One of the key features of Bitcoin is that its transactions are irreversible. Due to its independent nature, it cannot be controlled or manipulated by banks. Meaning no individuals, company or government, has control over your Bitcoins after you have sent them or received them. This can be seen as a positive or a negative effect. Without an undo or back button, it’s only possible to prevent fraud, not detect and mitigate it.
Banks rely on the reversibility feature every day to stop fraudulent activities. Bitcoin robberies and scam cases aren’t just rising because of interest in the currency but because robbing a bank online or scamming someone online involves much less friction then doing so in person.
To steal a million dollars from a typical business’s bank account, thieves would roughly need to transfer it to a network of roughly 100 money mules. Each mule must then withdraw less than $10,000 from their account within a short period of time, take the cash to Western Union, and wire the money to other thieves.
To steal a million dollars worth of Bitcoin however, it only takes one instant transaction for the Bitcoins to be gone and untouchable forever. Looking back over the past year we unearth the most significant Bitcoin scams.
NEO & BEE – (March 2014)
Within one month of conception, N&B, initially believed by many to be a promising Bitcoin start-up, vanished from the surface of the Earth with its CEO Danny Brewster still being on the run with an arrest warrant issued for serious criminal charges. The company raised over 9,400 BTC and launched one of the most aggressive Bitcoin marketing campaigns ever.
N&B has since then collapsed, with thousands of coins missing and unaccounted for. It has been revealed after 6-7 months of operations the company didn’t manage to come up with any product, had zero revenue, and never produced any type of financial statements.
The CEO is still on the run and wanted by the Cypriotic Police.
Moolah’s Missing Funds – (October 2014)
Moolah LTD, the digital payments service provider was shut down on October 2014 after becoming insolvent. The CEO posted on his blog on October 19 his series of events which makes it seem more like negligence than a scam. Apparently the company just ran out of cash. Previously, Moolah has acquired the altcoin exchange MintPal after it lost almost $2 million in customer funds. There is no report on how much money was lost in Moolah’s bankruptcy but it is estimated to be in the several million dollars.
Hong Kong BTC Exchange MyCoin Disappears with up to HK$75m/$10m USD – (February 2015)
Presumable one of the largest exchanges to close shop, MyCoin is also suspected of being a pyramid scheme. Customers were never presented with receipts and were led to deposit their newly-acquired coins at a separate site to earn interest. Also promises were made of cash prizes or Mercedes-Benz cars if customers could recruit new investors. Until press time only five people were arrested in this case.
Evolution Disapears with $12m – (March 2015)
The dark web’s marketplace Evolution which came the go-to website for drugs after SilkRoad was shut down and the money deposited in it never returned. Since most of the details about Evolution are not visible on the “normal” web it’s hard to get more information on the specific matter. There was also a bounty put on the heads of Evolution admins on Reddit by some angry users but it was quickly removed.