- >Five Stories That Rocked Cryptocurrency in 2019
Five Stories That Rocked Cryptocurrency in 2019
The meteoric rise of cryptocurrency into mainstream media has brought increased attention to the industry in 2019. While that increased interest has not led to cryptos such as Bitcoin or Ethereum coming even close to their all-time highs, it has brought extra scrutiny and increased scandal to light. Here are 5 of the biggest cryptocurrency news stories of 2019.
Arthur Crowson | Oct 9, 2020
The Rise of Stablecoins
The instability of cryptocurrencies such as Bitcoin has led to the development of stablecoins, such as Tether. These stablecoins are tied to and backed by a sound currency or fiat, such as the USD in the case of Tether, meaning one stablecoin is always pegged with a value of one USD. There is much skepticism as to the validity of the backing of these coins, Tether being no exception as each token may not actually be backed by a USD as the company claims. Ultimately, a successful stablecoin will be able to displace currency such as the dollar because it will not experience value fluctuations; one always equals one, even across borders.
Enter Libra and DAI, two stablecoins hoping to buck the trend and create trustworthy coins backed by sound currency. The former is a cryptocurrency created by Facebook, the latter by a blockchain company called Maker.
Libra is not decentralized, nor is it private in the way that blockchain proponents would like, meaning your user data is unlikely to remain hidden and not used for profit (it is supported by Facebook, after all). In addition, Libra will be pegged to the USD by collateralizing it with a basked of of low-volatility assets, including bank deposits and government securities across multiple currencies. Libra is going to be run by 21 large companies, rather than by the users, and in the future other companies that meet lofty requirements can join the inner circle. This sovereignty is worrisome for many.
Then there is DAI, created by the Maker DAO. DAI is a cryptocurrency that is run a managed by a decentralized autonomous organization (DAO) called Maker. The Maker DAO is responsible for the upkeep, and management of the collateralization smart contract that underpins and runs the stablecoin DAI. The aim is to create a fully decentralized and reliable stablecoin that will keep its peg to a real-world asset or currency throughout market turmoil.
Enter SGA, created by Saga blockchain company in response to Libra. SGA, unlike Libra, will have its value pegged to the basket of currencies that form the International Monetary Fund (IMF) special drawing rights, essentially a reserve fund made up of the major world currencies. Also unlike with Libra, Saga will not be profiting from the token. While they will issue the coin, they will not be the custodians, or handle the payment layer like Facebook is trying to do by creating the Calibra wallet to store and use Libra. The holders are the sovereign with SGA. Saga’s sole goal is to create sound currency, a true stablecoin.
Seven Major Cryptocurrency Exchanges Hacked
This year saw seven major cryptocurrency exchanges get hacked, costing users millions of dollars and once again proving that it is best to hold your own keys.
Here are the major exchanges that were hacked:
- Upbit – Hacked on November 26, 2019. $49 million lost
- Cryptopia – Hacked on January 13, 2019. $16 million lost
- DragonEx – Hacked on March 24, 2019. ~$7 million lost
- BiTrue – Hacked on June 27, 2019. $4.2 million lost
- Bitpoint – Hacked on July 12, 2019. $28 million lost
- Bithumb – Hacked on March 30, 2019. $13 million lost
- Binance – Hacked on May 7, 2019. $40.7 million lost
Quadriga CEO Dies, Supposedly Trapping Millions in Cold Wallets
The announcement in early January that the CEO of QuadrigaCX, Gerald Cotten, had died a month earlier on a trip to India was shocking to most. Quadriga was one of the biggest centralized exchanges for Bitcoin and Ethereum in Canada. Following his death, around $200 million CAD was immediately trapped in cold wallets, Cotten having been the only one who knew the recovery phrases to access them.
What came next was even more shocking. When they were finally able to track down the public addresses of the cold wallets that supposedly held millions in user assets, they were found to be empty. Not only that, but one of the addresses was used to send a large amount of Bitcoin to another centralized exchange. There was nothing to recover for users, and no way to know where the funds went.
The disappearance of the funds, and the mystery surrounding Cotten’s death have led many to wonder if Quadriga was just a Ponzi scheme, or if Cotten really died at all. After all, his widow waited a month after his death to announce it, and during that time Quadriga continued to accept money and didn’t allow withdrawals. The fact that he died in a country notorious for forged documents did not help either. Officials have not yet deemed it necessary to exhume the body that was brought back to Canada. His widow, of her own volition, has paid $10 million out of the estate she was left to help pay back affected users.
BitClub Network Fraud of $722 Million Leads to 3 Arrests
Beginning in 2014, and only ending in early December 2019, the BitClub Network scammed over $700 from users. Three men were charged by US Prosecutors with various conspiracies and two more men remain at large.
BitClub Network was supposedly a Bitcoin mining pool. Investors exchanged money for shares in these pools and were rewarded for recruiting new investors. The network claimed to pool investors money to buy mining hardware and computer capacity, then distribute the mining profits to users. Instead they reported fake profits and defrauded their investors.
OneCoin Finally Closes Doors Amidst $4 Billion Ponzi Scheme
In mid-2016, as Bitcoin gained mainstream attention and its value began to skyrocket, Ruja Ignatova was on stage in London promoting OneCoin, her Bitcoin killer. By this point, OneCoin had already had $500 million invested in it. Ignatova travelled around the world, selling out arenas and pulling in investors everywhere. There was only one problem, there was no OneCoin.
It wasn’t until a blockchain expert named Bjorn Bjercke was contacted with a job offer in October 2016 that anyone began to suspect something was up. The expert was offered a very lucrative offer, but when he inquired as to what he would have to do for the company, he was told he needed to make a blockchain because they did not have one yet. He only found out the company was OneCoin at the end of the conversation, where he refused the job.
It became increasingly clear to experts and outside auditors that something was very wrong. When concerned investors contacted OneCoin to find out about the actual blockchain the information they were given ostensibly indicated that it was nonexistent, there was simply a data server. OneCoin’s value was not actually rising, it was just fake numbers being posted on the company’s site. But only a few investors knew this information and investment continued.
In October 2017, amidst increasing investor concerns due to the continued delay of the exchange that would allow them to turn their OneCoin into cash, Ignatova disappeared and she still has not been seen since. Investments continued.
In March 2019, Ignatova’s brother, Konstantin Ignatov, was arrested in Los Angeles after attending OneCoin meetings (yes, somehow this company was still going). He has since taken a plea bargain and a lawyer has been charged with laundering around $400 million.
On December 1, 2019, OneCoin’s office in Bulgaria was finally closed, and all its online domains were suspended. It is suspected that Eastern European crime organizations were a big player behind the scenes of OneCoin and affected the ability of many conspirators to come forward with information, perhaps even influencing Ignatova’s disappearance.
It is estimated that OneCoin scammed at $4 billion, but there are some estimates of $15 billion.