Richard Heart’s Hex Token is a Brilliant Scam
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Updated on October 25th, 2021
Before you research how to buy hex crypto, you should read this whole article before deciding if Hex is worth investing in. Is Hex crypto a pyramid scheme? No. Is Hex crypto a Ponzi scheme? Not exactly. But don’t let that fool you into thinking that Hex is a legitimate investment product.
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Hex should go down in the crypto textbooks as one of the greatest cryptocurrency scams in history because it is brilliantly executed and marketed. There are a lot of features of it that entice others to buy in for quick returns then turn around and promote it to others, all while enriching its founder. It’s also the only cryptocurrency that I have ever heard of to use ads to market in magazines, buses and taxis trying to bring in a whole new class of victims outside the regular cryptocurrency investors.
99% of cryptocurrencies are scams, so there isn’t really anything new here. But since this scam is marketed to a lot of people outside the cryptocurrency circles, and even a friend of mine put money in it, after researching what it was all about, I was amazed at how much it was carefully crafted to make the founder rich, entice others to buy in and not sell, and attempt to avoid legal scrutiny.
Get Rich With Hex Media Blitz
What Is Hex Crypto?
Hex is a token on the Ethereum network executed by a smart contract and the website advertises itself as a place to earn 40% per year with “certificates of deposit.”
You think that the 40% per year “interest” is your first clue that this is a scam?
Hex bears a lot of similarities to the Bitconnect Ponzi scheme that failed in 2017. In fact, it’s almost as if the scammer behind Hex used Bitconnect as a springboard to make an improved scam. Hex has been very careful with marketing language and product design features to both appear legitimate and to avoid legal trouble.
Their website even has an entire page on the Hex token dedicated to why the product isn’t a scam and generously educates the reader on what technically constitutes an illegal Ponzi scheme and a Pyramid scheme and why this product doesn’t qualify.
Usually legitimate investment products don’t need an entire section educating you on scams and why their product doesn’t meet the technical requirements.
I think this page is actually targeted towards any SEC or financial authority law enforcement officer that happens to come across the product rather than everyday readers to preempt an investigation.
It may not fit the legal definition of a Ponzi or Pyramid scheme only because this is the first time in history that the schemer has controlled the seigniorage that victims were receiving as interest. The scam wouldn’t work if the advertised returns had to be paid in any other asset that Hex didn’t control.
Hex also mentions in its marketing materials that two different auditors have audited its contract. But what does that really mean? To a layman, they might think that the statement means that a professional auditor like PricewaterhouseCoopers came in and reviewed it and found out it’s not a scam, or something to that effect.
But that’s not what it means. Auditing in crypto-land is evaluating the computer code for bugs. Having sound code doesn’t absolve it from being a scam if the code is written to be… a scam. I point out the scammy features in the next several sections.
And none of the Hex scam rebuttals negate the fact that the whole premise requires luring others to buy in.
Who Founded Hex?
The founder who goes by Richard Heart for marketing (his real name is Richard J Schueler). There’s nothing wrong with using a pen name except when the point is to hide a long history of shady businesses involved in spamming Viagra and anti-aging pills (which he was successfully sued for in the early 2000s) and legal trouble in Panama.
He was even spamming courses on “how to spam” and avoid paying taxes on the spamming earnings. Fear of Missing Out (FOMO) is a great sales tactic that Richard Schueler uses continuously in everything he is involved with. Here in 2003 he offers up that he was a 23 year old multi-millionaire from spamming.
Furthermore his own blog documented other shady businesses such as selling stereo equipment he didn’t own and then turning around and giving the buyer sub-par equipment.
He has had a pretty public persona for the last few years doing podcasts, interviews and publicly challenging others about their involvement in cryptocurrency. He has built up a lot of followers on social media over the years which was the perfect set of initial buyers to market his token towards.
Ironically, he has called basically anything other than Bitcoin a scam, but changed his tune and decided he wanted to cash in.
Does a scammer ever reform, or are they always out looking for their next mark?
It is no surprise that since the crypto world is like the Wild West, that he would have gravitated to this space to enrich himself.
And enrich he has. Another one of the ways he promotes his product is by flashing his riches and comically attributing the success to his own product.
Well, yeah, Hex.com has been amazing for HIM. Bernie Madoff’s scam business was amazing for him and early investors as well for dozens of years.
What Is Interest?
When banks offer certificates of deposits they refer to federally insured bank notes and the saver is required to lock those funds up for an agreed amount of time to receive a higher rate of interest. Banks offer these because they can plan better around their federally mandated reserve requirements and lending portfolio. Everyone is familiar with them: you put in dollars, and you get dollars back later.
The Hex “certificate of deposit” is based on a smart contract on the Ethereum blockchain that follows a programmed set of rules. Similar to banks, the longer you lock up your funds, the higher your interest rate is.
But that’s where the similarities end.
You must first trade another cryptocurrency for Hex using a decentralized exchange and then when you lock up your Hex, you get more Hex tokens later.
Do you see where this is going?
This whole scam could not work if the requirement was to lock up an asset and get paid interest in that asset for an asset that Richard Schueler didn’t control and create out of thin air.
Where’s the certificate of deposit that pays in Bitcoin or Ethereum? If one exists, it sure won’t be paying anywhere near 40%.
How Does Hex Crypto Make Money?
In short, it doesn’t.
When banks give you interest, it stems from economic activity. The bank takes your money, loans it out, gets a return on the money, and then pays you part of that return. A commercial bank’s business model is to capture a spread between short term and long term interest rates. They borrow short, and lend long. That’s the core of their business and why they offer savings and checking accounts in the first place: They leverage other people’s money.
With Hex, there is no underlying economic activity happening at all. It’s not even real interest.
All the Hex contract code does is mint new inflationary tokens every year and then distributes the inflation to those who have agreed to lock theirs up for a specified amount of time.
Those who lock up tokens also get half the penalties for those who unlock their funds early, or get this, forget to unlock their funds within two weeks of the agreed upon period. Richard Schueler generously gives himself the other half.
So in other words, the sole purpose of the Hex contract is to redistribute value from some token holders to other token holders. Not technically a Ponzi scheme, but getting pretty close, wouldn’t you say?
Fool’s gold is not turning into real gold here.
Furthermore, the inflation does not stem from computer work in the form of electricity like in the case of Bitcoin. Inflation in the Hex system is completely arbitrary and solely exists to create funds out of thin air to pay Hex members.
Everything else being equal, your expected return from being paid inflation is 0%.
I can cut up a sandwich into smaller pieces and give it back to you and you still don’t have a bigger sandwich.
You can agree to buy a $1,000 worth of arcade tokens and earn additional arcade tokens, but if the games are increasing at the same rate you are supposedly earning, you haven’t earned anything. Furthermore, what if the arcade owner then tells you that you have to go to the street and sell your tokens to someone else if you want to convert your tokens back to dollars.
Would you take that deal?
Richard Schueler could have written the smart contract to say that every year a zero will be added to every locked wallet balance. Does that actually make anyone 10x richer? Of course not, so why does the more subtle way Hex uses this principle fool so many people?
Your balance of Hex tokens may be growing but that doesn’t translate into real earnings when you have to convert back to dollars in several years time which is why Schueler and Hex shillers spend so much effort trying to rope in new buyers to prop up the token price.
Why Is The Interest Rate 40%?
It’s marketing based on an assumption of the contract code.
The 40% number comes from the requirement that only people who lock up their funds get paid the inflation and currently only about 10% of Hex token buyers have locked up their funds. The inflation rate is 3.69% arbitrarily, for undisclosed reasons.
While only 10% might be currently locked up, I question why in the future only 10% of token buyers lock up their funds when the whole point of buying Hex would be to lock it up and get the advertised 40% annual interest? As more people lock up their tokens, the lower the reward will become. And if everyone locks up their tokens, then everyone would get 3.69%, but also losing 3.69% to inflation.
The general staking concept where holders lock up their tokens for a period of time is the norm with newer Proof of Stake styled cryptocurrency tokens. Older cryptocurrencies like Bitcoin and Ethereum require millions of computers (i.e. ASICs) running specialized number guessing hardware all competing against each other to secure the network. It uses up an enormous amount of electricity.
In contrast, staking is a newer, more energy efficient methodology whereby other people’s datacenters are voted on by each staker. The staker needs to research the datacenter to make sure that it doesn’t behave badly, and doesn’t have long periods of inactivity, because if it does, the staker’s money will be slashed. Therefore, it is a decentralized way for people to put money where their mouth is and as a reward, they earn a portion of the datacenter’s fees from processing those transactions.
When you stake with Hex, you aren’t securing a network or facilitating any underlying economic activity at all. You are just agreeing to lock up your funds so that there won’t be selling pressure. What a convenient product feature.
In this section we take a closer look at some of the aspects of the Hex crypto token.
How Hex Started
Hex was carefully crafted to avoid the various legal tests of typical pyramid or Ponzi scams. For instance, it can’t be considered a multi-level marketing program or pyramid scheme because it only had one level of referrals built in to the adoption phase.
It doesn’t technically constitute a Ponzi scheme because it’s not only new investors that are paying off old investors.
Hex also doesn’t promise returns, it says that its returns are “designed by the code” as if simply decreeing investment returns could work in the real world.
If you cruise over to the very bottom of the page, you will see the disclaimers page where Richard Schueler has put in a copious amount of them.
It’s not a security, I swear!
I’m not selling you anything, it’s just code out on the blockchain!
He can personally decree that it is not a security but that does not constitute what a legal authority would ultimately rule on what it actually is. It looks like he is attempting to thwart the SEC from knocking on his door by carefully explaining why it doesn’t adhere to their tests.
The (Initial Coin Offering) ICO
During the first year’s claim period, you’d send Ethereum to the contract address, known as the origin address, and you were sent Hex tokens. If you wanted to change your Hex tokens back to Etheruem, you’d have to go to go somewhere else. You don’t ever get a refund from Schueler’s origin address. He keeps everything you send him, scot-free and if you want out, then you are on your own to find an exchange offering liquidity.
In interviews he always dodges the question of who owns the “origin address” that receives Ethereum and also receives half the penalty for people who unlock too early or late.
The reason why he will not answer that question is because the ICO was deemed a security by the SEC and he basically conducted an illegal one without a filing and registration. He can’t deny that he received an asset and traded it for another asset of his own product. He knows it was technically a year round ICO.
About $7 million of Ethereum was withdrawn from that origin address about a month after launch. It was conducted with 36 transactions of 1,337 ETH. 1337 is “leetspeak” for leet, which means “elite.” Hackers in the 1990s referred to others as elite if they had the best hacking skills being able to infiltrate corporate servers and websites. To me this looks like a cocky message basically bragging about how he bilked millions of dollars out of suckers.
Also, during the first year, there was nothing stopping Richard Schueler from creating a continuous loop by sending Ethereum to the origin address, receiving Hex, then sending the received Ethereum to a different address (through a laundering mixer to obfuscate this activity), and then sending it right back to the origin address for more Hex. He could mint himself as much Hex as he wanted and he did (more on that below).
How could anyone ignore that fact alone and not see how much of a scam it is?
This is really the crux of the brilliance of this scam. It’s like Hotel California: Your money checks in, but doesn’t check out.
By incentivizing Hex buyers to lock up their tokens for a number of years, it removes selling pressure and reduces the float, allowing the marketing efforts to have a more powerful effect of luring in new buyers and pushing up the Hex price.
The goal of course is to create so much FOMO that the price skyrockets and attracts an even larger set of buyers so that there will be enough trout swimming upstream to counteract the selling pressure of early promoters.
Early investors in every Ponzi and pyramid scheme make money along with the pinnacle scammer and they will defend the product without bounds to protect their newfound wealth.
It started with lots of marketing through traditional print and online media as I showed at the beginning of this article. As stated before, this is unusual for a cryptocurrency project to advertise because search engines usually outright ban any advertisements related to crypto and print media is expensive.
The original name of the project was called “BitcoinHEX.” Remember in the previous article how I stated that usually crypto scammers seek to exploit name recognition and legitimacy by using another crypto’s name? Hex has absolutely nothing to do with Bitcoin, since it is built on the Ethereum network. But people have probably heard of Bitcoin so he wanted to give the allure to newbies that it was somehow related.
No scam would be complete without advertising how rich people are getting along with some Lambo shilling. In addition to a bunch of exotic cars purportedly paid for with Hex winnings, there is a whole cache of items on the webpage. Clearly this is a marketing technique to bring in buyers want to get rich quick.
Instant User Base
To get it started with an instant user base, Richard Schueler offered free Hex tokens to anyone who had Bitcoin by a deadline and then submitted a claim to the website. As I also mentioned in my previous article, it’s much easier to grow a community when you instantly mint thousands of people who didn’t have do actually commit any new money to be a part of it. And since those Hex tokens were minted out of thin air and locked for a year, it didn’t actually cost him anything to give them out.
Shortly after launch he could claim that thousands of people have staked Hex in his “certificates of deposit” even though they didn’t put a dime into them. People are herd animals and feel more comfortable if there are lots of other people already involved in a product.
Adoption Amplifier & Referral Program
Schueler incentivized people to “act fast” to get a bonus.
And users were incentivized to bring in others through their referral program. Your users become your marketing shillers for free. A few websites started up Hex affiliates just for the purpose of getting the 20% referral. They didn’t have to commit any of their own money to shill the product and earn.
Richard Got a Copy of Adoption Bonus and Referral Bonuses
During the early adoption phase he also got a copy of what everyone else got. In other words, when someone exchanged Ethereum to Hex, Schueler got half of the Hex value and 100% of the Ethereum value.
He already got the Ethereum in the exchange, so why did he get additional Hex too?
And when someone was referred by another Hex user, he also got a copy of what both the referrer and referree got. Gee that’s fair.
In case it’s not obvious, each time someone used the adoption method or was referred, it was further dilutionary to the Hex token pool by 2x the claim amount.
It should be pretty obvious from that the only significant whale in the Hex system is Schueler himself.
The Hex Token Distribution
Which brings us to the next point.
The distribution of Hex shows that it is highly centralized. This shouldn’t be a surprise given how much goes straight to Richard Schueler’s personal origin wallet and that he had an entire year to mint himself as much as he wanted with ETH recycling.
In an effort to pretend that there are more investors than there really are and to obfuscate the distribution of tokens, Richard Schueler created a huge number of wallets to hold his Hex stash.
Etherscan provides a tool to look at the top 500 token holders. Almost all of them were created in blocks on the same day, within the same hour. Try to find a single account in the top 150 that wasn’t funded by the origin account. Furthermore, there is a whole block of accounts that all have the same exact amount in them.
Yup, you guessed it, all funded by the origin account.
In fact, I couldn’t find a single Ether account in the list of 500, from randomly clicking, that had any activity beyond just funding Hex. I guess a wave of Ethereum whales all saw the light at the same time and became Hex-Maximalists on a brand new token that only had a $1 billion market cap! Right.
And check out this Ether address, with funds originating from a money laundering mixer all paying the gas fee on 200 accounts each with 350-400 million dollars in Hex tokens. See for yourself and do the math.
This single, simple observation shows that Richard controls more than 50% of the entire supply of Hex. His laziness to use a single account to fund the gas fees on 200 other massive accounts is much appreciated because it made the analysis much easier to collate.
So how much Hex does he control in total? With an automated account analysis program, I speculate that the data would show more than 80%. It takes a little bit of effort to track the flow of funds across accounts and it is time consuming to do it manually.
If Richard himself didn’t want to pay a 20% founders tax on a coin, why does he deem it acceptable for you to pay a 50-80% founders tax?
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I’ll note that he can’t get that value out of the system unless lots of future suckers buy in to prop up the price, which is why the marketing efforts are more broad than you typically see for cryptocurrency.
But why obfuscate his holdings? Would there be fewer Hex token buyers if everyone knew he controlled so much and the main point of the token was to enrich himself? I think you know the answer.
Watch a few Youtube videos of Richard getting interviewed by someone critical of Hex.
Not only does Richard Schueler get defensive and start name calling, his response is to ask a question of why Hex can’t be thought of just like Bitcoin?
Well what innovation does Hex add to the table aside of being a self enrichment scam?
Bitcoin’s purpose wasn’t to furnish its users with investment returns, it was invented to facilitate digital payments. Conversely, Hex’s only purpose is for investment returns. Bitcoin solved a double spending problem for digital money and didn’t require sending the founder money to participate.
Schueler just saw that other scammers were getting rich creating scam-coins and wanted in on the action.
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The game theory dynamics involved in this scam are well thought out to avoid being placed in a legal category of a pyramid scheme or a Ponzi scheme and designed to keep people in like the roach motel. It’s the most blatant scam coin where it is written right into the contract that he could have minted as much as he wanted for himself for the first year of the contract’s existence, a copy of referral bonuses and adoption claims, and he still gets half of all penalties and fines.
Anyone who buys into this scam will feel supremely confident about their balance until the day it falls apart. People also thought that they were getting rich with Bitconnect until the bottom fell out one day.
A common retort of Hex shillers is that their account balance has gone up or they’ve sold and made money, so it is therefore not a scam. But a rising price for the Hex token does not absolve its short comings and just because you’ve gotten out doesn’t mean that everyone else will.
A little marketing does wonders in the crypto world and lots of other scam tokens have increased rapidly for a while because lots of people jump aboard to catch the next moon shot. Momentum is a self fulfilling prophecy, but it always reverses at some point, sometimes permanently. If there isn’t an economic driver underneath the Hex covers, then a lot of speculators are just betting on a greater fool to buy at a higher price.
Don’t forget that the earliest investors in every scam do well at the expense of later investors and need others to buy in after them to pump up the price. Those early investors will promote and defend it to no end because of all the money they are making from it. It’s no different here and you can see the Hex shill army attacking anyone critical of it all over social media. It’s like a cult.
And not unlike other cryptocurrencies, Hex requires bringing in a new set of buyers to keep the price from plummeting when those earlier investors unlock their stakes and sell. When you have a token that has gained 10,000x in a short period of time, there are a lot of people who have contributed minimal amounts of their own capital and are itching to cash out their large account balances before everyone else does.
Additionally the new set of buyers need to overcome the effects of inflation minting new tokens out of thin air and Richard’s massive share of the Hex token pool which he will have to dump onto the masses over time to cash out.
Sure, you can buy in, but are these odds you like? It’s right in the name: You are being Punk’d.
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