Controversies During the Early Years of Crypto
Cryptocurrency is seen as one of the most fascinating innovations of modern technology. It has a world on its own that can do almost anything from ending poverty to creating a financial ecosystem where there is minimal gap between social classes.
No one can deny the technology’s potential, but it also had its own fair share of controversies and drama in recent years. Influencers on social media and business personalities hyping up a new coin to be released soon only for people to find out in news breaks that it has been scammed, hacked, breached, and for whatever reason there is before it even reached its initial goals — all of these seem just insane!
With all the hype and eyes on this innovative technology, it’s not surprising that some cryptocurrency scandals ended up making international headlines. What follows are some of the biggest scandals that rocked the crypto space during its early years, but while none of them has put a lasting dent in its reputation, it should serve as a reminder that not all that shines and sparkles are diamonds.
The Mt. Gox Disaster
For those who started learning crypto in the 2010s, many will agree that Mt. Gox is one of the biggest thefts from a bitcoin exchange platform — the mother of all crypto breaches.
Launched in July 2010, Mt. Gox rose as far as handling over 70% of all bitcoin transactions. On 20th June 2013 the exchange suspended withdrawals in US dollars, which was only the beginning of its troubles. After a series of re-launches and additional trading halts, only to suspend all trading on 24th February 2014: hours later its website went offline, returning a blank page.
A couple of days later Mt. Gox filed for bankruptcy protection in Tokyo, reporting that it had liabilities of about 6.5 billion yen ($64 million at the time), and 3.84 billion yen in assets. According to the company, it had lost close to 750,000 of its customers’ bitcoins, and around 100,000 of its own bitcoins, the equivalent of 7% of all bitcoins, which at that time were worth about $473 million.
It was initially not clear what the reasons for the loss were and it is still subject to speculation as to what happened exactly, but apparently, the exchange had been subject to several hacks between 2010 and 2014.
Its founder Jed McCaleb sold the exchange to Mark Karpelès in March 2011 and it is said that at that time it had already lost 80,000 bitcoins, which were then worth more than $62,000. Eventually, Karpelès was arrested in August 2015 in Japan, released on a $100,000 bail, and waiting to stand trial according to unconfirmed sources.
Mark Karpelès Low-Key Theft
This case is a direct continuation of what happened to Mt. Gox — the now-defunct crypto exchange gets even more interesting.
Mark Karpelès was the chief manager at Mt. Gox when everything went down. He was one of the first people to know that hackers are stealing BTC from them. His reaction was all but the right one. Instead of trying to catch the culprit, or at least try and find out who it was, he decided to take $1 million to himself, hoping that it would go unnoticed. Later, he transferred another $3 million from client accounts to his own, making matters even worse and leveling himself with the original hacker.
Luckily his moves were recorded, and it wasn’t too long before he was apprehended. Interestingly, he claims his innocence in front of the court.
The End of Silk Road
Silk Road was the Dark Web’s open air market when it first went live. All things illegal anyone could have thought of are present in this space — drugs, child pornography, weapons, just to name a few, were regularly sold here.
The creators of Silk Road were pretty invincible from authorities. The rise of bitcoin during that time prompted the creators to consider using it in their transactions since it was untraceable back then… until it wasn’t anymore. Bitcoin transactions were what led to their demise, and it was only at that point people realized crypto is traceable, especially if law enforcement starts to intervene.
Ross Ulbricht, the founder of Silk Road, was collared during this raid. Others, including Charlie Shrem, got pinched by the FBI for money laundering in relation to the site. Despite asking for a plea, Shrem was sentenced to two years in prison.
These days, their arrests are viewed as a warning signal to those who want to walk on the dark side of things. If you ask would-be criminals, the Silk Road Arrests were the most chilling cryptocurrency scandals in history.
A 127 Million Dollar Mistake
James Howell, one of the first miners in the world, used his laptop to mine bitcoins and aimed to become rich without breaking a sweat. The early years of bitcoin are the best years to be a miner as crypto is young and is starting to gain value.
Four years after starting his crypto journey, he decided it is the right time to sell his computer. He took out his hard drive, which he stored all the crypto he mined, and sold his device for some cash — pretty smart move at that time.
At this point, he already amassed more or less 7,500 Bitcoins; all kept safely in his drive. Back in 2013, this would amount close to $127,000,000, and it was during this year when he mistakenly put his bitcoin-filled hard drive into the waste bin, which was collected by his local landfill site later that day. When he realized his carelessness a few days later, he tried to recover it from the landfill site, but the city council denied his appeal as landfill sites are hazardous to one’s health.
The Bitfinex Exchange Hack
The Hong Kong based crypto-currency trading platform Bitfinex is said to be the largest Bitcoin exchange platform, with over 10 % of the exchanges. On 2nd August 2016 the company announced that almost 120,000 BTC had been stolen from its platform, the equivalent of $72 million at the time.
It led to a bit of blame game between the company, its security provider BitGo and the US Commodity Futures Trading Commission (CFTC) who was accused of having forced Bitfinex to use BitGo and keep the majority of the funds in hot storage instead of its existing cold storage setup.
Shortly before, the CFTC had fined the exchange $75,000 for offering illegal off-exchanged financed commodity transactions and the discussion then focused on whether Bitfinex could impose the losses on its customers.
Long story short, Bitfinex users received another asset called BFX tokens in exchange for the loss that customers suffered from the hack and the company in April reported that it had bought back all of the remaining cryptographic tokens it used to reimburse investors.
More Controversies in the Future
Mentioned above are controversies that happened during the early days of crypto and is just the tip of the iceberg because in recent years, more and more controversies have been exposed to the public surrounding crypto and blockchain technology — but this has not stopped people from believing and betting their future on it. Definitely, we can expect more controversies in the crypto space as more countries are starting to regulate the use of this young financial system.
Crypto’s volatility and unpredictability is being exploited by some perpetrators, making it prone to breaches or hacking. However, the pandemic made people realize that crypto could possibly be the answer to the ever-growing social gap between poverty and wealth.
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