David Canellis

They say a hallmark of a mania is the rapid rise in the rate of fraud.&nbsp;



The exact same can be said of crypto adoption. In fact, fraud is inevitable.



Normie media is ablaze with the latest in crypto-tinged true crime. An online pastor in Colorado dumped a worthless token on his flock, screwing them out of millions of dollars because “God told him to.”



It’s the sort of Schadenfreude that just rolls off the tongue to coalesce as viral internet traffic. Hence the rush from dozens of outlets in all different languages to run with their own quirky headlines, <a href="https://www.washingtonpost.com/nation/2024/01/23/crypto-pastor-colorado-god-eli-regalado/">including</a> the Washington Post.



But this sad tale is not a crypto story. It’s a simple fraud story posing as commentary about crypto.



Separating the concept of fraud from crypto will come easy through mass adoption. Like the hyperbitcoinization that will price the whole world in disgustingly expensive satoshis after price discovery goes parabolic, mass adoption of crypto more broadly would encrypt our entire modern consciousness on blockchain rails.



Your passport metadata would exist on a blockchain. As would your presidential vote. Bank deposits are tokenized and lent out to the highest bidder. Your smart fridge feeds directly from a supermarket price oracle that tells it when your favorite kombucha is on special and orders it for you right away — with all payments settled in crypto.



Read more from our opinion section: <a href="https://blockworks.co/news/crypto-phishing-attacks">Crypto phishing attacks are everywhere. It might not get better anytime soon&nbsp;</a>



At this point, blockchain would thrum beneath every facet of our lives. The jury is still out on whether all that is even beneficial. Still, if everything ran on crypto, then the self-styled Colorado holyman dumping a useless crypto on his followers would be a run-of-the-mill affinity scam and nothing more. Other than really boring.



Over a long enough period, all fraud stories become crypto stories, on account that a stupidly high percentage of fraud would interact with crypto and blockchain if everything in our world does too.



The same effect will happen to business writ large — give this industry enough time and all companies will be “crypto companies.”&nbsp;



Think PayPal, Square, Visa, Mastercard, Western Union, Starbucks and eBay.&nbsp; All those companies are already interacting with crypto and blockchain in some way. At the very least, they’re crypto curious.



Crypto-related stuff makes up only a small fraction of those companies overall. Although, one could reasonably argue their initiatives are enough even now to consider them competitors to crypto-native companies like Circle, OpenSea, Yuga Labs and Trust Wallet.



Some anticipate great technological leaps forward by porting our lives to the blockchain, some of which may even stamp out certain kinds of fraud altogether (scan your eyeballs with the <a href="https://blockworks.co/news/worldcoin-eyeballs-scan-brooklyn">Worldcoin Orb</a> to combat identity theft, for instance).&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Colorado pastor charged for cryptocurrency scam he says he perpetrated at God&#39;s command January 18, 2024<a href="https://t.co/jLVpmMYKw2">https://t.co/jLVpmMYKw2</a> <a href="https://t.co/tb6jfhV2up">pic.twitter.com/tb6jfhV2up</a>&mdash; web3 is going just great (@web3isgreat) <a href="https://twitter.com/web3isgreat/status/1748902654565056641?ref_src=twsrc%5Etfw">January 21, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">Molly White infamously catalogs fraud stories like these</figcaption></figure>



More fundamental to this thought experiment is this: Of course crypto fraud will be more common over time. Crypto is money and money is valuable, and people do all sorts of stupid and malicious things for stuff that’s valuable.



In a crypto-powered future, a story about two fraudsters <a href="https://www.nytimes.com/2023/12/16/nyregion/wine-ponzi-scheme-charges.html">bilking</a> $99 million from wine investors in a Ponzi scheme — despite having no bottles of wine at all — might include details like “the perpetrators raised the funds in various cryptocurrencies including bitcoin, ether and tether.”&nbsp;



That wouldn’t at all make the case a matter of crypto crime because everybody uses bitcoin, ether and tether all the time. For everything.



Same goes for a phony Indian cricket league on YouTube that <a href="https://www.nytimes.com/2022/07/12/world/asia/fake-indian-cricket-league-russia.html">cheated</a> Russian gamblers with fake matches. Mass adoption would mean all bets would be paid in crypto — just like your grocery bill. The crypto element wouldn’t even raise eyebrows, let alone go viral.



As crypto becomes more ubiquitous, stories like these will only become more frequent. A “crypto crime” is a crime that takes advantage of something unique about the underlying technology, whether it’s raiding a token bridge or raiding a protocol through a flash loan attack.



A crime that uses cryptocurrency instead of dollars, rupees or euros is not a crypto crime. It’s just a crime.



All told, this is where we are on the adoption scale: A cheesy online pastor selling a worthless cryptocurrency sounds about right. But it’s still a novelty.



The novelty is very close to wearing off for everyone except those 45 years or older, which, as it turns out, makes up 40% of the Washington Post audience, according to <a href="https://www.similarweb.com/website/washingtonpost.com/#demographics">Similarweb</a>. Go figure.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">David is an Editor based in the Netherlands focused on data-driven journalism. Previously, he wrote for TheNextWeb&#8217;s crypto vertical before launching Protos in 2021. He&#8217;s a reformed hardline Bitcoiner passionate about permissionless and decentralized networks. Contact David at david@blockworks.co</div>


<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

All fraud will eventually be ‘crypto fraud.’ And that’s okay.

Katherine Ross

Former OneCoin lawyer Mark Scott’s push for a new trial has been denied.



In Judge Edgar Ramos’ opinion on the motion, he ruled that the motion was denied due to Scott’s proven involvement in OneCoin, noting that he agreed to work with OneCoin after banks had begun to shut down OneCoin accounts and the City of London police were investigating the company.



OneCoin was proven to be a fraud that had no functioning blockchain back in 2017.&nbsp;



“Scott, a corporate lawyer who was then a partner at an internationally recognized law firm, had extensive experience representing private equity funds, and he leveraged that experience to construct an elaborate, sophisticated money laundering operation for OneCoin,” Judge Ramos wrote.



Scott was <a href="https://www.justice.gov/usao-sdny/pr/former-partner-locke-lord-llp-convicted-manhattan-federal-court-conspiracy-commit-money">convicted</a> in 2019 following a three-week trial. He was convicted on one count of committing money laundering and a count of conspiracy to commit bank fraud.&nbsp;



According to the indictment, Scott laundered roughly $400 million through “fraudulent investment funds” and he was paid around $50 million.



Ramos noted that Scott’s trial included “hundreds of exhibits, including dozens of Scott’s own emails,” and, in addition, “the Government also offered the testimony of dozens of witnesses.”&nbsp;



The judge denied the motion for acquittal or new trial for the count of conspiracy to commit bank fraud because the government was able to prove that multiple people moved to create a “joint enterprise to commit bank fraud,” and “Scott knowingly and intentionally joined the enterprise.”



In addition, Scott’s motion to request a new trial on the count of money laundering is denied on the basis that Scott “misrepresents the trial evidence.”



According to Ramos, the evidence put forth by the government about the use of US wires “constitutes an execution of the wire fraud scheme” under American law.



Last week, the US Department of Justice announced that OneCoin co-founder Karl Sebastian Greenwood faces <a href="https://blockworks.co/news/onecoin-cofounder-sentenced">20 years in prison for his involvement </a>in the OneCoin scheme. Greenwood <a href="https://blockworks.co/news/former-onecoin-executive-sentencing-ok">pled guilty to wire fraud and conspiracy charges</a> in December of last year.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

Judge denies former OneCoin lawyer’s motion for new trial

Darren Kleine

“Crypto” is a dirty word, according to Tara Fung.



During a panel discussion at the <a href="https://blockworks.co/event/permissionless-2023">Permissionless II</a> conference in Austin, Texas, the CoCreate co-founder and CEO spoke about how the industry needs a “rebrand.”



Fung prefers the term “Web3” over “crypto” because it “encompasses the technology as well as the ethos,” opening up new use cases, interoperability, and ownership.&nbsp;



The Web3 ethos is “that people should have more ownership,” she explained, “and that we should be building things in a way where there is a community component as opposed to a centralized entity that gets to decide everything unilaterally.”



But the stigma of crypto stretches well beyond blockchain vernacular. Fung said that telling someone why they should care about crypto — a common conversion tactic — is futile.



“If you do,” she said, “you&#8217;ve kind of already lost. It should be intuitive. It should be experiential first. It should be that this is a better experience. This is a better program. This is a better, more personalized journey.”



“Oh and it’s <a href="https://blockworks.co/tag/web3">Web3</a>. OK, cool. But I shouldn’t have to know that in order to appreciate it.”



<h2 class="wp-block-heading">Nobody cares how the toilet works</h2>



President of enterprise at Moonpay, Keith Grossman, compared the current mentality in crypto to conversations that took place during the early rise of personal computers, when people cared about “their 486 and their Pentium and how much RAM they had.”



“That&#8217;s kind of where we are today, in this space,” he said. “We&#8217;re talking about the specs.”



“And then the iPod comes out and Steve Jobs holds up a device and says ‘a thousand songs in your pocket.’”



When it comes to tech specs today, most people exhibit an “I don’t know and I don’t care” attitude, Grossman said. “I just want it to work. And I want it to do something awesome.”



“Nobody cares how the toilet works,” Grossman quipped. “That’s sort of how I feel about technology.”



“The point is,” Grossman reiterated, “it 100% needs a rebranding as it relates to how people understand why the technology&#8217;s valuable.”



The reputational harm that the crypto industry has incurred via a litany of scams and nefarious behavior is not unique to the space, Grossman insisted. “Scams take place in any industry where money&#8217;s involved.”



“I literally can go through any industry where money can be made, and I could point out bad actors. Are there bad actors in this space? 100%.”



“Does the space need regulation?” Grossman asked. “Yes, <a href="https://blockworks.co/news/texas-crypto-alliance-federal-inaction-coinbase-paradigm">it needs responsible regulation</a>.”



“Ultimately, for mass adoption on the consumer level though, it&#8217;s like the toilet,” he said. “Nobody cares how it works.”



“The tech just needs to be able to <a href="https://blockworks.co/news/permissionless-austin-conference-day-three-vitalik-buterin">empower a better consumer experience</a>.”&nbsp;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

Web3 needs a rebrand, says Co:Create’s Tara Fung

OneCoin co-founder Karl Sebastian Greenwood faces 20 years in prison, according to the US Department of Justice on Tuesday, Sept. 12.&nbsp;



OneCoin is the crypto scheme that was revealed as a fraud back in 2017. It proved to have no functioning blockchain and had no chance of displacing bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) as an asset, despite claims to the contrary. 



“Greenwood and his co-conspirators, including fugitive Ruja Ignatova, conned unsuspecting victims out of billions of dollars with promises of a ‘financial revolution’ and claims that OneCoin would be the ‘Bitcoin killer,” US attorney Damian Williams <a href="https://www.justice.gov/usao-sdny/pr/co-founder-multibillion-dollar-cryptocurrency-scheme-onecoin-sentenced-20-years-prison">said</a> in a press release.&nbsp;



The sentencing comes after a <a href="https://blockworks.co/news/former-onecoin-executive-sentencing-ok">US judge ruled in April</a> that the sentencing could cover the global loss of the crypto scheme — which totaled $4 billion — though only $50 million of that was linked to US losses. Over three million people fell victim to their scheme.



Greenwood was accused of pocketing over $300 million. In addition to the prison term, Greenwood has to pay $300 million in forfeiture.



He’s been accused of purchasing luxury clothes with the proceeds as well as making a down payment for a yacht. He also flew around the world in the “OneCoin” plane making videos of his travels.



“Greenwood also lied to investors about the utility of the tokens included in trader packages, claiming that they could be used to secure positions in OneCoin’s ‘mining pools,’ depicted in promotional materials as computer hardware used to ‘mine’ OneCoins,” the press release said.



Prior to the sentencing, Greenwood faced a maximum of 60 years in prison.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

OneCoin co-founder faces 20 years in prison

James Cirrone

Faruk Fatih Özer, the founder of failed Turkish crypto exchange Thodex, was sentenced to 11,196 years in prison for fraud, laundering of property values and other crimes.&nbsp;



Özer’s two brothers, who prosecutors claimed worked at Thodex as well, received the same ultra-lengthy prison term.



Özer founded Thodex in 2017 with 400 thousand liras in capital (nearly $15,000), according to the indictment from the prosecutor’s office.&nbsp;



The exchange <a href="https://twitter.com/thodexofficial/status/1384782824436338692/photo/2">announced</a> in April 2021 that it would halt transactions for its roughly 400,000 customers for four to five days. Traders never regained access to their crypto, and shortly after the shutdown, Özer fled to Albania.&nbsp;



Özer was captured by authorities in Albania on Aug. 30, 2022, after his customers lost an estimated $2.6 billion due to Thodex’s collapse, per Chainalysis data.



Prosecutors put the amount lost at a much lower 356 million liras (about $13,259,000), <a href="https://www.aa.com.tr/tr/gundem/thodexin-kurucusu-faruk-fatih-ozerin-dolandiricilik-davasinda-karar/2986295">according</a> to state run news outlet Anadolu Agency.



Özer didn’t show remorse for the crimes he was convicted of at his sentencing hearing. Rather, he told the court that Thodex was only a company that went bankrupt.



He also said that he was “smart enough” to run any financial institution in the world, adding that he wouldn’t have acted so “amateurishly” if he actually was running a criminal organization.&nbsp;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

Founder of doomed Thodex exchange sentenced to over 11,000 years

Shalini Nagarajan

<div id="highlights-block_630f1be7fc0d8" class="highlights">
 <ul>
 <li>Five major cryptocurrency exchanges have been requested to submit documents to the US lawmakers</li>
 <li>Federal agencies were asked whether crypto holdings should be treated as commodities, securities, or both</li>
 </ul>
 
</div>



Nearly half a million people have lost more than $1 billion to crypto crime and fraud since the beginning of last year — a <a href="https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/reports-show-scammers-cashing-crypto-craze" target="_blank" rel="noreferrer noopener">figure</a> that’s now prompted a US House of Representatives committee to investigate how major exchanges such as Coinbase, FTX and Kraken operate.



Rep. Raja Krishnamoorthi, who chairs an oversight committee on economic and consumer policy, <a href="https://oversight.house.gov/news/press-releases/chairman-krishnamoorthi-requests-information-from-federal-agencies-and-crypto" target="_blank" rel="noreferrer noopener">sent letters</a> to four federal agencies and five crypto exchanges on Tuesday, requesting information on the mechanisms they have in place to tackle fraud and scams.



His nine letters were sent to the <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-08-30.RK%20to%20Yellen-Treasury%20re%20Crypto%20Fraud.pdf" target="_blank" rel="noreferrer noopener">US Treasury</a>, <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-08-30.RK%20to%20Gensler-SEC%20re%20Crypto%20Fraud.pdf" target="_blank" rel="noreferrer noopener">Securities and Exchange Commission</a> (SEC), <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-08-30.RK%20to%20Behnam-CFTC%20re%20Crypto%20Fraud.pdf" target="_blank" rel="noreferrer noopener">Commodity Futures Trading Commission</a>, <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-08-30.RK%20to%20Khan-FTC%20re%20Crypto%20Fraud%20final.pdf" target="_blank" rel="noreferrer noopener">Federal Trade Commission</a>, <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-08-30.RK%20to%20Shroder-Binance%20re%20Crypto%20Fraud.pdf" target="_blank" rel="noreferrer noopener">Binance.US</a>, <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-08-30.RK%20to%20Armstrong-Coinbase%20re%20Crypto%20Fraud.pdf" target="_blank" rel="noreferrer noopener">Coinbase</a>, <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-08-30.RK%20to%20Bankman-Fried-FTX%20re%20Crypto%20Fraud.pdf" target="_blank" rel="noreferrer noopener">FTX</a>, <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-08-30.RK%20to%20Powell-Kraken%20re%20Crypto%20Fraud.pdf" target="_blank" rel="noreferrer noopener">Kraken</a> and <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/2022-08-30.RK%20to%20Lyu-KuCoin%20re%20Crypto%20Fraud.pdf" target="_blank" rel="noreferrer noopener">KuCoin</a>.



“The lack of a central authority to flag suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding many consumers and investors have of the underlying technology make cryptocurrency a preferred transaction method for scammers,” Krishnamoorthi wrote.



“For all these reasons, I am concerned about the growth of fraud and consumer abuse linked to cryptocurrencies.” The five crypto exchanges weren’t asked the same questions.



The Congressman highlighted the Department of Justice’s <a href="https://www.justice.gov/opa/pr/justice-department-announces-enforcement-action-charging-six-individuals-cryptocurrency-fraud" target="_blank" rel="noreferrer noopener">recent indictments</a> to point to fraudulent coin offerings and sham investment platforms as examples of fraud. 



Software developers have also taken advantage of heightened interest to create tokens, list them on exchanges and pump them before fleeing with investor funds, Krishnamoorthi noted. 



Blockchain analytics platform Chainlysis estimates these so-called rug pulls made up about <a href="https://go.chainalysis.com/rs/503-FAP-074/images/Crypto-Crime-Report-2022.pdf" target="_blank" rel="noreferrer noopener">37% of scam revenue</a> in 2021 — a massive jump from just 1% in 2020.



Krishnamoorthi asked the agencies and companies to provide specific information that would assist Congress in drafting legislation aimed at stabilizing the industry, with a September 12 deadline.



“Should cryptocurrency holdings be treated as commodities, securities, or both? Please explain,” one of the questions asked. The matter has stirred debate especially since the SEC recently <a href="https://cms.blockworks.co/sec-charges-former-coinbase-product-manager-with-insider-trading/">charged</a> a former Coinbase product manager with insider trading, alleging that he purchased at least nine crypto tokens that classify as securities.



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/pWUkU-GR9QB1aCoo3vNNx3rmpFVa2AdzxAGqEXuOuDXV2YuYfEcN7zCbr_UKPZiavzqyj_b7rklprnr6nk8N3F37k_L5q8U5O7pbpzzRnBFvADNrEa10gQ6VKFunk13CesoWMhAU5wO76RtcQjlIOtBNX0jqmmxpJv022Bpgo5_ic1yzXJAl_tEMcA" alt=""/><figcaption>Image source: <a href="https://go.chainalysis.com/rs/503-FAP-074/images/Crypto-Crime-Report-2022.pdf">Chainalysis</a></figcaption></figure>



Krishnamoorthi’s request for information from the crypto industry highlights increasing steps taken by authoritative agencies to rein in firms working in the space.&nbsp;



The Federal Bureau of Investigation on Monday also <a href="https://cms.blockworks.co/fbi-issues-warning-over-defi-exploits-open-source-development/">warned</a> of mounting instances where criminals are exploiting investor interest in cryptocurrencies. Data from Immunefi shows hacks against DeFi (Decentralized Finance) protocols resulted in <a href="https://cms.blockworks.co/defi-exploits-top-1-8b-ytd-though-security-getting-better-immunefi-says/">losses over $1.2 billion</a> in the first quarter, an almost eight-fold increase compared to the same time last year.



In July, Democrats <a href="https://cms.blockworks.co/seven-crypto-miners-show-disturbing-energy-use-lawmakers-say/">sought information</a> specifically from cryptocurrency miners. After arriving at “disturbing” findings into the environmental impact of crypto mining, Sen. Elizabeth Warren and US Rep. Rashida Tlaib were among six lawmakers who requested miners disclose their emissions and energy use.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.