The Effects and After-Effects of the PlusToken Scam

Data & Research / 12.03.2020

Any area that involves cryptocurrency is usually linked to a scam. But none affected, and is still affecting the market like the PlusToken scam. Let us follow up on one of the biggest events in the history of cryptocurrency.

What was PlusToken?

Sometimes called as the “Biggest Scam in the History of Cryptocurrency”, the PlusToken Scam shook the entire crypto market. The remnants of the scam can be felt to this date. Building upon the age-old tactics of a Ponzi scheme, the people behind it managed to run off with 1% of Bitcoin’s entire supply.

PlusToken was a project initiated around July 2018 by a few Chinese developers. The project was marketed as an investment venture that promised to pay huge interest on their investment regularly. The project seemed preposterous since the beginning, and yet it managed to pull in $3 Billion+ from greed struck investors. The target market for the scam was people with little cryptocurrency knowledge and a willingness to get rich fast.

Although a few of the perpetrators were nabbed by the authorities, those who fled still have control of the funds. Because of this, the remnants of the scam can still be felt today. As a blockchain is open and transparent to all, we can still see what is being done with the funds. As the funds are moved from one wallet to another, the entire market feels the after-effects.

Let us look deeper into how the waves still keep hitting the market, months after the project was shut down.

A Year of Gathering Funds

Starting in Jun 2018 and peaking interest in July 2019, the PlusToken scam had a long time to lay their traps. WeChat, mouth-to-mouth advertising, Grocery shops, etc were just some of the ways used to spread the word.

The PlusToken defrauded an estimated 3 million people, although some believe the number could be much higher. The founders claimed that PlusToken was a project to generate income through mining activities, exchange profits, and affiliate referrals.

The whole plan was orchestrated such that each member feels involved as well as competitive. The members were the primary means of spreading the scam. Each member was personally incentivized to spread the news about PlusToken, with every individual they bring in contributing to their total rewards. A level-based infrastructure was also set up, wherein the more individuals one brings, the higher they climb, and the higher their rewards.

All in all, the project was formulated expertly, with advertisements, structured reward mechanisms, and backdoors placed in case of crackdowns. Six of the project founders were nabbed in June by the Chinese authorities, but the funds remain out of reach.

Grabbing 1% of the Entire Bitcoin Supply

The scam managed to accumulate some 200,000 BTC and 800,000 ETH from its victims by the time it was uncovered in late 2019. That was about 1% of the entire Bitcoin supply and 3 % of the crypto market at the time. PlusToken had posed as a cryptocurrency wallet and swindled investors out of as much as $3 billion in cryptocurrency. While six of its masterminds were arrested in June 2019, the authorities could not seize 180,000 BTC, 6,400,000 ether (ETH) and 111,000 tether (USDT), which were sent from scam victims to PlusToken wallets.

Even as its primary orchestrators were in the custody of Chinese authorities, other PlusToken conspirators were busy fragmenting deposited funds into various wallet addresses. The scheme’s alleged orchestrator, who goes by Leo, is still at large. To this day, the funds are still in the hands of the scammers, who keep looking for opportunities to put them back into circulation as prices rise.

The After Effects of the Massive Sell-off

Repeatedly, the wallets linked to the scam have been dumping their holdings. On average, the PlusToken scam has been selling off 1,300 BTC daily since November 2019. This has caused the market to rumble with volatility every time a sell-off takes place.

To get away from any culpability, the sellers use Bitcoin mixers that abstract the destination of the funds, essentially making them invisible. A Mixer is a tool that can mix Bitcoin for Bitcoin, and also Bitcoin in exchange for other cryptocurrencies, i.e., sending Bitcoin for Ethereum.

For the past 4 months, there have been several sell-off days that have directly correlated with increased volatility and price decline. According to Chainanalysis, a cryptocurrency research website, the funds have been constantly sent to mixing platforms so that the tracks could be hidden.

In December 2019, there was a transaction from the PlusToken to an unknown wallet, which could easily be a mixing service destination. The transaction was worth $105 million at that time, and unlike the previous incident in November, Ethereum tokens total of 790K ETHs were involved.

A similar event happened in the first week of March 2020, about 130,000 Bitcoins were again sent to a mixing service. The sell-off immediately resulted in the price of Bitcoin falling 8-9%, clearly showing the correlation between PlusToken Scam and the market price.

For now, there is nothing one could do, other than hope the perpetrators make a mistake and expose their details. It is expected that the periodical sell-off will continue until the funds are cleared. It seems like we will just have to weather this storm for now until they run out of holdings to sell.

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Sudarshan M is a long time crypto-enthusiast. Pulled in by bitcoin early on, it did not take long for Sudarshan to divert all of his academic attention from business studies to blockchain by doing his Masters and eventually pursuing his PhD in the subject.