Inside the cryptocurrency scam vortex


On May 22, a crypto financing project called DeFi100 posted a message on its website: “We have scammed you and there is nothing you can do about it. HA HA. All the moon bois have been ripped off and there’s nothing you can do about it.”

Screenshots of the message immediately went viral on crypto-Twitter (always anarchic, easily laughable). A popular anonymous crypto tracking Twitter account called Mr. whalehal estimated that DeFi100 had run off with $32 million. cryptocurrency news broadcasts, like Yahoo Finance, ran with the number. The project owners denied foul play, and it soon became apparent that the message was a website hack rather than a serious warning — but by then it was too late. Panic had set in and the price of the underlying currency was in free fall.

“We never stole money,” a project representative told vertelde The edge. “DeFi100 was a very small project and we didn’t have any money from investors, so there’s no question of scamming people or running away with their money.”

DeFi100’s problems are only a small part of the picture, but they are a reminder of the dangers of the ongoing crypto boom. Despite billions of dollars being poured into space in recent months, there is still little recourse when investments turn out to be scams. Most importantly, the radical decentralization of the blockchain means there is simply no way to get your money back – and there are few guarantees that an unproven vendor will deliver on its promises once the transaction has gone through. The result is another gold rush in crypto scams as speculators increasingly seek obscure opportunities and riskier bets.

The DeFi100 project’s website is now back online, but rumors persist about what actually happened. Certik, a popular blockchain security leaderboard, does currently list DeFi100 as a ‘back pull’, which is a term for a scam where the founders of a project collect investment money and run. (The project owners say pulling a rug would be impossible because they’ve never held investor funds.) It’s just one of the many scams today’s crypto holders need to watch out for, along with sketchy altcoins, Discord pump-and-dumps, Elon Musk Impersonators and More malicious forms of cybercrime.

according to Maren Altman, a TikTok influencer with more than a million followers who makes videos about cryptocurrency and astrology, there are three types of risks crypto holders should be wary of: bad investments, project collapse and outright scams.

The first and most common type of risk is simple bad investments in obscure coins. Outside of major players such as Bitcoin and Ethereum, there are thousands of smaller coins built on the blockchain technology, promising huge rewards if the coin ever gains prominence. Subreddits like r/cryptocurrency are: flooded with accusations of “scam coins”.

“I mean, I’m in a handful of those myself, where it’s just the investment, it was a promise, the development didn’t go through and I’m still waiting,” she said.

Trying to research obscure altcoins can be confusing for inexperienced traders. Links to cryptocurrency Discord servers often appear on Twitter, promising an easy pump-and-dump from a smaller cryptocurrency. Or even more confusingly, Twitter bots will accuse Discord servers that aren’t pump-and-dumps, hoping to increase the value for an individual coin. But while they promise easy money, the reality is less enticing.

Another risk is the often harmless but unfortunate mismanagement of funds. In a bullish crypto market, everyone thinks they have a revolutionary idea with cryptocurrency. And, of course, a lot of them don’t come out.

“Things that are not cleared up, mistakes in contracts or just a weak link in the development cycle,” explains Altman, “leading to mismanagement of money and people not letting their investment work out as expected.”

a very famous example of these was the DAO project. It launched in the spring of 2016 to great fanfare, but was completely defunct by the fall of the same year. The project was created by the Decentralized Autonomous Organization and was an attempt to build a venture capital fund on the Ethereum blockchain. Just a month or two, a hacker found a vulnerability in the token’s code and ran off with $50 million. Traders started selling DAO tokens en masse and the price never recovered.

Sometimes this chaos can end in outright fraud. According to the Federal Trade Commission, Crypto-Based Financial Scams are at an all-time high thanks to the rising interest in cryptocurrency. And the line between well-intentioned gaffe and crypto Ponzi scheme is blurred. Just ask OneCoin or PayCoin investors.

OneCoin was launched in the mid-2010s and billed as an educational crypto trading service. It turns out that the OneCoin tokens are being bought by investors were not really on the blockchain. It was accused of being a Ponzi scheme and its founders walked away with nearly $4 billion. It is called one of the biggest financial scams in history. One of the founders, Ruja Ignatova, is still missing.

In 2019, PayCoin founder Homero Joshua Garza was convicted to 21 months in prison and ordered to pay restitution after he created his own cryptocurrency and offered it to investors with the assurance that he had secured a capital reserve of $100 million. There was no reserve, and the whole project ended up losing $9 million.

But even with The big dip of May 2021 in value for major coins like Bitcoin and Ethereum, cryptocurrency is more popular than ever, and legions of inexperienced traders are learning the hard way what a peer-to-peer financial service actually means.

Neeraj Agrawal, the communications director of Coin Center, one of the largest cryptocurrency advocacy groups in the US, told The edge that wildly speculative coins (popularly known as “shitcoins”) are now a permanent part of the cryptocurrency space.

“The insane speculative waste coins will not disappear,” Agrawal says. “That’s just part of the world now. And it kind of remains up to us to show that the really good projects are worth living, that there is real value here.”

That’s especially hard when crypto celebrities like Elon Musk spark interest in the crazier end of the crypto space. Musk has recently sparked huge interest in Dogecoin, a failed cryptocurrency invented as a joke and named after the famous Shiba Inu meme. Musk’s tweets are also to blame this month’s huge market decline. Her still unclear what effect Musk is having on the market, but his recent branding as the main character of crypto has sparked a litany of Musk-themed scams. According to the FTC, people pretending to be Musk have managed to scam at least $2 million from traders this year.

“Maybe that’s the biggest risk for crypto users – your own stupidity,” he joked Meltem Demirors, the chief strategy officer of CoinShares, a digital asset investment firm. “I think people are just not used to taking responsibility for their financial lives.”

In fact, this month I was asked by both a family member and a close friend about an obscure cryptocurrency called Dogelon Mars. It is currently worth $0.00000016 USD, but the two people close to me considered buying a lot of it because they mistakenly believed that, because of the name and frankly confusing description, it was a coin launched by Musk himself.

Demirors told The edge that Dogelon Mars was actually one of her favorite meme coins. “We have to remember, right, the whole point of a lot of this is financial innovation without permission,” she says. “And a market really only needs two things. It requires a seller and a buyer.”

She said this was the main explanation for the recent NFT explosion. People had crypto coins on hand and wanted to see what they could spend them on. What they wanted to buy was surreal internet art for millions of dollars.

“I always find it really funny when people talk about crypto and financial innovation without permission, but the moment they lose money, they become the most statistical people you can imagine,” Demirors said. “You really can’t have it both ways. Like you bought this shitcoin. You must now make your bed and lie in it.”