Scams and frauds are an unfortunate reality of, well, life. It’s just that those perpetrated in the crypto world tend to get amplified by a legacy media hell-bent on convincing you every bitcoin resides in the (virtual) pockets of a bonafide Fagin.
Anyone who has been paying attention knows that corruption is rife in the banking world – billions of dollars disappear from accounts, settlements are struck with fraud offices, backhanders are dispensed by grubby execs, and “respectable” institutions are bailed out by governments. The industry also struggles to prevent chicanery perpetrated from beyond the belly of the beast, with fraud losses surpassing $1.9 billion last year alone, a 28% jump year-on-year.
Anyway, we’re not here to talk about banking frauds – even if Madoff’s Ponzi puts the following swindles to shame. We’re here to take a closer look at some of the eye-watering sums of crypto purloined by shady actors in recent years. The irreversible nature of blockchain transactions was always going to entice scammers but the audacity of some of these villains almost provokes admiration. Almost.
OneCoin is the closest the crypto industry’s come to a Madoff moment. Invariably, the response when one hears the story for the first time is “And people fell for it?” Yes, they did – to the tune of at least $4 billion, with some estimates putting the figure as high as $15 billion.
Based in Sofia, Bulgaria, OneCoin was a crypto scam for the ages, a pyramid scheme that duped gullible investors from 175 countries after conducting a charm offensive straight out of the huckster’s handbook. The project positioned itself as “bitcoin, but better” but behind the proud boasts and high-handed dismissals of other tokens, it was little more than a cheap multi-level marketing con. It didn’t even have a blockchain.
OneCoin was the subject of a nine-episode BBC Sounds podcast called The Missing Cryptoqueen, a reference to its co-founder Dr Ruja Ignatova, whose whereabouts are currently unknown. The story’s also rumored to be coming to the big screen, with Kate Winslet tied to the project.
PlusToken was a so-called high-yield investment program conducted by a rag-tag group of Chinese hustlers. Enticing investors with the promise of generous returns on their native PLUS token, which could be purchased using bitcoin or ethereum, the troupe managed to fleece over two million people before attracting the interest of the authorities. In July, 109 people were arrested in connection with the Ponzi scheme, with 27 said to have been “masterminds.”
So how big was the fraud? Several figures have been quoted by the media, with the most common being $5.7 billion. The ill-gotten gains were funnelled through exchange platforms like OKEx and Huobi, with many transactions relying on peeled chains and mixers such as Wasabi Wallet to obfuscate the path of funds. According to Chainalysis, at least $185m was cashed out via OTC brokers and PlusToken cash-outs were so sizeable that they influenced the price of bitcoin.
Following a lucrative 2016 ICO, BitConnect became one of the world’s most valuable cryptocurrencies, with a multi-billion market cap and a price that surpassed $400 per token. Sadly, the exchange and lending platform that promised investors up to 40% APR per month was too good to be true: one simply had to connect the dots.
Like OneCoin, BitConnect propelled itself into the collective crypto consciousness via aggressive marketing and a whole lot of hubris. Detractors including Vitalik Buterin said early on that the advertised returns were impossible – if BitConnect were to be believed, you could turn a modest $10k outlay into $90 million within ten years – but too few people believed what was staring them in the face. Instead, they placed their trust in BitConnect’s mythical proprietary trading bot and started thinking of ways to spend their profits.
The house of cards tumbled very quickly, a controlled demolition that left red-faced investors with a shitload of shitcoins and enriched BitConnect’s shady operators to the tune of $2.6 billion.
Almost three quarters of a million people fell victim to the Chinese WoToken scam which involved $1.15 billion worth of cryptocurrencies such as BTC, USDT and ETH. Interestingly, one of the scammers was identified as having been involved in PlusToken: you can’t keep a good crook down.
WoToken fleeced its luckless users between July 18 and October 2019, and was remarkably similar to BitConnect in that it promised to generate returns via an innovative trading system that capitalized on arbitrage opportunities. Twas but a Ponzi, and the Chinese authorities sentenced the ring-leaders to between 2.5 and 8.8 years.
The good ole Ponzi is the usual mode of fraud favored by tricksters with bitcoin symbols in their eyes. But it’s not the only one. This year, a quartet of individuals was charged with swindling investors of $722 million via a long-running crypto mining scheme.
BitClub Network (BCN) enticed its victims to pledge money to buy shares in purported mining pools, providing false and misleading figures to assure them of future profit. In a dialogue later uncovered by investigators, Romanian programmer Silviu Catalin Balaci and mastermind Matthew Brent Goettsche discussed building “this whole model on the backs of idiots.” Alas, all conspirators were indicted in December 2019.
The cryptoconomy attracts a helluva lot of smart people, and as should be obvious from the above, not all of them are interested in playing nice. The lesson, if there is one, is this: invest with your eyes and ears open. And if a project claims to be “the next bitcoin,” run a mile.