Biggest Scams & Hacks in Cryptocurrency History
Cryptocurrencies are an emerging field. It takes time for the level of knowledge from the side of consumers to catch up with the risks that circulate. Not only is it an emerging field but it also deals in the field of digital and sometimes anonymous money. This makes it a ripe place for hackers and scammers alike. The first step to help prevent against being hacked or scammed is to be aware of what has happened in the past. We cover the major scams which have taken place to date.
The Exchange Risk – Mt. Gox
The biggest hack in the history of cryptocurrency occurred in 2014 when Mt. Gox had over 740,000 Bitcoin stolen from the exchange. It is common advice in cryptocurrencies not to leave your funds on an exchange and this hack is still referred to today. When users store their funds on exchanges, they are handing over the control of their funds to the exchange.
At the time of the hack, Mt.Gox was handling over 70% of the transaction volume occurring in Bitcoin. Users who had their funds hacked still have not received any compensation back despite the value of Bitcoin drastically rising since the time of the hack.
Since this time, there have been numerous more exchange hacks with Bitfinex being another notable hack. It is always important to remember that leaving your funds on an exchange exposes your funds to this type of risk.
The Too Good to be True – Bitconnect
A more recent scam was peer-to-peer lending platform Bitconnect. The cryptocurrency gained huge amounts of attention before finally being revealed to be a scam. Many were aware it was a scam prior to it collapsing but there was also large support behind Bitconnect from investors.
The cryptocurrency promised returns based on peer-to-peer lending. Bitconnect guaranteed investors 1% daily compounded returns. In late 2017 and early 2018, the company faced legal troubles which led to the price of the cryptocurrency crashing.
Bitconnect was structured as a Ponzi scheme with the price of the cryptocurrency depending on new investor capital arriving. It is important to be aware of this scam in cryptocurrencies as others operate in the same manner. Cryptocurrencies such as Onecoin have been organised in the same structure as a Ponzi scheme. The general rule of thumb is if it is too good to be true, it probably is.
ICO Scams – Plexcoin
Initial Coin Offerings (ICOs) exploded in 2017. ICOs are a new fundraising mechanism whereby teams raise funds via distributing a cryptocurrency or token related to a project they plan to develop. If the project gets successfully developed, investors hope that the token they invested in will be worth far more.
The growing number of ICO’s has resulted in there also is a growing number of ICO’s which are scams. There have been countless exit scams where ICOs were completed and the team disappeared afterwards. All the proper channels are typically set up such as a Telegram to help investors contribute and fake LinkedIn profiles to represent the team.
There are often signs when an ICO is going to be a scam. The fraudulent Plexcoin ICO promised investors an over 1300% return in 29 days. The project raised approximately $15 million from investors and the founders behind the project have since received sanctions from the United States SEC. In many of these scenarios, the team behind the project is unknown and disappear after the ICO is complete.
Send 1 ETH, Get 2 Back – Vitalik Non-Giver of Eth
This is one of the more common scams and is still prevalent. The scam is based on enticing individuals to send cryptocurrency in hopes to receive a greater amount in return. So many people have got caught by this scam that innovators and influencers such as Vitalik Buterin have changed their social media names to explicitly state that they are not giving away Ethereum. Scammers will still post trying to entice users to send cryptocurrency.
It is estimated that approximately $1.5 million has been scammed from enticing users to send cryptocurrencies.
Protecting the Private Key and Checking the Public Key
It is common advice in cryptocurrencies to closely protect your private key. Revealing your private key to anybody provides access to the funds in the wallet. By putting your private key into shared databases or cloud services, you are running the risk of this information being accessed by someone else and losing your funds.
Scams have also been created targeting the public key. When you are sending funds, you need to know the recipient’s public address. One piece of malware changes the user’s address when you copy it to the clipboard to another address. When you go to paste the address, the scammer’s address will be pasted instead and the funds will go to the wrong account. This emphasises the need to always double check the address when sending funds. There are no estimates for how much has been lost through private key and public key scams and hacks but it is certainly an enormous amount.
