Cryptocurrencies are often touted as the future of money, offering fast, secure, and decentralized transactions. However, the crypto industry is also rife with risks, scams, and failures that can wipe out investors’ funds in an instant. Here are some of the most notorious crypto disasters that have occurred throughout history.
1. FTX
FTX was one of the most popular and successful crypto exchanges in the world, with a valuation of over $18 billion. It offered a variety of trading products, such as futures, options, leveraged tokens, and prediction markets. It also had a native token (FTT) that gave holders various benefits, such as lower fees and governance rights. However, in June 2022, FTX suffered a massive cyberattack that compromised its security and integrity. The hackers managed to steal over $500 million worth of crypto assets from FTX’s hot wallets (online storage devices). They also manipulated the prices of several coins and tokens on FTX’s platform, causing chaos and confusion among traders. FTX’s CEO, Sam Bankman-Fried, also known as “SBF,” tried to contain the damage and reimburse the affected customers, but it was too late. FTX’s reputation and trust were irreparably damaged, and many users left the platform for good. FTX’s token (FTT) also plummeted from over $100 to less than $10 in a matter of days.
2. Mt. Gox
Mt. Gox was once the largest Bitcoin exchange in the world, handling over 70% of all Bitcoin transactions at its peak. However, in 2014, it announced that it had lost 850,000 bitcoins (worth about $450 million at the time) due to a hacking attack. The exchange filed for bankruptcy and suspended all trading, leaving thousands of customers without access to their funds. Some of the stolen bitcoins were later recovered, but most remain missing to this day.
3. Bitconnect
Bitconnect was a high-profile crypto lending platform that promised investors up to 40% monthly returns on their deposits. It also had a referral system that rewarded users for bringing in new customers. However, in 2018, Bitconnect was exposed as a Ponzi scheme that used new deposits to pay existing investors. The platform shut down abruptly after receiving cease-and-desist orders from regulators in several countries. Bitconnect’s token (BCC) plummeted from over $400 to less than a dollar in a matter of days.
4. QuadrigaCX
QuadrigaCX was Canada’s largest cryptocurrency exchange, with over 200,000 customers and $190 million in assets. However, in 2019, it announced that it could not access most of its funds because its founder and CEO, Gerald Cotten, had died unexpectedly while traveling in India. Cotten was the only person who knew the passwords to the exchange’s cold wallets (offline storage devices). His death sparked controversy and speculation, as some suspected foul play or fraud. A court-appointed monitor later found that QuadrigaCX had been
operating as a Ponzi scheme for years and that most of the funds were missing or misappropriated.
5. The DAO
The DAO was a decentralized autonomous organization that aimed to create a platform for smart contracts and crowdfunding projects on the Ethereum blockchain. It raised over $150 million worth of ether (ETH) in a record-breaking initial coin offering (ICO) in 2016. However, soon after its launch, a hacker exploited a vulnerability in its code and siphoned off about a third of its funds (worth about $50 million at the time). The Ethereum community was divided on how to deal with the attack, leading to a hard fork that split the network into two: Ethereum and Ethereum Classic.
6. OneCoin
OneCoin was a global multi-level marketing (MLM) scheme that claimed to be a revolutionary cryptocurrency that could rival Bitcoin. It attracted millions of investors from over 190 countries, who paid up to $30,000 for packages that supposedly contained OneCoins and educational materials. However, OneCoin was nothing but a scam that used fake blockchain technology and manipulated exchange rates. Its founder and leader, Dr. Ruja Ignatova, also known as “the Cryptoqueen,” disappeared in 2017 with billions of dollars in investors’ money. She is still wanted by authorities around the world.
7. Squid Game
Squid Game was a cryptocurrency inspired by the popular Netflix series of the same name. It claimed to be a decentralized gaming platform that would allow users to participate in deadly games for rewards. It launched in October 2021 and quickly gained attention and hype from social media and influencers. However, it turned out to be a rug pull – a type of scam where developers abandon a project and run away with investors’ money. Squid Game’s price soared to over $2,800 before crashing to almost zero in minutes, as its anonymous creators sold all their holdings and made off with about $3 million.
8. Terra Luna/TerraUSD
Terra Luna (LUNA) and TerraUSD (UST) were two cryptocurrencies that worked together on the Terra blockchain. LUNA was a volatile crypto that changed in value, while UST was a stablecoin that tried to keep a 1:1 ratio with the U.S. dollar. They did this by using an algorithm that created or destroyed LUNA or UST, depending on how many people wanted them. Many people bought UST so that they could use it on Anchor Protocol – a platform that gave high returns on UST deposits. However, in March 2022, Anchor Protocol changed its rules and said that it would give a variable interest rate that could be very low, depending on how many people wanted UST. This made many investors unhappy, and they took their UST out of Anchor Protocol and sold it, as they didn’t want to keep it anymore. This made UST’s price and demand go down, which also messed up LUNA and UST’s algorithmic relationship. As explained above, this led to the collapse of both cryptocurrencies.
9. BitGrail
BitGrail was an Italian cryptocurrency exchange that specialized in trading Nano (formerly RaiBlocks), fast and feeless crypto. In February 2018, BitGrail announced that it had lost 17
million Nano (worth about $170 million at the time) due to a hacking attack. However, many suspected that the exchange’s owner, Francesco Firano, also known as “The Bomber,” was behind the theft. Firano allegedly tried to cover up the loss by asking the Nano developers to alter the ledger and create new coins. He also blamed the Nano protocol for the hack, despite evidence that showed BitGrail’s poor security and management. Firano was later arrested and charged with fraud, bankruptcy, and money laundering.
10. The DAO Hack
The DAO Hack is not to be confused with The DAO failure mentioned above. The DAO Hack was an attack on another decentralized autonomous organization called The DAO Hub, which was a venture capital fund that allowed investors to vote on projects to fund using smart contracts on the Ethereum blockchain. It raised over $150 million worth of ether (ETH) in a record-breaking initial coin offering (ICO) in 2016. However, soon after its launch, a hacker exploited a vulnerability in its code and drained about a third of its funds (worth about $50 million at the time) into a child DAO – a separate entity that had the same rules as The DAO Hub. The Ethereum community was divided on how to deal with the attack, leading to a hard fork that split the network into two: Ethereum and Ethereum Classic.
These are just some examples of how cryptocurrencies can fail spectacularly due to various factors such as hacking, scamming, regulation, technical issues, or market manipulation. Crypto investors should be aware of the risks involved and do their own research before investing in any project.
Image by redgreystock on Freepik
