Ether Cryptocurrency Scammers Made $36 Million In 2018 — Double Their 2017 Winnings

Anyone with stashes of Ether cryptocurrency might want to watch out for increasingly cunning scammers, who’ve found out how to make big funds with …
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Anyone with stashes of Ether cryptocurrency might want to watch out for increasingly cunning scammers, who’ve found out how to make big funds with simple swindles.

In 2018, tricksters made $36 million by duping Ether owners into handing over their money for no one’s profit but the crooks’. That was double the $17 million for 2017, according to a report from Chainalysis, which tracks cryptocurrencies for all manner of government agenices, private entities and exchanges. (Chainalysis classes scammers as different to hackers who exploit bugs and outright steal cryptocurrency, such as those who stole $32 million in Ether in 2017. Indeed, hackers are making more than scammers, thanks to repeatsmash and grabs from 2016 through 2019.)

And while the number of scams actually started decling through 2018, they “were bigger, more sophisticated and vastly more lucrative,” according to the analysis, exclusively provided to Forbes. Chainalysis found more than 2,000 scam addresses on Ethereum, the blockchain-based platform on which Ether (also known by its acronym ETH) is distributed. Those accounts received funds from nearly 40,000 unique users over last year. That’s four times more people scammed in 2018 than 2017.

Chart shows how Ethereum-based scammers are increasing their earnings.

Chart shows how Ethereum-based scammers are increasing their earnings.Chainalysis

Classic ponzi schemes are working

According to Philip Gradwell, chief economist at Chainalysis, one of the most significant scams of 2018 was the classic ponzi scheme. This saw scammers send out emails to Ether owners, asking them to contribute money for which they’d see a guaranteed return. Of course, the return was simply derived from other people contributing to the pot, not from any genuine investment.

One of the most significant pyramid schemes was that of 333 ETH, said Gradwell, which made off with $3.5 million worth of Ether. Running on the Ethereum-based DApp decentralized application, it promised a daily 3.33% payout from an initial buy-in. Though it was called out as a scam, it still attracted a significant number of Ether owners. Forbes attempted to find contact details for 333 ETH, but its Russian-language website was down at the time of publication and there were no contacts listed in the site’s registration details.

The other major scam, which was leading to more significant losses in the first half of 2018, was the fake initial coin offering (ICO). Gradwell said this was down to an ICO “fever” in the early stages of last year. In some cases, entirely fake ICOs were created with legitimate-looking websites and campaigns behind them, encouraging people to buy up some fancy new currency. The coins then mysteriously disappeared, as the ICO turned out to be a fraud.

Finally, standard phishing, where unwitting victims were duped out of their account passwords. Once inside Ether wallets, the hackers ransacked the cryptocurrency within.

An emerging Android threat

While it’d be wise for Ether owners to use complex passwords and be aware of scammers tricks, there’s an emerging threat out there in the form of fake Android apps.

Lukas Stefanko, a cybersecurity researcher at ESET, has found a number of fake Ether wallets going around Google Play. Often they impersonate MyEtherWallet or MetaMask, trying to rob users of their login details for the real apps. Each time Stefanko has warned Google, the apps have been swiftly removed.

Just earlier this week, the researcher tried out a mini social experiment, asking his Twitter followers to pick one of two MyEtherWallet apps that were on Google’s market. A worrying 40% chose the fake.

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Crypto Exchanges Saw More “You’ve Been Served” Notices and Subpoenas in 2018 Than Ever …

A recent report that was released the cryptocurrency exchange called ShapeShift as the company discovered the submission of over 18 Subpoena …
Crypto Exchanges Saw More

A recent report that was released the cryptocurrency exchange called ShapeShift as the company discovered the submission of over 18 Subpoena summons from US regulatory bodies as of 2018.

While this seems a little bit unusual, considering the United States is sending these legal files to a company based in Switzerland. According to further evidence, the United States Government has been responsible for 30 percent of requests made to ShapeShift in 2018.

Top Of The Charts – Why The US Authorities Are Always Ranked At Top

What is also demonstrating this is new evidence from the international cryptocurrency exchange, Kraken.

Kraken, having used December as a time to release its report on transparency. The company reported that out of all countries Kraken does business in, the United States much up more than 66% of all requests to the exchange.

Kraken’s report went on to more thoroughly emphasize that, while the United States take the majority of all requests, it is only a small percentage of Kraken’s overall population. With the superpower only making up 20 percent of its whole user base in stark contrast to the vast majority, which is in Europe.

“Overall, the US constitutes about 1/5 of our clients, but a disproportionate 2/3 of all requests. American agencies prove to be far more active and are far less in the way . of surgically precise. It wouldn’t be surprising to find that the same subpoenas go out to everyone in the hopes that a legal match will be found,” Kraken concluded.

This disproportionate ratio of users to reports is largely due to the fact that there’s overwhelming enforcement of Anti Money Laundering Policies and ‘Know Your Customer‘ (KYC) request forms from local and federal wings of the US government. And this increasingly probing method is not unique to cryptocurrencies, it’s just the latest victim.

There have been a large number of other sectors, including in the world of Financial Technology (FinTech), and all of them have been pressured to some degree by the US regulatory and legislative authorities placing a significant amount of pressure on them to handle a large expanse of its regulatory issues over a prolonged span of time.

Speaking in an interview on Bloomberg, Arjun Sethi, the co-founder of the venture capital investment company, Tribe Capital. Sethi argued that the investors began to place greater focus on any company’s ability to manage the pressure from outstanding and new regulations due in large part of the growing demands from the United States government.

Sethi carried on to say that:

“So, when we meet with these various companies, along with speaking to them about their product, market and its team/s, we spend a certain degree of time on how exactly they will execute it within what every regulation-based environment they’ll inhabit”

What this means is hiring the right kinds of people and that they focus on regulatory compliance and best practice measures.

It is such a matter of concern and consideration for cryptocurrency based communities that major institutions like Coinbase are alleged to have hired more than 20 employees whose sole task is to deal with regulatory enquires.

The Solution – Move Our of the US?

While one of the alleged solutions for companies is to move operations out of the US. Now while this is a skin-surface feasible solution, the US government would still be able to get to you.

It doesn’t matter if you’re based inside or outside of the US, or base yourself in more regulatory freedom, the US would still be able to file KYC and AML requests for the likes of Cryptocurrencies, FinTech or finance businesses.

One of the examples of this is ShapeShift and is only the latest one. While the company is based in Switzerland, it still boasts a large number of data requests which come from the US in the majority of these instances.

For a company like ShapeShift, as an example, which is a large scale cryptocurrency trading platform, and specializes in a much more regulatory free, flexible marketplace for cryptocurrency traders operating internationally. As a result, it’s far more possible for regulatory and policing authorities to request some level of user data, largely because the transactions that take place on the platform are wholly transparent.

The Firm Elaborated On This:

“They are able to conduct these searches in the greater interests of transparency, ShapeShift has long ensured that any and all transactions on our platform operate in an otherwise public system, this is intended contrast in comparison to any kind of bank or conventional financial institution. Once the customer’s orders have been completed by the system, the transaction details are saved, and subsequently published on our website and made available through our APIs.

Our decision to relocate operations to outside of the United States does not provide us, nor startup companies with a safeguard from US regulatory requests from its government. When taking into consideration the long term perspective, it is far more likely that regulatory compliance becomes a core discussion point for angel investors, venture capital organizations thanks to the high associated with costs in dealing with and subsequently processing all of these regulatory requests on an annual basis.”

Trading equities vs. cryptocurrencies: where the bigger risk lies

To begin with, the cryptocurrency world is still in its nascent years while the stocks market has been around for a long time. Currently, the global market …

If you are a new crypto investor or trader, there is a good chance you have heard about stocks and forex trading as well. Perhaps you are even a little more curious about trading equities now that you have learned just how profitable cryptocurrency trading can be. According to a Reddit cryptocurrency survey, an estimated 20 percent of investors in the crypto space are in their 20s and out the bunch, most of them have 90 percent of their saving poured into cryptocurrencies.

As a result, it is no surprise that most of them believe that trading equities and trading cryptocurrencies are the same things. In truth, however, trading cryptocurrencies is totally different from trading equities in the stock market. The risks involved in either sector are different in a variety of ways. Is the risk higher when trading equities or cryptocurrencies? Well, let’s find out.

How is trading cryptocurrencies different from trading stocks?

To begin with, the cryptocurrency world is still in its nascent years while the stocks market has been around for a long time. Currently, the global market cap for stocks sits at 100 trillion and the market has been on a bull run for close to a decade now. On the other hand, the cryptocurrency market cap sits just slightly over the 100 billion mark at the time of writing and in a bear market.

Difference in Market Cap between stocks and crypto market in CryDifference in Market Cap between stocks and crypto market in Cry

Visualization of difference in Market Cap between stocks and crypto market

Insider trading vs pump and dump schemes

Any market is bound to have informational asymmetry between insiders and outsiders. The insiders in the stocks market are the mutual fund and company executives who have an unfair advantage over regular investors with zero access to boardroom meetings, and the latest financial data concerning the company shares.

On the other hand, cryptocurrency insiders comprise of ICO executives, the large coin and token HODLers (also known as the whales) and the owners of the largest mining pools and equipment.

As a result of the asymmetry, insiders can game the market to their advantage. Both markets expose the outsiders, to pump and dump schemes that can lead to huge loses.

Here, the risk lies heavy on the cryptocurrency market since there is currently no regulation to keep insiders from manipulating the market. Investing in the stock market is less risky since there are strict insider trading laws that protect the outsiders. Even though the system has loopholes, the punishments for such acts still scare most insiders from attempting to manipulate the market.

Cash and asset insurance

In the US, government agencies such as the FDIC (Federal Deposit Insurance Corporation) and the SIPC insure up to USD 500’000 of both cash and stocks investments. This means that if the brokerage firm you are trading with goes bankrupt; the government will be able to reimburse you up to USD 500’000. On the other hand, most cryptocurrency trading companies do not provide any cash or asset insurance and the only ones that do will ensure your cash deposits and not your cryptocurrency assets (Coinbase and Gemini). Basically, since there is no government protection in case of any crisis, cryptocurrency traders and investors need to be more vigilant about the integrity and the financial health of the exchanges.

Risk of permanent loss

Cases of permanent loss in the stock markets are few and far between. The reason is simple. Even though scams and phishing attacks do exist, it is easy for authorities to track funds stolen as a result of fraud and in some cases, the money is retrieved. The same cannot be said for the cryptocurrency market. Last year alone, over USD 150 million was stolen from exchanges as a result of high profile hacks. Security incidences have become too common in the cryptocurrency trading world. This is mostly due to the fact that it is hard to reverse transactions on the Blockchain. Additionally, cryptocurrency exchanges can easily and conveniently declare bankruptcy in case you sue them.

Price volatility and order protection

In the stocks market, the SEC guarantees investors of the best bid and offer across all existing exchanges. With cryptocurrencies, however, the trader is responsible for finding the best bid and it can be difficult to track an offer since the best bids are all over the place. Plus, there is no legal obligation for the exchange to offer you the best bid or offer. Furthermore, cryptocurrencies have extremely volatile prices that change by 100s or even 1000s in a matter of minutes. Even though stocks can be volatile as well, there is a sense of consistency that you cannot find while trading cryptocurrencies.

Revenue or asset backing

While stocks are publicly traded and backed by the revenue and assets generated by the company, cryptocurrencies are created out of thin air and its only recently that the discussion around backing them with real assets like gold and diamond have started. Most cryptocurrencies have no tangible product or revenue generating business models. In fact, most cryptocurrency companies have in the past shut down shop without warning to the investors while keeping all the raised funds to themselves.

Wrapping it up…

So there you have it. One of the biggest differences that you have to keep in mind when evaluating the risks of either investing in equities or in crypto is regulation. Even though the stocks market is heavily regulated by the government, the laws put in place are like golden rules that protect everyone in the market. On the other hand, regulation is just now starting to catch up with cryptocurrencies. Most governments are apprehensive about the idea and at the moment, investing in the crypto market is a lot riskier than trading and investing in equities.

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Let’s Take a Look at the 3 Biggest Crypto Scams of 2018: BitConnect, OneCoin and Modern Tech

The company damaged and defrauded more than 30,000 investors after encouraging them to invest in their Initial Coin Offering. They were able to …
Let's Take a Look at the 3 Biggest Crypto Scams of 2018: BitConnect, OneCoin and Modern Tech

In 2018, virtual currencies have been in a bear trend that dragged most of the coin to new lows in more than a year. At the same time, several hacks and scams took place in 2018 and affected the whole market. In a recent blog post, cryptonomos published a set of frauds that hit the industry just last year.

Modern Tech is a firm based in Vietnam that promoted two different Initial Coin Offerings (ICOs), Pincoin and IFan the coin promised a very high return on its investment, close to 40% per month. In general, when there is an ICO or company that promises users such a large ROI, it must be red flagged.

The company damaged and defrauded more than 30,000 investors after encouraging them to invest in their Initial Coin Offering. They were able to steal $650 million after disappearing without leaving any information behind them.

OneCoin is another scam that has affected several users back in 2017. The founder of the project is Ruja Ignatova, a Bulgarian businesswoman. Nevertheless, the company is registered in the United Arab Emirates, which has welcomed several crypto and blockchain companies from all over the world.

The project presented itself as a crypto and blockchain company that was developing a decentralized platform. However, it was neither decentralized nor open source. This raised several concerns in the community. After users realized that the project was just a scam, the firm faced several problems.

Back in May 2017, the government of Kazakhstan imposed strict regulations on this company and labeled it as a Ponzi scheme. Later in July 2017, the government of India arrested 23 people involved in this scam. Additionally, China was able to recover $30 million dollars.

In 2018, Mark Scott, one of the key scammers was indicted back in August 2018 after being arrested by federal officers.

BitConnect is perhaps the most popular scam in the last years. The company offered high daily returns to investors that fell victims of this fraudulent project. Users could lend Bitcoin and receive interest for these funds. After it, users received BCC coins in which they received the interests.

Users were able to exchange Bitcoin for BitConnect Coins and wait for their returns in the future. Although the company was a Ponzi scheme, it was able to reach the top 20 at the end of 2017.

On January 2018, BitConnect shut down and BCC dropped more than 90% when they announced this issue. According to the company they had to shut down their operations because of negative comments from the media.

At the moment, the investigations related to BitConnect are still on its way.

What’s Next for Ethereum’s Killer App, the ICO?

The Initial Coin Offering (ICO) has been a fundamental part of crypto startups since their rise in popularity during 2017 and was largely responsible for …

This article is provided for information and education purposes only and is not intended as investment advice. Readers are encouraged to do their own research and consult a professional before making any investment decisions.

The Initial Coin Offering (ICO) has been a fundamental part of crypto startups since their rise in popularity during 2017 and was largely responsible for the subsequent cryptocurrency bubble. Startups or projects creating new currencies, services or apps launch an ICO to attract investors with an established digital token (Ethereum, Bitcoin etc.) and in exchange investors receive new tokens that they generally believe will provide a future return on their investment. This is roughly the equivalent of mainstream commerce’s Initial Public Offering (IPO) as a way of raising investment capital, except ICO tokens issued by blockchain businesses allowed access to the startup’s product or service, rather than representing any claim of ownership in the venture.

ICOs have often been the preferred means of crypto startups seeking investment because they bypass the onerous process of satisfying regulatory requirements and dealing with traditional venture capitalists. While the speed, ease of raising money, and exiting at will within the ICO structure have shown tremendous potential versus traditional capital raising methods, absent general regulatory checks and balances this doesn’t necessarily translate to mainstream business appeal where security, accountability and stability are sought after.

Now that Bitcoin has fallen more than 80% just one year after it’s meteoric rise to nearly $20,000 USD, the blockchain startup culture is entering a daunting but exciting phase where projects must either boom or bust, paralleling the 1990s internet bubble collapse.

The evidence to suggest this outcome is piling up. Ethereum’s native token “Ether” has fallen more than 90% from its high down to $125, Bitcoin continues to flounder against the US Dollar, and the declining value of crypto treasuries held by blockchain startups are seeing even the most established industry outfits laying off staff in an effort to deploy their capital more efficiently.

The future, and perhaps the end of ICOs was a significant theme at last year’s Distributed 2018 conference in San Francisco, as many would-be investors watched the knife fall as if in slow motion, trying to find their perfect moment to attempt to catch it. But why the collapse?

There are multiple intersecting reasons, and just as many points of view. One is the threat of punitive action by regulators in various national jurisdictions, another is that the bubble of investor over-exuberance was the outlier, and not the collapse — with the fall representing a reversion to fairer value. Total ICO investment in December 2018 fell to levels not seen since May 2017 – that is, when the boom first took flight to precipitate Bitcoin and Ether’s explosive rise in the first place.

Key indicators suggest that a sustainable consumer-led recovery isn’t going to ride up on a white horse, deus ex machina, and save the industry in the immediate future. This matters because there won’t be a mainstream uptake of cryptocurrencies until merchants begin to accept them and when blockchain businesses stabilize with sustained success in selling their services and products to consumers, not just tokens.

As it stands, despite its ubiquity and namecheck cachet, blockchain has minimal uptake or current usefulness in consumer markets. Most startups that tout it don’t even need it. Business acumen and hard work are what will lead to adoption – ‘build it and they will come’ – but thus far most consumer engagement with ICOs or blockchain businesses has not been with the startup’s product, but rather gambling with the financial instrument that underpins its economy instead.

If currency was the first ‘killer app’ for blockchain, the ICO could be argued to be the first popular consumer product, even if assisting startups to get off the ground was secondary to the primary consumer benefit of fast casino-like entry and exits that they permitted.

The ICO phenomena attracted a slew of investment into the Ethereum network’s native cryptocurrency Ether, as it was the prevailing de facto token used for ICO investing, and Bitcoin for its role as a precursor to acquiring Ether. This precipitated the explosion in cryptocurrency markets in mid-2017.

If the culture of ICOs is in trouble, then so too is Ethereum’s in the near future; and that seems to be supported by the move by many blockchain startups towards regulated public and private placement offerings for their capital raising effort. One idea catching on from this segment of businesses is to tokenize the actual equity (and sometimes conferring other rights) of their business in accordance with regulatory guidelines as part of a ‘Security Token Offering’ (STO), as opposed to releasing cryptocurrencies for disposable use within the business’s economy.

The advantage of these tokens is that they could allow investors earlier exit strategies through sales via security-compliant cryptocurrency exchanges compared to the generally multi-year investor partnerships required in traditional finance.

In a Security Token Offering firms would not be limited to conducting their funding raise in Bitcoin, Ether, or any other platform’s native token like the ICOs of old but could issue their own ‘coins’ or ‘tokens’ directly to investors in exchange for direct contributions of USD (or equivalent). This could mean comparatively reduced demand for Bitcoin, Ether, and others that were previously required as investment precursors — though that isn’t to say STOs wouldn’t be hosted on the Ethereum network.

This move to compliant STOs is, perhaps, a natural result of consumer resistance to the late generation of ICOs where historically around 80% have turned out to be scams, just 8% ever hit an exchange, and only 1.9% have had any semblance of success — which, ignoring the scams, is a microcosm of the failure rates that we see in the traditional business world to be fair. This coincides with a history of extreme price volatility and lacking fundamentals, a high attrition rate for weaker hands, and dumping by ICO projects cashing out their investor funds — exacerbating the industry-wide price collapse to leave their investors holding the bag.

It should come as no surprise that blockchain businesses are increasingly concerning themselves with the likelihood that they will be subject to punitive and oppressive retrospective penalties and regulations by governments of countries that they raised money from, and newer entrants are looking at ways to remain compliant with local laws.

While STOs private placement can be more cumbersome than an ICO, one positive outcome is a move to vastly increased quality, since regulated offering models see businesses (as opposed to ‘projects’) accountable to investors in providing sustainable business models, which will require avenues to actually sell blockchain products to consumers. As it stands, the majority of private equity sales never reach their funding targets, being restricted to a more sophisticated pool of investors whose due diligence process generally takes longer to make investment decisions than a one hour scan of a marketing ‘whitepaper’ that is intentionally empty of meaning and details. Investors of this ilk will be disinterested in separating with money for the sake of a token that only differentiates itself in how its internal economy functions as a financial product, which itself has no intrinsic worth.

It would appear that the innovative Initial Coin Offering is going to begin looking a lot more like traditional capital markets, before it becomes truly revolutionary.

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