A “rugpull” in a cryptocurrency used to hit the news – now, it’s so common that it barely registers on social media.
As Wikipedia defines it, “a cryptocurrency is a digital currency designed to work through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.” Where U.S. legal tender is overseen by the U.S., cryptocurrencies are either overseen by their creator, or nobody. Because of the way most cryptocurrency systems work, they react to purchases like stocks do, not like money, even though they’re meant to serve the purpose of money. The value is not pegged onto some other currency, and generally speaking there isn’t a large enough pool of any individual cryptocurrency to weather someone ‘exchanging’ a ton of real money in or out of it without affecting the market value of the coin. All of this is important. All of this is why crypto blew up the way it did, why Bitcoin owners were suddenly millionaires out of nowhere.
To go a bit further, a “meme coin” is a kind of cryptocurrency that is based entirely around a meme, or has been made into a meme. DogeCoin is considered the oldest, based off of the Doge meme – the original creator was actively making a joke about cryptocurrency at the time. “Hey, look, anyone can just make a coin, is that not ridiculous?”
It is! And unfortunately, it earned victims: people lost money on an obvious toy. The joke went beyond just creating the thing, the joke was that the new cryptocurrencies were taking themselves so seriously as the usurpers of real money when their unbacked and unmanaged cryptocurrencies were totally unmoored to any real measure of value. For the original creator, it had to be like setting out a bear trap with clown horns leading up to it, and having people step into it anyway because some uninvolved billionaire hyped the coin up through no action of said creator. To be fair to the victims, this was the first time that had happened in a way the outside world could actually see, so people casually stepping in on the billionaire’s recommendation wouldn’t have gotten the joke. They wouldn’t have recognized the risk involved in toy money.
And that spike-and-crash only furthered the joke in the long run: at some point, if a bad actor wants to make your coin worthless, it can! Isn’t that bizarre, in the modern age? Weren’t we past that? Because it was such an obvious pitfall to the stock system? A meme coin still creates a real cryptocurrency exchangeable for real cash, so there’s real danger in it no matter the buyer’s intentions. At some point, meme coins changed from a way to have borderline valuable arcade tokens branded with whatever you wanted, into a way to make money off of rubes. What stops someone from buying (or retaining) half the supply and then screwing over everyone else?
Nothing! In cryptocurrency, there are hardly any criminal penalties at all (the law in most countries has not caught up to concepts like ‘blockchains’), and the buyers or makers are usually anonymous. The billionaire in this case getting caught out in a lawsuit is actually an anomaly, not the rule. They can show up one day and totally wreck it. Even worse, ordinary people will tend to pile out of the door too, because there is no automated ‘stop trading’ function like there is in most regulated systems. A coin can go from 50$ to 0.50$ over the course of an hour, and nothing will stop it.
This is where the “rugpull” comes in. Ultimately, people saw what happened to Doge and decided to recreate it on purpose. Hawk Tuah coin, DIO coin, Froggy coin, Bernie Madoff coin, et cetera, all done on purpose. You make a coin, hype it up, maybe pay big social media influencers to advertise it for you as the next big thing. People buy an artificially scarce resource, which causes the price to go up, while you – the owner – retain a lot of it. Then, you sell all of your coins at once, earning you a ton of real money backed by a real government while causing the price to crash, and disappear, leaving a bunch of people holding onto coins with no value. This is the rugpull. This is a scam. The odds of a flooded market somehow recovering to the price the coins were originally sold at are very low. There was never any intention to make the majority of the coin holders wealthy; anyone who incidentally happens to hop off the train before it crashes is an accident and lost value to the owners of the coin.
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