Murders, Hacks, and Exit Scams: How Bitcoin Industry Survived Troubled 2019

News and Analysis

The year 2019 was quite eventful. It was the year when the word “shitcoins” echoed across the halls of the U.S. Congress. It was the year when G7 leaders started talking about bitcoin. Of course, they mostly discussed the ways they could control it considering bitcoin’s growing censorship resistance.

The market finally saw institutional giants like Bakkt and Fidelity Digital Assets, survived the bloom of IEO and DeFi, and even enjoyed yet another bitcoin rally.

In this feature, we recall the most scandalous stories of the past year, including arrests, hacks, and even murders. 

Who Got Hacked in 2019

According to CipherTrace’s November report, $4.4 billion was stolen or hacked away in the crypto industry in 2019. There were seven exchange hacks with $100 million stolen. The attack on Binance cost 7,000 BTC to the exchange.

In his exclusive interview with ForkLog, the head of CZ Changpeng Zhao told that hackers attack Binance five to ten times a day, but only on May 7th, they succeeded. Mr. Zhao even weighed on rearranging the bitcoin network to roll back the hackers’ transactions but refused to do so facing harsh criticism from the community.

The exchange reimbursed the users’ losses from their special SAFU fund and enhanced the security, but to little avail: soon after the scandalous hack, a hacker nicknamed Bnatov Platon claimed that the hack was an inside job, demanded 300 BTC for full disclosure, and threatened to leak the exchange’s KYC data. Binance and the hacker have not reached an agreement, and Bnatov Platon started leaking users’ personal data in closed Telegram channels. All of the data was linked to the users registered in February 2018. 

Speaking to ForkLog, Mr. Zhao suggested that it was one of the KYC providers who was the source of the leak. The story ended with all known victims getting lifelong VIP accounts.

Still, the attack on Binance has nothing on the hack of Korea-based Upbit in terms of losses. Upbit has lost 342,000 ETH (over $48 million at the time) in late November. The hacker started fractioning and moving the stolen funds right away. Some suggested that this too might have been an inside job, considering the timing of the theft: it occurred during the scheduled moving of funds.

Shortly afterwards, Japan-based BitPoint fell victim to hackers: $32 million were stolen in Bitcoin, Litecoin, Ethereum, Bitcoin Cash, and Ripple. The exchange promised to reimburse the losses, however, no info on any payments is available at the time of writing.

Roughly at the same time, $4 million were stolen from Singapore-based Bitrue which focuses on XRP. The exchange promised to cover the losses. Another Singapore-based platform DragonEx lost 7 million and offered the users a reimbursement plan involving payouts in USDT and native Dragon Tokens.

Still, the most unlucky of them all was New Zealand-based Cryptopia. Hackers stole $16 million, the relaunch of the exchange failed, and the owners had to announce the liquidation of the company. They claimed that, notwithstanding all the attempts to reduce the expenses and make the business profitable once again, they decided to assign liquidators.

The liquidators, however, discovered Cryptopia’s debts to the amount of $2,378 million. Even though the exchange has enough funds to start the reimbursement ($10,9 million), not payouts have started so far. As it turns out, all assets were stored in just one wallet, and nobody even tried to compare the customer database to the assets.

And finally, there’s Bithumb, a serial loser, who got their wallets emptied for the second time after 2017 in March: they lost 3 million EOS and 20 million XRP. Once again, this may have been an inside job. In the summer 2019, Korean prosecutors accused the exchange of violating the law on managing informational networks and data protection laws. 

Pulling a Fast One

In mid-July, the Irish bitcoin exchange Bitsane performed an exit scam to which the users lost millions of euros. ForkLog’s own investigation suggests that the platform was run by several Belarusian nationals related to another cryptocurrency project Azbit supported by Roger Ver.

The same fate befell the BiteBTC users. It was believed to be a Singapore-based exchange until it turned out that the operator listed on the website has no idea whatsoever of any cryptocurrency exchange it supposedly operates. First, the administration froze traders’ accounts and asked more documents for KYC, and then blocked everyone.

Still, the award for exit scam of the year goes to PlusToken, which even threatens the bitcoin exchange rate. The estimated damage from this pyramid scheme is assessed at cosmic $3 billion. PlusToken was positioning as a referral system-powered wallet that enables one to invest in cryptocurrencies and obtain passive income. According to Dovey Wan of Primitive Ventures, the high concentration of bitcoins on PlusToken addresses was one of the reasons for April’s bitcoin rally.

The Chinese police have arrested some of PlusToken organizers on Vanuatu in June. Those who remained on the run started selling the stolen funds bit by bit. According to Chainalysis, they have already liquidated 25,000 BTC but still have around 20,000 BTC along with 789,525 ETH. The bitcoins were mixed and sent to 8,700 addresses, so all those estimates are rough.

Trouble With Darknet

It was a very bad year for darknet marketplaces but also very good for law enforcement.

In spring, Europol and Genram law enforcement shut down Wall Street Market that had a user base of 1.15 million people. Nearly the same time in Finland local law enforcement shut down Silkkitie / Valhalla marketplace that had been operating in Tor since 2013. And, nearly the same time again, Dream Market (which had been the biggest of them all) also shut down.

Almost immediately upon the Wall Street Market operation, the police have arrested alleged administrators of Deep Dot Web, an info platform about the darknet. In the U.S., they are facing money laundering charges. Their allegedly illegal income is estimated at 8,155 BTC. The head admin Tal Prihar, an Israeli citizen, pleaded not guilty. According to him, the resource advertised gambling bitcoin services, cryptocurrency exchanges, and VPN providers, not drug marketplaces.

In October, the German police have taken over control over so-called cyberbunker (a defunct NATO bunker in Traben-Trarbach) full of thousands of servers for darknet marketplaces selling drugs and child porn. Seven suspects were arrested. According to law enforcement, the bunker hosted servers for Wall Street Market, Cannabis Road, and Orange Chemicals.

The very same month, on the other side of the world, charges were pressed against the organizer and users of the world’s biggest child porn darknet market that had distributed over 1 million videos. The marketplace was active from June 2015 till March 2018 with users all over the world, including the UK, Germany, and the UAE.

The Netherlands authorities shut down the popular mixing services Bestmixer on the allegations of money laundering. Several days later, the similar service Bitcoin Blender announced its closer because of expecting the same fate.

Against that background, the darknet marketplace Hydra has announced an ICO for new anonymizing tech and international expansion. However, the community has reasons to believe that it will become another exit scam in the nearest future.

Deaths and Murders

Unfortunately, 2019 in the crypto industry was also a year of sensational or even mysterious deaths. The most well-known of them is probably the death of BitMarket’s co-owner Tobias Niemiro. His body with the head shot was found in a forest near the Polish town of Olshtyn just two weeks after the platform’s sudden closure due to the lack of liquidity. There seemed to be problems all the way: even before the shutdown, the administration had users change their passwords and API keys, and asked some of them to undergo a supplementary KYC procedure.

It is also known that Mr. Niemiro dealt with some dishonest entrepreneurs whose names and secrets he disclosed in a letter to Adam Soch. He, in his turn, gave the letter to prosecutors.

According to local media, the s losses of BitMarket users was 2,300 BTC. The former partner of Mr. Niemiro, Marchin Ashkelovic, faced charges of scam and embezzlement. He claimed, however, that he had no access to the platform’s assets.

Unfortunately, this wasn’t the only death among major crypto industry actors. In June, the head of China-based analytic service BTE.TOP Hui Yi committed suicide. He shorted bitcoin with 100x leverage and lost 2,000 BTC when the market went the opposite direction. As the money belonged to the customers, Mr. Yi preferred to take his own life, according to his business partner. Still, the company’s office closed one month before the suicide, so some users believe that Mr. Yi might fake his own death to avoid some unpleasant consequences. At this, this story has its abrupt ending, though it is being widely discussed in WeChat.

A cryptocurrency pyramid scheme in India ended sadly not just for the deceived users but also for its founder, Abdul Shakur. His own accomplices tortured and killed him when he told them that he had lost all the stolen bitcoins in a hacker’s attack. The suspects, however, were soon arrested.

Another shocking story occurred in the Netherlands where armed robbers dressed as policemen invaded a bitcoin trader’s house in the town of Drenthe. They tortured him right before the eyes of his four-year-old daughter for an hour.

News From the Criminal World

Law enforcement is vigilant, especially in America. The federal securities legislation is a recurring nightmare for everyone involved in an ICO, while scammers shudder after each knock on the door expecting the FBI to be on their doorstep.

Speaking of arrests, the arrest of Konstantin Ignatov, the brother of Ruja Ignatova, founder of OneCoin, is probably one of the most important. He pleaded guilty on several charges, including money laundering, and witnessed against the pyramid’s lawyer Mark Scott. The former was found guilty of laundering $400 million and bank fraud. Ignatov now faces 90 years in an American jail, while Scott may be sentenced to 50. However, neither has revealed the secret of Ruja Ignatova’s disappearance. 

The U.S. authorities estimate the damage caused by OneCoin at $4 billion. Still, one of the participants quoted an astronomical amount of €15.4 billion, which would make OneCoin the biggest Ponzi scheme of the decade.

Another noticeable arrest was conducted in Poland, where the law enforcement caught Ivan Manuel Molina Lee, the president of Crypto Capital on the charges of being a part of a drug cartel and laundering money via Bitfinex. Meanwhile, in the U.S., Arizona resident Reginald Fowler and Israeli citizen Ravid Yosef were charged with shadow banking for bitcoin exchanges and bank fraud via Crypto Capital.

The processing service’s accounts were frozen in several countries along with $800 million that belonged to Bitfinex users. The company had to take out a loan from Tether, which catalyzed the lawsuit of New York prosecutors vs Bitfinex.

Justice found some ICO organizers as well: the head of AriseBank Jared Rice confessed to a $4,2 million fraud, while programmer Maxim Zaslavski from Brooklyn has been sentenced to 18 months of imprisonment, which became a precedent in the U.S. legal practice. 

The organizers of mining pool BitClub Network face 20 years of imprisonment in the U.S. on charges of embezzling $722 million. BitClub was active since 2014.

Ethereum suffered notable blows on its reputation. In September, the U.S. law enforcement arrested Steven Nerayoff, one of many Ethereum co-founders, on charges of extorting money from an ICO startup he also promoted. In late November, the police arrested Virgil Griffith, an employee of Ethereum Foundation, on charges of cooperating with North Korea. At a conference in Pyongyang he allegedly explained the government how to bypass Western sanctions with cryptocurrencies. Both Nerayoff and Griffith can be sentenced to 20 years in jail.

What’s Up 2020?

Justice rarely prevents crimes. In most cases, police find the culprit after the crime, and how soon depends on how corrupt and bureaucratic a certain jurisdiction is. The year 2020 is quite likely to become a year of new hacks, new exit scams, and new Ponzi schemes. But it doesn’t mean you should get involved in any of them.

Here’s what you can do to keep yourself and your money safe.

  • No exchange is unhackable, so don’t keep your assets there.
  • Whoever promises you an enormous passive income without any effort is a scammer.
  • Don’t open a position with 100x leverage for someone else’s money (and preferably your own, too).
  • Don’t expect that you will be able to make money in a pyramid scheme before it collapses: if you’re not its founder or their friends, you won’t. 
  • Don’t trust celebrities who advertise some product they most certainly don’t even understand. 
  • Do not steal from other people via scams, pyramid schemes or hacks: it’s never the question of whether they will catch you, it’s always the question of when. 

However negative those events may seem, the crypto industry, in general, has grown in 2019. Even though bitcoin is not worth $500,000 to the dismay of John McAfee, and you don’t drive a new Lambo, the progress still goes on.

by Nick Schteringard and Jenny Aysgarth

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