When Bitcoin first came on the market, one of the biggest benefits was using blockchains to make the currency safe in our digital world. Unfortunately, digital wallets are still open to hacking and people are still open to fraud – so much fraud.
To get an idea of how bad things can get, let's take a look at the biggest Bitcoin scams in history and the often ridiculous reasons they occurred.
The massive mountain. Gox disaster
You may have heard of Mt. Gox – it's easily one of the most notorious crashes in Bitcoin history, a tangle of mistakes, corruption, and fraud. In the early 2010s, Mt.Gox was a Tokyo-based Bitcoin exchange that processed most Bitcoin transactions worldwide because people thought it was safe. At that time, there weren't many opportunities to buy or sell bitcoins. By early 2014, Gox was monitoring more than 70% of all Bitcoin businesses worldwide.
Unfortunately, the Mt. Gox turned out to be anything but safe. Within a few years, there have been several massive successful hacking attacks, payment processing problems, government investigations, and a massive bank run when people tried to withdraw their money (and thought it might not even be possible). It even turned out that a hacker had leisurely taken bitcoins off the wallet all the time.
Ultimately, the Mt. Gox gave up. In a devastating blow to the bitcoin market, the company filed for bankruptcy and announced that it had lost around 850,000 bitcoins worth around $ 450 million, which is almost $ 8 billion at today's market value. While 200,000 bitcoins were later rediscovered on the exchange, the price had dropped from $ 800 to $ 400 and caused the first crash in the bitcoin market.
Of course, hackers didn't do it all – in fact, it's hard to say how much money was hacked due to security issues and how much easily from Mt. Gox representatives. Millions and millions of dollars have been lost through fraud, embezzlement and other illegal acts by the company's agents and partners. It will probably be years before we know how deep the cheating has gone.
The Optioment trick
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One of the worst types of cryptocurrency fraud is a fake ICO (Initial Coin Offering). The equivalent of a listed company, an ICO, occurs when a company first starts selling its cryptocurrency.
Most ICO scams use simple investment fraud, also known as "we promise we are a super real and very successful company!" if the company doesn't exist and doesn't have a profit plan. More advanced ICO scams may even pretend to be other real cryptocurrency organizations to confuse shoppers who search online.
Bitcoin Savings and Trust was even more obvious: it started out as an ICO scam based on a simple Ponzi scheme and then continued to chug on. Ignorant investors were promised amazing returns like 7% a week, and ultimately more than 265,000 bitcoins were stolen from fraud. The entire savings and trust program finally collapsed in 2012, and organizer Trendon Shavers was involved in court battles for years. This eventually led to his detention and a $ 40 million fine. Too bad the bitcoins that he stole were worth around $ 100,000,000 at the time of his conviction.
The ridiculous email trap of the Silk Road
"Wait, the Silk Road wasn't exactly a scam, was it?" You may be surprised and you would be right. The Silk Road was a notorious black market for drug and other illicit trafficking in the dark web. Most importantly, it was abolished by the FBI and other law enforcement agencies, which actually helped cement Bitcoin as a legitimate currency that was dear to governments.
Then things went a bit wrong. In particular, the government agreed to auction the bitcoins seized by the Silk Road (which is usually the case with harmlessly seized goods) and therefore contacted potential participants to inform them about the auction and to ask if they were interested in registering . Unfortunately, due to a classic "bcc" email error, all potential bidders could see anyone the email was sent to. This list was quickly copied, sold, and stolen.
The result was a wave of fraudulent emails to all of these people who were already interested in buying bitcoins. Phishing programs like this pretended to be government or related, looking for sensitive financial information that allowed fraudsters to steal bitcoins from participants. It wasn't the best way to end the fall of the Silk Road.
Canadian bitcoins and the simplest scam
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The worst scams are those that nobody should fall for, but that somehow work. This happened with Canadian bitcoins, a stock exchange that, as you can imagine, was used to manage bitcoins for Canadian investors. In 2014, the exchange was hacked professionally and at least $ 100,000 worth of bitcoins were stolen.
So where does fraud come into play? Well, CB had rented space in a Rogers data center for important server hardware, the kind of hardware you could hack into the exchange with. The data center fell for what may be the oldest scam in the book, right behind it: "Hey, what's that over there?"
A hacker sent a message to the Rogers Data Center saying (basically), "Hello, I'm the CEO of Canadian Bitcoins. I'm James Grant. I need all of your security codes. "Rogers verified that the Canadian Bitcoins CEO was indeed James Grant, and then sent the hacker all the security codes he needed. No one has ever checked whether the message really came from Grant or was asked for any confirmation, or how you did tried to contact Grant through professional channels. You can imagine how dissatisfied investors were when they found out.
Bitcoin gold and false promises
Bitcoin Gold was a project to develop a new form of cryptocurrency that also used the Bitcoin name. This branding trick was a bit dodgy, but nothing was particularly illegal.
Experienced fraudsters then created a website called mybtgwallet.co, where users had the unique opportunity to generate Bitcoin gold wallets. All they had to do was submit their private keys, which were used to protect their cryptocurrency wallets!
Needless to say, people shouldn't fall for such an obvious scam, but apparently the website looked convincing to many buyers. More than $ 3 million in bitcoins have been stolen by the fraudsters along with a number of other cryptocurrencies. Even the makers of Bitcoin Gold were involved in the scam and actually approved the site on their Twitter account before realizing that everything was a big disadvantage. Remember, it's really easy to be online.
Celebrity-recommended cryptocurrency cards fail
While the area of influencers and the validity of the products they are paid for are often controversial, the fallout of Centra fraud has been particularly detrimental to the cryptocurrency's general reputation. You may recall that DJ Khalid and Floyd Mayweather made several paid recommendations a few years ago for Centra ICO, which was advertised as a secure method of storing cryptocurrencies like Etherium, Ripple, and Bitcoin. With these endorsements, Centra was able to raise $ 30,000,000 within a few weeks and significantly improve the company's public profile.
Unfortunately, neither Khalid nor Mayweather have stated that these notes have been paid for an ICO as required by law. As such, they were forced to pay more than $ 700,000 in fines, penalties, and interest to the SEC (neither admitted guilt).
As if that wasn't bad enough, the southern district of New York filed a civil suit against the founders of Centra for making false statements about their corporate sponsorship and operating a fraudulent ICO. Centra went from boom to bust within weeks, tarnished the cryptocurrency's reputation and made the public even more skeptical.
For all fans of crime novels and police procedures, the following may sound like an action that comes directly from fiction. The CEO of the investment company QuadrigaCX died suddenly and without explanation in February 2019, so that no one else could access customer funds worth around USD 190,000,000. After the CEO's death, it was found that the 2018 financial records contained no evidence of such a fund and that QuadrigaCX itself was in financial emergency.
In addition, one of the founders of QuadrigaCX may have been a convicted fraudster who had a false identity. As a result, allegations of money laundering have emerged, and it turns out that the entire exchange was operated by only one developer. While the whole bizarre story could easily fill an entire article by itself, several class-action lawsuits have been grouped together in a single committee made up of several law firms, and observers Ernst and Young have been legally appointed to manage all of the remaining assets.