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Myth 1: Crypto is not secure
Blockchain technology has its tenth birthday this year in October if you measure its birth from the publication of Satoshi Nakamoto’s original paper. If you measure it from the release of the software, it occurs in January next year. Either way, the technology is nearly ten years old, is considered unbreakable (at least until quantum computers grow tall) and has never been successfully hacked.
The crypto-is-insecure lie is fake news formed from a chain of successful crypto-heists. Here are the most notable:
Mt Gox Version 1.0: ($500,000) In 2011, a hacker using an unidentifiable user account made off with 25,000 Bitcoin, worth half a million in those days and much more now. (wallet security is much improved since those days).
Silk Road, The Sequel: ($2.7 million) The feds closed the Silk Road in October 2013, and doppelganger site appeared as if from nowhere. Sadly the security was not as good as the original. A hacker blew through it and cleaned it out to the tune of $2.7 million.
The Sheep Marketplace: ($56 m) The Sheep Marketplace opened at the same time as Silk-Road-the-Sequel, surviving a little longer before a marauding hacker got his hands on some ill-gotten gains. This was an epic heist, 96,000 Bitcoins worth about $56.4 million and the hacker had the cheek to manipulate user account balances so that it looked like nothing had happened.
Mt. Gox Version 2.0 ($436 million) After February 2014 when Mt Gox finally shut its doors, 744,408 Bitcoin were missing. This hack had the added impact of crashing the price of Bitcoin.
The Pony Botnet: ($220,000) A botnet using trojan malware called Pony stole vast numbers of login credentials from 700,000 accounts, 85 of which had Bitcoin wallets. The hacker emptied them to the tune of $220,000.
The Demise of the DAO: ($55 million) The first smart contract on Ethereum was not so smart. It served the DAO (a Decentralized Autonomous Organization) and had a bug, The hacker who hacked it spirited away about $55 million. As a side effect, the Ether community forked the blockchain, but the crypto stayed stolen.
Myth 2. Cryptos are a scam, a shakedown — a Ponzi scheme, no less
Ok, there have been many crypto-based fraudulent schemes. The most frequent and successful scam is the “Exit Scam.” It works like this:
Dream up a crypto idea that sounds feasible and claim it will print mountains of money for investors.
Create a website, complete with cool artwork, a well-written white paper, impressive sounding advisers and a product roadmap.
Launch ICO.
When ICO completes, take the money and run.
Here are some examples.
Pincoin Token: A team of 7 Vietnamese entrepreneurs promised constant returns to investors. They launched an ICO and reaped $660 million from about 32,000 suckers. They even paid out a little to the investors before they did a moonlight flit. They have not been heard of since.
Benebit: What do you think of this idea: let’s unify all customer loyalty programs? Brilliant, eh? Sorry, but it’s too late to invest. The ICO is over, and the company behind it has evaporated, along with an estimated $4 million — demonstrating a distinct lack of customer loyalty.
PonziCoin: This earns itself a mention; barefaced branding at its best. It billed itself as “the world’s first legitimate Ponzi scheme.” It was a prank website. It even included a public admission that it was a scam. Amazingly this didn’t stop morons from pouring money into it. It raised over $250,000. What was the founder supposed to do? Naturally, cash in hand, he made a sharp exit.
A March 2018 study by the Satis Group, estimated that of all the large recent ICOs, a solid 81% were “frauds,” 6% failed, 5% are clinically dead, and only 8% made it to market.
Wait a minute. If that’s the case, how is this a myth?
Terminological inexactitude, dear reader. It should have read:
ICOs are frequently a scam, a shakedown — a Ponzi scheme, no less
That’s why the SEC has pretty much called a halt to US ICOs. The point is that ICOs, not fully functional cryptocurrencies, are dangerous investment vehicles.
Go here to learn 3 more cryptocurrency myths and how to debunk them.
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