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Prodeum ICO Exit Scammers Followed Theft with a Houdini Act

The Prodeum ICO is the latest – and one of the strangest – ICO exit scams to gain traction. The Prodeum ICO was ostensibly started by the project’s ‘founders’ in a bid to create a system that would make use of blockchain technology to track agriculture produce from the farms to the store.

In fact, this may very well be one of the most practical proposed uses of the blockchain technology, and the idea exemplifies the versatility of the blockchain technology’s utility.

The Unexpected Houdini Act

The Prodeum ICO was a cryptocurrency startup based on the Ethereum Blockchain network which was seeking to raise capital funds of $6,500,000 to bring the project to fruition.

The reason why this ICO is being referred to in the past tense is that a few days after the ICO started, the website for Prodeum went blank, and all that was left online was the word “penis” in the top left-hand corner.

The Problem of Identity Theft

It turned out that the identities of the founders had been faked.

The three blockchain experts who were linked as core team members of the Prodeum ICO were indeed real people—but they had no connection to the Prodeum ICO. Darius Rugevicius, Mario Pazos and Vytautas are actual blockchain experts who work with blockchain startups who were falsely portrayed on Prodeum’s website as advisors and team members for the ICO.

When the scam was revealed, these experts expressed their concern that the scam’s use of their identities to raise the capital funding essentially put their reputations in a precarious position.

The scammers pulled off a bold case of identity theft by making use of the blockchain experts’ photographs, names and links posted on their LinkedIn profiles. The fourth team member, who was listed with the name of Peter Jandric, did not turn out to be a real person upon further investigation.

The Most Bizarre Aspect of this Exit Scam

The main goal of exit scams is to fraudulently raise a significant amount of capital from investments and then pull out and disappear once the funds are raised. According to its white paper, the Prodeum ICO was planning to raise 5,400 ether tokens, which amounted to roughly $6,500,000 at the time.

Yet the company only raised about $10 in ether before disappearing.. For all intents and purposes, the amount that the scammers ran away with was barely enough to buy a couple of hamburgers. Why the scammers disappeared when they were sitting on a potential gold mine of an exit scam remains a mystery.

The incident didn’t cause much harm, but it, along with other, more successful exit scams, reveals the need for considerably improved vetting for companies conducting ICOs.

Identity theft is a serious problem. Its use in  conducting large scale ICO exit scams emphasizes the need for more transparency and disclosure in ICOs.

The Challenges of Bitcoin

Bitcoin is a global payment system that is popularly known as a cryptocurrency.  It is the first system of decentralized digital currency that works as a single administrator. All the transactions are done directly among users without a mediator. It is a global system of exchanging currencies across the internet, without being linked to an actual identity. Cryptography is the base for Bitcoin’s security.

Pseudo-anonymity

The difference between using regular currency and bitcoin is that the bitcoin ecosystem operates without involving any kind of link to a user’s actual global identity. One has to choose their name to be linked to a Bitcoin address in order to know who possesses the address. The system keeps track of addresses of an individual, but does not track the user. Two important sections of cryptographic information have to be present in each address regardless of whether it is a private one or a public one. The public key consists of the Bitcoin address, which is similar to an e-mail address that anyone can send bitcoins to. The private key is just like an e-mail password, only the owner has the power to access the account and send bitcoins from it. This system is executed with the help of a mathematical process known as cryptography.

Blockchain Records

The users of the bitcoin system have to mandatorily use the global database known as the blockchain. The blockchain creates a framework to maintain all the transactions taking place in the bitcoin system. It keeps track of new bitcoins that are generated and also maintains the records of individuals who possess bitcoins.

Bitcoin uses QR codes to store all the information in a single area. The QR codes on the bitcoin currency include the public and private addresses that can be scanned with numerous online tools.

Creating a Wallet

Wallets are very helpful and offer a handy way to track the records of public and private addresses of users. Addresses can be anonymous, and a person can have many addresses. Wallets allow multiple people to manage multiple accounts in a small space. They hold all the required information and prevent a loss of bitcoins.

The truth about Bitcoin Security. Is it Safe?

Bitcoin is quite secure, but this is not necessarily so for every service or site that deals with Bitcoin.

The Bitcoin ecosystem does not offer any guarantee of whether the exchanges and services surrounding it are worthy of trust and security. A trust level that exists in the banking system is not present here. We trust banks, for the most part, as we are sure that they are heavily secured and regulated. This is not yet true of Bitcoin.

As with all things, there are plusses and minuses to the use of Bitcoin (and other cryptocurrencies). On the plus side, the lack of regulations and the minimal fees make the system cheap to use and easy to transfer money internationally. This makes the cryptocurrency available in countries that need it the most, and to those who were previously unable to access traditional banking.

On the downside, Bitcoin can be used by criminals who are looking to hide their identities, traffic in illegal goods and services, and launder money.

One of the biggest challenges for Bitcoin is to become accepted by merchants for services and goods.  Though more and more businesses have been accepting Bitcoin in the past few years, the vast majority have not yet done so.

 

ICO Exit Scams – Two of the Biggest Exit Scams to Date

Financial markets throughout the world are becoming increasingly better regulated;  security has tightened up and scams are now rarer than they have been before. Scammers do not seem to be too worried about these developments, since they have an even better avenue to exploit when it comes to scamming – cryptocurrencies.

The latest innovation in the fintech sphere comes in the form of decentralized cryptocurrencies like Bitcoin. The decentralized nature of these digital currencies makes them unregulated for the most part, and scammers are trying to capitalize on these “greener pastures.”

While cybercriminals resort to theft, hacking and Ponzi schemes, ICO scams are worthy of their own examination.

An Initial Coin Offering project is considered to be an exit scam if the money that was raised during pre-sale or during the conduct of the ICO is stolen and the team that conducted the ICO vanishes. That means the theft was premeditated and well-planned. Here’s a look at two of the biggest exit scams to date.

PlexCoin

December 2017 saw the SEC stop the PlexCoin ICO. This was in response to claims being made that the founder of this ICO project was going to exit scam investors.

According to the complaint that was lodged against the scam’s leader, Dominic Lacroix, the PlexCoin ICO was promising returns of over 1,000% on investment. Lacroix managed to convince investors to get involved with the ICO by making use of fake experts, and he tried to cover up his past crimes in the financial world. In one of the previous crimes he was involved in, he had committed fraud through micro-loans.

The SEC froze all of the $15,000,000 accumulated by the PlexCoin ICO, the company was fined $100k, and Lacroix has been sent to jail. The exit scam, if it had not been stopped, would have been the biggest exit scam to date, worth $15 million.

Benebit

This ICO project made claims that it was going to use blockchain technology to create a unified system for frequent flyer and similar programs. The white paper for the ICO seemed legitimate, and everything from the marketing to the number of members on the team made it look like the real thing.

Furthermore, the hype generated by this appearance of legitimacy and promising prospects managed to attract, engage, and convince a lot of investors.

Things started to fall apart for the Benebit ICO conductors when someone noticed that the photographs being used for the Benebit team were actually taken from a school in the UK. The details for identification which the founders presented to the people were not real.

Once the Benebit ‘founders’ were called out for this, they started to take down everything that had anything to do with Benebit, and the perpetrators of the exit scam ran away with an estimated $3 million to $4 million.

The Need for Identity Verification of ICO Founders

It is because of exit scams like these and the more recent Prodeum exit scam, that identity verification when it comes to fundraising projects using cryptocurrencies is an absolute necessity.

Everybody in the world of cryptocurrencies is well- aware of the concept of Know Your Customer, but what about the ‘founders’ of the ICO projects? Identity verification should work both ways.

Better security measures are needed. Even though identity verification may go against the concept of anonymous payments systems, it is becoming a necessity in the light of capital raising ventures being turned into exit scams.

Figuring out better solutions to prevent scams like these will help curb the cybercrime and theft being committed through the nascent and largely unregulated world of cryptocurrencies.