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 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.