The dark side of cryptocurrencies

The history of Bitcoin and other cryptocurrencies, despite its still young age, is very rich in events and incidents – like any one associated with big money, which can very easily change ownership. This new technology, which is gaining more and more popularity every day, attracts not only respectable and law-abiding citizens. It is possible that the “dark side” of the cryptocurrency economy is actually the underwater part of the iceberg, which is several times more visible activity on exchanges, in exchangers and numerous stores that accept Bitcoin for payment. As you know, one of the main distinguishing features of cryptocurrencies in relation to fiat is maximum anonymity.. And it attracts not only hackers, but also “ordinary” scammers and swindlers who prefer to remain in the shadows when making doubtfully legal transactions. It was the advent of bitcoin that made possible the emergence of black markets selling illegal goods online, 24 hours a day, around the world.. But, as it turned out, law enforcement agencies were well prepared for a new challenge.. After several high-profile arrests of the owners and clients of these resources, most of the most famous black markets were closed. Another reason for the high criminal activity around cryptocurrencies is the poorly developed security infrastructure and the carelessness of most users.. It is psychologically difficult for people to get used to the fact that money can be stored not in a bank account (even with online access), but in ordinary files on a home computer drive. In the four years that have passed since bitcoin became known to the general public, the amount of funds lost in the world of cryptocurrencies due to various kinds of illegal actions has long exceeded one billion dollars.. Tens of thousands of people said goodbye to their savings, “rewarding” scammers and hackers who attacked various exchanges, online wallets and other resources that use cryptocurrencies. Others bought non-existent equipment or cloud contracts for mining or were unable to receive mined coins from closed pools. Still others invested in stock exchanges and funds that turned out to be pyramid schemes. Many lost their bitcoins at online casinos banned in their country. There are probably a lot of unrecorded cases of fraud, as well as information about scams, which is extremely difficult to prove or verify. Therefore, all these figures are most likely only the lower bound.. In reality, the size of losses in the cryptocurrency community can be much higher. The “dark” side of cryptocurrencies Cryptocurrencies, mainly Bitcoin, are very popular on various services of the “dark network” – DarkNet – and are the main way to make payments there.. This is due to the fact that users of such sites primarily need anonymity and lack of control.. It is quite clear that some of the first people who began to use bitcoins seriously were the sellers of weapons, drugs and other black market “charms”. A distinctive feature of such sites is that they cannot be accessed in the usual way – using a traditional browser.. To be able to plunge into the depths of the dark web, you need to install special software – for example, Tor. With the development of cryptocurrencies, black markets have received a new breath. The method of anonymous transfer of money, and the very idea of a decentralized currency, made it possible to greatly reduce the possibility of control by governments and intelligence agencies. The “Silk Road” of the Darknet The story of the Silk Road online market, which everyone who deals with cryptocurrencies knows. The main feature of the site was the use of Bitcoin, which for most people was then a “dark horse”, and the ability to pay for purchases through the anonymous Tor network. Silk Road gained real popularity precisely because of the opportunity to buy various “substances”, and in addition to them, pirated software, stolen goods and a huge number of other illegal goods were sold. But the US intelligence services also turned out to be not bad – after almost two years of investigation, in October 2013, the owner and administrator of Silk Road, William Ross Ulbricht, was arrested, and later several of his employees and dealers. The creator of the Silk Road followed a certain code of ethics – in particular, he forbade the sale of weapons and the services of killers. But this did not help him reduce the sentence – he received two life sentences and several decades in the appendage. Followers of Silk Road Such a tidbit as illegal trade could not remain untouched. The baton was taken over first by Silk Road 2.0, and then by several other similar sites. However, the reincarnation of Silk Road turned out to be a trap for the special services.. One of the confidants of the creator of the site, Blake Bentall, who worked from the very beginning, turned out to be an FBI agent.. So they wanted to catch the main dealers, and they succeeded. Another follower of Ulbricht's idea was the black market Evolution. But he did not live long. In March 2015, the administrator of this resource suddenly disappeared, taking with him about $ 12 million. He argued this with some “technical problems”, and a few days later the site simply went offline along with the money of sellers and buyers.. This event caused a panic on the black market, but the information that the secret services had a hand in the closure was not confirmed. An interesting point is that among the many illegal markets in the DarkNet network, it was Evolution that had the reputation of being the most reliable. Here a three-way signature was used for each payment – the transaction had to be confirmed by both the buyer, the dealer, and the administration of the forum. Another “trick” of this market is that it essentially lacked a moral framework when it came to the type of product.. On Evolution it was possible to purchase a much wider range of goods and services, including compromising evidence. Sheep Marketplace was the next to close. They say that this happened due to hacking, which is very doubtful, since the withdrawal of funds from the resource was stopped a week before it. The amount stolen is also impressive – more than 150,000 BTC for a total of about $ 40 million. In addition to the above resources, you can select the Agora online marketplace. It is now the largest market on the DarkNet for the distribution of drugs, which is rapidly growing in popularity. There are also “specialized” black markets entirely devoted to one type of illegal trade.. For example, the Darkleaks website uses its own blockchain to transfer various private and confidential information.. It was the Darkleaks black market that was one of the first to put into practice a block chain similar to the Bitcoin blockchain for other needs not related to financial transactions. Exchange scams and robberies Back in 2011, the largest exchanges of that time, Bitcoinica and Tradehill, fell the first victims of hackers, but almost no details have been preserved – Bitcoin was then little known and these incidents were almost not covered in the media. In 2012, a successful attack on BTC-e was carried out, which paid the losses out of its own pocket. Bitcoin's first crash was linked to the MtGox hack in June 2011. But compared to the final crash of this exchange, it seems like a small episode.. The bankruptcy of MtGox at the beginning of 2014 can rightly be called the “crime of the century”, and not only in the narrow world of cryptocurrencies. 650,000 BTC – as of February 2014, about 480 million dollars, and now 130 million – disappeared without a trace, and after a year and a half, no progress was made in solving the case. Who should answer to tens of thousands of customers? Mark Karpeles, the dark web sharks behind his name, or an extraordinarily dexterous group of hackers? While this is the same rhetorical question as, for example, “who killed Kennedy?”. But there were also many smaller hacks – at the beginning of this year, as a result of a hacker attack on the largest Bitstamp exchange, nearly 20,000 BTC were stolen, which then amounted to more than $5 million, after which the exchange temporarily suspended operations for a security audit. Already this year, a large altcoin exchange, Bter, got into trouble twice. First there was a theft of about 50 million NXT, which was equivalent to about $1.65 million. However, soon the administration of the exchange managed to “negotiate” with the hacker, and almost the entire amount, with the exception of 8 million NXT, was returned. The second blow was fatal – more than 7,000 BTC were stolen from an insufficiently “cold” wallet. As a result, the exchange was forced to close, distributing the remaining assets to customers. Until that time, the Chinese Bter retained a reputation as one of the most reliable altcoin exchanges, and keeping funds in “cold wallets” was considered quite secure and reliable. Information about the theft from cryptocurrency exchanges is not uncommon, but it is actually very difficult to verify whether this is really the result of hacker attacks.. It is possible that the unscrupulous creators of the exchanges themselves conceived the scam and brought it to life, “consoling” the investors with the fact that a hack was committed. Or maybe some of the news about hacks is just an attempt to denigrate competitors and a way to attract attention? However, the fact remains that money from cryptocurrency exchanges disappears from time to time, and their clients need to be careful. Not only exchanges, but also pools can be hacked. Once a top 5 pool, 50BTC.com was considered reliable, but on October 18, 2013, it stopped paying rewards to miners.. For some time, the administration talked about technical problems, and then announced a hack, as a result of which about 1500 BTC were stolen.. The pool lost almost all miners and closed after a while. Whether there was a burglary in fact – no one knows. In June 2013, at a large Litecoin mining pool – ltcmine.ru – as a result of the owner’s negligence, after an incorrect wallet update, amounts exceeding the real ones by hundreds of times were credited to the balances of clients. The first lucky ones, seeing the money “fell from the sky”, immediately took it out, leaving everyone else with nothing. Up to 13,000 LTC lost in total. However, this case has other versions. Pyramid builders and sellers of air Around cryptocurrencies, like any other complex and incomprehensible technology, there is a whole host of the most excellent myths.. Ill-informed people often refer to Bitcoin as a pyramid scheme. Although these opinions are not substantiated, cryptocurrencies are actually very convenient for building pyramids.. The first to understand this was the American Trendon Shavers, who created the Bitcoin Savings and Trust fund.. Of the bitcoins received from depositors, he paid part in the form of interest, and on the rest he began to live for his own pleasure, putting forward the argument that they are not money, therefore he did not commit any crimes. However, the judge did not agree with him, and Shavers went to jail. Another giant pyramid scheme, the losses from which are comparable in scale to the MtGox disaster, appeared at the end of 2014 in Hong Kong. It was a MyCoin pseudo-exchange that raised money, promising payback in a few months, and then fabulous profits.. All the signs of a pyramid scheme were there – promises of super profits, gifts to those who would give money “right now”, a bonus for referring other clients. However, there were many people who invested hundreds of thousands of dollars in this enterprise.. The total amount was almost 390 million HKD. And in February 2015, when the police became interested in MyCoin, its owners took the money and disappeared, substituting hired employees who knew nothing about fraud under the hammer of justice.. The perpetrators have not yet been found. Virtual mining Miners also became victims of scammers. So, in 2013-2014, many virtual manufacturers of pre-orders for ASIC miners appeared, who created a beautiful website, posted images of non-existent devices drawn in the editor and collected money for pre-orders. Gullible people during the rise of Bitcoin and the hype around mining, without thinking twice, made orders, making non-refundable payments to scammers' wallets. Of course, they did not receive any equipment or money.. Smaller scammers sold fictitious “iron” through ads or took money for the delivery of real miners from China, and then disappeared in the same way. Melting clouds Recently, the creators of the pyramids have found another fraud scheme – the sale of fictitious contracts for cloud mining. Indeed, what could be easier? A site is created where an allegedly existing data center is advertised and favorable (but not too) conditions for mining are promised, and contracts begin to be sold. Since the average payback time for real mining is 4-6 months, crooks have nowhere to rush. They simply pay the victims some of their own money, continuing the advertising campaign and luring new customers, or old ones, into “reinvestment of profits.” Such pyramids can exist for many months and acquire a reputation for reliable services.. And only when the flow of payments begins to dry up, they turn off their activities and disappear with the money.. Moreover, the first clients who invested at the very beginning may even make a profit, since it is more profitable for fraudsters to pay a “small share” than to deserve suspicion ahead of time. Examples of such services are HashProfit and cointellect.com. One of the largest “cloud” pyramids was BitcoinCloudServices, which existed for about a year and stopped payments in May 2015. The number of victims and lost amounts are still unknown. High-risk investments Among other pyramid schemes, one cannot fail to mention such a form as HYIPs (HYIP – High Yield Investment Project), which are currently gaining more and more popularity.. There is a whole host of HYIPs that accept cryptocurrencies, ranging from Bitcoin to little-known altcoins. The HYIP scheme is quite simple – the user invests real money in his account and gradually receives interest from his own deposit. Moreover, the creators of HYIPs often announce in advance that the scheme is a pyramid scheme, but the first invested can get a large (in percent) profit. HYIPs are distinguished by very attractive “promises”, up to several hundred percent daily (the so-called “doublers”). In fact, the conditions in different HYIPs can be drastically different, but the main feature is that the creators lure users to invest as much money as possible in their offspring, motivating them with a huge payout percentage of the amount deposited. The creators, thanks to loud advertising slogans and corporate promises, attract the required number of investors, make several payments to them and, with a clear conscience, “fold” their project, leaving the clients' money in their wallets. You need to understand that the money for payments is taken not from the pocket of the creators, but from the pocket of the depositors, that is, in fact, the hype exists and pays out exactly until the moment when there is an influx of new users, and as soon as it slows down or stops, the hype simply disappears with all collected deposits. Investors can also get a good profit, provided that they have time to give money immediately after the opening of the hype. But if you give vent to greed even a little and “pull time”, then there is a very high chance of losing all your investments and savings. Anyone who has a wallet with popular cryptocurrencies can try to invest in such services at any time, literally in one click. A special attraction is that the payment is anonymous and is often credited to your balance in a matter of minutes. But you need to understand that the chance to predict behavior and the probability of “winning” in a particular hype is approximately equal to the reliability of fortune telling on coffee grounds and does not depend at all on the type of coffee. Ransomware and miners Discovered Bitcoin and virus writers. The anonymity of cryptocurrencies is especially beneficial for the so-called “ransomware” – that is, ransomware viruses. These viruses, penetrating the victim's computer, quietly encrypt files and documents, and then display a warning on the screen, demanding a ransom in Bitcoin for providing the decryption key – otherwise, all the user's files become useless garbage. The new class of threats is named CryptoLocker after the name of the first of these Trojans, but now there are already many such viruses.. Even the police became victims of cryptolockers. Various means are offered against them, but the main struggle is yet to come. There is also a “less harmful” miner virus, which is a Trojan that launches a mining program on the victim’s computer, thereby exploiting its computing power for its own purposes.. Some companies that release games and various software have become famous for such “sins” by embedding such Trojans into their clients.. Quite well-known companies also came across on this. Gambling Two or three years ago, online casinos and various sites began to appear on the network, offering to gamble not for fiat money, but for cryptocurrencies that are gaining popularity. One of the first online casinos to gain popularity was SatoshiDice.. It is associated with a whole host of stories about attempts to cheat the system, as well as large bets – both winning and losing. You should immediately divide casinos that work with popular cryptocurrencies into two groups: the first is ordinary online casinos that simply accept cryptocurrencies as one of the ways to deposit and withdraw funds; the second group is casinos that were originally created to play with cryptocurrencies. If everything is more or less clear with the first group, then the second group is much more interesting.. Such sites usually support Provably Fair technology for the possibility of checking bets and the game itself for fairness.. Players are given the opportunity to use unique hash signatures, thanks to which they can check their bets at any time and make sure that the site is honest and that there are no tricks that traditional online casinos often sin. In conclusion, we can confidently say about the world of cryptocurrencies that this is a completely new and very dynamically developing market with its own peculiarities that are characteristic only for it.. There is a wide scope for various scams here.. Many of them end well, as the perpetrators retain the advantage of anonymity.. Here you will not be able to return the money if you made a mistake. It's almost useless to complain if you've been scammed. You are in complete control of your money, but it is also up to you to take care of their safety. It should be borne in mind that even an elementary disregard for the general security rules can lead to very unpredictable consequences, because if an attacker was able to gain access to your funds, then with a high degree of probability you will say goodbye to them forever. Remember the most important thing – you must perform all actions deliberately. Take care of your wallets!