The Bitcoin scam has become a major nuisance on the Internet, costing investors their life savings around the world. A Netflix documentary examines the case of a man who lost over $500,000 to a Bitcoin scam and in the broader context of cybercrime in general.
The crypto industry is notorious for its scams, ponzi schemes, and cybercrimes. These criminal activities have been rampant in the crypto market for a long time.
The crypto space is as volatile as it is innovative. As a result, crypto scams and Ponzi schemes have become more prevalent as well. Many crypto projects have been accused of operating as a pyramid scheme or Ponzi scheme. There are so many of these that special categories have been created to keep track of them.
Cryptocurrencies have provided the ideal environment for Ponzi schemes and scam projects to flourish. Quadriga CX is one of the many cryptocurrency exchanges that have been accused of operating as a Ponzi scheme. Accusations of operating as a Ponzi scheme usually refer to projects that offer returns that appear too good to be truThe.
The Quadriga CX Case
In a new documentary, Tong Zou shares his story of how he lost more than $500,000. Besides his life savings, his parents gave him an additional $200,000 to cover the loss. Quadriga CX, the Canadian cryptocurrency exchange where his crypto investments were held, has since been revealed to have been operating as a large Ponzi scheme.
Gerald Cotton, one of the founders of Quadriga CX, passed away unexpectedly at the age of 30. As a result of his death, he possessed a password that had access to an offline cold wallet containing over $190 million worth of cryptocurrency held by exchange clients. Cotton was the sole holder of this password, and the decentralized and secure nature of crypto makes it impossible to retrieve any funds without that password.
Despite contacting technical experts, Cotton’s laptop could not be accessed to retrieve the funds. Quadriga CX declared bankruptcy after losing access to these funds. More than 76,000 clients of the exchange owed $260 million, but only $24 million was available for repayment.
In moving from San Francisco to Vancouver, Tong Zou was planning on using Quadriga CX to avoid bank charges when converting over $500,000 from US dollars to Canadian dollars. Through Quadriga CX, he purchased Bitcoin with those funds and subsequently sold it for Canadian dollars. However, he never received any money from the sale.
In spite of several months of correspondence, he did not make any progress on the issue. Then Gerald Cotton died and a bankruptcies followed, and there was no hope for Zou to recoup his money. Quadriga CX is the subject of a Netflix documentary that explores this case in great detail.
Bitcoin Signals the Return of Traditional Scams
Quadriga CX operated as a Ponzi scheme, according to a report from the Ontario Securities Commission in 2020. The original system of Charles Ponzi dates back to the 1920s. Investors are offered an investment opportunity, but the returns for investors are not derived from actual asset growth, but rather from new investors. The ScamCryptoRobots.com website exposed Immediate Edge as a get-rich-quick scheme specifically targeting UK residents.
The general public’s lack of understanding of cryptocurrency and the ability of scammers to operate behind closed doors makes it a rich area for Ponzi schemes and other related scams. The fact that Quadriga CX wasn’t registered with any kind of financial regulator made it easy for the company to conduct its scam without anyone noticing. The fraud came at a time when crypto regulation was sparse in most countries, and large-scale scams could more easily avoid detection.
After a thorough ten-month investigation, Quadriga CX was revealed to be a Ponzi scheme. During this process, trading records and blockchain transactions were examined to determine what really happened. Fraudulent trading resulted in over $115 million in client losses, according to the report.
Scams Still Plague The Bitcoin Market Today
Regulatory frameworks across the globe are forcing crypto exchanges to face more scrutiny today. Large-scale scams like Quadriga CX become less likely, but the danger of smaller-scale scams has never been greater.
Over $14 billion was lost worldwide to Bitcoin scams and other crypto scams in 2021. Individuals lost money investing in scams presented as exclusive opportunities, not big crypto exchanges.
Ads on social media and other websites promise instant returns, automated trading, and more in Bitcoin scams. Authorities struggle to combat these scams, which typically run out of foreign jurisdictions. Despite having more reliable methods to invest in crypto than ever before, online investors are still finding themselves victimized by Bitcoin scams.
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