A journey through crypto's most (in)famous scams... and why they shouldn't deter you.

For many people, crypto is synonymous with scams.?

But the scams that define Web3 for many, have little or nothing to do with Web3 itself.?

So, what can we learn from the infamous Crypto Queen, a maybe-fake-dead (?) crypto exchange founder, and crypto’s least likely Bonnie and Clyde?

Grab a hold of your skepticism. This is going to be fun.?:)

OneCoin and the Missing Crypto Queen? It even has ‘crypto’ in the title!

This is the story of how Dr. Ruja Ignatova scammed people out of millions of dollars in what The Guardian calls ‘a multi-billion dollar con that combined a bogus currency with a cult-like recruitment programme that fed into a pyramid scheme’.

She spun a tale of glory and high ideals. Stole over €4bn. Destroyed millions of lives. And then disappeared. In June she was added to the FBI’s top 10 most wanted.?

Dr. Ruja borrowed themes from the crypto community. She spoke about banking the unbanked, improving equity across borders, and creating an alternative to a financial system that can feel stacked against the many.?

And she wove it all into a story of a new cryptocurrency that would be the ‘Bitcoin killer’.

But the heart of her con was the lack of a blockchain.?

It is a thrilling story. Genuinely gripping. And the BBC tells the story brilliantly here.

But, it wasn’t a crypto scam.?

It was the story of a (terrible) woman pretending to build a crypto platform.

Ok, well what about QuadrigaCX? It was a crypto exchange! Right?

The tale of a “nice Canadian guy” who appeared to have built a crypto exchange in Canada, that closed after his apparent death, owing $190m to customers.?

Another one with all the elements of a gripping soap opera. Made into a gripping documentary on Netflix: 'Trust No One: The Hunt for the Crypto King’

Well, it turns out that the “nice Canadian guy'' had a history of scams and ponzi schemes. He was an unscrupulous actor who abused the trust of his customers, traded badly, and funded a lavish lifestyle.?

There’s a reasonable chance that he faked his death.

He definitely committed fraud on a massive scale.?

But, in the words of the Ontario Securities Commission “what happened at Quadriga was an old-fashioned fraud wrapped in modern technology.”

Blockchain technology has helped to unravel at least part of the mystery. Chainanlysis, a cryptocurrency tracking firm, revealed that Quadriga likely never invested the funds entrusted to it. They either were never received or quickly went missing.

The only lingering mystery is whether the body buried in his name should be exhumed to prove whether or not he faked his death.

It’s a mystery.?

It was definitely a massive fraud.?

But it’s not fundamentally a crypto fraud.

But crypto is used for money laundering, right?

According to Europol and Messari, Fiat is used in money laundering 800 times more than crypto.

Crypto is gradually creeping into popular culture (surfacing in songs, movies and tv series) but most commonly as a tool for criminal masterminds. If this was your introduction to crypto, you’d be forgiven for thinking it was a hotbed of criminal activity.

But every transaction on the blockchain is immutable (can’t be changed) and traceable. Nobody can go into the backend and manipulate records. And, once you have a few transactions, it’s easy enough (if you have the skills) to trace the funds all the way back to where the coins were mined.

The privacy networks are harder to penetrate in terms of traceability and accountability but they are still far too small to hide big movements of cash. And regulators are likely to tighten controls long before they get big enough.

That is not to say that money laundering doesn’t happen in crypto.?

But it is such a long way from being the defining feature. And it’s getting harder.

And crypto’s Bonnie and Clyde?

In 2016, a very unlikely pair managed to steal 120k BTC in a hack against Bitfinex, a big crypto exchange. The heist was executed by a YC founder (the husband) and a truly unique youtube rapper known as “Razzlekhan” (his wife).?

You really couldn’t make this stuff up.

But, despite trying everything under the sun (actual explanation of their money-laundering efforts here), the majority stayed in the wallet that originally received it. No exchange would let them cash out and every transaction was visible on the public ledger.

5.5 years after the hack, the coins started to move and it got picked up by the Whale Alert twitter handle, which tracks every move that significant wallets make.

The Department of Justice followed the transactions back to Ilya Lichtenstein and his wife Heather Morgan (aka “Razzlekhan”).

At the time of writing the dastardly duo were allegedly negotiating a plea deal.

In 2016 there was a weakness in a crypto exchange that was exploited.

And, in 2022, blockchain technology was a major enabler in catching the culprits.

So…

If you were a criminal mastermind, would crypto really seem like such a no-brainer over cash?

I don’t know about you, but I think I’d stick with the likes of JPMorgan ChaseJ, HSBC, Standard Chartered, Deutsche Bank, or Bank of New York Mellon, all of whom Forbes alleges are involved in moving funds for suspected criminals.?

Or, better yet, cash.?

I would steer clear of crypto. By a ratio of 800 to 1, apparently.

Rug pulls, phishing, ponzi schemes, giveaway scams…?

Yup, we’ve got them all. But so do other industries.?

There are a few differences…

• There’s a lot more hope in Web3. The dark side of that is that it’s ripe for scams.?
• The quality of the scammers is often high. Nothing but the best. ??
• Very few people really understand the tech. So people are easy to confuse.

But none of these has anything to do with underlying tech.

So what is it about and why is it associated with crypto…

The key ‘vulnerability’ of crypto doesn't lie within the technology itself.??

It’s the hope (and, yes, the greed) that was sparked when the transformational wealth it created for early believers became apparent.?

This is gold dust for scammers. Because it’s easier to sell a lie people are ready to believe.

But the most famous ‘Web3 scams’ are just old fashioned cons that play on that.?

Web3 is new. But humans are still human.

Underneath all the noise and the mistrust (and soap-opera worthy antics), the innovation that sparked all that hope and excitement continues to progress, build, and go from strength to strength.?

That’s where the smart eyes should be.

If you’d like help cutting through the noise to get a clear line of sight, please get in touch.

Bankless Consulting was formed when a group of web3 natives in BanklessDAO , who had decades of traditional consulting and agency experience, came together and build the first decentralized consulting group.?

Bridging the two worlds is a core part of what we do.