Exciting articles several times a month
28 October 2016
Halloween season is the perfect time to curl up with a scary tale and let your imagination run wild. However, real life events can be more terrifying than ghosts, paranormal activity or supernatural beings. We know a plenty of spine-chilling stories about unhappy bitcoin users who lost millions of dollars as a result of their own negligence, poor management or fraud. So grab a cup of relaxing tea, sit back, and read about people who were not ready to deal with new digital technologies.
The mysterious vanishing of 850,000 bitcoins
Mt. Gox, one of the world’s largest BTC exchanges based in Japan, built up a huge customer base and handled around 70% of all bitcoin transactions. However, in February 2014 the company suspended all trading operations and closed its website after serious technical problems resulted in a loss of a huge amount of money: 850,000 bitcoins or nearly half a billion dollars just disappeared from Mt. Gox accounts leaving their owners out of pocket.
Bitcoin communities are full of sad stories from Mt. Gox users who lost thousands of dollars and had terrible nightmares after that. Although 200,000 bitcoins have since been found, it is still unclear what was the reason for that mysterious BTC vanishing. Even though the latest evidence proves that most or all of the missing bitcoins were stolen over a period of time beginning in 2011, there is still a lot of investigative work to be done.
The Stefan Thomas loss
On closer examination, all strong points of the P2P payment technology can be easily turned into its weaknesses. Since Bitcoin is a decentralized, non-regulated and anonymous payment system, there is no intermediary who can restore your wallet files or cover your expenses in case of data loss problems. The story happened in July 2011 with Stefan Thomas is a perfect example of how bitcoin wallet security can become a considerable problem for BTC users.
Stefan Thomas, an early developer of Bitcoin, knew that it was essential to routinely backup his wallet.dat file for data recovery purposes. Thus, he made three copies of his private keys – on an encrypted USB stick, a virtual machine and a Dropbox account. Unfortunately, Stefan has managed to lose all of them, and now his ability to recover his 7,000 bitcoins (around $125,000 at that time) is zero – the money is lost forever. Great freedom supposes great responsibility.
The 7,500 Bitcoin hard drive
Could you imagine a situation where you bury a pot of gold and then forget its exact location? Now you know how James Howells feels. He was clearing up his desk drawer and accidently threw out a hard drive from an old Dell laptop. Several months later he realized that the hardware contained a digital wallet with 7,500 bitcoins mined in 2009. Now the money is buried under mud and rubbish in a landfill site in south Wales.
Of course, James tried to find the missing hard drive, but it was impossible because the local landfill was too large – its size was similar to that of a football field. And since the chances to find the laptop were minimal, it didn’t make sense to pay for an excavation. The pot of gold which is now worth over $5m is still there waiting for lucky treasure hunters.
The $19m Ponzi scheme
In 2015, The US Securities and Exchange Commission filed a charge against two web-based cryptocurrency mining businesses – GAW Miners and ZenMiner, both controlled by Josh Garza. According to the SEC, these companies didn’t have the hardware necessary for bitcoin mining that they offered. Instead, they used illegal Ponzi schemes and paid out returns with the proceeds obtained from new investors.
GAW Miners and ZenMiner took money for providing access to Hashlets – cloud-based mining machines that could be activated and controlled online though the ZenCloud web interface. Selling fraudulent “mining contracts” (initial price was $16 per 1 MH/s slice), Garza and two his companies collected around $19m from 10,000 investors and used the funds to line their own pockets and provide payouts to first customers.
The Evolution exit scam
In mid-March 2015, notorious darknet marketplace Evolution, one of the largest gun, stolen credit cards and drug bazaars operating on the Tor network, suddenly became unavailable. Several days later it became clear that its administrators Verto and Kimble were engaged a well-executed exit scam: they had disabled BTC withdrawals due to mythic technical difficulties and stolen all the bitcoins held in users’ escrow accounts.
The total amount of loss is still undecided – while some reports tell about 40,000+ BTC (around $12m), a former Evolution staff member insists that the marketplace held $35m, or 130,000 BTC – you know, drug dealers don’t report their profits. In addition, Evolution Market owners tried to steal more money by using login credentials of their users on other black markets, notably Agora Marketplace.
The world is full of dark mysteries and deeply disturbing scary stories. However, digital fraudsters and data thieves can be as dangerous as witches and ghouls. There are always people who will try to steal something – either directly from your pockets or behind their computers. Let’s hope that the further development of digital technologies will leave less possibilities for scamming, making multi-million losses and frauds just urban legends from the past.
Exciting articles several times a month