Forks, clones and pump-and-dumps

Wonder

1. What made it technically simple to launch a competitor in 2013 but economically difficult to sustain one?
2. Who profited from a pump-and-dump, and who paid for it?
3. Why do network effects make it rare for clones to escape Bitcoin’s gravity?

Explore

1. Bitcoin’s open-source code meant that forking was technically trivial. By 2014, services generated new coins for a fee, resulting in hundreds of projects with altered names and parameters. This low barrier to entry allowed anyone to launch an asset, but it also exposed the market to a flood of undifferentiated clones that lacked distinct utility or community backing.
2. Common abuses defined this era. Premines involved founders mining large amounts before public launch, concentrating supply in few hands. Instamines came just after launch, when bugs or parameter tuning let insiders mine a large share of early coins. Fake development roadmaps promised future features that never materialized. These practices eroded trust and distinguished legitimate projects from speculative instruments driven by hype rather than technical merit.
3. Coordinated pump-and-dump schemes became prevalent. Organizers on forums, IRC channels and exchange chat rooms, and later on Telegram, would pick a coin, buy in, promote it to drive the price up, and sell into the buying rush. Studies of the later Telegram era documented hundreds of such events, showing how social media amplified volatility and allowed insiders to extract value from less informed participants.
4. Thinly traded small proof-of-work coins were particularly vulnerable to 51% attacks. With low mining costs relative to their market cap, attackers could rent hash power to double-spend transactions or reverse blocks. This security risk was a significant trade-off for smaller chains that lacked the economic inertia of Bitcoin or Ethereum, making them unsuitable for high-value settlement.
5. Promotion ran on the community’s own channels. New coins were announced daily in ‘ANN’ threads on the BitcoinTalk forum; ‘bounty’ campaigns paid users in the new coin to promote it; and small exchanges hungry for listings gave thinly traded tokens a market where a few large holders could move the price at will.
6. Researchers later quantified the pattern. Xu and Livshits (2019) traced hundreds of coordinated pumps organized in Telegram groups, in which organizers bought before the announcement and sold into the rush, leaving latecomers with losses. Sites that track defunct projects list thousands of coins that have died, most of them launched in the same few boom years.

Key facts

Exercise nine, six, three, one

Fact check

Dates, figures and claims checked against the published sources listed below.

• J. Xu & B. Livshits, 'The Anatomy of a Cryptocurrency Pump-and-Dump Scheme' (USENIX Security 2019)
• J. Kamps & B. Kleinberg, 'To the moon: defining and detecting cryptocurrency pump-and-dumps' (Crime Science, 2018)