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Self-Proclaimed Pyramid Scheme FOMO3D Pays Out $2.8M In Ethereum (ETH)

Meet The Self-Proclaimed Ponzi Scheme and Exit Scam

The cryptocurrency market has its fair share of shady schemes — think Bitconnect or any of the multitude of exit scams that have occurred in the past few years. While these schemes are irksome to many investors, TeamJUST, a mysterious group of Ethereum developers took it upon themselves to create an on-chain, self-proclaimed Ponzi scheme and exit scam, which have been named PoWH3D And FOMO3D respectively.

You may be thinking that this sounds absurd. Well, evidently there were some that thought this was a genius idea, as the TeamJUST smart contracts quickly filled up with tens of thousands of Ethereum, with a daring few putting their hard-earned crypto-cash to work in a well-oiled, fully transparent, smart contract-based pyramid scheme.

What’s so crazy about it, is that the team behind the game, scheme, or whatever you want to call it, is upfront about the inherent nature of their creation. Their official Twitter account reads:

Fomo3D: an ironic jab at the cryptocurrency ICO space, putting every player in the terrifying and tempting position to Exit Scam everything.

And so far, this transparency has seemingly paid off, with the game garnering support from many users who just want to have a bit of fun.

For those who are unaware, FOMO3D is a sort-of Ponzi scheme that is focused on the idea of the greed of individuals. The game starts with a timer counting down from 24 hours, while users are prompted to buy keys to extend the time and also to get a stake in the ‘pyramid.’

Image Courtesy of TeamJUST

Every time a key is bought, the price of the next key goes up slightly for the next user. But users are incentivized to keep on buying, as the ETH deposited in the pyramid gets distributed across players and via a jackpot. If the aforementioned timer hits zero, the last person to buy a key wins the jackpot.

And this just so happened the other day, with an anonymous individual recently ‘exit scamming’ 10,469 ETH, worth over $2.8 million at the time of writing, from the FOMO3D smart contract. This ‘exit scam’ actually surprised some individuals, become some thought that the game was never going to end, with the eternal greed of individuals keeping the pot alive for months, if not years on end.

But now, an anonymous individual, who has been participating in the game for nine days, has access to over 10,469 ETH, a sum of life-changing money, to say the least.

While some would fear that this is just a claim, the individuals behind the project provided its near-cult following with an Etherscan block explorer link to the withdraw transaction, which shows an internal transaction of 10,469 ETH from FOMO3D to the unnamed individual.

However, there were some controversies that arose in the final minutes of the round, as some claimed that an Ethereum miner was able to censor a block from going through, allowing the anonymous individual to exit scam scot-free. But regardless, FOMO3D has now started on its second game, with a starting pot of ~5,400 ETH and deposits of already over 1,300 ETH at the time of writing. But it remains to be seen whether this pot will soar like the last, but those who got in early sure hope that it will.

Photo by Alex Holyoake on Unsplash

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Unstoppable Scams? Ethereum's Gambling Problem Is Only Getting Worse

Ethereum has a gambling problem.

Since July, products resembling Ponzi schemes, a fraudulent form of investment promising high returns for little cost, have topped the charts among decentralized applications (dapps) running on the world’s second-largest blockchain, outpacing even the popular CryptoKitties.

But if user counts and transaction volumes observed on these applications are high, so too is the level of concern over the risks consumers face when using them. Already mounting are warning cries from technologists who aren’t exactly known for their risk reticence, a group that includes gambling dapp developers themselves.

Such was the case for Team JUST, the group of anonymous developers behind the infamous gambling dapp FOMO 3D, who warned last week that what looked to be a near identical copy of its game was eating up one-third of the network’s total computational power, raising over $7 million in ETH within the span of seven days.

Team JUST has gone on record both publicly and in private communications with CoinDesk to allege the imposter game as being a Chinese mobile app called LastWinner supposedly created to “trick” users by displaying false, bot-driven game activity.

To elaborate, Team JUST purports that the game essentially uses its own ether, 200,000 to be exact, as a means of fueling thousands of transactions that are carried out by computer bots. The goal is to give the appearance of a highly popular and legitimate gambling dapp, thereby luring users to engage with their own ether in the hopes of winning big.

One of the lead designers in Team JUST, who goes by the pseudonym “Justo_Bot,” went so far as to issue statements in a channel-wide Discord post Tuesday, warning users that LastWinner might be run by criminals.

He wrote:

“The scale of this wallet, the scale of these bots. The amount of sheer gas being used. I genuinely think you’re probably looking at a crime syndicate running this in China to scam people on a scale the ethereum network has never seen before…It’s very bad.”

The limits of analysis

But it isn’t just the developers who are concerned.

Users and analysts alike raised alarm bells on several different online channels over the frenzy of transaction activity caused by the new gambling dapp, said to be LastWinner. First, though, there was the matter of figuring out just what exactly was occurring.

In the days after the launch, comments on Etherscan affirmed that the activity was noticeable, with users noting how the app was outperforming even those it was designed to mimic. As one user attested at the time in what amounts to an eye-witness report, “It is definitely the most popular F3D clone so far, beating the original very easily.”

Indeed, the activity was quickly identified as an anomaly by data providers.

Amberdata, a blockchain monitoring and analytics firm, explained to CoinDesk that as a result of “the clone of the FOMO 3D gambling app” the ethereum blockchain has been under a heavy load.

“Overall, about $50.7M of value (Incoming: $29,000,000 and Outgoing: $21,750,000 together) has transmitted through this contract,” the firm estimated as of August 16.

Dr. Aleksandra Sokolowska, head of research and analytics at Validity Labs, also picked up on the activity, agreeing that the “highly coordinated and automatic” interactions of the dapp are suggestive of computer bots.

Still, she concluded in an email address to CoinDesk that the true nature of the dapp, whatever its true name, cannot be fully ascertained, explaining that:

“As we don’t see the source code, it is very hard to tell what the purpose of the code is. It is possible that someone knowingly encourages honest users to play such a game by generating artificial traffic with Sibyl accounts in order to withdraw some or all funds. “

Friend or foe?

With the abilities of analysts limited, the urgent warnings put forth by Team JUST have sparked a degree of suspicion pointing back to the true nature of the original FOMO 3D application itself.

Because while both gambling dapps have clear instructions on the rules of their game, the source codes responsible for actual game deployment have yet to be fully disclosed and verified.

As far as users are concerned, though, this actually adds to the risk.

Scott Bigelow, a blockchain developer for the dapp Augur, explained in a post on Medium that when it comes to unverified source code, the potential for “malicious intent and bugs” cannot be discredited. He further explained how FOMO 3D’s “unverified contract” might just lead to a shutdown of the entire game one day, “allowing a single player to claim the jackpot for themselves.”

What Bigelow is describing here can be typified as an “exit scam” whereby game creators pull off an orchestrated attempt to hijack raised funds. The same vulnerability lies with the alleged LastWinner dapp given it also runs in part on unverified source code.

And of course, this is not the only potential danger that exists for users engaging in gambling dapps like those described above.

PeckShield, a blockchain security firm, reports in an email to CoinDesk that the alleged LastWinner dapp possesses a common “airdrop vulnerability” whereby small amounts of user funds can be intentionally skimmed from airdrop prizes. This was reportedly originally flagged by ethereum developer Peter Szilagyi as a way to “PWN” FOMO 3D, though Team JUST claims they knew of the vulnerability in advance.

As such, elements of scam accusations put forth by Team JUST against the alleged LastWinner dapp have raised lines of questioning that lead back to the intentions of the original game.

One Reddit commentator asked:

“If this is a clone, and the clone owner has the ability to exit scam, doesn’t this imply that the original owner also has the ability to exit scam?”

An unstoppable force

Nevertheless, just because something looks like a scam, that doesn’t mean it is. (Bitcoin has, after all, been labelled by its most severe critics as a Ponzi scheme).

Even for ethereum developer Lane Rettig, such determinations about the nature of activity generated by the alleged LastWinner dapp can’t be certain. He wrote in email addressed to CoinDesk that without “the contract code” it would be “impossible to say more.”

What can be said, at least on the part of Amberdata CEO Shawn Douglass, is that gambling dapps and their respective clones don’t seem to be going away anytime soon given their allure to a growing base of users on ethereum.

Douglass asserts:

“If there has been a demonstrative mechanism that you can enlist a lot of participation and accrue a large amount of money, I think you’ll see more of these… I don’t think the ethereum foundation can control it in that it’s a decentralized organization.”

Put a different way, Sokolowska likens ethereum to “a free market” in which “anyone who can make a return of investment in any way will use their opportunity.”

As such, it doesn’t come as much surprise then that despite growing concerns over user safety in games of chance on ethereum, there’s fierce opposition in the community from stopping them entirely.

As one user on Reddit argues: “It’s fascinating how people want decentralization, until it works against them…people are playing the game/gambling and paying high gas prices to do so. It’s an egalitarian model, and it’s successful because people…can’t pick and choose what to censor.”

It seems the mantra of the ethereum platform, at least for the time being, when it comes to user appetites for risky gambles is to live and let live because ultimately, the choice to engage remains in the hands of users.

And that, as with most decentralized platforms, is a pretty dicey gamble.

Dice image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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What Scams? Ethereum's Vision for Apps Is Only Growing Bolder

Borderless, permissionless and free from coercion.

That’s the dream underlying web 3.0, in which unstoppable, decentralized applications (dapps) combine with web 2.0 technology, eventually corroding the power structures that traditional infrastructures encode. But that vision hasn’t come as fast as some expected or hoped, and moreover, some ethereum applications seem to even be working against that rosy vision for the future.

Outpacing CryptoKitties in cumulative volume, dapps like FOMO3D and POWH3D are leading the polls right now with high-risk gambling games that, as detailed by CoinDesk, are essentially Ponzi schemes in structure.

Larry Cermak, an analyst, described the situation on Sunday as “depressing.”

“Legitimate use cases like [decentralized exchanges] and prediction markets are not gaining any traction while scams and useless games are thriving,” Cermak tweeted.

And still what proved to be ethereum’s “killer use case” across the past two years (culminating a total of nearly $20 billion), the initial coin offering or ICO also left a stain on ethereum’s history. According to one study, a whopping 78 percent of ICO’s in 2017 are now “identified scams.”

Perhaps unsurprisingly then, projects that overemphasized the crypto funding scheme were turned away from attending last week’s Dappcon conference in Berlin, where the focus was on the underlying technology.

“The focus should be on the building part, not on the raising money part,” Alex Van de Sande, developer of ethereum’s mist browser and ethereum core developer, told CoinDesk. “I think if you focus too much on raising money to build stuff then you might not be the guys who are actually building, right.”

As such, the conference brought together developers and high-profile dapp projects to reinforce their goal and determine what needs to be done to make that goal a reality.

Because according to many at the event, dapps are still the key technology for moving ethereum and the blockchain industry as a whole closer to its dream of making the world a better, more free place.

Gregor Zavcer from Datafund, a blockchain-based project for allowing web users to take back control of their data, told CoinDesk:

“I think the dapp development is a new paradigm in terms of how you do everything in the open, how you connect with others, and how you also provide value, not just necessarily for the end user but for the ecosystem.”

Ambition meets reality

And those things, according to Van de Sande, are the essence of ethereum.

“Ethereum makes no sense if there are no dapps; if there are no dapps running on ethereum then it’s just another coin that gets its worth from speculating,” he told CoinDesk.

And as such, “I think our job, as ethereum developers, is to try to understand what are the dapps doing and what are the dapps not doing, what are the biggest challenges for those dapps, and we need to solve that for them. We serve the dapp developers.”

Yet borderless communication, trade, computation and organizations – there’s a known disconnect between the technologically ambitious dapp community and ethereum’s ability to handle a fully decentralized dapp that has mainstream use.

For example, CryptoKitties was lambasted when it was first launched since it garnered significant traction and caused transaction backlogs and increasing fees on the network.

Then later, it was criticized for sacrificing full decentralization for the sake of usability. And this tension between usability and decentralization – manifest by the lack of user engagement on most dapps so far – was the most troubling concern for those at Dappcon.

Benjamin Bollen from OpenST, a layer-two scaling solution for ethereum crypto tokens, said that the need for user engagement even eclipses the platform’s need to scale to keep up with market demand.

Bollen said:

“I had to be told this many many times by business people – as a technology nerd – to really absorb this message: We need to actually get to a point where it has real value and it only has real value if there are actually hundreds of millions of people using this technology.”

He continued, saying that ethereum has piqued interest from time to time – during the ICO boom, to name one – and it’s up to the developers to make sure what ethereum is known for isn’t vaporware.

Live and invaluable

While the dapps eliciting the most conversation right now are those that most developers disregard, still there have been a number of announcements and launches this year displaying that ethereum dapps are making headway.

For instance, Golem, a decentralized computation market, launched into beta earlier this year, while the hotly anticipated prediction market Augur has been live and functioning rather well for the past two weeks.

Mobile ethereum client Status, that runs over decentralized, encrypted chat protocol Whisper, has also made substantial progress. As well as enabling transactions to occur across the chat app, Status provides an early look at some of the more exciting possibilities of the decentralized web – peer-to-peer token swaps, DAO creation apps, identity systems, social networks, collectibles and Local Ethereum.

And for some, these features are invaluable. Because Status offers a free method for communication for those who live behind strict internet firewalls and cannot access conventional social media websites, the dapp has become one that many ethereum developers point to as not just a success, but a necessity.

Speaking to that Status use case, María Paula Fernandez, communications lead for decentralized computation app Golem, said:

“We don’t realize this shit, but this is the power of a dapp. Dapps are fucking alive.”

And according to Zavcer, typical of the dapp ecosystem is that protocols overlap and reinforce each other.

“These past two days I was reminded about the notion of ‘team protocols,'” Zavcer told CoinDesk. “Teams are specializing on the aspect that they want to cover and somehow together we create these decentralized mosaics.”

Echoing that, Anna Rose, co-host of the ZeroKnowledge podcast, which takes a look at the technology that’ll power web 3.0, told CoinDesk:

“I think when there is a momentum in a scene – be it music, art or tech – you see a flourishing of ideas, buzz around certain terms. New humor, aesthetics and memes emerge. It is an exciting moment.”

Bad dapps do good?

Part of the new “humor” – a dark humor –that’s emerging from the ethereum dapp ecosystem is the concept of honesty in your bad behavior making that bad behavior somehow charming.

For instance, the Ponzi scheme games, FOMO3D and POWH3D, have several fans. One Twitter user said of FOMO3D, “Deadly combination of smart contract and psychology. Like bitconnect but honest. Simply genius.”

But overall, ethereum dapps developers have come out to criticize the games, contending that the only reason they are popular and causing a stir within the community is that they are easy builds that aren’t technologically complex, so work can go into marketing instead of development.

“Bad dapps are popular because they are the easiest to build, and due to the newness still of this technology and hype, people see dollar signs,” Fauve Altman, community manager for dapp registry and analytics site, State of the Dapps, told CoinDesk.

That said, the team behind FOMO3D and POWH3D emphasized their shared commitment to a decentralized web.

“Most of the crypto sector is nothing but unsubstantiated hype, a melting pot of impractical ideas fueled by psychologically manipulative marketing, greed and deceit. Like it or not, this is the reality of not just crypto but the majority of capitalism as a whole,” Mantso, the pseudonymous lead developer behind the games, told CoinDesk.

While the statements could be taken as tongue-in-cheek, Mantso could be onto something in that any kind of development in the field will provide the much-needed research to make the vision a reality – one that doesn’t accidentally cause harm.

As such, Mantso, rather optimistically, concluded:

“All of you are pioneers in a completely new, disruptive economic field that will undoubtedly come to flourish. This community is the breeding ground, the nurturing womb for the first, true decentralized society and economy.”

Image via Dappcon Berlin Twitter

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.