An analysis conducted on behalf of WIRED by crypto auditing firm Hacken identified red flags in the token’s underlying code that in some cases may reflect a scam. These include the lack of functionality to prevent issuers from stealing token pools set aside for secondary market transactions, among others.
Suspecting he was the victim of a scam, Ryan tried to warn others to stay away. “Even though it may cost me $750, it’s not the end for me,” he said. “But I feel sorry for the people who actually 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 scam that Ryan suspects he has committed is called a token presale scam. The format has been around for a while, but amid the FOMO that accompanies skyrocketing cryptocurrency prices, people are especially vulnerable. “These scams are widely correlated with recent events,” Ben-Natan said. “They are not new phenomena, but they are reappearing.”
There are many variations on the theme, Ben-Natan explains, but the scams tend to come from the same playbook. Typically, developers – remaining anonymous – invest in flashy social media marketing and paid placements in crypto media, promoting their tokens as a memecoin is next and promises discounts to pre-sale investors. In some cases, the tokens never materialized and scammers got their hands on the money. Elsewhere, scammers abandoned projects after selling off their token holdings or failing to deliver on promises of long-term support.
In the second scenario, as with Rebel Satoshi, the line between a scam and a failed project is not always clear. And sometimes, because of the large sums of money involved, “something that initially wasn’t a scam can later turn into a scam,” Ben-Natan said. “As time passes, the lines may become more blurred.”
Ben-Natan said the majority of these scams are carried out by sophisticated cybercriminal groups, not by lone actors. A “micro-economy” has formed around them, he says, whereby separate parties can be responsible for managing different elements of the charade, from marketing campaigns to design website, etc. The largest of these operations can rake in hundreds of millions of dollars. “The numbers are staggering,” Ben-Natan said.
For anyone willing to look for them, the warning signs are there, said Dyma Budorin, co-founder of Hacken. For example, it can be easily checked to see if creators have revealed their identities or if there are systems in place to prevent them from dumping their shares without warning. But because they are eager to participate early in new projects, very few investors bother with appraisal. “It all comes down to greed,” Budorin said.
In extreme cases, profit-hungry investors have used “sniper bots” to automatically buy tokens when they first begin trading on the open market, Budorin said. , in an effort to get involved early. Others are engaging in copy trading, a process in which they blindly copy other people’s trades, so they don’t have to do their own research. Both techniques increase the likelihood of someone being scammed.
