WARNING! Garza’s “Honor Program” could lock up your Paycoin for 91 years! (no joke)
UPDATE 1/20/2015: The SEC is allegedly investigating Garza and GAW Miners!
If you’ve been following the whole Paycoin debacle in the cryptocurrency community, you know that it has been similar to countless other pre-mined, ICO-style coin launches. Lots of promises, price targets, and hype followed by a reality check when the free market takes over and all the people who believed the hype wound up buying an overpriced altcoin that they’ll never get a positive return on (aka “bag-holders“).
After Josh Garza, CEO of GAW Miners and the public face of Paycoin, backpedaled frantically on his promise to buy any and all Paycoins at a guaranteed price of $20 each the whole thing pretty much fell into line with nearly every other altcoin that has ridden a wave of extraordinary hype followed by a market crash in the span of 72 hours or less. Those who were convinced that the hype was real wound up holding bags of virtual money they paid way too much BTC for with no way to exit anywhere near their break-even point. Meanwhile Garza and his alleged partners and/or early investors made a killing selling miners, "pre-mined" coins, and GAW’s newest ingenious product, Hashstakers, to the thousands of people who are now officially bag-holders.
Paycoin went from 0.05 BTC to 0.01 BTC in about a week
I’ve been involved with GAW’s cloud mining service since the very beginning, when a hardware mining device I purchased from GAW (they used to be in the business of selling re-branded Chinese scrypt mining equipment) came with a complimentary cloud equivalent in their new online mining platform, Zencloud. In the beginning, the profits were fantastic, and I wound up purchasing about 150 Mh of cloud miners from them early enough that I actually did see full ROI before all this Hashcoin/Paycoin stuff began. Being entirely in the black on the whole thing, I had absolutely nothing to lose by sticking around to watch the Paycoin saga unfold and possibly even make some additional profit from it.Long story short, when Paycoin finally hit the public exchanges, the price fell to around $8 in under 36 hours. Garza was taking flak from thousands of bag-holders and was (allegedly) even contacted by a federal agency regarding his promises to manipulate the price of the commodity to a specific dollar amount on the open market.
Garza’s Latest Scheme: “Honor”
Having watched Josh Garza’s actions, statements, and endless public commentary for months now, I have a pretty good feel for his modus operandi. The man is a salesman, and a rather good one, to be honest. He has had a seemingly unlimited number of spins and gimmicks up his sleeve throughout the Paycoin launch and subsequent disaster. He is a talented and experienced liar, and he is skilled at making money. He also is more than willing to bend ethical boundaries in order to accomplish his goals.
So when he published this announcement tonight stating that he would, in fact, uphold his promise to buy every last Paycoin on the market for $20, I read it with great interest. And then I read it again. And again. And again. Because something just wasn’t right about it, but I was having trouble pinpointing exactly what the scam was this time. Then a friend of mine sent me the link to this statement Garza published on his heavily-moderated forum website, which I am including as a screenshot below since he is likely to update or remove it at a later date when he realizes it reveals too much about the scheme.
I am a man who stands by my promises… [even if it takes 91 years.]” -Josh Garza, Jan 12, 2014, on buying Paycoin for twenty dollars each
How the scheme works
Garza creates the Paycoin Honor Program which consists of a “vault” to hold Paycoins owned by people who want to get the $20 per coin they were promised. Managed by an “authenticated” third-party, it is effectively an escrow account. Would-be participants have 30 days (Feb 1 through Mar 2, 2015) to sign up for the program. Here’s the tricky part: Garza guarantees he will purchase $100,000 worth of Paycoin each month from the escrow account. Eventually everyone who wanted $20 Paycoin will, in fact, receive that amount of money for each of the $XPY they send to this service after signing up (which requires unspecified “account verification”, by the way).
If everyone sends their Paycoin to the “Honor Program” it will take 91.6 years to complete the $20 buy-back program
If you wait long enough…
It sounds great on paper because $100,000 sounds like a lot of money. But let’s do some math. There are approximately 12,400,000 XPY in existence, 6.9m of which are locked up in “prime stakers” (source). If the remaining 5.5m or so Paycoin were sent to this Honor Program escrow wallet, it would take 91.6 years to buy them all for $20 at $100k per month.
Obviously not everyone is going to do this. There are the almost cult-like followers who actually believe they’ll be able to use Paycoin to buy goods from Amazon and Walmart at a discount (which Amazon has publicly refuted many times). There are plenty of investors (now bag-holders) who just want out of this mess and are waiting for the open market to give them an exit opportunity that will minimize their losses or possibly even result in a little profit. And there are surely a large group of individuals who were convinced to purchase Paycoin at ludicrously high prices after reading about it in off-beat news, blogs, or whatever. The last group may consist of a good number of people who’s first experience with digital currency is Paycoin simply because Garza did such a good job with PR and probably brought a lot of new people into the scene. Those poor unfortunate souls. 😉
Even if only 500,000 XPY are sent to the program it would be 8.3 years before every last participant were paid $20 per coin. If you think Paycoin will even be around in 8 years, well, I am impressed with your optimism!
So, that’s Garza’s latest scheme. It is obvious that he is doing at least two primary things with this plan:
1 – Buying time. Like, potentially more time than most of us even have left to live!
2 – Removing Paycoin from the marketplace for what might as well be a lifetime. Is this good or bad? Maybe good for those who don’t send their XPY to the program because it will increase scarcity (that would certainly include Garza himself!), but bad for those who do send their coins in because they aren’t likely to ever be completely bought out before GAW dissolves, cryptocurrency technology is replaced with something superior, or everyone dies of old age.
Upon reading that announcement it is clear he does a fantastic job of hiding the facts, doesn’t he? Most people outside my profession don’t realize it, but knowing how to effectively and efficiently use Google is a seriously major portion of my job as a systems engineer, web developer, and technical project manager; and it took me about 4 minutes and half a dozen web searches (meaning the information is rather difficult to find) to locate a breakdown of how many Paycoins even exist and what the original distribution of the coins was:
PayCoin is a PoS/PoW currency based off of Peercoin and that runs SHA-256. It will have 12.5 million coins total in the PoW stage available for mining, but 6.5 million coins were reserved by GAW for their large investors and 5.5 million coins for customers who collected HashPoints to trade in for their equivalent PayCoins.
Just one more scammy facet
Garza, on the right, controls nearly 2% of the world’s SHA-256 cryptocurrency mining power.
There’s always more, too, and frankly it’s difficult to not go off on another 1,500 word tangent from here, but I will keep it short.See how the numbers in the quoted section above make it sound like crypto currency miners, like me, had an excellent shot at earning some of the 300,000 or so Paycoin that were released during the (very brief) proof-of-work phase? Well, keep in mind that GAW is a mining company and they are reported to control 5 petahashes (of 288 total) of the bitcoin mining network, which is about 1.73% as of Dec 1, 2014. That is a LOT of mining power, and you can bet every last bit of it was mining Paycoin during the short mining window after the coin was launched. Just one more example of how skilled Garza is at misleading people.
And finally we come to the part of the equation that I give Josh Garza extra credit for in the Evil Genius category. Similar to how Hashstakers work, this Honor Program has a powerful side-effect for the XPY market overall: it takes even more Paycoins off the market, locking them up for years in a “vault” (as Garza called it in the announcement). This increases the scarcity of XPY on the open market, which in theory, and based on elementary economics, will make it much easier for Garza to manipulate the market in a bullish direction, since he not only (presumably and very likey) controls the vast majority of XPY in circulation but also has the raw capital to gradually push the price higher and higher. This fits in nicely with his overall business plan of turning Paycoin into a digital currency that people will actually use in everyday ecommerce transactions, but through which they will have to pass one or more of Garza’s gateways each time they want to spend it.
We know Josh Garza is willing to hide extra fees wherever possible. We know he’s willing to lie to the public. We know he is pulling the wool over our eyes with this latest scheme. So, if you’re going to be involved with Paycoin, just be aware that every aspect of it has a hidden cost, a twisted truth, or in some cases is a bald-faced lie. One thing is for sure: Josh Garza is not a benevolent and transparent businessman. Rather, he is a shady, well-dressed salesman who wants to lock up your Paycoin for 91 years and call it “chang[ing] the world of commerce and finance.”