Distributed ledger technology (DLT) will have a profound impact on humanity that may even be more potent than that of the internet. Bitcoin served the basis of DLT gaining mainstream attention, but DLT will serve a purpose far greater than only cryptocurrency. Already we are seeing projects like IOTA create systems for networking smart cities, permitting the free flow and sale of data whilst meeting GDPR, enabling autonomous vehicle networking and communications and building an infrastructure for the economy of the internet of things.

Such incredible advancements and potential in this technology lead one to speculate on the value of cryptocurrencies. Indeed, speculation is the most captivating part of DLT for many people who have seen extraordinary growth and want to make similar returns. Getting acquainted and knowledgeable in this space for a newcomer isn’t easy though and social influencers play a significant role.

Unfortunately, social influencers in this space often have a conflict of interest and artfully manipulate their followers into supporting their agenda. It is often in the criticism of competing projects and new technologies that arguments built on logical fallacies undeservedly influence the crowd. Targeted attacks on competing technologies are common and the social environment of cryptocurrencies is unfortunately quite toxic. I hope that by reading this you can better judge arguments for or against a project and make the best decisions, both for your own well-being and to support the progress of truly great initiatives.

This article has three parts:

1. Logical Fallacies

2. Conflict of Interest, and

3. DYOR

1. Logical Fallacies

What is a logical fallacy?

A fallacy is a failure in reasoning in the construction of an argument that renders the argument invalid. Unfortunately, fallacies can be very persuasive and typically play to human nature. A shining example in society today is Donald Trump, who often side steps the inherent logic of his opponent by discrediting them as a person, also known as argumentum ad hominem.

Reciprocating the argument by insult is Trump’s equally frequent illegitimate appeal to authority, or argumentum ad verecundiam.

Get the picture? It’s persuasive, yet it’s inherently wrong and it should not form the basis of your opinion, whether it’s where you invest your money or who you want to lead your country. Here we look closely at 10 common logical fallacies used in the DLT space. There are however many more and I highly recommended further reading if you are interested in identifying flawed logic.

Ad Hominem

Translates as “to the man” and refers to a personal attack to try and undermine an opponent whilst side stepping the topic at hand. It intends to discredit and cause doubt of someone’s case without actually having to engage with it and is one of the most common tactics used by social influencers.

Example: “that project is the worst, it’s founded and developed by lobotomised retards.”

Observation: The personal attack is a side-step to discussing the merits or issues of the project.

Burden Of Proof

When someone makes a claim without evidence and their argument is to disprove their claim, this is not logical reasoning. The inability to disprove a claim does not make the argument valid.

Example: A social influencer proclaims that a project’s network is not secure. The founder refutes this and explains that no security flaws have been exploited and that all proposed exploits so far have been debunked. The social influencer then says, “until you can prove it’s secure, it’s not”

Observation: The social influencer has no evidence to support their claim and instead forms their argument by shifting the burden of proof to the project founder.

Affirming the consequent

If the consequence of activity X is outcome Y, that doesn’t mean that if Y occurs, that X was the cause or reason. Affirming the consequent is a logical fallacy that attempts to incorrectly attribute an outcome to a specific activity.

Example: Project SomethingCoin is good, and it has a fool proof wallet. Project BitSomething has a fool proof wallet, therefore it must be a good project.

Observation: The fallacy here arises because a fool proof wallet is not the only criterion for assessing the project. Indeed, a strong focus on the user interface without significant resources dedicated to the back end could be an indication of a scam or quick money grab.

Ad Vericundiam

Also known as an argument from authority or an appeal to authority, this fallacy uses a difference in status, expertise, experience etc., to form an argument without offering any evidence. It can be a direct or indirect appeal to authority and both are commonly used in cryptocurrency. Whilst the probability of the authority being correct is higher, this alone doesn’t justify the argument.

Example: When arguing whether project A or B is better, someone says “my friend is a blockchain developer and he says project A is better”

Observation: This appeal to the authority of the developer is not a logical reason for project A being better. The developer could be working on project A and have a conflict of interest. They might not be qualified to make the judgement or they might not have enough knowledge of each project.

Personal Incredulity

When someone cannot understand how something is possible they believe it can’t be possible. DLT is at the forefront of technology innovation and some of the concepts are extremely complex, therefore this argument is commonly used yet is completely illogical.

Example: A blockchain without the blocks or chains can’t reach a consensus because how can a node know what is going on in the network? It would be easy to do a double spend.

Observation: In this example, we see a common argument against emerging DLTs using innovative network design to overcome scalability and cost limitations of blockchain. It is inherently complex and the solutions are evolving, however not understanding them is not a basis for logical reasoning.

Band Wagon

Jumping on the bandwagon is a common expression meaning to follow a popular point of view. Because many believe something, it must be true is the false argument.

Example: Everyone is buying HypedFomoCoin therefore it must be good.

Observation: Cryptocurrency markets have relatively small capitalisations and the network effect can be profound. Furthermore, many inexperienced traders rely on their friends or social influencers for tips. When referred tips spread quickly and demand grows, the price can move up and the popular belief might look legitimate. It is however a consequence of the FOMO (fear of missing out) effect and is often followed by a big price crash.

Straw Man

The straw man is an intentional misrepresentation of what has been presented. When attacking the straw man one is not confronting the true argument and instead twists the detail to create an extreme or easily refuted one. Alarm bells should ring when you hear a social influencer being interviewed say something like “I think I know what you’re trying to ask, why don’t you let me ask your question for you.”

Example: A project developer states that their focus is to grow adoption and enhance their network architecture, security, scalability and performance for intended real world use cases. A social influencer claims the developers don’t care at all about the people investing in their token because they have a crappy wallet and aren’t user friendly.

Observation: Here the straw man is a false argument that the project does not care about speculators wanting to buy and hold or transfer the token because they have only supported a basic user-unfriendly wallet. It is not a true representation of the project developers statement. When a young project has limited resources yet invests heavily in developing user friendly tools for speculators one should really question whether they are genuine in their long-term vision or looking for a short-term pump.

Appeal to emotion

Humans are very emotional creatures and our emotions are an easy exploit that cloud logical thinking. When one appeals to emotions, they are attempting to provoke an emotional response in place of a logical argument. It is why we pay a significant premium for anything to do with weddings, St Valentine’s day and babies. It can target both positive and negative emotions to get the intended response.

Example: A social influencer writes a blog post titled “PROJECT WILL FAIL AT INTENDED USE CASE. LOSS OF FUNDS MAY OCCUR.”

Observation: We live in an era of enormous digital distraction and as a result can be headline concluders. This example is based on an actual blog post that appealed to the emotion of fear, both through a project failing and a speculator losing funds. If we left it at that, we would remember the emotion of fear and it could cloud future judgements. In this real example, there was no logical argument or evidence presented in the content to support the claims made in the title.

The Gamblers Fallacy

This is the belief that if something has occurred more often than expected then the opposite is more likely to occur in the future and vice versa. The fallacy is most commonly associated in gambling where fixed probabilities exist and past events don’t change the future event probabilities. If you flip a coin 4 times and get 4 heads, it is still a 50–50 probability for the next flip.

Example: A self-proclaimed pro trader claims that TACoin has been dropping for some time now and is therefore likely to bounce and go up soon.

Observation: The argument ignores the reason for the coin valuation and downtrend and does not present logical reasoning for the coin to go back up.

Anecdote

The fallacy of the anecdote is more so a lack of rigour in reasoning. An anecdote is one of the lowest levels of evidence to support a claim. A personal experience that is an isolated example is a very weak argument and one should consider repeatability, confounding variables and probability of anecdotal evidence.

Example: I used this token once and the network is completely broken. I saw with my own eyes, my transaction went from confirmed, to pending then to confirmed.

Observation: This isolated example does not constitute a broken network. One needs to assert if it really did occur, how it could occur, other possible causes and if it would likely happen again. The anecdote is insubstantial evidence.

2. Conflict of Interest

A conflict of interest (COI) is a situation in which a person or organisation is involved in multiple interests, financial or otherwise, one of which could possibly corrupt the motivation or decision-making of that individual or organisation.

Having spotted logical fallacies, lies and the spreading of fear, uncertainty and doubt (FUD) by thought leaders, experts and people considered trustworthy advisors, it begs the question why they would do this? Are they legitimately concerned for the general population and need to save them from scams? Certainly not, as evident by their indifference to many truly dodgy projects targeting vulnerable money. Follow their patterns closely and you will very often see carefully selected competitive targets and their attempt to spread FUD about it.

There are now over 1500 DLT projects competing to be the killer app for their intended use case. This results in COI for project success and financial gain. COI is the cause of toxicity in cryptocurrencies and it is incredibly important to understand the conflicts of interest of any influencer. Sadly, whilst the cryptocurrency space is truly innovative and solving many of our future challenges, the exponential financial returns possible have turned it into a toxic snake pit when it comes to anti-competitive tactics.

Imagine this: an engineer from Apple writing a blog post and posting it to every tech publication claiming that he tried to use the Samsung smart phone but found it difficult to turn on, couldn’t insert the sim card, it took 2 days to send a text message and he couldn’t connect it to the internet. The title of the blog post was, “Samsung Smart Phone Is Not Smart And Will Never Work As A Phone. Users May Hurt Themselves.” It is absurd, but the equivalent is a daily occurrence in the social sphere of cryptocurrencies.

3. Bringing It All Together — DYOR

There is no doubt that DLT is going to be revolutionary. The tokenised assets that form an integral part of DLT projects have already demonstrated the potential for exponential value growth, but this also drives anti-competitive behaviour because of COI. Before you decide to speculate on a project by purchasing the token or look for an alternate way to invest, it is highly recommended to do your own research (DYOR). This is not a guide to analysis and valuation, but a quick look at the basics in sources and evidence.

Read the White Paper

It seems obvious, but it’s rarely done. Reading the white paper is the first thing anyone should do before departing with their hard-earnt money. The white paper tells you a lot of important information, but also critical information about the token and its utility. A surprising number of projects have no well-defined utility nor claim for their token.

Levels of Evidence

Not all evidence is equal. If there is one space that rigorous study and analysis of evidence is critical, it’s health care. The below pyramid is based on the Evidence Based Medicine approach to health care and is transferable to other subject matter.

The best form of evidence comes from peer reviewed systematic reviews, followed by peer reviewed primary research. The only information you are likely to find here though is on network security, consensus algorithms and other very technical content that might be jargon for anyone without a PhD in that field. It is still a good idea to see if such a level of evidence is available for the project you are researching and what can be derived from the conclusion.

Moving down the pyramid, the availability of information in the cryptocurrency space quickly lands us at the bottom. Highly accessible background information from the project website and meet-ups and unlimited “Expert Opinion” from the many Twitter, Reddit, Discord, Medium and other social digital platforms available. A lot can still be learnt from this level, but one has to be really critical of the information. If you see logical fallacies or suspect COI, dig deeper and make the best judgement based on what information is available. Ultimately you want to be as well researched in the projects that interest you and never rely on a single authority for your information.

I hope you enjoyed reading this and found it useful. I encourage you to keep an open mind, do research, be critical and use good judgement to make better decisions.