh**, would like to be rewarded.
Richard Heart explicitly stated that he believes in the project and that he thinks it would be successful, with or without origin address, with or without “flush”, with or without some of these features, just because it does so much cool stuff.
The accumulation of Ethereum at this moment of time, does have a negative connotation. It the Ethereum would be spent for private gain of individuals connected with HEX, the project would probably have very short life span. On the other hand, if the Ethereum would be used for the development of the project or for greater good, the project could seriously take off. This could very possibly be the reason for the project not to succeed or not to succeed as it could. I just don’t understand why youtubers who are discussing the HEX project with the founder (for hours and hours) don’t raise this issue.
But on the other hand, the idea, design etc. behind HEX is not ours. If HEX team or the founder decided that Ethereum is a part of the project and nobody can’t expect anything from the Ethereum, so be it. It is their decision and we are all free not be a part of the HEX project. Of course, HEX team or the founder could be more open about the Ethereum, especially, if they will use the Ethereum to reimburse some of the cost, or pay out some kind of reward to himself or to the HEX team (donations would not be deemed as security issue), or if they will use it to promote HEX, set up a utility platform or if they will use it for private gain. I am pretty sure that majority of the people would not mind to reward the founder or the HEX team in some way, as long as it is done transparently.
I can also understand the HEX team and the founder, when they are trying to do everything possible, for HEX not to be deemed as a security. If HEX would be deemed as a security the coins/tokens would probably not be listed on most of the big exchanges and that would be a major blow to the project.
That being said, we honestly don’t know why the Ethereum is meant for. If the team or the founder will not use it for private gain, and will instead use (all or most of) the Ethereum for the development of the HEX project or greater good (e.g. SENS.org foundation), majority of the people would probably be OK with this. But the bottom line is, that is very clear that no one can expect anything from the Ethereum. Therefore, I cannot agree with the claim that HEX would be SCAM, if the Ethereum that was sent through the Adoption amplifier would be sold at the exchange (regardless of who would receive the funds from the transaction). In my opinion there is in fact no deceptive or fraudulent activities regarding the use of the sent Ethereum, if the persons who send the Ethereum through the Adoption amplifier, are aware that they will not receive any benefit from the sent Ethereum.
From what I have discovered while researching this project, the founder explicitly stated (several times) that no one should expect anything from the Ethereum sent through the Adoption amplifier. Like it or not, there is no basis that any person should expect anything from the Ethereum sent through the Adoption amplifier. If persons are generous or stupid enough to send the Ethereum through the Adoption amplifier, despite explanations of the founder, that they will not receive any benefit from the Ethereum sent, this is in fact their decision. It is inaccurate to call the project a SCAM, if the Ethereum that is sent in these circumstances, is sold, spent, destroyed or used in any other way. In my opinion there is no deceptive or fraudulent activities, if persons who send the Ethereum through the Adoption amplifier, are aware that they will not receive any benefit from the sent Ethereum.
ORIGIN ADDRESS
Another allegation I came across when researching this project, was that the origin address will receive the copy of HEX tokens, that will be sent the users who will get a bonus for early claims, referrals etc., and these tokens will be sold for private gain by the founder or HEX team. The founder explained that after implementation of Adoption amplifier, the origin address was kept, because there is no logic in giving origin a pay cut, so that everyone else can get more to dump it on the market. He stated: If you already fought the battle and made everyone cool understanding that there is an origin address that get a share of bonuses, and then it improves the project by adding this eth onboarding thing, I don’t understand why (origin) should have a pay cut.
There is in fact a possibility for the person who holds the keys from the wallets that has HEX tokens received from the origin address, to sell these tokens. But from what I have discovered while researching this project, these tokens are being staked for aprx. 10 years. If these tokens will be unstaked earlier, there will be an “Emergency end stake” penalty that will be distributed to the rest of the stakers and again to the origin address (if I understand the project correctly). Of course, the HEX project could be designed with less tokens/coins for the origin address, so that there would be less risk for the dump in price. But as explained before the idea, design etc. behind HEX is not ours. What will happen to the HEX tokens who will be sent to the origin address in the future and how the Emergency end stake” penalty will be distributed in case of early stake termination by the origin address, remains to be seen. If I understand the project correctly, the Origin address would receive 50% of the tokens even in case of coins/tokens that were sent to the origin address (Emergency end stake” penalties, bonuses etc.), and later staked for long period of time, but then someone would use Emergency end stake regarding this tokens/coins. But it has to be pointed out that the founder explicitly stated that nothing should be expected from the origin address tokens.
I can agree that the concealment of all information regarding the person who has the private keys of the wallet that holds HEX received from the origin address and the possible sale of this HEX tokens for private gain by the founder or HEX team, can be morally questionable. This does cast a bad light on the project. But from what I have discovered, it is inaccurate to call the project a SCAM, due to the fact that origin address receives copy of some of the HEX tokens (regardless what happens to this tokens). Like it or not, there were no promises made in connections to these tokens, and the founder explicitly stated that nothing should be expected from the origin address HEX tokens.
HEX TEAM
HEX team is stated on the website. From what I have discovered while researching this project, no member of the team was connected to know crypto scams in the past.
I have discovered that the founder (Richard Heart) is not using his birth name - Richard J. Schueler. https://steemit.com/cryptocurrency/@isacoin/the-truth-about-richard-heart-aka-richard-j-schueler
There are some posts that depict him as an individual that is not trustworthy, and he was also thoroughly questioned regarding the project. E.g. interview with Crypt0, & Nixops (Bitcoin OG!)
But I could not find any evidence that Richard Heart harmed, deceived or defrauded someone. Given the fact that he is a famous person and very direct, it is my opinion that bad publicity is something no famous person can escape.
I have also listened to an interview with an ex HEX developer (Kieran Mesquita), but no concrete evidence about a possible scam was presented. He criticized the amount of the tokens sent to the origin address, but on questioning, he admitted that the founder is probably telling the truth regarding the origin address tokens.
Given the fact that the team is publicly announced and that not all coins with anonymous teams are scams, but majority of scams have anonymous teams, it is my opinion that there is currently no proof regarding scam in this regard.
REFFERALS AND MARKETING
As far as I could see when researching this project, there is only one level of referrals available. This seems to be in line with other referral systems and not be violating any rules. I can’t agree with the accusations that the origin address is another (second) level.
But the optics of marketing on the other hand are in my opinion not good. Marketing the project in the same manners as SCAMS are marketed, is probably discouraging to majority of the people. Attraction of the former Bittconnect promotors is also not a plus for the project, in my opinion. Majority of the people who are claiming HEX coins/tokens, are probably claiming them because they trust the opinion of the founder.
But, since I am in no way a marketing expert and the founder seems to be quite an expert, I will wait and see how this will play out. Although I must say, that I find some of the marketing very amusing (e.g. the use of the word pumpamentals or two options on https://www.stakehex.com/: “Secure your 10% bonus” or “No thanks, I don't like free HEX”).
BROKEN GAME THEORY
When researching this project, I came across an interesting article, titled “Under A HEX” by the author “Goldman Sats” (https://medium.com/@TooWumboToFail/under-a-hex-396847b86e57). The article has some inaccuracies. It does not take into account referral system as (a cost FREE) method of acquiring HEX. The author states: HEX is currently at the beginning of its year-long initial launch phase, after which virtually all of the HEX that will ever exist will have been distributed. During this period participants can obtain HEX in two ways: they can purchase HEX by sending their Ethereum to something called the “Adoption Amplifier”, which functions as a recurring daily auction, or they can claim HEX for free by holding Bitcoin at a rate of 10,000 HEX per BTC. as the third
But the article also raises some good points about the founder’s older statements and regarding (possibly broken) GAME THEORY. Personally, I cannot agree with the author’s point of view that everyone agree that the project is a SCAM. The author Goldman Sats states: From that, what I hope will occur is a more bottom-up emergence of norms around how we treat scams, and those that deal in them. HEX could ultimately be a value by serving as a schelling point for this industry — the thing everyone can agree is a scam, and converge around, limiting the fallout.
But due to the fact that it is explained that nothing is to be expected from the Ethereum sent in exchange for HEX tokens/coins and from tokens/coins connected to the origin address.
In my opinion the Ethereum that will be sent through Adoption amplifies, would not have a serious negative impact on Game theory, unless it would be used in a way that would damage the project. If this will ever happen and is this (more than just theoretical) flaw in the Game theory, remains to be seen. If Ethereum will not be used in a way that would damage the project, the Adoption amplifier might prove to be incredibly useful addition to the project.
It is also true that the tokens/coins connected to the origin address, could seriously affect the price of HEX tokens/coins in the future. If this tokens/coins would be used to “dump” the price, this would seriously hurt the project. But it also has to be said that other coins/tokens also have the same (theoretical) problem and the author Goldman Sats does not call all other projects a SCAM. Ripple project (XRP), Stellar (XLP) etc. have very similar (theoretical) flaws and there is a so called “founders’ tax” almost in every project. But as far as I can see, there is no universal agreement that all these projects are SCAMS.
Regarding the founders’ older statements, the author is brilliant to show some important tweets made by Richard Heart. I would really like to see the debate between Richard Heart and the author Goldman Sat, especially due to founders’ statements regarding decentralization (Richard Heart stated: Decentralization is not efficient; it is actually inefficient. Centralization and vertical integration are vastly efficient through vast majority through human productivity).
Maybe the author Goldman Sats would be an exception, in the trail of bodies left by Richard Heart in debates.
Anyhow, it would be nice to hear some explanations from Richard Heart regarding the article, especially:
- Why he was not happy with founders’ tax in ZCASH, but is happy with Ethereum & origin address solutions in HEX project?
- Why he was not happy with founders’ tax in GYBT (now OBYTE), but is happy with Ethereum & origin address solutions in HEX project?
- What are the flaws in Ripple project (XRP) and Stellar project (XLP)?
- Why is a Super Whale (origin address) a good thing for the project?
- Why the number/amount of bonuses/referrals that the Origin address receives is not lower? How would a lower reward affect the HEX project?
- What are the reasons for the ratio for set for Adoption amplifier ETH/HEX and why isn’t there a different ratio?
- How and why was centralization with vertical integration used in the HEX project?
- Why are the rewards for the founder or the HEX team not transparent?
- Why the theoretical option for the use of the Ethereum sent through the Adoption amplifier, in a way that would hurt the project, does not present a flaw in the game theory?
- Why the theoretical option for the use of origin address’ coins/tokens to dump the price, does not present a flaw in the game theory?
- Why the theoretical option for emergency end of origin address staked coins/tokens (especially with possible reward of the tokens to origin address, despite the emergency end of origin address staked coins/tokens), does not present a flaw in game theory?
CONCLUSION
The founder is really exposing himself and in the long term, he has the most to lose. In my opinion he would lose all credibility if this project would be a scam and he would also expose himself to lawsuits, criminal proceedings etc. He is putting his reputation and funds on the line (potential lawsuits pose a risk toward his private property), and given the fact that he seems to be extremely intelligent; it is very likely he knows exactly what he is doing. It is only us (the public) who are in the dark. As stated above, I could not thus far find any major evidence of wrongdoing, but this does not mean that there is none.
But in my opinion, given the evidence available to me thus far, it would be inaccurate to call HEX project a SCAM. The jury is still out on the project, but I give the project benefit of the doubt and wish it luck.
If you find any mistakes, please let me know. If you find this in any way beneficial, all donations are welcomed:
BTC address 17bziXc3hrwyqMZAxm9ipwNFk1S6GhdrBJ
ETH address: 0xD5a2C93861b8FAE73F89C779Df044F84E69e0d60
