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*I sold all of my HEX because I don’t think it’s a safe project to invest in. I’m not saying not to invest in it though. What I am saying is maybe there is more to it than meets the eye and you should know about all of this before you decide to play the game. I did anyway and earned a decent profit before I looked into HEX and sold out everything after extensive research.
Now I’m not perfect nor am I an expert on DEFI or cryptocurrency (because no one is), but I am putting this out for people to critique and find mistakes or errors before I make a video and put it out to everyone. I’m only hosting this on Read.cash, for now, to monitor all the replies in one place. If you disagree with my recommendation that is fine and you can be upset in the comments, but I’m only paying attention to corrections that need issuing as I expect massive backlash due to this being all speculative and people need to protect their investments. I understand and am sorry that you’re caught up in this, but new investors need to know.
After some time, I will issue all the corrections and then make the video report on all of this and walk you through where all the sources were listed as well.*
HEX uses a certificate of deposit in the form of staking to achieve a high interest return. This is considered to be the use case and utility of HEX. Considering staking is really a consensus model, I wouldn't really consider it a utility or use case. While CDs on the blockchain are an innovation, I don't consider staking itself as a product. For example, I can stake on Hive, but that's not a use case for Hive, the use case is blockchain integrated social media.
Now let's go back to the beginning...
For everyone who had Bitcoin during the time of the snapshot can claim free HEX. The snapshot was taken December 1st, 2019 at 7PM EST so if you had BTC at this time, you are eligible to claim HEX before it expires after 50 weeks going down 2% a week. To be exact, you had to have had BTC in your own wallet and not on an exchange at block 606227. In your own wallet, you can request an airdrop of HEX. The keyword here is in your OWN wallet. If you have BTC on an exchange, then you won’t get your airdrop, but the HEX was still minted.
For every 1 BTC minted, there were 10,000 HEX created. Given this was done up to December 1st of 2019, then there would be hundreds of billions of HEX. Currently, there are 400+ billion in circulation which is 100 billion more than when I originally wrote this.
This fund goes down by 2% every week you do not claim as these funds are distributed to stakers. The thing is, that after just under 1 year, you cannot get your airdrop and the stakers will then take your airdrops.
The issue is that all of this HEX was being created to mirror Bitcoin, but it has no value built into it. There was no difficulty in mining it, it has no scarcity, supply cap, or novel use case.
Not only that but when the big pay day comes November 19th where about 200 billion HEX will be given to stakers. While this is well and good, later we will dive into how he is using the origin address funds and sending them to 10-12 addresses to stake and take up more of the rewards. With him controlling fees, able to infinitely print HEX up to November 19th 2020, and the ability to stake up more and more to take more of the rewards, he gets all the winnings in a zero sum game by design.
It’s inflating at about 3.69% after the first year of massive inflation for airdrops which is double what Bitcoin is now and it has no supply cap so it will go forever. The idea is that it will mainly go to rewarding long-term holders, but to get those gains you must stake for years at a time. The unfortunate thing is, if the price goes way up and you want to sell, you receive unstake penalties. You lose 50% of your gains when you unstake. Also, if you unstake halfway through your stake period, you just get back your original stake. If you stake out earlier than that, you will lose HEX. The whole point is if you hold your HEX and get more people using it, if they stake out or for people who don’t claim any HEX, you get some of their HEX. Now for some reason, it doesn’t explain this anywhere on the Hex sites that I could find, but when you stake your HEX, you are actually burning your coins and replacing them with HEX pool shares. It determines how much HEX you should receive when your stake has completed its cycle. In my opinion, this is to ensure that you won’t just unstake since your coins have already been destroyed, you have to wait at least 50% of the stake time to just get your original investment back. Hex Wiki explains the burning aspect: http://hex.wiki/what-are-shares.
Now you have to consider that given by December, let's estimate Hex hits about 800 billion in supply since we're already past 400 billion which is what Richard Heart has been quoted as saying somewhere between 400-800, then what should that do to the value? Well at 3.69% inflation, every year, almost 30 billion more HEX will be given out. The only way that this is valuable is if you are staking and earning a huge chunk of that while hoping that speculators keep buying. The only way this can be sustainable is if new investors are coming in to keep this going because it has no scarcity to it.
HEX has no use case beyond CDs, it has no applications, it has a rate of inflation about double what Bitcoin has and I don’t know of anywhere that accepts it as payment. Many people call it a scam or Ponzi scheme because now everyone who has HEX is just trying to get others to get involved to get more HEX from them. While the value doesn’t rely entirely on you getting more people involved, it’s heavily correlated. This isn’t even the worst part of this.
While all of this is unideal, it’s not necessarily a scam. Everything is speculation more or less. The real sketchy part of this is where your unclaimed HEX and the billion of Hex in pools for ETH minting from the first year are “sold” only via Ethereum trades. That Ethereum is then kept on the flush address which obviously Richard controls. Even if Richard doesn’t own it, someone does. While there is no proof of ownership, someone obviously has to have the access to that and who else would it be other than the owner? Say it is someone else, well the problem remains the same. That one person has the ability to take that ETH and mint out the HEX from the pools until it all runs out and they keep all the ETH at the end of it. A good analogy to this is, I give the bank my gold for their dollars, then they take all the gold from the bank and trade that for dollars. The gold was meant to represent the value of the dollars, but instead, it is used to pump the value artificially. HEX was created from nothing in order to farm people’s Ethereum and if HEX got lucky, it would also have value if enough people fell into it which is what has happened.
Consider this, why would the creator of HEX or whoever owns the flush address even want to keep this huge quantity of ETH just sitting around? In my humble opinion, it's waiting to be used for price manipulation, being used for price manipulation, or they just want to hold the ETH. But why? If Hex is better, why hold ETH? It’s because even Richard or whoever owns the address prefers ETH to HEX. Now that person may just take the ETH and sell out or maybe that person buys HEX continues pumping with the ETH, but it will only go as long as people don't realize what's going on or believe they can still make profits before it fails.
Also, you are penalized for unstaking late. Say you stake for 2 years, but you forgot about it and came back in 4 years, you would have 0 HEX left because every day you are penalized 0.143% after a 2-week grace period. This relies on people to forget about their HEX and benefit from basic human psychology. Interestingly enough you don’t see much of these rules and restrictions when you try to stake or look at the website and search for “fees.” It’s your choice to stake, so that’s fine, it’s just obviously designed to take advantage of people.
While it’s free to claim, you have to consider that it dilutes the value every time someone claims HEX because they’re being created out of nothing. Every time this happens, the person claiming is actually taking a fraction of the value of the total value of HEX and keeping it for themselves which lowers the value of everyone’s HEX.
The unstake penalty is split where half goes to the origin address and the rest goes to stakers.
So this way Richard has a bunch of the HEX in the origin account and all of the Ethereum used to mint HEX in the flush address. This means that every day he could technically manipulate the market by boosting the trade volume minting coins and trading them around from these addresses which we dive into later.
The supply is inflating so rapidly in the first year, that even with the 3.69% afterward, the value shouldn’t technically be sustained. It started with under 2 billion and in 5 months we were at 142 billion. 7 months in and we are at about 215 billion Richard has estimated it will end up at anywhere between 200-800 billion HEX in the total supply by December of 2020.
He claims that if he reveals any information about the flush address, then the token will be deemed a security token, so he cannot reveal it. How convenient.
In his book, “sciVive,” he explains that he previously participated in scams, MLMs, etc. buying low-quality stereos and fake gold out of the backs of trucks. Now whether he was being scammed or participating in them, he seems to apparently knows everything about what a scam is by definition thus making him the perfect person to craft what is close to one, but not legally liable as one. One of the most common tactics of scammers is to say how much you hate scammers and how everyone else is a scammer and you don't like them so much that it puts them above questioning.
In multiple interviews, he brags that people who used be scammers and who are still alleged as scammers are now using his token and promoting it and that he has converted them into "honest people". Realistically, the simple solution would suggest that they see this is a scam too that they can benefit from by getting more people involved as they have previously.
Again, it’s important to note that the more people involved, the more the stakers will earn from all the penalties and bonuses.
Some people will say the same criticisms have been lobbed at Bitcoin, well that’s not the case. Let’s quickly go over how they differ.
Bitcoin is scarce and there will only ever 21 million in existence. Every year the inflation rate goes down and less is being minted. So currently its inflation rate is 1.8% which is less than half of HEX’s. HEX is not scarce as there will be upwards of 800 billion by the end of the year and that will inflate at 3.69 indefinitely. HEX needs more people to bring more value, Bitcoin should go up in value over time due to inflation halving and mining difficulty. Bitcoin may not be the best for fees, but it certainly has more utility and liquidity being traded everywhere, having Bitcoin ATMs worldwide, and almost everywhere that accepts crypto, accepts Bitcoin. Tons of the HEX fees are going to the creator and stakers, whereas Bitcoin fees go to miners to pay for running the network. All the ETH used for minting goes to the owner or whoever the owner gave the keys to the address to which could be used for price manipulation which isn’t an issue with Bitcoin. We know who the creator is and he has scammed people before and wrote about it and then shared that book about his scams with everyone. The company associated with HEX: StakeHEX LLC which I touch on later, was shut down for evidence of market manipulation whereas Bitcoin has no such claims or charges against it.
Common red flags of fraud are difficulty receiving payment, the earliest joiners take from new participants, incentivized to bring on more people who may not receive the benefits, complex fee structure, unregistered investment, high returns with little or no risk, and overly consistent returns.
There are screen grabs and tons of archived messages included here. The most interesting was Richard stating that the only way HEX gets USD value is through onboarding new users. That is very similar to a pyramid scheme, not that I’m claiming this is one, but the strategy is almost the exact same.
Their business address is a UPS store in Wyoming for StakeHEX LLC. They also had to close their doors due to evidence of possible market manipulation on their HEX tool application confirmed by their analyst and Founder of StakeHEX LLC.
Richard is very critical of people who call HEX a scam or a Ponzi obviously because he wants to keep getting your Ethereum. The interesting thing is, by definition, technically he is right. In interviews, he always focuses on the textbook definitions. It’s not a scam, no. But it is a very flawed project that could collapse whenever all this information is widely realized and understood.
One last thing to note, everywhere that you see Richard Heart displayed is a weird mislead. His real name is Richard Schueler. On all his social media, anywhere he is associated with HEX, and even on the HEX website, his fake name is used. One may wonder why someone’s fake name is used in place of their real name. I’m not sure what advantages this provides, but I can bet there’s a legal upside to never using his real name, maybe someone in law may have a better perspective on this.
By the way, to back up what I mentioned previously since 7 million USD worth of ETH was withdrawn from the flush address in January - https://cryptodaily.co.uk/2020/01/48k-ethereum-hex-flush /https://cryptoslate.com/hex-origin-address-emptied-out-almost-7-million-withdrawn/ - The pump in April from 0.0005 all the way 0.006 which is nearly 10x could have been spurred on by all that ETH which would get pumped right back into the flush address. In this way, they could have simulated hundreds of millions of dollars worth of trade volume with ease then sell it all out in ETH thus increasing their supply to continue creating artificial pumps at higher volumes. I cannot prove any of this, but Richard claims he cannot reveal the owner of that ETH so we will never know.
By the way to back up what I mentioned previously, note that 7 million USD worth of ETH was withdrawn from the flush address in January - https://cryptodaily.co.uk/2020/01/48k-ethereum-hex-flush /https://cryptoslate.com/hex-origin-address-emptied-out-almost-7-million-withdrawn/ - The pump in April from 0.0005 all the way 0.006 which is nearly 10x could have been spurred on by all that ETH which would get pumped right back into the flush address. In this way, they could have simulated hundreds of millions of dollars worth of trade volume with ease then sell it all out in ETH thus increasing their supply to continue creating artificial pumps at higher volumes. I cannot prove any of this, but Richard claims he cannot reveal the owner of that ETH so we will never know.
On this live stream with Crypt0news https://www.youtube.com/watch?v=VY4xY09h0yc&feature=youtu.be&t=5219, Richard admits that all the bonuses and payments sent to the origin address are sent to 10-12 other addresses which stake for 10 years. What this means is the fees that you’re paying are not only going to him and the stakers, but all the fees going to him are then creating stakers to suck up more of those fees in a way that Richard will continually grow his stake exponentially while the inflating currency goes to 0 or he is making crazy profits on it on top of already having all that HEX and all the ETH used to mint it.
Many other people have broken this all down for you:
Keep in mind, they have a huge disclaimer you can read here: https://hex(dot)win/disclaimer.html < replace (dot) with a "." - (It's not allowed to be linked)
The key points being these two:
1. “If you've read down this far, congratulations. You will notice the theme of all of the above text is that you should have absolutely no expectations of any sort regarding anything, and if anything goes wrong, you shouldn't look for redress anywhere, and you should receive none. When you send ETH to the contract, you don't get the ETH back. Donations can be made by sending ETH directly to the contract without running the joinXfLobbyfunction. Software is hard. Blockchain software is harder. We're lucky any of this stuff works at all.”
2. “HEX is not a security. There aren't actually any coins, they're just numbers in a distributed database. No one is actually given anything … They're just numbers living on the Internet. The code can do nothing on its own. People can run the code if they want to, or not. The code can do nothing on its own but sit there.”
Do note as well that it doesn’t have a whitepaper so there is no clear outline for what the HEX is actually designed to do other than the marketing jargon used on their websites where Richard uses his fake name.
StakeHex.com realized in February how much HEX was being manipulated and put out this message on their website you can view below or here: https://www.stakehex.com/
“We're closing shop...
Due to evidence of possible manipulation of the HEX market value, I can no longer recommend HEX with a clean conscience.
I have removed the HEX Tool from the app stores, though I don't have a way of removing it from your phones, but I ask you to please delete it from your phones.
If you have any questions, feel free to reach out to me at firstname.lastname@example.org.
It has been a wild ride; I hope you all succeed and get rich. I've made new friends and learned a ton. You're all amazing; keep in touch! I'll be watching from the sidelines.”
After everything, you may still be thinking well so what. He’s taking all the gains and manipulating the price, but I can still make money on it. Yes, you can. I know because I did, but there’s no way you’ll ever know when it all comes crashing down. The recent pumps could have just been him using all the ETH from the flush address which just goes right back in. He can keep doing this to “prove its value” through trade volume and demand with artificial pumps. He has all the control though, we don’t know what’s going on and have no proof of anything happening yet. People say oh well if it hasn’t happened, then it should be fine, but the fact that it was set up to allow for this on purpose is the concern. There is obviously a reason for it, but I don’t know what.
Some people will say these criticisms could be and have been used against Bitcoin, but no. Satoshi is not able to infinitely create Bitcoin and manipulate the market. Richard can do so, has done so, and will continue doing so while the majority of all HEX payouts to stakers will slowly shift towards him more and more as he collects fees, prints free HEX before November 19th, and enables 10 year stakes.
I want to highlight one comment that was really succinct from @purasilusiones:
"Well at 3.69% inflation, every year, almost 30 billion more HEX will be given out [yearly]. The only way that this is valuable is if you are staking and earning a huge chunk of that while hoping that speculators keep buying. The only way this can be sustainable is if new investors are coming in to keep this going because it has no scarcity to it."
So in summary, anyone new coming in has to compete against everyone else who is staking for a share of the rewards. Considering there will only be 3.69% inflation, there will be a set amount of rewards to give out each year, and the more people that are staking, the fewer rewards there are to give to you. As I explained before, Richard said the OA was staking HEX which will naturally takes more and more rewards away from you.
Let me know what you think about all of this. It’s concerning, to say the least. I’m sure I could have gotten some stuff wrong, so please comment and corrections needed below. Simply saying I shouldn’t criticize it or that falsely accusing HEX of being unethical isn’t a real criticism. I’m not calling it a scam but I am recommending you do not participate.