76
Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. Today we are going to take a look at some of the biggest Blockchain based scams which have taken place, which I have decided to do as a follow on from two of my previous posts, called:
Crypto & NFT Scams are a Crime
The Biggest NFT Rug Pulls in History
Blockchain Based Scams
Decentralized Finance (DeFi) has no shortage of fraudulent and shady characters, especially considering the lack of regulation which many consider a good thing and many others not so much. Below I will outline five crypto scams and scandals which took place to demonstrate just how bad things can turn when it comes to blockchain-based finance.
1. The Bonnie and Clyde of Bitcoin
Ilya Lichtenstein and Heather Morgan, 30-something year old husband and wife, were the Bonnie and Clyde of Bitcoin, part of the biggest scam ever to take place in the industry. Based out of New York, they were arrested in connection with a $4.5 billion hack on the Hong-Kong cryptocurrency exchange Bitfinex in 2016. This ammounted to almost 120,000 Bitcoin stolen from users accounts on the exchange. The U.S. Department of Justice announced the biggest financial seizure in the department’s history, a whopping $3.5 billion in cryptocurrency, on the 8th of February 2021.
The couple had a very public profile, with Lichtenstein a founder of a start-up named Endpass that was ironically on a mission “to stop fraud and terrorism”. Morgan worked as the CEO of Endpass, and was also a content creator. She ranged from making TikTok videos to raping on YouTube where she called herself the "crocodile of Wall Street." Morgan also contributed to Forbes and Inc. Magazine with writings on doing a start-up, the New T=York art scene, various lifestyle topics, and how to protect your business from cybercrime.
The couple face charges which will include conspiracy to commit money laundering and, if they are convicted, they may spend up to 20 years in federal prison.
2. The Africrypt saga
The world of crypto has always been the fastest growing in African nations, where it is often viewed as a mode of freedom away from the corruptness of governments and regimes. Due to this, they provide an excellent ground for DeFi products and also fraud. In 2019 teenage brothers Ameer and Raees Cajee understood this when they started the Africrypt investment platform in South Africa. There was basically little to no regulations when it came to crypto at that time, meaning they were entering into an extremely risk free space.
Their platform promised investors a staggering 10% returns on a daily basis, meaning it was a very attractive investment for a number of high net worth individuals. How did these brothers plan on doing this? Through the magic of AI of course. Often what seems too good to be true ends up being just that. In April 2021 the platform saw $3.6 billion in Bitcoin mysteriously disappear.
A week before the money disappeared the platform had suffered from a supposed hack, mean employees lost access to the backend systems. Investors were warned not to report the issue to the authorities so as not to compromise Africrypt’s own investigation, which in itself screams red flag. Soon after the Bitcoin disappeared from the platform, the brothers followed suit and disappeared while claiming safety concerns had forced them into hiding.
A group of the investors organised an unsuccessful effort to recover the stolen funds and even tried to push South African authorities to prosecute the Cajee brothers. In June 2021, South Africa's financial regulator, the Financial Sector Conduct Authority, announced that financial sector laws do not cover crypto assets and that they cannot do anything regarding this incident. The brothers have continually denied any wrongdoings and insisted their platform had been hacked. Their lawyer claims the stolen figure of $3.6 billion in Bitcoin is incorrect. Whatever the sum is, it is clear the investors will not be getting it back anytime soon. They have however managed to get 70% back from their original investments from Africrypt's affiliate Pennython from Dubai.
3. Squid Game Token
We all know of the Netflix series Squid games, a successful series where the characters had to survive horrific challenges to gain a large sum of money for the final winner. Just a couple of weeks after the show released a Squid Game Project launched in mid-September 2021. It have zero affiliation with the creators of the Netflix series.
Their whitepaper highlighted how the concept was to create a "crypto play to earn platform” that worked around a game similar to the one in the series. The main difference was this Squid Game would not require anybody to put their life on the line. Investors could buy in and enter the lowest tier of the project for a minimum of 497 Squid Tokens. There would be no limit to the rewards which could be earnt, and if anybody was not into gaming they were pressed to buy into it as an investment. Scam alert.
ON October 26th the token was launched and for a short period of time investors were impressed. The price of $SQUID soared from less than $0.02 to a peak of over $2,860 by the morning of November the 1st 2021. Amazing returns of 143,000X. Unfortunately that was the beginning of the end. That same day, November the 1st 2021, the token went back to trading for less the $0.01 after the founder had flooded the market by selling off all of their holdings and abandoning the project.
Apparently the founder made around $3 million from their token sale and at the same time around 40,000 or more investor that still held the token were left with a token worth nothing and a valuable lesson in how a "rug pull can" happen.
4. Once Upon a $Time In Wonderland
DeFi project Wonderland serves as a cautionary tale about the perils of doing anonymous business. The Wonderland DAO was the issuer of the TIME token, an algorithmic reserve currency that is designed to withstand market volatility. In the short term , they had promised users that took part in staking the TIME token a staggering return of 80,000%. Their long term goal was different, with the creators hoping to convert the TIME token into a truly stable asset which would be a counter to the inflation-prone U.S dollar or stable coins pegged to fiat currency.
The organisation had extremely lofty goals and made some very controversial staffing decisions, including its treasurer, who was known to investors by the pseudonym Sifu, to be ex-felon Michael Paltryn. Paltryn is famous for his role as co-founder of the Quadriga CX exchange. This exchange collapsed in 2019 and regulators believe it was a Ponzi scheme as the other co-founder had allegedly liquidated users’ assets and ran off with $190 million in cash shortly before apparently dying.
The scandalous revelation brought about a huge backlash against the leadership of Wonderland DAO and regarding the lack of transparency with its governance. Its founder Daniele Sestagalli made the announcement that Paltryn was to step down from his role but also defended the decision to appoint him in the first place.
A call for the abandonment of the project and return of funds to be disbursed to participants was made, as many were vocal about their worry of a potential scam involving transfers of tokens from the Wonderland treasury into Paltryn’s personal wallet. Sestagalli, however, decided to keep the project alive after putting the issue to a vote among token holders. This was confirmed by 55% of voters but the DAO now stand on shaky footing.
Its reputation has taken a gigantic blow due to the fact they hid their employment of a notorious person of the crypto community being allowed to manage its assets. The scandal also hit the entire DeFi community, as many were beginning to question whether or not organizations that are run by a few individual decision makers can truly call themselves decentralized.
5. A Bug in Wormhole: The 4th Largest Crypto Hack in History
The Wormhole network was victim to what turned out to be the fourth largest crypto hack so far. A total of $320 million was stolen from the network when hackers exploited a minor code flaw. Wormhole network was a DeFi project which allowed its users to transfer token between Solana and other Blockchains. The attackers could have been tipped off on the vulnerability of the code due to a recent update of the code on Github repository, which was uploaded on the same day as the attack.
Once the developers had realised that a breach had taken place, Wormhole attempted to minimize their losses by offering the attackers a $10 million bug bounty if they returned the stolen funds, while also providing details of how they did the hack. It might seem minimal compared to the $320 million that was stolen, but would be legitimate clean money. The hackers never responded, so clearly preferred to take the chance with $320 million of stolen funds,
Investor confidence was obviously shaken in Wormhole's ability to function securely. The damage control was swift and actual quite effective from the company, as the released a detailed report outlining the measures taken to deal with the incident and ensure they are prepared for future hack attempts. These included a pause on the transfer of tokens and a swift patching up of system vulnerabilities, which allowed transactions on the network to resume less than 18 hours after the initial trading pause. The biggest thing Wormhole did was ensure no individual investor was impacted by the hack, instead their parent company Jump Trading footed the bill for the stolen money in the attack.
I hope you enjoyed the article and were not unfortunate enough to have been caught out by any of the above scams or hacks. Have a great day.
CryptoGod-1.
Referral links:
Publish0x - https://www.publish0x.com/?a=olejZqrzej
Splinterlands - https://splinterlands.com?ref=rnabc1
Upland - r.upland.me/NQAH
Binance - https://accounts.binance.com/en/register?ref=143611368
NFT Market Sales
OpenSea - https://opensea.io/RNabc
Follow Me :)
@RNabc123
