How does HEX work?

How does the cryptocurrency HEX work?

If you are into the crypto space for quite some time now, chances are that you’ve heard of the crypto project “HEX“ before. Maybe you’ve read a negative headline about this project, as it got accused of being a scam or ponzi scheme many times already. Since the crypto crash this year, many similar projects died off, leaving the customers with almost no money left. Due to this, people are more careful than ever before with such projects. But is it really a scam? Let’s first look at what HEX actually is.

What is HEX?

HEX is a ERC-20 token on the Ethereum blockchain, it was founded in 2019 by the entrepreneur Richard Heart. HEX is actually one of the first projects ever to offer staking. Therefore, users can benefit from the rise in price and also from the passive yield being earned when staked. While this is pretty normal in 2022, it was not common at all in 2019. On the platform itself, users are staking HEX tokens for a specific amount of time to earn rewards. They can not use them in that time period, the reward only gets paid out when they have been successfully staked (meaning them being left untouched). 

The vision of HEX is best explained on its own website: „CDs, known as Certificates of Deposit or Time Deposits, are worth Trillions of dollars. CDs are worth more than gold, credit card companies and cash. CDs pay higher interest than savings accounts, requiring money to be deposited for a fixed time.

Banks profit on poor customer service, early withdrawal fees and auto-renewing you at worse rates. They pay pitifully low interest. New money is printed all the time, making yours less valuable. HEX monetizes the time value of money in a totally new and better way. It takes the concept of CDs to the next level: HEX replaces inefficient currencies, banks and payment networks with verifiably secure peer-to-peer technology.

In HEX, you’re the bank. The more you learn about it, the more you’ll love it.“ (https://hex.com/howitworks/)

How does it work?

The project uses the Ethereum network for the transaction layer. It is a ERC-20 token, with the staking mechanism being coded into the smart contract of HEX. As it was already mentioned, Hex’s model pays out rewards to the users who hold tokens. To do that, the users agree on a contract not to move (therefore also trade) their tokens for a specific amount of time. To be precise, users can select between staking for 1 and up to 5.555 days in total. The longer the tokens get staked, the more rewards are being earned. The system operates on a so-called „Proof of wait“ mechanism. This is a better version of the Proof of Work mechanism which bitcoin uses, at least this is what the project claims. There is a long thread on HEX’s website dedicated to showing investors in detail how this project works and why it is better than bitcoin. the following text sums it up best:

„Bitcoin changed the world by introducing a decentralized store of value. But its creation and adoption has created problems and complexities that HEX solves.

In many ways, BTC and HEX are analogous. Bitcoin and HEX are peer to peer networks that store and transmit value. HEX is like Bitcoin with a Proof of Work change. In Bitcoin, miners buy mining hardware and electricity from companies. In HEX, miners buy HEX from other HEX holders, then use time to mine. HEX is Proof of Wait instead of Proof of Work.

Let’s say you want to make more Bitcoin on your Bitcoin. What are your options? You could lend your coins out and take the risk they’re not returned, or you could try selling your coins for mining hardware and hope to get more coins back later. Many people have lost a lot of money trying either. HEX solves this.“

The whole comparison thread can be read here.

Is it a Ponzi scheme?

As the project claims on the own website, HEX is not a scam:

It tells the user to learn how the project works and claims to be a better bitcoin (maybe a little too selfish?). Also, people should see who the founder Richard Heart is and read the reviews on TrustPilot. By doing the last thing, you will see over 500 reviews for the project with a total rating of 4.9 out of five stars. These reviews could be legit, but also could be bought. The website offers a long thread with a lot of content on why HEX is not a scam, you can read it for yourself here: https://hex.com/scam/ (Funny how the background is a picture of a Lamborghini Aventador, most likely displayed there on purpose). Besides the reasons listed on the website and reviews, there are definitely some things that could mean HEX does not have any value in the future.

The biggest one might be the missing use case a lot of people see in the project. The developers already answered this concern by saying the token is a store of value and the proof of wait concept is the use case. As it was already mentioned here, the project claims to be a better bitcoin. While this might be the case technologically (and even then you could argue that it does not do anything better than bitcoin), you really have to ask yourself what people are trusting more. A 13 year old cryptocurrency with a market cap of currently $470.000.000.000, or a three year old project that only pays out rewards and is currently valued at $11.700.000.000? Sure, one can argue that more gains will be made with HEX, since the market cap has a lot of room to grow. But then everyone has to decide for themselves whether the use case will be sustainable in the future.

Only the future will tell if this project turns out to be a scam. Make sure to fully understand this project before using it and only stake what you are willing to lose.

Conclusion

The choice of marketing from HEX is definitely questionable, if not even a deterrent for many investors. Not only that, also the business model and founder sometimes make you ask yourself if this will be around in five years. Sure, a lot of people made good money from the project, mostly due to being early. No matter what you think of the project, it is recommended to only stake/invest amounts that you are willing to lose. Also, it would be wise to not lock assets up for multiple years.

Only the future will tell if hex will be as great as it promises.