Maybe you‘ve seen these get-rich-quick messages from a number of friends on social media. They’re giving you one of their few invites to something called “Initiative Q.” It’s often with a link they want to tell all their friends about. If you share to Facebook, it automatically has “you” say this mouthful, word-for-word:
“Initiative Q is an attempt by ex-PayPal guys to create a new payment system instead of credit cards that were designed in the 1950s. The system uses its own currency, the Q, and to get people to start using the system once it’s ready they are allocating Qs for free to people that sign up now (the amount drops as more people join – so better to join early). Signing up is free and they only ask for your name and an email address. There’s nothing to lose but if this payment system becomes a world leading payment method your Qs can be worth a lot. If you missed getting bitcoin seven years ago, you wouldn’t want to miss this.”
Most of us know better than to fall for anything offering us free money, right? I asked cryptocurrency advisor Ian Balina if he’d done any analysis on Initiative Q. He said, “No, but people in my network are calling it a ponzi.”
Nonetheless, you might be curious and click on the link. It’s then that you see a big red flag: the money they’re promising you is almost $20,000.
As their homepage explains:
“To get millions to join, we are giving away our future currency. Estimated future value of next spot: $18,320.” Where do they get that number from? “Based on a target value of one USD per Q. 1,832 (10%) is reserved after registration, 40% after inviting 5 friends and the rest for future tasks.”
In other words, if you sign up and invite five friends, you could be in for 18,320 “Q’s” which they say will one day be worth $1 each. Or $18,320. Notice that they don’t say when this will happen.
At Modern Consensus, we eat scams for breakfast. So let’s look under the hood (by which we mean their website), where it’s even worse:
- “Initiative Q is an attempt by ex-PayPal guys…” No, it isn’t. Initiative Q’s Saar Wilf founded Fraud Sciences Corp—a fraud detecting platform—which was acquired by Paypal/eBay. I’m not calling him a fraud, but it is misleading to pretend that he and Elon Musk and Peter Thiel were in charge of picking teams on the PayPal softball league back in 1998. It’s misleadingly written in Bloomberg that “Mr. Wilf also founded Fraud Sciences Corp. (acquired by PayPal/eBay for USD 169 million) in 2001.” Records show he sold FSC to Paypal/eBay in 2008 not 2001. So, okay, a guy who knows a guy at eBay works there. I haven’t been able to confirm a single other “ex-PayPal guy” at Initiative Q. Wilf’s LinkedIn only says he worked at “Paypal, an Ebay Company” from 2008-2010.
- “The Q rewards reserved today are from a supply of 2 trillion Q.” Are you kidding me? That is an INSANE amount, even if it’s a meaningless token. There’s 40.3 million XRP out there—total!—and it’s trading at $0.37. A chipper and spammy Vox article says that 2 million people in 108 countries have signed up. I reached out to the Vox writer on Twitter and she couldn’t verify where she got that number, just that they gave it to her. Nonetheless, it’s now a “fact” on the Initiative Q Wikipedia page. Okay, so 2 million users can snag 18,320. That’s 36.6 billion “Q’s” or 1.8 percent of the total amount.
- “Q is backed by Cato Institute economist Lawrence H. White.” The Vox article stinks to high Heaven. Vox’s source cited for Wilf’s cofounder, economist Lawrence White, is a link to a “Wikiwand article.” Wikiwand is the “interface that optimizes Wikipedia’s amazing content.” It’s just Wikipedia but with ads—and ad revenue going to Wikiwand instead of the Wikipedia Foundation. To cite a source that is literally a page plagiarized by Wikipedia is weird. The weirder part is that Initiative Q founder Saar Wilf is the Chairman of Wikiwand and still one of its only 5 employees listen on LinkedIn. Did they just feed Vox a plagiarized wikipedia article AND made sure they got ad revenue off the link?
- Wikiwand’s board member Itay Cohen is the COO at SW Ventures. Wilf founded SW in 2010, the year he earned his “ex-PayPal guy” stripes.
- On their website it says: “Is this an ICO? No.” And that might be why it’s sketchier than we first thought. ICOs are unregulated, but in order to participate in them, you have to use crypto or buy in. But the laws about selling securities—that is, something you buy that a reasonable person would think could increase in value—are highly regulated. The point of this company is to sell the value of this company to investors. What they are selling instead then is the idea that this bullshit company actually has 2 million “users”.
- “The monetary committee will continuously offer to buy Qs in exchange for USD (and other currencies) at the target rate of 1 Q per 1 USD. ” Alright, now we know this is never going to happen. In order to do this, they will have to register as a Money Transmitter. State laws vary, but the proof-of-work generated just by complying can often show you a lot about the company. Some states require a listed compliance officer, a minimum amount of cash on hand in a listed bank account, and other safeguards before they can accept or transmit money. If they were anywhere near being able to do that, they would also be ready to sell Q’s.
But what are Q’s and where do Q’s come from? Apparently, they just made them up. There’s no mining process. No way to create or destroy them. Even an I.O.U. from a friend is written down on a piece of paper. That has value. Q’s don’t. It’s not a cryptocurrency. It’s just…Q. They’re like Schrute Bucks. Fundamentally worthless.
“In order to work like money, any cryptocurrency must have its own value,” nChain’s Dr. Craig Wright told me last week via Skype about the problem with companies like Tether who are trying to do this in a different way. They call these “stablecoins” because they strive to be the digital equivalent of one dollar. “And you can’t go changing the rules anything you want. Say you plan a 30-year mortgage on the blockchain; how can you do that if you’re changing the rules every year?”
But does that make it a scam? Well, let’s put it this way: this system works about as well as if, from now on, we all agreed to pay for everything with our airline miles. The airlines can award them or we can exchange our money for them. Does that sound like a better alternative to “credit cards which were designed in the 1950s?”
Initiative Q’s biggest argument is just that it could work if everyone believes that it works. We have a word for men who use your confidence in them to get you to part with something of yours: Con men.
One of the biggest reasons this is not money is that you can’t actually take it out of their centralized system. You can’t put it into a hardware wallet like you can with bitcoin or ether. If the company goes under, so does your money.
They are very up front about that in their cheery video that looks like it was made by the people who advertise mattresses by mail.
When I contacted Initiative Q, they were ready to fight back before I even asked any questions. About 10 hours after my one-sentence request for an interview, and after they presumably had seen our glorious website, they emailed back: “We would like to clarify ahead of time – to make sure you get what you are looking for: The Q is not a cryptocurrency and does not pretend to be one.”
Okay. So WTF is it?
“Q is also a digital currency. However, it IS centralized and will be centrally managed by an independent democratically-elected monetary committee separate from the Q company – similar to national central banks we are all familiar with, just not run by a government,” they said in their email. “The committee will have as an objective the stability of the Q.”
That would be like if your bank said, “The money in your account is solid, but we’re going to make up the numbers we spend on rent and electricity just to keep the bank open and stable.”
But might it work fine?
“Wouldn’t it be wonderful if Initiative Q delivered and people make a fortune just by signing up for free?” MoneySavingExpert.com founder Martin Lewis said. “Don’t hold your breath though, the truth is fortunes for early adopters are very unlikely to happen, in fact, it is unlikely anyone signing up will make any money. The claims that it will have $20 trillion in transactions a year seem more far-fetched than me winning the next Rear of the Year contest (though neither are impossible).”
On their website, Initiative Q then goes into the predictable thing about how credit cards are outdated:
“So why don’t we already have newer, better systems? Because there’s a ‘chicken and egg’ barrier — no buyer will join a new payment network with no sellers, and no seller will offer a new payment option that no buyer uses.”
Which would be true if we didn’t already have Venmo, Apple Pay and Samsung Pay. People have already adopted them. They make transactions just fine. Last week, my girlfriend forgot her wallet and I ApplePay’d her $5 to pick us up a beer at the bodega. That was fee-free because it was a person-to-person transaction. I sent her money, but once she uses it in a store it goes to the regular rules and the store has to pay the fee.
And so will Initiative Q, assuming that someday you can buy something with your credit card (and they’ll charge you the fee).
So what’s the harm in signing up? You get some Monopoly money that might pan out someday, right? Wrong. For one, you’re just setting yourself up to get hacked and give away your banking information in the future.
And then there’s the matter of what you are really giving up. Can you guess what it is? You’re giving up your contacts.
Just by sharing it on Facebook to get 1,832 Q’s for having another friend sign up for this system you only kind of hear about half an hour ago, you’ve tacitly endorsed them. Metcalfe’s law says the value of a network is the square of the sum of its users. So payments network with 100 users (customers and merchants) is worth 100 x 100, or 10,000. It’s not the number of users, but the number of connections they can make to each other. If you invite 10 friends and they invite 10 of their friends, that’s the same 10,000 in value. This is because everyone you invite can send and receive money; they are customers and merchants. For comparison: the value of 2 million users is 4 trillion. Initiative Q keeps the value, but you give it to them every time you invite someone.
Let’s do another comparison: Facebook has about a billion active users and a market cap of $388 billion dollars. If those users disappear, then so does their market cap. So everyone who uses Facebook is worth $388. Do you get $388 in value from being on there?
We are entering an age where it’s hard to tell the customer from the product. And since Initiative Q doesn’t have a product: you are what they’re selling. They are going to raise more money based on how many of your friends you invite.
There’s a great scene about the self-dealing in the Icelandic financial crisis in Michael Lewis’ book about failed economies, Boomerang”:
“Imagine this. You have a dog, I have a cat. I give you the cat and you give me a billion dollars. I take that billion dollars and give it to you for the dog. Now we are not pet owners. We’re Icelandic banks.”
The point is that just because someone tells you you can buy something that will be worth a lot of money to someone else, that doesn’t mean you’re not taking on enormous risk by trusting them.
Thus, in the end, Initiative Q isn’t a scam so much as it’s a pyramid scheme based off of social contacts. It perpetuates because people share it. It’s the equivalent of that Facebook post that my mom keeps reposting “Don’t accept any friend requests from me. I got hacked.” Someone told one of her friends to forward it to 10 people before the “hacker” got them too. It’s the tech equivalent of “Forward this email to 10 people by midnight or you’ll have bad luck.” Do people impersonate other people online sometimes? Yes. Is there a vast conspiracy out to get my mom and other people who aren’t that tech savvy? No, but they don’t know that.
Initiative Q is the equivalent of malicious fake news. It doesn’t become true just because people share it. But it does start looking more legitimate.
I just checked and in the time it took me to research this article, I lost out on 50,000 Q’s because I didn’t send out my affiliate link in time.
Oh no, I guess I’ll have to go to work and earn a dollar like everyone else.