Not all Crypto projects are on the up and up. Just as with any business idea, some exist simply to cheat people.
BitFunder was a firm that seemed to be just another Crypto exchange. All in all, its offering did not appear, at first glance, to be much different from other sites that are already out there like Cex.io, LocalBitcoins.com, and Kraken.
The firm’s one unique feature was the fact that users of their site could sell shares of their company, with Bitcoin.
This alone, should have raised enough of a red flag for people to steer clear of BitFunder in that it is the definition of an unregulated usage of securities. Unfortunately, this was not the case.
In the end, however, nothing that BitFunder was offering seems to have been legitimate at all. The chief of the entire company has, as of Monday, been found guilty of fraud related to securities as well as obstruction of justice.
The beginning of the company being tried in Federal Court appears tohave been when Jon Montroll, who was effectively the head of BitFunder, gave false balance statements to the Securities and Exchange Commission in an apparent attempt to prove the legitimacy of his firm.
To make matters worse, he was only doing this because the company was already under scrutiny and closed, back in 2013, about twelve months after it first opened.
That’s right. They barely even lasted a year and in this case, it was due to being accused of fraudulent business practices.
Just before the company shut down, BitFunder was hacked to the tune of 6,000 Bitcoins, which at the time, turned out to be just about enough for the founder to pay back the users that Montroll already owed money based on debts at his other company, according to Bloomberg.
At this point, all of this may sound just a bit convoluted. To add to the confusion is another detail about what Montroll was finally found guilty of, this year.
He did the hack, purposefully.
Montroll needed the funds and it can reasonably be assumed that he hired outside people to run the hack, based on weaknesses in the code that he told them about. All of this could be said to come from the fact that he was not only found guilty of running the hack, but also of using the funds to go on a personal spending spree.
What this clearly illustrates is the importance of us doing our own research before giving any Crypto project our hard earned coins. Particular to this sort of situation is the importance of knowing the founding team.
Most Blockchain networks are supposed to be decentralized, meaning free of the control of one group or really, any group. Even so, founding teams still exercise a level of control over the Crypto funds on their networks due to the fact that they coded them.
If you don’t feel that enough evidence exists that points towards you truly owning your funds, then don’t invest in the firm in question. Overall, through the example of BitFunder, we see just how easy it is to lost sight of the dual-importance of decentralization and true network security.
By: BGN Editorial Staff