Tue. Dec 1st, 2020

Planet Compliance

Innovation & Regulation in Finance

The Biggest Scandals in Crypto History

4 min read

If you look back at the history of crypto, the past few years have seen some intriguing stories – whether they end in success or failure. Aside from the ultra aggressive investment strategies that have seen investments explode, and less traditional approaches like arbitrage (which are intriguing on their own), a focus on some of the more controversial individuals and events in the crypto space reveals some particularly fascinating stories and valuable lessons.

James Howells’ 127 Million Dollar Mistake

Let’s start with a fairly well known story. In 2009, alongside the start of cryptocurrency itself, James Howells began the process of mining bitcoin using his personal laptop. Just four years later, he sold the laptop on ebay – however, he did keep the drive that was used to collect his bitcoins.

At the end of his mining process, Howells had mined approximately 7,500 bitcoins. Had nothing gone wrong, these would be worth $125,000,000 USD today. However, something did go wrong – in 2013, he made the mistake of throwing the drive out. 

Since 2017 (and likely before this), Howells has been set on retrieving the drive from his local landfill site – unfortunately for him, the city council won’t allow it. On top of the environmental risks, complex engineering requirements and overall expenses associated with the task, there is a good chance the hardware would have suffered damage to the point that it is now unusable.  

It looks like only time will tell whether or not Howell gets the opportunity to retrieve his $127 million bitcoin drive.

Ruja Ignatova, aka Cryptoqueen

In 2016, Ruja Ignatova stood on stage at Wembley Arena, dressed elegantly and exuding confidence. To a cheering crowd, she spoke about OneCoin, the Bitcoin killer that was going to be the world’s biggest cryptocurrency. People were hooked on the idea – the hype on crypto was only just getting started at this point, and the idea of jumping early on something that would become as big as Bitcoin had people going wild.

As it turned out, OneCoin was a ponzi scheme – at the time of this appearance at Wembley, they didn’t even have a blockchain technology to operate on – yet they had already seen quarterly revenue in the hundreds of millions of dollars. Despite this, Ignatova was continuing to travel the world, buying multi-million dollar properties, and throwing parties on her yacht. This was until October 2017 – after growing concerns from investors, she disappeared. Since this disappearance, Ignatova has been on the run from the law. 

Some reports have estimated that OneCoin has brought in approximately $4 billion USD, worldwide. 

The Rise and Fall of Bitconnect

You might have heard of Bitconnect, thanks to the viral internet meme involving investor Carlos Matos, who gave an entertaining Bitconnect presentation in October 2017. However, the underlying story is less known. 

Bitconnect was an open source cryptocurrency, connected with a ‘high yield investment program’, (aka a Ponzi scheme). After an initial coin offering at the end of 2016, Bitconnect immediately became one of 2017’s most well performing cryptocurrencies. 

One of the aspects of Bitconnect that caused suspicion from the beginning was the use of multi level affiliate marketers – essentially a pyramid scheme. On top of this, marketing efforts focused on advertising impressive Bitconnect profits, which in reality, came mostly from affiliates as opposed to investing.

By January 2018, Bitconnect had announced that it was shutting down its crypto exchange and lending operation. As a result (amongst other aspects that caused suspicion, such as impossibly high payouts and multi level marketing structure), investor confidence plummeted and the coin, once worth almost $500 USD, dropped to a value of $0.40 USD.  

Interestingly, the amount of assets that Bitconnect has, or ever had, remains unclear – this is because Bitcoin never existed as an entity.

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