Less than a few months ago, TikTok, the popular social media app, restricted its content creators from promoting any cryptocurrency on the platform. This seemed like a contradictory move to the ethos of blockchain, where true ownership rests in the hands of the users.
But, the restriction had an overarching impact in stopping the overtly infamous train of crypto scams and rug pulls.
As is the case, the crypto market has its fair share of negative connotations attached to it, thanks to its volatility and uncertainty. Furthering this distrust are the social media platforms where, courtesy of pseudo-anonymity, people are engaging in fraudulent activities.
This has resulted in the crypto market being crippled by rug pulls and pumps and dumps. The impact of these adversities does not only bear on the individual project but also hampers the credibility of the crypto market as a whole.
Social media platforms have immensely contributed to the evolution of the crypto market. Not only did they spread the word like wildfire, but platforms like Reddit have also emerged as the origins of a handful of cryptocurrencies. Stating the obvious, coins like Dogecoin and Shiba Inu faced daylight only thanks to certain personalities on social media.
And truly, social media has been a major reason for the growth of the crypto market. In 2013, to know bitcoin and invest in it would mean lurching into the unknown terrains.
Experts too had very few platforms and negligible incentives to voice out their knowledge and opinions. Cut to 2021, there are a plethora of sources to know the latest coins, ‘to the moon’ predictions, and everything inside the perimeters of the market.
Social media has also heralded a new era of monetization as there are enough incentives for personalities and brands to try their hand at advertising cryptocurrencies. This has furthered the reach of crypto to the nooks and corners of the globe.
Likewise, the advent of NFTs - Non-fungible Tokens is furthering the potential of crypto by facilitating the digital tokenization of assets like a song or in-game memorabilia.
Given its non-replicable nature, NFTs are a great way to add integrity and transparency to the lending market. By issuing promissory notes in the form of NFTs, the lender’s interests are well-protected. And these notes can be traded in the NFT marketplace.
Despite all these advantages, social media is now turning into a tool for sowing seeds of greed in the minds of the vulnerable.
In the US stock market, we recently saw a David vs Goliath story unfold when a group of retail traders (WallStreetBets) from Reddit took on the institutional authorities.
Quite popular as the ‘Reddit revolution’, the incident reflected the power of social media. Similarly, in the crypto market, one cryptic tweet,
and the price of Bitcoin — the first-ever cryptocurrency — fell by nearly 30%.
This was not a one-off event as cryptic tweets have time and again dribbled the market around.
Whilst both these plots spell chaos and insecurity for their respective markets, the latter is an ominous sign. In a supposedly decentralized setup, the impact of an individual’s tweet reflects:
1. The fragility of the crypto market,
2. The power of social media.
The incident guaranteed unwanted attention from regulatory authorities which goes against the very ethos of cryptocurrencies.
Social media is beneficial for the crypto market with regards to reaching more people and facilitating an equal playing ground. But, they simultaneously are powerful enough to collapse the livelihoods of the multitude.
Adding onto the impact of social media is the new wave of scammers and frauds who, under the banner of investment advisors. From bogus ICO launches to fake giveaways, the masks worn by the perpetrators are diverse.
Social media giant Telegram is the safe haven for thousands of similar scams. In a collective effort, scammers are targeting the naive and the vulnerable traders who are looking to find their feet in the crypto market.
One feature of social media that bodes well with crypto scams is its pseudo-anonymity. There is no scalable solution to prove an individual’s identity on the internet.
The never-ending fight for privacy on the internet has diluted social media’s power to verify the real identity of any individual. This has further made way for perpetrators to blend themselves amongst the masses to find their prey.
Scams in the crypto space have grown into being one-off thefts to collective efforts with the potential of siphoning millions of dollars. Nowadays, scammers are building DeFi (decentralized finance) products as camouflage for their scams.
These products look genuine enough to generate interest among traders and investors to lighten their wallets on the token. Using fake reviews and aggressive marketing strategies, the scammers promise unparalleled returns to them.
When the price and volume of the token are substantial, they abandon the project and siphon the funds.
2021 alone has witnessed more than 2500 such rug pulls and a prime reason behind this is social media. Its ease of outreach has enabled fraudulent projects to generate interest and rally their growth.
Since their real identity is masked, there is a negligible window of opportunity to find the scammers and proceed with any legal action.
Volatility is a prime feature of the crypto market. As much as it has contributed to individuals getting wealthy, it has also devastated the lives of many. Similarly, it has discouraged many from entering the crypto market.
With social media fueling the herd mentality and indirectly controlling the market, volatility is far from settling down. The need of the hour is sustained growth for DeFi projects and the crypto market.
As the ‘to the moon’ trend ceases to exist, the crypto market matures with fundamentally strong DeFi projects and their tokens coming into play.
Simply put, the growth of the crypto market shall be decided in the see-saw battle between its volatility and its sustainability.