Inside the Crypto World's Biggest Scandals - Coindoo

Inside the Crypto World’s Biggest Scandals

Editorial Team Avatar
Feb 17, 2019
6 min reading time

Crypto is known for being the newest branch of technology that has rapidly spread into different branches, with the most predominant ones being in finance and trading.

But the world of crypto is not without drama. From scams to major hacks, there are several scandals that end up making headlines internationally.

In today’s article, we will be reviewing some of the biggest crypto scandals that have rocked this industry.

Mt. Gox Hack

One of the biggest crypto exchanges at its time, Mt. Gox had at its peak performance almost 70 percent of all Bitcoin transactions running through its platform.

But in 2011, its Bitcoin wallet was hacked in the most unprecedented way. An unknown hacker managed to get a hold of staff credentials, using them to change Bitcoin’s price on the site to 1 cent and then send the coins illegally to his/her own wallet. Mt. Gox responded to this attack by transferring the remained coins into cold wallets.

But things did not get better from here on. Its Bitcoin wallet kept leaking funds continuously. In the end, people started complaining that their transactions took sometimes months to clear. Mt. Gox lost a total of 850,000 Bitcoins in the entire ordeal. This is what finally made the exchange file for bankruptcy in 2014.

The Silk Road Shutdown

The Silk Road was a notorious black market from the Dark Web platform on which many illegal things such as drugs, child pornography, and weapons were sold. The platform received funding from the crypto industry which made it hard to trace where the money came from.

It was Bitcoin transactions which led to Silk Road’s demise, as people discovered that such transactions were not at all untraceable and anonymous.

Its founder, Ross Ulbricht, was arrested in the platform’s raid. Others arrests connected to the case include Charlie Shrem, who was arrested by the FBI for money laundering by using the site, Cornelis Jan “Maikel” Slomp received 10 years for large scale drug dealing plus over 130 more arrests.

29,657 Bitcoins seized from Silk Roads’ accounts were auctioned off on 27 June 2014 by the U.S. Marshals Service. Another 144,342 Bitcoins were seized from Ulbricht’s computer, a sum of around $511 million at current rates. They were auctioned off, and Tim Draper purchased the Bitcoins with $17 million.

Mark Karpelès Embezzlement

Mark Karpelès was Mt Gox’s chief manager. When he noticed that the platform was being robbed of Bitcoin left to right and center, he decided to take $1 million for himself to have something to fall back on. $3 million were then illegally taken from client accounts and deposited into his own account, hoping to get away with it.

But when users began noticing this, he was caught and arrested in 2015 by Japanese authorities and charged with embezzlement.

He pleaded not guilty to his charges, but if found to be responsible for embezzlement and data manipulation charges, he will serve five years in prison.

Coinone Margin Trading

Margin trading is not the most recommended trading practice, especially in a volatile financial field like cryptocurrency. Coinone was one of those few exchanges to offer margin trading for Bitcoin, which at first seemed like a good idea to incorporate this advanced trading tool for professional trading.

But it was later found out that the reason for rolling out this feature was because most of the executives of the firm made use of margin trading to wager with Bitcoin on the platform.

India’s Involvement in Bitcoin Scam

India is among the countries that decided to reject cryptos altogether, installing extremely harsh regulations regarding crypto trading, with many politicians demonizing digital assets.

However, it was revealed later on that India’ Bharatiya Janata Party was receiving and circulating around $12 million worth of cryptocurrency. How convenient for them. The funny thing here is that the party rose to prominence by promising to end shadow economy and crypto use in the country. How hypocritical of them.

The Ponzi Scheme

Trendon Shavers is one of the first known individuals to conduct a Bitcoin Ponzi scheme. He developed Bitcoin Savings and Trust, an investment scheme which guaranteed interest rates of 7 percent per week to investors who loaned Bitcoins to his platform while he applied a market arbitrage strategy.

Shavers managed to gather 7 percent of all Bitcoins in circulation, which he then used to pay returns, making investors believe that the scheme was legit. This is why he kept on receiving backing from investors. He then disappeared with all the funds in August 2012.

The stolen amount was estimated to be around 500,000 Bitcoins, which was approximately US $5 million at the time. But then investigators came to find out that a large amount of coins which were thought at first to not belong to Shavers, actually belonged to a black market website sued by the scammer to mix his funds in order to conceal the real amount he actually stole.

When he was caught by authorities he was ordered to pay back $1.2 million to investors and was sentenced to serve a one-year prison term.

The Singapore Scandal

A wealthy Malaysian named Mr. Pang decided to travel to Singapore in order to purchase Bitcoins with cash in a face-to-face meeting with an alleged broker.

He and his personal broker went to Singapore with a briefcase containing $365,000. When the actual meeting took place, the two men were beaten by the scammers that promised to sell them Bitcoins.

The NiceHash Hack

NiceHash is a marketplace where users could sell and buy hash power for mining and get paid in Bitcoins.

The Slovenia-based crypto-mining pool was hit in 2017 by a hack that locked users out of their accounts. Over 4 million Bitcoins were lost in the attack, making it one of the largest Bitcoin heists in of that year. It was later reported that NiceHash succeeded in returning 60 percent of roughly 4,700 Bitcoins (BTC) stolen in the attack.

Final Thoughts

The crypto space has obviously had more events like these, but we just mentioned the ones that received the most attention due to their impact.

* The information in this article and the links provided are for general information purposes only and should not constitute any financial or investment advice. We advise you to do your own research or consult a professional before making financial decisions. Please acknowledge that we are not responsible for any loss caused by any information present on this website.
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