Revisiting The Monero Pump Scandal and Ramblings on Individual and Group Ethics

On May 23, 2017, during Consensus 2017, the third annual blockchain technology summit, a developer and core team member of Monero teased a coming announcement at the following day's Monero meetup.

This came a day after ZCash announced a partnership with JPMorgan, inducing the price of a ZEC token to rise from $125 to a peak of $297.80 in 24 hours. Unsurprisingly, Monero experienced a huge price spike itself, rising from $42 a coin to $58.51 in anticipation of the announcement.

There was no announcement.

https://mea.business/

Riccardo had trolled the community and the price quickly fell back to pre-teaser levels. Except, this wasn't a victimless gotcha troll: he singlehandedly manipulated the Monero market cap to rise $250,000,000 and fall in a 36 hour period. Inside knowledge of the troll could have reaped millions of dollars in profits by buying, selling, and shorting and the right times.

Why did he do this?

Riccardo goes by the online alias FluffyPony on twitter and actually made an introductory post on steemit. He is a project leader/developer on the Monero team.

Riccardo claims he did this in order to give a wake up call to the community regarding ICO madness:

“I felt like I needed to do something that would shake it up, and highlight the dangerous path that we’re on with the ICO exuberance etc. Do we want to be in an industry that is indistinguishable from pyramid schemes and multilevel marketing scams? Do we want the entire space to be associated with the likes of Amway and Network21? I hope not. The ethics of it are certainly borderline, I’m not naive enough to believe otherwise. There are people who I’ve upset unintentionally, and I am truly sorry that they feel that way. But I had to do something that would have a drastic, real-world effect, otherwise nobody would pay attention. I’ve been repeating this message and warning people about the dangers for so long, and it seems like nearly nobody listens. Doing anything less would simply not have had a measurable impact.””

He also claims he did not profit from this and can prove it:

First off, I'm not sure he can possibly prove it.

Using his own words from this reply to his introductory post on this site, Monero is "an untraceable, decentralized, cryptographically private cryptocurrency". How can you prove that you did not move money secretly well in advance and profit from this?

But let's assume he is telling the truth and did not profit.

From reading his twitter feed and responses after the scandal, I actually do believe he did this for the reasons he said he did and did not profit off his market manipulation. The problem is his circle of knowledge was not only him: is it possible he didn't tell his wife what he was doing? Did he really drag all those other people he had lunch with into his teaser and not tell them about it? We know at least one of his friends knew about it.

I'm reminded of the famous Benjamin Franklin quote:

Three can keep a secret, if two of them are dead.

Who knows how many people had inside knowledge of the incoming pump and the inevitable fall afterwards? Some people profited off this and some people lost a lot of money. Even if we give Riccardo every benefit of the doubt, how can we give every single person who might have known about it the same benefit?

We need standards for individual ethics in the crypto space

And more than that, we need a way to punish those who cross lines into the unethical. FluffyPony may have had a few sleepless nights dealing with the stress and backlash but he suffered no tangible consequences. Whalepanda continues to troll people on twitter and spread FUD about projects he dislikes such as Ethereum.

The crypto space is small and subtle messages can influence markets. There are many examples of tweets or medium/steemit blog posts that can swing a coin's valuation by 30%+ in a single day, and people who know the power they wield can profit off of the predicted swings.

Out of one side of his mouth Whalepanda helped troll the community by confirming a teaser and causing Monero to rise and fall >30% in a day, and out of the other he's chastising Jihan Wu and Bitmain for writing a blog post about their contingency plan which caused the bitcoin price to fall 15% and claims they profited off it. But he didn't, right?

This type of hypocrisy needs to be called out, and the behavior behind it needs to be punished but it won't be: cryptocurrency is the wild west, and I'm sure there is rampant insider trading alongside pump and dumps.

Decentralization giveth, and decentralization taketh away

I don't know how to fix this problem, I just know it's a huge issue. When someone is gaining off insider knowledge, others without that knowledge are losing. Subtle market manipulation exists in stock exchanges too: for instance, when Jim Cramer touts a stock it will rise, when David Einhorn says he is going to short something people sell it. But at least there are some rules in place so that when people blatantly break the laws they are punished. In an industry so focused on decentralization it's tough to enforce punishments when there is no governing body to carry them out.

You can't force groups of people to be rational

There will always be subtle ways to manipulate markets, cause irrationality, and for people to profit from it. But we can all try to be more rational about things individually. But the mania is always unavoidable because of something I've referenced in another blogpost, the Keynesian Beauty Contest. Even if as individuals we believe a rumor should not rise the price of something in theory, if we think other people will buy into the rumor and the price will rise then we can still make decisions based on that knowledge that the price will rise.

Individual rationality is overtaken by group irrationality and leads to rational individuals acting opposite to how they would otherwise. The levels of it lead to a sort of tragedy of the commons.

Acting ethically is a prisoner's dilemma in the short term

We can't prevent manipulation, we can't punish it, so what are we to do? The only option is to try and act more ethically as individuals by not posting false news, pumping things we own, trashing things we short, etc. But the issue is, when everyone else is acting ethically, individuals have more short-term incentive to act unethically.

But fortunately it isn't in the long term. The only way to enforce punishment is to mentally tally the people who have acted unethically and to stop trusting them afterwards. When whalepanda tweets or blogs something, either dismiss his opinions entirely or take them with more than a grain of salt. If Riccardo Spagni teases an announcement, assume he is trolling. Don't work with, endorse, or hire people who act this way. Wronging the community in this way should result in irreparable damage to reputation which incentivize people to act ethically for future considerations: if you fuck us, then you're out.

This was a lot of somewhat incoherent rambling.

I've had a lot of these thoughts in my head for a while and didn't really know how to organize it so I just word vomited them into this blog. I'm sure others have felt the same way about some things and have some further thoughts I haven't considered. Please comment and let me know your thoughts.

---

My name is Ryan Daut and I'd love to have you as a follower. Click here to go to my page, then click in the upper right corner if you would like to see my blogs and articles regularly.

I am a professional gambler, and my interests include poker, fantasy sports, football, basketball, MMA, health and fitness, rock climbing, mathematics, astrophysics, cryptocurrency, and computer gaming.