By Ehsanul Hoq
“We detected what we believe to be a coordinated social engineering attack by people who successfully targeted some of our employees with access to internal systems and tools.”
–twitter
Sir Isaac Newton was known to the world for his scientific discoveries. But do you know that he was appointed as a MASTER OF THE BRITISH ROYAL MINT in 1699?
During that time, Newton faced the biggest challenge of the 17th and 18th century: COIN COUNTERFEITS. Newton successfully used his experience in methodological and pragmatic approaches to stop the counterfeit issue. He used techniques to make the coin engraving more difficult to replicate by the scammers. Newton was successful.
Now after 300 years, the coin counterfeits and scammers are again one of the most discussed issues in our society. The only difference is that Newton’s GOLD COINS are now replaced by DIGITAL COINS.
From the title, you should have an understanding that today we will talk about the BITCOIN SCAMS. Before we start I would like to go through a basic introduction of the Bitcoin. Then you will get a quick overview of some Bitcoin Failures. If you like the discussion we expect you to read the other parts where we will discuss some of the greatest Bitcoin scams from 2010 to 2020.
Bitcoin: The Future of Currency
“Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value.”
Eric Schmidt (Google CEO)
In late 2008, a mysterious paper was distributed to the finance world. The paper caught the eyes of the people who wanted to use digital power to disrupt the current financial infrastructure. The domain was booked as BITCOIN.COM and the paper had a title Bitcoin: A Peer-to-Peer Electronic Cash System.
Suddenly, a group of people found new ways to use currency online. They started implementing more and more features to bypass the traditional central bank currencies. This is how Bitcoin went to the history pages.
But Bitcoin was still a new and growing thing. People started to Google- Is bitcoin safe? Those days even Google had no answer to this question. And this is how the Bitcoin scams became an easier way to steal millions since people thought Bitcoin will be a safe investment tool.
Bitcoin also had another vision- replacing the conventional payment systems. But in 10 years, Bitcoin as a medium of exchange remained very small compared to the overall trading volume. Furthermore, Bitcoin was slower than the credit card, debit card, and other fiat alternatives.
But what made Bitcoin so popular was the EXTREME PRICE VOLATILITY. Investors found a new tool to make themselves rich. At the same time, the chances of getting scammed by Bitcoin hackers remained a threat. On the other hand, too much Bitcoin price volatility discouraged the merchants from involving in the new digital currency.
Although constant failure by the Bitcoin developers provided a good opportunity for the Bitcoin news hunters, investors never understood that Bitcoin can be traced back by real people. The power of Blockchain as a ledger of Bitcoin can make the overall system more transparent. However, the lack of knowledge on how to get Bitcoin back from the scammer is the main reason BITCOIN FAILURES can’t be stopped.
Bitcoin Failures
Some of the known failures of Bitcoin are-
- Scaling and latency failures;
- Visa handles thousands of transactions each second unlike Bitcoin which has a scale problem;
- Miners need to pay extra fees to solve the latency problem;
- Bitcoin Core version 0.8 released in March 2013 had a major compatibility issue and could’ve been a great disaster;
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Top Bitcoin Scams
1. August 2010
Hackers took control of the Bitcoin network and used a coding error to create 92 billion Bitcoins. This was one of the major hacks in the initial days of Bitcoin, reported by CoinDesk.
Some talented hackers found a way to flood the code and get the vulnerable point.
Bitcoin’s lead developer Wladimir Van Der Laan said, “It was the worst problem ever.”
2. July 2011
With 79,000 BTC, MyBitcoin wallet shut down taking 51% of the investor’s money. MyBitcoin was one of the earliest wallets in the market. It is considered the biggest digital currency heist in 2011.
However, the actual story of the heist is still unknown. It has been considered that investors had to bear $49 million in damage.
3. May 2012
Bitcoinica was hacked in 2012. It was an online service provider powered by Bitcoin. Digital currency experts believe that around 59,000 BTC was lost during the scam which worth $36 million in today’s currency.
The scam happened between March and May of 2012.
4. February 2013
The most shocking heist in the history of Bitcoin was the Mt. Gox fraud. The incident happened in 2013 where the largest Bitcoin exchange failed due to a massive hack. Experts believe that 650,000 BTC was take away from the users.
The total damage was estimated $402 million. The company filed bankruptcy and was liquidated by Kraken, another large volume crypto exchange in the modern days.
This large Bitcoin scam took the media with storm. As a consequence, many regulators started to think about the safety of the investors money in the Bitcoin domain.
5. July 2013
Another massive scam took place by the Ponzi Schemers in 2013. They took 700,000 BTC. As a result, Bitcoin Savings and Trust (BST) got exposed.
The Ponzi Scheme took around $154-$433 million of the investor’s money. The BST founder was found guilty for the scam.
6. December 2013
The final 2013 scam happened when a bug stole 5,400 BTC. In the digital asset terms, a Sheep Marketplace is a silk road-type of the black market. The bug used the Sheep Marketplace for the heist.
The total damage was $59 million and thieves cashed out all the money.
7. Spring 2014
In 2014, Bitcoin lovers faced a massive fraud called the Neo & Bee. The startup took away thousands of Bitcoin from the customers.
Unfortunately, the CEO of the startup Danny Brewster used his employees to make the heist without their knowledge. This gave Danny an opportunity to hide somewhere with the Bitcoins without getting caught for years.
Depositors confirmed around $5.8 million damage to their investment portfolio.
8. July 2015
This time a Mexican Bitcoin exchange was alleged for scamming. The name of the exchange was Coin.mx. Unlike the Neo & Bee, this exchange operator was found guilty and sentenced for 5.5 years.
9. November 2016
Unlike exchange scams and hacking the networks, the biggest scam in 2016 saw the kidnapping of an Indian property dealer by the policemen asking for Bitcoins. They demanded $1.8 million as ransom.
Since Bitcoin is undetectable by government agencies they can virtually take the Bitcoin and disappear without getting caught.
10. 2017
A fake exchange called BitKRX made a stealthy hacking of Bitcoins from the users. The fake exchange presented itself as a real exchange and took away investors’ money.
Most of the investors and traders failed to detect the scam. However, South Korean financial authorities and local Bitcoin communities found out the real story behind BitKRX. They immediately exposed the scam to save future investors.
11. September 2018
Hackers allegedly hacked sites filled with Bitcoin. They have stolen the code and took over the control of the sites. Mainly the Bitcoin traders were targeted inside the smaller crypto exchanges.
Gate.io was the main target for the hackers.
12. 2019
This year traders saw a $722 million cryptocurrency fraud scheme. It was another modern Ponzi Scheme. The scheme attracted investors by saying, ‘invite others for rewards.’
However, no investor got the rewards in the end.
13. July 2020
The latest scam that got the attention of the mass media. Since the world is facing a pandemic situation in 2020 hackers wanted to utilize the emotion for a scam. The hackers’ top Twitter accounts like Bill Gates, Elon Musk, Kanye West, and Joe Biden and asked the followers to send Bitcoins.
The tweet also carried the message like, “get double Bitcoins.” Once the hackers got enough Bitcoins in their account they immediately encashed and dissapeared.
Twitter says it was a social engineering attack coordinated by top hackers in the industry.
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Bottom Line
In a few months, Bitcoin will be 11 years old. What started as a way to disrupt the traditional banking system is now well-organized currency for traders and investors.
But like the predecessor fiat system, Bitcoin has been criticized for massive attacks over the years. Experts say, 51% Bitcoin scam happens due to network failures. This creates distrust among users.
The association of Bitcoin with the criminal organization has been an important factor for law enforcement agencies around the world. Studies show that scamming, hacking, and stealing Bitcoins made it impossible to become a world-recognized alternative for paper-backed currencies.
However, it is also true that the modern world need a modern payment solution. So knowing the historical mistakes made by the investors and exchanges can allow the future generation to make Bitcoin the best digital asset in the world.
Please follow our blog to learn more about digital currencies as we will publish more content in the next few weeks. If you agree or don’t agree with our thoughts please leave a comment below.
Ehsanul Hoq
Ehsanul Hoq is an independent financial researcher and freelance content writer/Blogger
Finance Tomorrow 