When we hear the words: Cryptocurrencies, ICOs and Token sales, what usually comes to mind are either the next big thing in tech, millennials becoming overnight millionaires or major financial fraud. Out of the thousands of new crypto-currencies and digital tokens that have been launched over the last few years, more than half have already proven to be very poor investments. In some cases, the projects turn out to be scams, with the sole purpose of defrauding investors. Increased government regulation and more detailed due diligence by investors has proven to be a great initiative to decreasing the number of dishonest projects However, a new type of crypto-based fraud has been emerging that misleads investors by sitting on top of a legitimate project.
This is when the “nesting scam” begins. Coined after the scam’s nature of nesting on top of more reputable protocols, first, the scammers mint a fake token that pretends to be built on top of a highly reputable protocol such as EOS or Tron.
There is very little company or project information given on the platform listing the fake token. Usually, there is only a link to the official web site of the original token and the scammers use the official logo of the original token.
Of course, some basic due diligence of the official web site will prove that the original token is built on a different protocol than the fake token. However, because of the hype, some investors get excited and invest without doing the proper due diligence.
Once an investor has invested, scammers generate a very large number of transactions on the network by trading their own crypto between each other. This fake traffic drives up the transaction volume and the fraudulent project starts to rise up on the leaderboard ranking of the protocol that it’s built on. Not wanting to miss the opportunity some investors start investing in the fake project and within a few weeks, millions of investors’ money disappear into the scammer’s pockets.
The more credible and anticipated a token sale project is, the more in danger they are of being victims of “Nesting Scam”
Enter Cryptyk
Cryptyk is a blue-chip blockchain project focusing on Enterprise Cloud Security and Storage.
The San Francisco based company already has strong traction of being the official IBM Embedded Solutions Partner for blockchain and cloud services.
Since access latency or speed is just as important as security for most enterprise cloud storage applications (for example, live editing and real-time collaboration), Cryptyk uses “hybrid blockchain technology” that allows them to provide highly secure decentralized storage without suffering the poor latency issues that other blockchain-only platforms suffer.
Their cyber-security and storage ecosystem is driven by the Cryptyk Token or CTK for short.
Being one of these highly anticipated projects focused on the massive cyber-security market, Cryptyk became a perfect target for the new scam.
When they announced that they were going to be doing a token sale, a project claiming to be Cryptyk created a fake CTK token and listed itself on the Tron Network. The official CTK token is listed at a price of 12.5 cents per token.
With this in mind, the scammers simply started selling the fake CTK token on the Tron network for around 1 cent each (or < 10% of the real CTK tokens value). Purchasing CTK at over a 90% discount was simply too good to resist for many. The scammers pumped the fake token network with thousands of microtransactions between themselves and watched the transaction volume rise up on the Tron leaderboard. Soon enough the fake CTK became the number one TRX token based on trading volume. Over US$2 million was scammed in just a few weeks. Not only did this scam hurt Cryptyk’s legitimate public sale efforts but $2 million from investors was lost forever. When interviewed, Cryptyk’s CEO Dr. Adam Weigold commented that “I suppose imitation is the greatest form of flattery and it says a lot about our project that people want to copy us. The scam has certainly slowed our public sale efforts in recent weeks, but now it has been removed from Tron we are confident of selling all our authentic CTK tokens by our February 8 th close date for the public sale. Who I feel for the most are the thousands of small investors who got taken in by this sort of scam. I fear it will be the first of many unless platforms implement more rigorous due diligence process when onboarding projects on to the protocols. Cryptyk was founded in 2015 by quantum physicist Dr. Adam Weigold and Cyber-security specialist Raghu Kotha. Their team includes industry veterans from Silicon Valley Bank, NYSE, Morgan Stanley, Cisco Systems and Ericson. They have been involved in numerous technology startups and IPO’s and know how to build an enterprise-focused product to scale. They also have an impressive list of strategic partners, most notably IBM who view the Cryptyk platform as the ideal cloud storage solution for the financial services industry..
