An analysis conducted by crypto auditing company Hacken on behalf of WIRED identified red flags in the token’s underlying code that could indicate a scam under certain circumstances. They include the absence of a function that prevents issuers from stealing from the pool of tokens set aside to make trading possible on the secondary market.
Suspecting that he has become the victim of a scam, Ryan tries to warn others. “Although $750 is a lot to lose, this will not be the end for me,” he says. “But I feel bad for the people who really lost.”
WIRED did not receive a response to a request for comment sent to the email aliases listed on the rebel Satoshi website.
The type of fraud that Ryan suspects he has been caught in is known as a token presale scam. This format has been around for some time, but amid the FOMO that comes with skyrocketing prices of cryptocurrencies, people are especially vulnerable. “These scandals are largely recent events,” says Ben-Natan. “They are not a new phenomenon, but they are coming up again.”
Ben-Natan explains that there are variations on the theme, but the scams follow from the same playbook. Typically, developers – who remain anonymous – invest in glossy social media marketing and paid-for placement in crypto media outlets, advertising their token as the next hit memecoin and promising discounts to pre-sale investors. Are. In some cases, the tokens never materialize and scammers make away with the funds. In others, scammers abandon the project after selling their own token holdings, or fail to deliver on promises of long-term support.
In the latter scenario, like Rebel Satoshi, the line between a scam and a failed project is not always clear. And sometimes, because of the large sums involved, says Ben-Natan, “something that was not a scam initially may turn out to be a scam later.” “As time goes on, the line may blur.”
Ben-Natan says these large-scale scams are not operated by lone actors, but by sophisticated cybercriminal groups. He says a “micro-economy” has formed around them, whereby different parties can be responsible for managing different elements from marketing campaigns to website design and more. The largest of these operations can generate revenues of millions of dollars. “The numbers are staggering,” says Ben-Natan.
The warning signs are there for anyone willing to look for them, says Hacken co-founder Dima Budorin. For example, it is straightforward to check whether creators have revealed their identities, or whether there is a system in place that prevents them from dumping their holdings without warning. But in their eagerness to get into new projects early, some investors bother with due diligence. “It all comes from greed,” says Budorin.
Budorin says that in extreme cases, profit-hungry investors have begun using “sniping bots” to automatically buy tokens as soon as they begin trading on the open market. Others engage in copy-trading, a process whereby they blindly copy someone else’s trades so they don’t have to do their own research. Both techniques increase the chances of someone being exposed to a scam.
