Crypto Exchange And XRP Refuge Bitsane Vanishes, Scamming As Many As 246,000 Users

Exchange for Ripple's XRP scam users.

Ireland-based cryptocurrency exchange Bitsane disappeared without a trace last week, likely taking hundreds of thousands of users’ assets with it.

Account holders told Forbes that attempts to withdraw bitcoin, XRP and other cryptocurrencies began failing in May, with Bitsane’s support team writing in emails that withdrawals were “temporarily disabled due to technical reasons.” By June 17, Bitsane’s website was offline and its Twitter and Facebook accounts were deleted. Emails to multiple Bitsane accounts are now returned as undeliverable.

Victims of the scam are comparing notes in a group chat with more than 100 members on the messaging app Telegram and in a similar Facebook group. Most users in the groups claim to have lost up to $5,000, but Forbes spoke with one person in the U.S. who says he had $150,000 worth of XRP and bitcoin stored in Bitsane.

Bitsane’s disappearance is the latest cautionary tale for a cryptocurrency industry trying to shed its reputation as an unsafe asset class. Several exchanges like GateHub and Binance have been breached by hackers this year, but an exchange completely ceasing to exist with no notice or explanation is far more unusual.

Bitsane had 246,000 registered users according to its website as of May 30, the last time its homepage was saved on the Internet Archive’s Wayback Machine. Its daily trading volume was $7 million on March 31, according to CoinMarketCap.

“I was trying to transfer XRP out to bitcoin or cash or anything, and it kept saying ‘temporarily disabled.’ I knew right away there was some kind of problem,” says the user who claims to have lost $150,000 and asked to remain anonymous. “I went back in to try to look at those tickets to see if they were still pending, and you could no longer access Bitsane.”

At the height of the cryptocurrency craze in late 2017 and early 2018, Bitsane attracted casual investors because it allowed them to buy and sell Ripple’s XRP, which at the time was not listed on Coinbase, the most popular U.S. cryptocurrency exchange. CNBC published a story on January 2, 2018 with the headline “How to buy XRP, one of the hottest bitcoin competitors.” It explained how to buy bitcoin or ethereum on Coinbase, transfer it to Bitsane and then exchange it for XRP.

Three of the five Bitsane users Forbes spoke to found out about the exchange through the CNBC article. Ripple also listed Bitsane as an available exchange for XRP on its website until recently. A Ripple spokesperson did not respond to a request for comment.

Bitsane went live in November 2016 according to a press release, registering in Dublin as Bitsane LP under CEO Aidas Rupsys, and its chief technology officer was Dmitry Prudnikov. Prudnikov’s LinkedIn account has been deleted, and neither he nor Rupsys could be reached for comment.

A separate company, Bitsane Limited, was incorporated in England in August 2017 by Maksim Zmitrovich. He wanted to own the intellectual property rights to part of Bitsane’s code and use it for a trading platform his company, Azbit, was building. Zmitrovich says Bitsane’s developers insisted that their exchange’s name be on the new legal entity he was forming. But Azbit never ended up using any of the code since the partnership did not materialize, and Bitsane Limited did not provide any services to Bitsane LP.

On May 16, Bitsane Limited filed for dissolution because Zmitrovich wasn’t doing anything with it and the company’s registration was up for renewal. Some of the Bitsane exchange’s victims have found the public filing and suspected Zmitrovich as part of the scam, but he insists accusations against him are unfounded.

He says he hasn’t spoken to Prudnikov—who was in charge of negotiations with Azbit—in at least five months, and Prudnikov has not returned his calls since account holders searching for answers began contacting him. Azbit wrote a blog post about the Bitsane scam on June 13, explaining Bitsane Limited’s lack of involvement.

“I’m sick and tired of these accusations,” Zmitrovich says. “This company didn’t even have a bank account.”

The location of the money and whereabouts of any of Bitsane LP’s employees remain a mystery to the scam victims, who are unsure about what action to take next. Multiple account holders in the U.S. say they have filed complaints with the FBI, but all of them are concerned that their cash is gone for good.

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I’m a reporter on Forbes’ wealth team covering billionaires and their fortunes. I was previously an assistant editor reporting on money and markets for Forbes, and I covered stocks as an intern at Bloomberg. I graduated from Duke University in 2019, where I majored in math and was the sports editor for our student newspaper, The Chronicle. Send news tips to htucker@forbes.com.

Source: Crypto Exchange And XRP Refuge Bitsane Vanishes, Scamming As Many As 246,000 Users

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Critics:

Cryptocurrency and crime describes attempts to obtain digital currencies by illegal means, for instance through phishing, scamming, a supply chain attack or hacking, or the measures to prevent unauthorized cryptocurrency transactions, and storage technologies. In extreme cases even a computer which is not connected to any network can be hacked.

In 2018, around US$1.7 billion in cryptocurrency was lost due to scams theft and fraud. In the first quarter 2019, the amount of such losses was US$1.2 billion.

Exchanges

Notable cryptrocurrency exchange hacks, resulting in the theft of cryptocurrencies include:

  • Bitstamp In 2015 cryptocurrencies worth $5 million were stolen
  • Mt. Gox Between 2011 and 2014, $350 million worth of bitcoin were stolen
  • Bitfinex In 2016, $72 million were stolen through exploiting the exchange wallet, users were refunded.
  • NiceHash In 2017 more than $60 million worth of cryptocurrency was stolen.
  • Coincheck NEM tokens worth $400 million were stolen in 2018
  • Zaif $60 million in Bitcoin, Bitcoin Cash and Monacoin stolen in September 2018
  • Binance In 2019 cryptocurrencies worth $40 million were stolen.

Josh Garza, who founded the cryptocurrency startups GAW Miners and ZenMiner in 2014, acknowledged in a plea agreement that the companies were part of a pyramid scheme, and pleaded guilty to wire fraud in 2015. The U.S. Securities and Exchange Commission separately brought a civil enforcement action against Garza, who was eventually ordered to pay a judgment of $9.1 million plus $700,000 in interest. The SEC’s complaint stated that Garza, through his companies, had fraudulently sold “investment contracts representing shares in the profits they claimed would be generated” from mining.

Following its shut-down, in 2018 a class action lawsuit for $771,000 was filed against the cryptocurrency platform known as BitConnect, including the platform promoting YouTube channels. Prior fraud warnings in regards to BitConnect, and cease-and-desist orders by the Texas State Securities Board cited the promise of massive monthly returns.

OneCoin was a massive world-wide multi-level marketing Ponzi scheme promoted as (but not involving) a cryptocurrency, causing losses of $4 billion worldwide. Several people behind the scheme were arrested in 2018 and 2019.

See also

BlockFi Mistakenly Deposits Outsized Bitcoin Payments

In this photo illustration the cryptocurrency exchange...

BlockFi, the crypto lending and trading business, mistakenly deposited large amounts of crypto to user accounts. The payments were associated with a promotion they were running, in which users would receive bonuses in USD stablecoins.

The promotion was intended to be “paid out in one lump sum in GUSD” according to their website. Instead, some accounts were paid the amount denominated in Bitcoin, with some receiving over 700 BTC (worth >$28,000,000 at current prices).

A screenshot from one affected user who withdrew the funds shows threat of possible legal action should they not be returned, and a pay-out of $500 should they return them by a set time.

BlockFi clearly has their hands full dealing with the mistakenly deposited bonus payments, and users have reported experiencing additional issues with the company’s services. The BlockFi subreddit is full of posts with individuals receiving the mistaken funds, having difficulty withdrawing, and being unable to trade. One user claims to have been falsely accused of withdrawing mistaken funds after withdrawing USDC which he or she had been deposited a month earlier.

A statement by BlockFi, noted that “fewer than 100 clients were incorrectly credited,” and “BlockFi has contacted these clients and is working with them to rectify the issue.”

There are risks with using centralized services like lending platforms and exchanges—these are especially well known by early Bitcoiner’s who have witnesses a great number of hacks, exit-scams, and insolvencies wipe out customer funds held by large custodians.

BlockFi claims that “client funds are not impacted and are safeguarded.” After raising a recent $350 million funding round, the company likely has large pools of capital to pull from should they be unable to recoup any of the mis-credited funds from users who withdrew to personal wallets.

BlockFi’s previous promotion was, indeed, a friend referral promotion which offered (albeit small) BTC rewards.

I am the Director of Research and Development at Inca Digital, a data and intelligence provider in the digital asset space. I use Inca’s proprietary data system, NTerminal, to aggregate and analyze structured and unstructured data.

Before Inca, I helped start up a pharmacogenetics laboratory and worked in neurodegenerative research. My scientific background influences the way that I think about complex systems such as blockchain networks, and the models used to understand them.

Source: BlockFi Mistakenly Deposits Outsized Bitcoin Payments

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Reversing the excess bitcoin rewards

One user who reached out to CoinDesk said they received a large sum of BTC in their account which they thought was a reward for referring their friends – so they sent it to their cold storage wallet. BlockFi’s previous promotion was, indeed, a friend referral promotion which offered (albeit small) BTC rewards.

The user said after looking at the transaction in more detail, they realized it was an error, so they requested a cancellation of the withdrawal. The cancelation request was confirmed via email and their account shows the BTC transaction was reversed, with a note specifying they had reversed the bonus transaction. Nevertheless, the user said the bitcoin reward ended up in their cold storage wallet. They shared these documents with CoinDesk, and the blockchain shows that the funds were indeed transferred to their wallet address.

The next day, they received a phone call and an email (which CoinDesk has reviewed) from BlockFi threatening legal action if they didn’t return the funds, but also offering $1,000 worth of the stablecoin GUSD for any trouble this may have caused.

Other users on Reddit posted images of BlockFi’s “generous” giveaway, with one deposit amounting to over 700 BTC. That transaction, according to the user, was reversed. Another said their friend received 5 BTC and was, in fact, able to move it off the platform.

Yet another user said they received both BTC and GUSD, only to have the BTC reversed. The GUSD remained, but a couple of days later when they tried to withdraw some USDC (+0.09%), a different stablecoin they had deposited a month earlier, BlockFi sent an email accusing them of withdrawing funds that weren’t theirs.

Turkey Crypto Exchange CEO Flees Country As Probe Is Launched

Turkish Crypto Exchange Exit Scam: CEO Flees Country, 62 People Detained, Users Cannot Access $2 Billion of Funds

One of Turkey’s largest cryptocurrency exchanges said it lacked the financial strength to continue operations, leaving hundreds of thousands of investors fearing their savings have evaporated as authorities sought to locate the company’s 27-year-old founder, who fled the country.

Confusion reigned about how many users of the Thodex exchange were affected and how much money was at stake. In a statement from an unknown location, Thodex Chief Executive Officer Faruk Fatih Ozer promised to repay investors and to return to Turkey to face justice after he did. The government moved to block the company’s accounts and police raided its head office in Istanbul.

Losses could be as high as $2 billion, according to Haberturk newspaper, and a lawyer for the victims said the money invested by about 390,000 active users had become “irretrievable.” Both figures have been disputed by Ozer. About 30,000 users have been impacted, he said in a statement on the company’s website on Thursday.

While authorities and customers tried to work out the details of what happened, a senior official in President Recep Tayyip Erdogan’s office called for rapid regulation of the crypto market. Globally, the surge in the prices of digital tokens has been accompanied by convictions and regulatory measures after various scams tied to trading platforms.

The Turkish government should take action “as soon as possible,” Cemil Ertem, a senior economic adviser to Erdogan, told Bloomberg. “Pyramid schemes are being established. Turkey will undoubtedly carry out a regulation that’s in line with its economy but also by following global developments.”

Police searched the company’s Istanbul offices and seized materials on Thursday. Arrest warrants have been issued for 78 suspects and police have so far detained 62 people in eight cities, including Istanbul, in connection to the case.

Cryptocurrencies have recently gained popularity among some Turkish citizens looking to protect their savings from soaring inflation and sinking lira. Turkey’s central bank recently banned the use of cryptocurrencies as a means of payment. President Recep Tayyip Erdogan has called for swift regulation of cryptocurrencies, warning of the rising number of pyramid schemes in the crypto markets.

Alternative Investments

Thodex was part of the cryptocurrency boom that has drawn in legions of Turks seeking to protect their savings from rampant inflation and an unstable currency. Inflation hit 16.2% in March, more than three times the central bank’s target of 5%. The Turkish lira has weakened 10% against the dollar this year, its ninth consecutive year of losses.

Source: Turkey: Crypto exchange CEO flees country as probe is launched | Business and Economy News | Al Jazeera

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