Scams, Frauds, and Hacks
One of the bad raps that Bitcoin has been getting is that it is used by criminals and money launderers. The truth is that although it can be, so is government issued money, and to a much greater degree. Bitcoin is only a tool, and like any tool it can be used or abused. This is space is dedicated to listing a summary of some of the more notable scams, frauds, and hacks of the Bitcoin community and, if possible, find a lesson to be learned from them. If you have information about a scam, fraud or hack that deserves to be listed on this page, please let us know.
|Bitcoin Economy is a website that is promoting itself as a MLM opportunity selling Bitcoin educational products. They have an affiliate sign-up fee of 199$ US and promise 100% commissions.They have three levels of educational products priced at 475$. This list of things to be learned at each level of the course are either things that can be learned for free on many sites or things that are intangible, like ‘personal development’ in the advanced course.They are banked in Hong Kong and incorporated in the Seychelles.When I reviewed their site, I couldn’t justify the prices for affiliates or customers that they are requesting, so I sent an email to them with my concerns. There has been no response.|
|Bitcoin is often referred to by its detractors as aponzi scheme. Well, here is aponzi scheme that has nothing to do withBitcoin other than it’s the currency they are trying to steal.These folks offer a 6% monthly return, which means you could double your money in a year, as they state clearly on their site. This is clearly a case of ‘too good to be true.’A review of news sites and scam boards reveals a number of claims by people saying that they get their interest posted as expected, but when they go to withdraw their funds, they get a white screen. Some users have been able to withdraw once, but then not been able to withdraw afterredepositing money.The owners of this site were also associated with EasyCoin.net, an online wallet and mixing service that is now off the web with many posts from angry users claiming that the site was a scam.For anyone intending to use Bitcoinera.net, please read their terms carefully. One of the clauses states that they reserve the right to take their site down for any reason — which would, of course, leave the depositors high and dry.One of the more surprising features of this scam is that normally the forums will have some people popping up to defend the service. Almost all of the posts that I found are negative.|
|Coinlenders.com was aBitcoin investment site run by an individual known only asTradeFortress.Coinlenders took deposits from investors and lent them out to various businesses that needed a liquid supply ofBitcoin. Investments were claimed to have been secured both byASICMiner shares and through the personal assets ofTradeFortress. Returns were high, but seemed reasonable given the nature of the business.Deposits intoCoinlenders could only be made by first opening an account and depositing with Inputs.io, anoff-blockchain wallet created byTradeFortress. This was supposed toprovide an added layer of security as mostCoinlenders/Inputs asset were claimed to be secured in offline wallets.On October 23, Inputs.io was breached by using old admin email addresses that did not have high enough security. Around October 26th, the thieves hacked in and stole 4100+ coins.TradeFortress took a week toinform his depositors in bothCoinlenders and Inputs.io about the hack. Hesubsequently partially refunded money to some Inputs.io account holders according to a sliding scale favoring small accounts, but shorting many depositors by as much as 80%. There are reliable reports that many Inputs depositors did not get any refund.Coinlenders depositors were told that there would be an email announcing the status ofCoinlnenders and how refunds would be conducted. The email was never sent, and after some time,TradeFortress posted onBitcoinTalk.org that due to some of his debtors not repaying loans and not responding to emails, that he could not send out the email.Up until this point,Coinlenders investors had been fairly patient. It had been Inputs that had been hacked, andTradeFortress had claimed that only a small amount ofCoinlenders funds had been affected. It was also the belief of many of the investors that most of Coinlenders assets were lent out in secured loans and recoverable.TradeFortress remained active on the forums for the next few days, but would give littleadditional information. Then, under threat of a lawsuit,TradeFortress settled with a large investor namedDumbFruit setting off a panic of investors trying to cutindividual deals.TradeFortress finally settled on a system of responding only toindividuals who expressed interest in cashing out with 80% or more losses. For the most part, all others were ignored.Then, TradeFortress stopped responding and apparently went underground. Indications are that he is Chinese and has returned to China. Legal proceedings are underway both in Australia, where Coinlenders was hosted, and in China.In thefinal analysis, it is unclear whether TradeFortress was complicit in the hack. At the very least he was criminally negligent given that he was aware of the hack on October 23 and did not take steps to protect his depositors money or to warn them. The suspicion is that he walked away with a substantial amount of money and many of his investors have still not been reimbursed.CoinLenders Article|
Coingrounds / Bit-U
|On November 5th, Bitcoin Warrior did a sponsored article with the not-yet active Coingrounds. We were in contact with Saif Altimimi, who impressed us as an entrepreneur trying something out in the Bitcoin economy. We were very happy to provide some publicity to the site and try to help the Bitcoin economy grow.Unfortunately, there was a falling out between the two main partners of this venture, Altimimi and a programmer who goes by the name Silfax. Coingrounds, the in beta, was switched completely to the control of Silfax and the name was changed to Bit-U.com. All Coinground accounts were transferred.On or about November 23, 2013, Bit-U was hacked and had 38 Bitcoin stolen from its wallet. Silfax shut the site down and was out of communication for about 24 hours. He then made an announcement of the situation on Bitsharestalk.org lettin people know the method of the hack. He claimed that after reviewing the situation, he would be able to re-up the site for 36 hours and allow depositors to withdraw 58% of their funds. Any funds left over after that period would be manually returned to the most seriously hit depositors.Unsubstantiated claims have been made that the hack was either Altimimi, a disgruntled Digital Ocean employee (the company that hosted Bit-U.com), or Silfax. The funds have been partially tracked through the blockchain, but there seems little hope of recovering the sums at present.|