2019: Year in Review

2019 is coming to a close, and, as a project aimed at helping investors navigate the crypto space without major disappointments and losses, we would, unsurprisingly, like to give an overview of where things stand with respect to scams and other dubious projects.

Losses due to scams: 2019 vs 2018

The passing year featured a lot of activity and important trends in the blockchain and crypto space: the rise of DeFi, continuing infrastructural improvements, the launch of multiple blockchain 3.0 projects such as Zilliqa, Algorand, Hedera Hashgraph and others. However, those things did not bring back to the industry the sort of public attention that it briefly captured in late 2017.

Nonetheless, the activity of various crypto scams continued unabated and, sadly, probably caused a lot more damage than in 2018. Crypto investigators from Ciphertrace publish quarterly reports on crypto activities resulting in illegal gains. The report for the fourth quarter is not yet available but by the end of the third quarter, various participants in the crypto space had lost around $4 billion to illicit actors. This is up from $1.7 billion in the whole of 2018. Of this, a large part is attributable to scams, the most spectacular of which was Pluscoin.   

Scam of the year: Pluscoin

Pluscoin was a scam that was busted in June. It was primarily aimed at China and other South-East-Asian countries.  While it is not operational anymore, some of the persons behind it continue to be at large, and according to Ciphertrace, its investors may have lost around $3 billion in deposits.

Another crypto security firm Chainalysis recently suggested that perpetrators behind Pluscoin may have been causing some of the recent decline in the BTC prices through attempts at cashing out their illicit gains on OTC markets. Moreover, according to the analysis by Elementus, the Plustoken scheme also siphoned around 10 million ETH, which represents around 9.2% of the whole ETH circulating supply. 

Notable ongoing scams: Dagcoin, Zynecoin and Sestrel

The crypto scams that have caught our attention since the launch of the Testacoin projects are Dagcoin, Zynecoin and Sestrel. We covered the first two in our articles (here and here).

Dagcoin is, basically, the successor of the notorious Onecoin using the same educational packages-based MLM pyramid scheme run by a separate organization called Success Factory. However, the Onecoin veterans who run it have apparently become savvyer in terms of marketing, and the project has a running clone of the Obyte/Byteball DAG and sleek promotional content on Youtube.

Zynecoin is an apparently Morocco-based project initially vigorously promoted by controversial French comedian Dieudonné M’Bala M’Bala. It promises to develop a specifically African cryptocurrency. This is already a major red flag because it is unclear what this could even mean. The project plainly does not have either a team or a technology to create an innovative blockchain platform. Nonetheless, the Zynecoin team has announced that after its success with the French-speaking investors, it is on the verge of a significant expansion into other countries, especially Japan.    

The Sestrel project has recently been launched by Dieudonné himself. One could imagine that he observed the success of Zynecoin and decided that it would be even more profitable to launch his own scam rather than benefit from merely being the biggest Zynecoin affiliate. This project is even bolder than Zynecoin in its brazenness. Its web-site allows one to buy sestrel tokens and receive the project’s whitepaper. Which, in contrast to a normal whitepaper, is an almost purely rhetorical document containing nonsensical or empty promises, such as the claim that sestrel will reunite the French local currencies and that its underlying project will at the same time restore the French cultural vitality, freedom of expression and so on. Not surprisingly, there are zero technical details about the actual implementation of the project and there is no information about the team. Despite all these transparent flaws, according to Dieudonné, already around 3,000 people have invested. 

What the crypto space needs to help people avoid dubious projects

Clearly, given the scale of the past and ongoing crypto scams and dubious projects, the current state of affairs urgently needs improvement. Not only does the reputation of the blockchain space as a scam paradise need to be embellished but it is probably also desirable to prevent scams from accumulating large parts of the supply of major crypto assets like BTC and ETH.    

Finally, it is important to consider the ways in which the blockchain community could help move the space forward with regard to outright scams and dubious projects. In this article, we will focus on two of them: educating people on the need to verify projects and tackling fake trading volumes.

Lack of public awareness

As we can infer from the estimated amounts of funds lost to crypto scammers, while we are far from the late 2017 cryptocurrency boom, there are still a lot of people investing considerable amounts of money into crypto assets with the hope of getting significant returns. This may be making the threat from scams and dubious projects even more urgent because in the absence of large upward price movements for legitimate crypto assets, people seeking high yield may be easier to spoof by promises that it is not yet too late to do what the early investors in BTC and ETH did.

In this regard, it is genuinely worrying how little people are searching for the information about crypto scams or checking whether particular, clearly suspicious crypto projects could be scams. 

Consider the chart below depicting the Google trends data for searches for the words “ethereum” and “crypto scams”. Given that the searches for the word “ethereum” are only a small fraction of the searches for “bitcoin”, the fact that the searches for “crypto scams” essentially do not even register on the chart suggests that extremely few people actually try to get themselves informed.

One could of course object here that, perhaps, people are mostly just trying to invest into Bitcoin, and that protects them against most crypto scams. However, this would be to misjudge how the information about crypto scams spreads. The most successful crypto scams are either MLM schemes with no real product like Onecoin, Dagcoin and (probably) Pluscoin or schemes promoted by big social media influencers like Zynecoin and Sestrel relying on the popularity of the controversial French comedian Dieudonné.

What unites both of these scam types is that people do not generally learn about them by googling, reading the crypto media, checking the popular crypto subreddits and so on. Rather, they tend to either know someone who has already invested (usually in a scammy MLM scheme) or follow certain unscrupulous social media influencers.

Another way to show that people who are targeted by scammy projects rarely check whether those projects are legitimate is to consider the example of Dagcoin-related videos on Youtube. Dagcoin’s latest major video (admittedly, well-made) has, sadly, accumulated almost 90 thousand views in 15 days.  In contrast, the view count of the most popular recent video in English unambiguously classifying Dagcoin as a scam currently stands at around 3,000, and the video was published in April. 

The need to tackle fake trading volumes

We already touched upon the issue of fake trading volumes and how to spot them in one of our past articles. Coinmarketcap’s attempt to address it through introducing the liquidity metric is laudable. However, it is probably insufficient to help investors here and now avoid scams and especially dubious projects that are not clear scams.

We already wrote previously about how the suspicious ABBC Coin project’s token was only traded on dubious exchanges, despite its high position in Coinmarketcap’s rankings. An even more egregious example is Mindol. This mysterious purportedly Japanese cryptocurrency without any clear technical fundamentals has shot up from nowhere to the market capitalization of $855 million in a matter of weeks. However, if one looks at its trading pairs, the only two major ones are hosted by the Cointiger and Coinall exchanges.

It is entirely possible that Mindol’s market capitalization is entirely fictitious and based on wash trading or outright transaction fabrication but if someone searches for the project on Coinmarketcap, one will first find its high market cap.

Of course, there are alternatives to Coinmarketcap such as Messari that publishes the real volume metric based on trades conducted on 10 crypto exchanges recognized as providing reliable volume data by Bitwise. Messari rightly does not even list Mindol. However, Coinmarketcap remains by far the most popular crypto asset data aggregator, and especially newbie investors are overwhelmingly likely to just use it. While Messari’s approach to calculating real volumes is perhaps too radical, Coinmarketcap should probably at least avoid calculating market caps for tokens listed only on dubious exchanges like Cointiger and Coinall. The blockchain community at large should start holding Coinmarketcap more accountable about how it handles this issue.

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In future articles, we will do our best to come up with the additional proposals on how to improve the situation with crypto scams and dubious projects. We wish you a Merry Christmas and a scam-free 2020.  

Potential Scam Alert No. 3: Zynecoin

Wouldn’t it be great to be an early investor into a blockchain and cryptocurrency that will achieve mass adoption in Africa and help bring the continent out of the state of underdevelopment and poverty? That is exactly the mindset that the creators of an extremely suspicious project called Zynecoin have been exploiting.

An unverifiable project team and the leader with a shady past

Four months ago, a reputable French magazine Capital published a report detailing the worrying signs about the Zynecoin project which was rapidly growing in popularity among French investors. 

According to the report, in the beginning, the project’s official name was Zeencoin instead of Zynecoin but its French-Moroccan founder Karim Benabdelkader decided to change it, supposedly in order to tackle the undeserved bad publicity. Benabdelkader also has a shady past, with a French court having prohibited him from managing enterprises for 15 years in 2012. The report’s author and the experts he contacted were unable to verify the identities of the purported other members of the project’s team.    

The involvement of Dieudonné

Successful major scams require some sort of a distribution channel that allows them to appeal to numerous unsophisticated investors. For Onecoin, the pre-existing networks of chain marketers have served that function remarkably well. 

Zynecoin’s ultimate asset that seems to have allowed it to grow has been the involvement of the highly controversial French humorist Dieudonné M’Bala M’Bala, best known in the francophone world simply as Dieudonné. His Youtube channel with hundreds of thousands of subscribers enjoying his anti-establishment commentary was almost bound to become a scam promotion gold mine. Especially for a project supposedly in tune with his African roots.

One could hypothesize that because of his longstanding, multiple problems with law enforcement Dieudonné decided to engage in promoting Zynecoin. He has already made multiple videos promoting the project in increasingly shrill terms, promising massive gains and discounts to those who would purchases ZYN tokens directly via his distribution channel. He dismisses the experts who have denounced Zynecoin as agents of the establishment trying to keep ordinary people tied to their savings accounts with minuscule interest rates.  

The project’s documentation

The project had apparently had a different whitepaper until recently from the one that is available on its website now. About the previous whitepaper, a crypto expert asked by Capital stated that the previous whitepaper did not provide any clear explanation of the project’s technology and thus, did not allow judging its ultimate soundness.

The current version of Zynecoin’s whitepaper does not seem to improve upon its predecessor. It contains no serious description of the Wethio blockchain technology that is supposedly under development. What it does provide in this regard is mostly contradictory nonsense. Among other things, it mentions a mining process in which miners could choose which block to mine depending on its mining difficulty. In fact, mining difficulty in proof-of-work (PoW) blockchains like is not related to the content of the blocks at all but to the mathematical properties of the cryptographic puzzle (in Bitcoin, the number of leading zeros in the number obtained by hashing the contents of the block with the nonce).

Even more damningly, the whitepaper, first, talks about what resembles a PoW algorithm but then abruptly invokes proof-of-stake, even though the two are incompatible. It also wrongly stipulates that the throughput of the blockchain increases with the number of nodes. The reality is exactly the reverse, however, as an increasing number of nodes tends to increase the communication overhead in transaction and block processing. This is the key reason why it has been so hard to make classical Byzantine-fault-tolerant consensus work for public blockchains.

Zynecoin’s team has also published a technical document for the Wethio blockchain. Its contents seem to be barely if at all related to what is described in the whitepaper. According to the former, Wethio is “a Proof-of-Stake Voting (PoSV)-based public blockchain which is built on top of the EVM (Ethereum Virtual Machine) protocol.” This statement is already nonsensical as EVM is not a protocol. It had also been built way before the Ethereum community started its multi-year migration to PoS. The document goes on to discuss an unintelligible mess of blockchain jargon including masternodes, mining, double validation and so on.      

The project’s open-source code

At the moment, the open-source code for Zynecoin that is publicly available on Github is limited to the Ethereum smart contracts for its ERC20 token and crowdsale. Needless to say, those contracts do not evidence the project team’s technical capacity to deliver a scalable innovative blockchain, as they can be easily copied and deployed with small modification by anyone with a rudimentary grasp of Solidity and Ethereum.

We have to note, however, that a repository with some code related to the Wethio blockchain appears to have existed in the past but is not available anymore. We will not attempt to speculate on the potential reasons for its removal.

ZYN token on exchanges

Quite in line with the dubious nature of the project, its ZYN token has so far not been listed on any reputable cryptocurrency exchange. It was initially only listed on IDAX, the same IDAX whose CEO appears to have recently disappeared with the only means of access to the exchange’s cold wallets.

Impeded by the collapse of IDAX, Zynecoin’s team attempted to get the token listed on Latoken and even shilled the imminent launch there. Needless to say, Latoken is one of the most suspicious cryptocurrency exchanges in the whole space with its trading volumes unverifiable to the point that its trading pairs have no liquidity metric estimates from Coinmarketcap.

The Latoken listing fell through at the last moment, supposedly, because Latoken tried to value the BTC it required for market making at a price far below the market. Finally, the latest promise is to have ZYN listed on Whitebit, a little-known exchange with no liquidity metrics from Coinmarketcap, either.

The business case and economic model

Even if the project’s alarming lack of verifiable tech and the scammy promotion tactics are set aside, there is no clear explanation as to why it could achieve mass adoption, whether within Africa or beyond, ahead of multiple competing, clearly technologically sound blockchain platforms.  

The project team’s key argument is that the adoption will be driven by the way the transaction fees are going to be distributed. According to the plan, miners (or is it stakers?) will only receive 50% of the fees. 25% will go to the treasuries of the African countries of the counterparties in transactions, and 25% will be allocated to charitable activities.

This distribution scheme is nothing short of ridiculous on its face. How is it possible to determine the country (of domicile?) of a public address, unless there is some sort of a centralized KYC regime for Zynecoin? The sort of which is probably impossible in the present African institutional context.   

TestaCoin scam probability estimate

Our own machine learning-based tool for scam detection estimates that Zynecoin is highly likely to be a scam (with the probability of 87%).

Zynecoin’s plans to go beyond the francophone world

Finally, we would like to note that our potential scam alert on Zynecoin was prompted by their announced plans to promote the project outside the francophone space, especially in Japan, Russia and Switzerland. We strongly advise would-be investors to avoid investing in Zynecoin whether directly or through purchasing the ZYN token via Dieudonné or on whatever exchange it may be listed.   

Just in: Suntralization, or how Tron makes a mockery of the blockchain’s promise

While the main purpose of Testacoin is to help the blockchain community fight outright scams, there are also some public blockchain projects that probably also need to be avoided by investors, even if they are not plain vanilla frauds.

It has been known for some time that the delegated proof of stake (DPoS) consensus mechanism pioneered by Bitshares and Lisk and later implemented by EOS and Tron was highly problematic. 

Only a few days ago, the official Twitter account of EOS New York revealed that six out of 21 EOS block producers were secretly controlled by the same entity. This revelation only came to light because the entity in question did not even bother to seriously cover its tracks. Yesterday, we were given an even more spectacular example with regard to the Tron platform.

In a Twitter thread, Brian Fabian Crain from staking-as-a-service startup Chorus One revealed the finding that 56% of the voting power on the Tron platform is controlled by Binance. In order to explain what Crain means by this viral statement, one needs to better understand how DPoS, in general, and its Tron version, in particular, work.

DPoS and Tron 

DPoS is an approach to blockchain consensus in which all token holders regularly vote for the set of block validators for each period according to the one-token-one-vote principle. For Tron, voting takes place every six hours. The candidates who receive the most votes win the right to produce blocks and earn rewards for doing so. During the period for which the current validators were chosen, they are randomly selected one by one to produce blocks.

This model has several immediate implications. First, in order to ensure that the chain continuously approve transactions, there may not be a minimum number of voting tokens needed for the vote results to be valid. Otherwise, if it were not reached for a given period, the platform would become unusable. Secondly, there are few means to prevent large token holders from behaviours like voting for themselves or friendly entities, buying votes, coordinating their actions with other large token holders and so on. Finally, voting is the only way of incentivizing block validators, they do not face the risk of their tokens getting slashed for flagrant misdeeds.   

Arguably, the biggest problem with DPoS is low participation by smaller token holders because of the lack of incentives. Let us illustrate this with the example of Tron. As the Tron explorer website indicates, Tron has 27 validators called “super representatives”. The one with the lowest number of votes at the time of writing received around 252 million votes. The total number of TRX tokens in circulation is 66.7 billion. Which means that it received 0.38% of all possible votes.

What is, however, more astonishing is that the top super-representative, Binance Staking has around 12.5 billion votes and its closest rival just 777.6 million. In fact, Binance controls 55.85% of all the voting TRX tokens. It gets worse, however, as, according to Brian Crain, if Binance so wished, it could distribute its token vote among 25 candidates and have them all win. Its control of the platform would be complete, at least for some time.     

But Binance is not a malicious actor, is it?

One may object that Binance’s potential domination of validation on Tron would not be a matter of grave concern as Binance is an actor deeply interested in the success of the crypto space. It is not going to disrupt the Tron platform whose token is one of the most traded on it, does it?

This might be true but it is beside the point. What Binance can do any other large actor can. With an expense of around $350 million, a hostile actor like a large government could take Tron over. Even if Tron got really big and its market cap became 100 times higher than today, we are still talking about $35 billion, peanuts for states like China but even for much smaller ones.

Crucially, in contrast to bonded proof of stake validators, misbehaving super representatives controlling the chain would not face immediate repercussions for any misbehavior. The biggest risk for them would be a large part of the community and users just moving over to another platform. However, this requires a lot of coordination and, perhaps, completely egregious acts by super representatives. If they just quietly pull the strings, they may well get away with it.      

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The biggest lesson here is that given the still underdeveloped state of cryptocurrency markets at present, projects like Tron may achieve high market capitalizations, despite having critical vulnerabilities. Even if those vulnerabilities are inherent in their very design. Having extremely marketing-savvy, well-connected figureheads like Justin Sun or tons of half-baked gambling DApps certainly helps a lot. However, no amount of such signs of success should fool you, such projects do not have what it takes to form the basis of a resilient, widely-used decentralized crypto ecosystem.

P.S. While Tron is not an outright scam, there are many flagrant scams targeting participants of the crypto space like you every day. Try our quck questionnaire that helps detect crypto scams and spread the word.    

Coinmarketcap’s Liquidity Metric as an Anti-Scam Analysis Tool

One of the most important issues for an investor into crypto assets is whether the markets for the assets she invests in are liquid enough to ensure that she be able to sell those assets smoothly whenever she chooses to do so. However, this task has long been complicated by the fact that many crypto exchanges have been vastly exaggerating their trading volumes in order to attract customers.

This regrettable situation started to change with the groundbreaking recent efforts of important players in the cryptocurrency community. 

The March Bitwise study as catalyst

On March 19, in support of its exchange-traded fund (ETF) proposal, Bitwise Asset Management has submitted to the U. S. Securities and Exchange Commission a report with a stunning claim that up to 95% of trading volumes reported by Bitcoin exchanges were actually fake.

Bitwise’s main finding was that only ten BTC exchanges of those it analyzed have verifiable volumes. Those include Coinbase, Binance, Kraken, Bitstamp, Bittrex and Poloniex. In contrast, the other exchanges Bitwise studied report an extent of activity that cannot be considered genuine. From this, Bitwise concludes that only the volumes reported by the good actors should be counted and that they represent only 5% of what Coinmarketcap claims.

Bitwise put forward an impressive array of converging lines of evidence in support of this conclusion. One is the number of round trade sizes that should be higher than its expected value because of human psychology. Another involves the bid-ask spread that should decrease with the rising volume. And the legit exchanges do show these features, while the suspect ones do not. Especially striking is the difference in spreads between Coinbase Pro and Coinbene. The latter purports to have more than 30 times more volume than the former, yet the spread is enormously larger.  Probably the most convincing piece of evidence is the fact that trading patterns on all the ‘legit’ exchanges can be seen to be very similar in three important respects, whereas the suspicious ones were exhibiting idiosyncratic dynamics.  

The reaction to Bitwise’s report has been mostly positive, with reputed crypto information resource and data aggregator Messari even rolling out the so-called “Real 10 Volume” metric.

This approach is not without its drawbacks, however. First, it is unlikely that exchanges that exaggerate their trading volumes have no actual trading taking place on them whatsoever. Secondly, and more importantly for our subject, many of the less widely-held coins are not traded at the ten Bitwise-cleared exchanges at all but they are probably still traded to some extent. Is there any way for someone to look into such coins’ trading patterns to gauge whether the project behind them are suspicious or legitimate. 

Coinmarketcap’s liquidity metric

Enter Coinmarketcap. Coinmarketcap is probably still the go-to crypto data aggregator for most people in the space, and the site has long been criticized for its failure to deal adequately with the probably trading volume manipulation 

This finally prompted the data aggregator to come up with a metric called Liquidity for each currency trading pair on each exchange, where the available data allow it. As we understand it, the indicator is not exactly synonymous with the genuine trading volume for each pair but is, rather, supposed to reflect the monetary value available at a given moment for those wishing to sell the given coin at a given exchange for a given asset. In fact, its values are in most cases probably lower than the genuine trading volumes. What interests us here, however, is that large discrepancies between the liquidity metric and the reported volumes are indicative of volume manipulation.

If one looks at the ranking of cryptocurrency exchanges by liquidity, one finds results broadly comparable with the aforementioned conclusions made by Bitwise, although not perfectly identical. Still, the discrepancies shown by the Bitwise-approved exchanges tend to be a lot lower than those of the other ones, especially the suspicious little-known exchanges reporting enormous trading volumes, such as IDAX, CoinEX, CoinBene, etc.  

How can one use it to screen for suspicious projects?

The question you may be asking now is how the liquidity metric can actually be used to help distinguish the probably legitimate projects from the suspicious ones. If the coins of both are traded at dubious exchanges, how does it make a difference?

The key point to bear in mind here is that many small-sized legitimate projects with no access to several or any highly-reputed exchanges will probably not want their coins’ trading volumes to be massively manipulated. The first reason for this is that unlike with Bitcoin, Ethereum and a few other large crypto assets, their crypto assets have a much lower staying power. If a new investor into their coin gets burned on a nefarious exchange relying on high advertized trading volumes, she is likely to decide to stay away from the coin in question in the future, unless she can easily trade it on a reputable exchange. As legitimate projects are long-term-oriented, their teams would try to avoid turning investors off in this way.

Nefarious exchanges generally do not need active cooperation of project teams or additional incentives to manipulate trading volumes of the coins. They control the figures they report and their order books, and they are interested in boosting their volumes as much as possible to attract unsuspecting traders. However, crucially, they would usually need at least the silence of the project’s team to be able to continuously engage in volume manipulation. If the project team publicly issues warnings to its coinholders about vastly exaggerated trading volumes, the practice becomes hard to continue.

Let us dive into some examples to better illustrate the point. First, Algorand’s ALGO coin is listed on two major reputed exchanges: Binance and Coinbase Pro. Algorand also has relatively high name recognition, even if not at the level of Bitcoin or Ethereum. Not surprisingly, we observe significant divergence between the reported volumes and liquidity on suspicious exchanges such as CoinEx and BitZ, for example.

Meanwhile, Zilliqa’s coin ZIL is listed only on one reputed exchange Binance, and Synthetix’s coin is traded on no such exchange. And all of a sudden, we observe almost no trading pairs with millions of dollars of reported volume compared to meager liquidity figures two or three orders of magnitude lower.

Finally, consider ABBC Coin, the token of a suspicious crypto project which is covered in more detail in [one of our first potential scam alerts]. Here we can see massive discrepancies between the reported volumes and the liquidity figures.

Caveats

Needless to say, no analysis tool is perfect, and the use of the liquidity metric is no exception. For instance, little-hyped legitimate projects’ teams may sometimes fail to curb trading volume manipulation with regard to their coins. They may have other pressing issues to address and not enough manpower to monitor markets, or they may decide not to comment on the token price at all. Conversely, some crypto scams that have their tokens traded on exchanges may attempt to avoid volume manipulation to appear legitimate.

Hence, we advise you to make reported trading volumes vs. liquidity analysis one of the tricks in your analytical toolbox. 

Potential Scam Alert 2: ABBC Coin

Background

ABBC Coin is a relatively new name in the crypto space. Mostly unknown until this year, at the time of writing, it has broken into the top 50 of crypto assets on Coinmarketcap with the capitalization of $115 million. It appears to be a prime candidate for a potential scam analysis.  

What the project purports to be building

According to the project’s official website, it is building “the future of payment security.” Three key elements are listed: the Alladin wallet, the Buyalladin e-commerce platform and the Bitstorm exchange. All those applications are supposed to be built on top of the ABBC blockchain. 

Currently working tech

Of the three core consumer-facing elements discussed in the previous section, only the Alladin wallet appears to be available, although we note did not download or otherwise test it to be able to say whether it is a functioning application. 

The Buyalladin e-commerce application was supposedly launched at an event at the Rockefeller Center in New York. However, the only sources reporting on this are either anonymous authors or press releases, and the Youtube video of the supposed launch does not allow to conclude anything about the venue where the speech shown in it took place. And in any case, anyone who is prepared to pay the price can organize an event at the Center’s private spaces. We were unable to find the website of the platform. The Bitstorm exchange is not in the Coinmarketcap database.

That ABBC Coin may have a running blockchain behind it is suggested by its block explorer. It has references to “block producers” all of which appear to be based in the UAE. If one looks at transactions (such as this one), one is led to hypothesize that the supposed blockchain is an implementation of the EOSIO technology implemented by the EOS platform but without the latter’s massive ecosystem.

ABBC’s press release from September 18 appears to corroborate this to some extent as it makes reference to a private DPoS blockchain, although one is left wondering what private DPoS even means given that DPoS involves voting for block producers by the coinholders.

In any case, this is in stark contrast to ABBC’s claims about a “revolutionized blockchain technology”.

The project’s white paper confirms that the latest blockchain mainnet is an EOSIO implementation which works almost exactly like EOS. It is unclear from the white paper in what significant sense the ABBC blockchain is an improvement upon the latter. The use of the hybrid account model is mentioned in this regard but it does not appear to propose anything revolutionary.

Most worryingly, the white paper states the following on p. 22: “To send a transaction, the Wallet authenticates customer account credentials via Server Infrastructure then checks account balance with ABBC Blockchain Node. After that, it will then create and sign the new transaction.” This suggests that the DPoS aspect may be a sham as coinholders may be just prevented from voting by the central server.

ICO and the project’s resources

Compared to what the project is supposedly aiming to achieve, its (sort of) confirmed resources appear to be insufficient. According to an article in Cointelegraph from last March, the project’s ICO had raised $3.5 million. Anyone who is aware of the complexity of ambitious blockchain project development would agree that this amount is not remotely sufficient for achieving ABBC Coin’s goals.

One could object here that the project team may have raised a lot more money via just selling the coins on exchanges and benefiting from the coin’s remarkable ascent. However, as we discuss below, ABBC Coin is actually only currently traded on exchanges with very low liquidity which makes this possibility highly unlikely.

Project’s code on Github

ABBC’s code on Github appears to be maintained from two different accounts: abbc-foundation and ABBCTEAM. It is organized in only 3 repositories which is unusual for a project of such claimed ambition. Even more suspiciously, the last update took place on June 10.    

Guaranteed profits

One of the most worrying features of the ABBC Coin project are its past in present explicit and implicit promises of future gains. A printscreen of the project’s roadmap from several months ago available on Reddit here promised the price of ABBC Coin at $150 in the end of the second quarter of this year. The coin’s highest price so far at $0.492 was reached in March. 

Perhaps prompted by the aforementioned Reddit post, the project team has slightly modified this explicit future price prediction with the current promise of the coin entering the top 20 on Coinmarketcap. While the second promise is slightly less bad, it is still almost unimaginable from any decent project.   

ABBC Coin on exchanges

One of the biggest red flags about ABBC Coin is the fact that it is only officially listed and traded on cryptocurrency exchanges that are dubious, to say the least, such as BitMart, BitForex, Coinall, DragonEX, etc. The biggest problem with these exchanges is that they are likely massively exaggerating their reported trading volumes. The way to see this with regard to ABBC Coin is to look at its market pairs information on Coinmarketcap.

Coinmarketcap recently introduced a new metric for market pairs on crypto exchanges called Liquidity. We discuss it in more detail in [another article] but here it suffices to say that this metric is designed to reflect in the best way possible the genuine trading volumes for a given market pair on an exchange as opposed to the merely reported volumes that can contain wash trading or be completely fabricated being just numbers on the screen.

Getting back to ABC Coin the picture its market pairs paint is not pretty. We highlighted the most egregious ones where millions of dollars in reported volume correspond to almost zero actual liquidity but even where some liquidity is present, it is lower than the reported volumes by two orders of magnitude.  

Of course, the mere fact that ABBC Coin is listed only on suspicious exchanges does not in itself suffice to conclude that it is suspicious. After all, some clearly legitimate projects like RChain or Swarm City are only listed on such exchanges, too.

However, with many other worrying signs about the project, the situation with exchanges certainly does not make it look less suspicious, only more.

Project organization team 

One reassuring sign about the project that suggest it may not be an outright scam like Onecoin is the fact that the legal entity behind it called ABBC Foundation (then Alibaba Foundation) actually participated in court proceedings in a U. S. Court against Alibaba Group. However, the individuals behind the foundation may have had grounds to not fear the U. S. law enforcement if they had not sold ABBC Coin to U. S. investors. 

ABBC Coin does have a project team page on its website which, at first sight, appears unremarkable. We did not conduct an in-depth analysis whether the profiles listed there are genuine but one immediately notes that for a project aiming at building an innovative blockchain platform, the team is clearly lacking in the relevant experience and credentials.

Consider the CTO which is ordinarily the most important technical role in such projects. The purported CTO of ABBC Coin is Stanley Park. Prior to becoming the CTO at ABBC Coin he had been (still is?) the CEO at the Korean gaming company Ubifun. The Korean company with this name indeed exists at least in the form of a website from which one can even presumably download a few PC games. However, we note that googling “Stanley Park + Ubifun” returns only materials traceable to the ABBC Coin project. In the aforementioned Youtube video of the supposed launch of the Buyalladin platform, the presenter facially resembles the photo of Stanley Park and identifies himself likewise.

The last thing that deserves to be mentioned about the project’s organization is its claimed transition from a foundation to a DAO structure (p. 23 of the white paper). However, the description of how the DAO is supposed to function is so sketchy that it gives little clarity. More detailed information is supposedly available upon request, but we note that the white paper oscillates between saying that the DAO has already been created, and that it is under creation.   

The name

ABBC actually refers to “Alibaba Coin”, and in itself this funny, playful naming style (maintained also in the Alladin wallet) is nothing new in crypto. Just consider the Grin platform, the Mimblewimble protocol or the Fellowship of Ethereum Magicians. The problem, rather, comes from the existence of a huge elephant in the room, the Chinese corporate giant called Alibaba that, to the best of our knowledge, has no connection to ABBC Coin. The project was at some point prohibited from using the name Alibaba Coin at least in the United States.

It would be really weird for creators of a global-scale legitimate business to choose a name which is so clearly in trouble with the intellectual property laws. That the project team nonetheless did this suggests either incompetence or a deliberate desire to create confusion as to the Chinese Alibaba’s involvement in the project. The fact that the core use of the ABBC Coin appears to be in connection with an e-commerce platform (which is, incidentally, the core business of the Alibaba Group), it seems that the second interpretation is more likely.

Crypto media and experts on ABBC Coin

If one searches for the mentions of ABBC Coin in the respectable crypto media like Coindesk or in the commentary of blockchain experts, one will struggle to find anything, except for price movement talk, scam warnings on Reddit and bitcointalk and ABBC Foundation’s paid press releases that can be confused by some people for genuine articles on Cointelegraph or even Reuters.

Our scam detection tool analysis results

We ran the information about ABBC Coin through our TestaCoin Questionnaire and it returned a probability of 0.72 that the project may be a scam. 

Conclusions

Based on all of the above, our core conclusion is that the ABBC Coin project exhibits worrying characteristics of a potential scam, although there is no Onecoin-style certainty that it is. The most plausible interpretation of the project, in our view, is that in the beginning it was an exit-scam ICO that wanted to use the Alibaba Group’s reputation to convince people that it was behind the project. When this did not work to raise as much money as the project team wanted, they pivoted towards creating an illusion of actually building a blockchain, a DAO, a functioning e-commerce platform, etc. running on it with a view to be able to sell as many coins as they can on exchanges or OTC.

We welcome constructive feedback from ABBC Foundation and other individuals or entities involved in the ABBC project, and we are ready to publish an update with different conclusions should the feedback convince us.

In the meantime, we strongly advise against investing into ABBC Coin and we call on the cryptocurrency exchanges that have listed it to freeze trading in it and launch inquiries. We will be glad to collaborate with the crypto media on spreading awareness about our findings. 

Potential Scam Alert No. 1: Dagcoin

Onecoin was perhaps the biggest scam in the history of the cryptosphere. The latest popular BBC podcast series by Jamie Barlett throws light on the whole scale of that pyramid scheme as well as some of the mechanics of how it functioned and how it managed to become as big as it did.

In one of the episodes, Barlett mentioned that some of the former Onecoin MLM leaders have recently switched to promoting another cryptocurrency project called Dagcoin. Hence, given the possible urgency of it, in our first potential scam alert, we will cover Dagcoin. 

Dagcoin’s time of public appearance is suspicious

It is interesting that the public appearance of Dagcoin took place in August-September 2017. The first official tweet was posted on 26 September 2017. The first blog entries date to August. This is the time when the Onecoin Ponzi scheme has started to face serious problems, which leads us to Dagcoin’s significant connections to it.

Participation of prominent Onecoin figures, MLM tactics and Success Factory

By far the biggest red flag about the Dagcoin project is its resemblance to Onecoin in several important respects. Like the latter, Dagcoin is mostly promoted not through the usual blockchain public channels (known cryptocurrency exchanges, blockchain events, Reddit, etc.) but through an MLM scheme involving a network that does not even have the same name. The network in question is called Success Factory.

Jamie Barlett in his series on Onecoin nicely demonstrated that the secret to that scam’s massive success was its recruitment of some of the most prominent network marketers from all over the world. Those marketers had previously sold things like Amway or Oriflame products were persuaded to switch to Onecoin, even though they appear to have had doubts about the presence of the actual blockchain and cryptocurrency from the start. Those people brought their massive networks with them, too. They also brought in their questionable promotion practices, including constant motivational content, massive events resembling a hybrid between Oscar Academy Awards and a cult gathering.

One can find all of this in the case of Success Factory/Dagcoin if one bothers to look on Youtube. Down to some of the same prominent showmen such as Kari Wahlroos (Onecoin then and Dagcoin now) and Igor Alberts (then and now). The CEO of the Estonian company behind Dagcoin Nils Grossberg had also apparently been involved in Onecoin.

The adoption of Dagcoin also appears to mainly proceed through the MLM channels, namely, the sales of educational packages (described in more detail on p. 17 here). The supposedly existing coin is not listed on Coinmarketcap, and thus any cryptocurrency exchange tracked by it. 

Dubious whitepaper and the relationship to Obyte/Byteball

The whitepaper of the Dagcoin project looks strange, to say the least, and almost nothing like a legitimate project’s one. It mostly consists of extracts from the whitepaper of another, seemingly legitimate project, Obyte (previously, Byteball).

Obyte is a relatively unknown blockchain project aiming at developing a DAG-based alternative. It appears to be a legitimate and active project with a running distributed ledger and listings on Coinmarketcap and certain exchanges. 

While it is beyond our technical acumen to opine on the merits of Obyte’s technology, the odds that it is a groundbreaking project capable of taking a significant market share are probably slim. Even among the DAG-based platforms under development there are the giants of Hedera Hashgraph and Avalanche, just to name two. This will be important for the final conclusions. It also appears to be a semi-centralized platform meaning that the maintenance of the ledger is ensured by a limited number of publicly known nodes called witnesses. This aspect probably hampers its prospects even further. 

Getting back to Dagcoin, its whitepaper does not even hide the heavy reliance on Obyte but it does not explain in which way Dagcoin is an upgrade on Obyte. It merely states that Dagcoin had first been an asset on top of the Byteball platform before the Dagcoin fork of the Byteball tech was presumably created.

Both projects appear to have ledgers running. The DAG explorer available on the Dagcoin website looks like a carbon copy of the Obyte’s one but appears to track transactions on a different ledger. 

Project’s code on Github

Dagcoin has code published on Github but it has not been updated since February this year, and most repositories since 2018. There is no mention of the code having been moved elsewhere. Obviously, this is a matter of significant concern, too.

Project’s coverage in cryptosphere

To our knowledge, despite the claims of being the best investment opportunity since Bitcoin, Dagcoin has not been covered by any remotely respectable crypto or non-crypto news outlet. Almost no respected blockchain expert has opined on it, the only comment we have seen was from Sergio Lerner who dismissed it as a scam. Interestingly, he had, perhaps, been the first person to propose using a DAG for a cryptocurrency, and even called his proposed project Dagcoin.

Project team

The Dagcoin official site makes no mention of the actual development team. The two listed authors of the Dagcoin whitepaper do not make the situation with the team clearer because the linkedin profiles of neither of them – Yary R. and Daniel Raissar – does not mention anything about Dagcoin. However, the Github profile of Yary R. does appear to indicate participation in the Dagcoin project. Another Github profile whose contributions to Dagcoin repositories are visible is attributed to Priit Kallas. A Google search of Priit Kallas and Dagcoin returns nothing and his Linkedin profile does not mention the project, either. We did not check the profiles of all the Github contributors to the project code but the pattern is clear enough.

The list of Dagcoin-related people on Linkedin does not feature any developers, either. Even the profiles of Dagcoin’s Chief Visionary (sic) Officer Kriss Ress and the CEO of the actual Estonia-registered company behind the project Nils Grossberg are silent about Dagcoin.

The situation with the project team of Dagcoin is, thus, extremely suspicious, to say the least. If Dagcoin were a legitimate breakthrough project, there would be no reason for its creators to hide their participation in it on Linkedin. 

And even if the aforementioned whitepaper co-authors had really been the core contributors to the project, their listed credentials are not remotely sufficient for creating the world’s best, revolutionary blockchain platform.

A talk with one of the former Dagcoin developers

Our hypothesis was that the people who contributed the text of the whitepaper and the code on Github were genuine Estonian IT professionals only hired by their MLMer countrymen to do those specific tasks. We managed to contact one of them, and he appears to have basically confirmed our idea.

His version of events is that he and others helped to develop the Dagcoin platform, despite the concerns about the founders’ preceding involvement with Onecoin. The intentions of the founders were supposedly good and they only used network marketing to better distribute dagcoins than it is usually done with cryptocurrencies.

He further claimed that the code on Github has not been updated for some time because the founders had changed the devops team and that they were currently having some sort of “liquidity problems,” even as they were trying to genuinely build the promised breakthrough platform. He did not respond to the question whether some genuine improvements had been made to the Obyte technology underlying Dagcoin.   

Why spreading the coin via an educational packages MLM is a bad idea

One of the biggest reasons to doubt the narrative that Dagcoin is a legitimate crypto project and not a cover is that spreading a crypto asset via an MLM scheme (assuming that the buyers of Success Factory packages are even getting the coins) is a rather poor way of achieving genuine adoption.

Given that dagcoins probably have no immediate use and the fact that the rewards for recruitment are in the form of other currencies than dagcoin, the main motivation for ordinary participants in the MLM scheme has to be the prospect of recruiting further participants. This means that Dagcoin adopters are not actually adopting a cryptocurrency or the Dagcoin tech. 

Secondly, the price of packages does not seem to have any clear connection to some kind of price per token, in fact the token does not even have any price whose discovery takes place at actual markets. This complicates any future price discovery, even in the unlikely scenario that the listing of dagcoins will be attempted in the future. 

Conclusions

On almost all counts, the Dagcoin project is extremely suspicious. It does not appear to be listed on any genuine crypto exchange, its Github code has not been updated for almost a year, its team is not communicating about the project like a blockchain project team is expected to. Most importantly, there is no explanation of why the Dagcoin technology is innovative or why it is promoted through an MLM scheme.

The most likely interpretation of the available evidence regarding the Dagcoin project, in our view, is that it is a post-Onecoin scam in which former Onecoin marketers decided that after Onecoin it would be more credible to add an actual blockchain platform for cover. It is an interesting question why they chose to fork the tech of an obscure project for that purpose but it is of secondary importance. 

Even with the seemingly existing Dagcoin ledger and assuming that its development is ongoing, it is extremely risky to invest into dagcoin. Even if you manage to get hold of some coins, it is impossible to ensure that they will ever become saleable on any solid cryptocurrency exchange. Nor is it possible to be confident that the supply of dagcoin is not controlled by the project team and that they cannot increase it at will, substitute the existing ledger with another one or do any other manipulations that could make your coins worthless. 

However, it is, in principle, possible that they actually decided to promote a genuine crypto project after the debacle of Onecoin. This does not, however, mean that purchasing Dagcoin education packages is a good idea. As we mentioned above, the Byteball technology that Dagcoin seems to have adopted without much modification is one of a mass of underdog competitors in the crypto space. If it is unlikely to get traction, a fork of it without any prominent technicians working on it is even less so.

Practical advice

On the basis of the above, we strongly advise you to consider avoiding investing into Dagcoin altogether, especially into educational packages. If you really desire to invest into the project, ask the promoters if it is possible to actually acquire the coins without packages. Try to verify that the coins actually exist on the Dagcoin’s ledger and which percentage of the ultimate coin supply they represent.  But, as mentioned above, be aware that there is no guarantee that the dagcoins you would buy will not be diluted, replaced by another token, etc.