Nick Szabo (Nakamoto Satoshi) did not only create the first P2P electronic currency that made anonymous and unregulated transactions a possibility and but he also inspired thousands fraudsters to use his open source Bitcoin code to create a new cryptocurrency in less than 2 hours and then use the ethereum network to run an “Initial Coin Offering (ICO)” crypto-crowdfunding campaign and sale these worthless cryptocurrency tokens for millions of dollars to non-techy investors!
For those who don’t know what ICO is:
An initial coin offering (ICO) or initial currency offering (derived form initial public offering (IPO)) is a means of crowdfunding centered around cryptocurrency, which can be a source of capital for startup companies.
In an ICO, a quantity of the crowdfunded cryptocurrency is sold to investors in the form of "tokens", in exchange for legal tender or other cryptocurrencies such as bitcoin or ethereum. These tokens are promoted as future functional units of currency if or when the ICO's funding goal is met and the project launches.
At the time of writing, there are over 18,000 forkes of the original bitcoin code at github repository. To create your own cryptocurrency, you can simply use the bitcoin code or the Litecoin code (a compressed/optimized bitcoin fork).
The steps of creating your own cryptocurrency are extremely easy if you know some basic C++ and know how to handle compiler errors and fix them. This is what fraudsters do:
- It roughly takes less than 2 hours to create a new altcoin (alternatives to bitcoin) under your own unique name say for instance MBTcoin. Developers follow free step-by-step tutorials to create a new altcoin, check this as example.
- You just need to download the Litecoin full source code from github, setup the environment and libs and finally compile your code. (Alternatively you can also create a new cryptocurrency using Ethereum in less than 20 minutes. )
- Make some design changes like editing parameters for coin name (like MBTcoin or any crapCoin), block time (set 10 min or 1 min as you wish), difficulty retarget time (1 hour), coin per block halving life (4 years like bitcoin), max coin count(21 million or even 100 million as you wish!), etc.
- Once done, test your code by mining some coins, compile your code once you are all convinced and receive no errors.
- Can’t code? No problem, just a hire a developer from github who will do it for less than $1000.
- Hurray!!! You just created a new altcoin called MBTcoin within 2 hours by investing nothing!
- Next buy cheap one year shared webhosting from hostgator or godaddy with a 3 years of domain registration for less than $100.
- Design time! Buy a fancy ICO wordpress template for less than $15 from themeforest from here and setup your site design on it.
- Deploy your Web wallet (allows your users to send/receive your coins, register via email) on a sub-domain of the same site by hiring a developer from github for less than $1000.
- Create a Blockchain Explorer (exchanges need it) for another $1000.
- Don’t know how to write content? No problem, copy content from hundreds of other ICO sites and change the text slightly.
- Don’t have a team? No problem, Download some stock photos or pictures from linkedin profiles and setup a team page with their brief introduction.
- Write a Whitepaper by copying general content from other ICO papers and sell your idea in it. Create a word doc and then convert it to PDF. Add it to your site.
- Next create a dummy product or service that you could present to investors so that they could crowdfund your worthless tokens. Create an android app or an ecommerce site or even a logo designer site via a south Asian freelancer for less than $1000. Show fake stats and clients testimonials on your app or site. Don’t worry you can buy reviews, fanpage likes and app downloads etc for less than $500 from sites like fiverr or facebook groups.
- How to convince people that your worthless cryptocurrency which is backed by a dummy product or service is a digital gold? Buy paid articles from cryptocurrency news blogs for $500-$2000 , sponsor some vlogs on youtube for less than $2000 and also buy sponsored tweets and instagram posts from some influencers for $200-$500. Get paid celebrity endorsements from fake accounts. If in case you are planning a massive exit scam worth million of dollars, then buy sponsored tweets of McAfee for $105,000 per tweet because he is really good at brainwashing masses as we have discussed here.
- Finally its time to issue your ICO contract on Ethereum network for a mega crypto-crowdfunding in less than 20 minutes!
- Hurray!!! You just deployed your ICO! People can now buy your tokens using their credit cards, Bitcoin or Ether.
- Once the ICO starts, manipulate the market by buying 10% of all the sale tokens yourself using different IDs without exposing yourself. Do it just to increase the excitement level and to increase people confidence in your coins. Buy their trust!
- Set token refund ratio to 1/4th the original amount paid by the investor so that your investors may never ask for a refund should they get suspicious!
- Don’t worry all money that you just spent will give you a return on investment (ROI) that is 10x-50x times your total expense!
By spending less than $10,000, fraudsters have made millions of dollars in profit through ICO exit scams.
People who want to become rich quick often fell a prey to these scammers. Crypto-enthusiasts have gone so blinded with greed that they will put their money in anyone’s hand if he can promise to make them rich, irrespective of whether the promisor is credible or not.
To give you an example of how stupid could people get, read about PonziCoin.
Recently in Feb 2018, someone created PonziCoin as a joke and social experiment. The website had publically mentioned (by leaving signs) that it was a scam because its whitepaper was linked to a PDF uploaded on “U.S Securities and Exchange Commission (SEC)” website entitled as “Investor alert: Ponzi Schemes using vitual currencies”!!
PonziCoin source code was available for download on this github link which reads “A Social Experiment Pyramid Scheme.”!!
Wait it does not end here... The whitepaper summary image shown on PonziCoin website which clearly depicted a pyramid scheme, will shock you even more..
However driven by ignorance and greed, all these clear signs didn’t stop the blind crypto-investors from buying PonziCoin tokens. In total, an ICO, which openly admitted to being a scam, raised over $250,000!
Guess what happened next?
PonziCoin founder shocked at the stupidity of people, shutdown the website and ran away with over 75% of $250,000 of investors money!
According to the contract, investor could sell his PonziCoins back to the Smart Contract for 1/4 of the current price. Even if all investors ask for a refund, the founder will still own 3/4 of the crowdfunding money.
The founder said he didn’t stole anything nor run away and instead blamed the investors for their stupidity and advised them to be careful next time. I believe the founder was right as far as the ethereum smart contract says! :)
Some worth mentioning ICO exit scams are the following:
- PlexCoin: Founder ran away with $15 million of investors money!
- Benebit: Founder ran away with $4 million of investors money!
- Opair and Ebitz: Founder ran away with $2.9 million of investors money!
- REcoin and DRC: Founder ran away with $300,000 of investors money!
- CoinDash: Hacked within 13 minutes of the ICO launch, $7 million gone!
- Enigma: Hacked easily through phising, $500,000 gone!
ICOs increased so significantly in 2017 (50 ICOs a month), that financial authorities started warning their citizens about the risks involved by investing in unregulated virtual currencies.
In an interview to CNBC, founder of Wikipedia, Jimmy Wales said:
“..there are a lot of these initial coin offerings which are in my opinion are absolute scams and people should be very wary of things that are going on in that area.”
— Jimmy Wales
ICOs bubble has grown so big since 2017 that companies like Facebook, Google, Twitter, Mailchimp, LinkedIn, Chinese Search Engine Baidu, Russian Search Engine Yandex and platforms like Chinese Weibo and Japanese Line has banned ICO and cryptocurrency advertisements on their platforms in order to protect their customers against cryptocurrency scams and frauds.
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Mohammad
7/28/2018
Bitcoin
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