The recent conviction of Sam Bankman-Fried, founder of defunct crypto exchange FTX, for all seven counts of fraud, conspiracy and money laundering, has sent shockwaves around the cryptocurrency world. The case, which involved around $10 billion in customer funds, ended up being one of the highest-profile financial trials over the past few years, sending shockwaves through both cryptocurrency and traditional finance industries.
According to Rufus J Wright, CEO of cryptocurrency miner hosting company Crypto Caverns, the downfall of FTX gathering so much public attention is a double-edged sword, having both negative and positive effects on the industry. On one hand, the recent events have further worsened the suspicions cast on cryptocurrency, giving more ammunition to critics who are painting cryptocurrency as a passing fad, an unsustainable exercise, or an outright scam.
In the crypto mining space, there have also been various instances of fraud and theft of mining equipment. According to Wright, In many of these cases, the fraudulent company offers to host the client’s equipment on their mining farm, but once they receive the equipment, they make up various reasons on why they couldn’t get it operational. In reality, the fraudsters would use the equipment to mine crypto for themselves, while still billing the equipment owner. Fraudsters may also tell the equipment owner that they’re going bankrupt and that the mining equipment will be used to pay for their debts, as per the fine print in the contract.
“Even the bigger name crypto mining hosting companies out there often have no interest in running the equipment for the owner, but will run it for themselves,” Wright says. “They are only concerned with fixing and running their own stuff, while billing customers for non-existent returns. Because of the way things are structured, there’s no incentive to get things up and running quickly for clients, especially if the hosting companies’ own stuff is making more money.”
Scammers frequently take advantage of people’s gullibility or laziness to do proper research, dazzling them with impossible promises and convincing them to go for the lowest-hanging fruit, which are often too good to be true.
Unlike unreputable crypto mining hosting services, Crypto Caverns, the first BBB accredited crypto mining hosting company, guarantees the hashrate of its clients, and whose rigs are backed by Crypto Caverns’ own equipment. Maintenance and repairs are handled automatically at no additional cost to the client and their hashrate never fluctuates even if their machine goes down, as it is backed up and automatically replaced with Crypto Caverns’ own equipment for as long as they are hosted with the company. Crypto Caverns also ensures clients retain full ownership of their equipment, giving them full control and flexibility. The facilities are located in safe US locations, reducing clients’ exposure to operational risks.
Wright believes that the propensity of crypto mining scams in the US, as compared to other jurisdictions, such as China, is because of the lack of competition. He says that in the US, the issues arise largely around the difficulty of access to capital, partly due to conventional lenders’ reluctance to finance crypto ventures. If there was more access to capital, it would be easier for legitimate companies to offer various crypto mining services. While Crypto Caverns is now getting access to capital, it took many long years to arrive at that point.
However, Wright says that the trend of arrests and convictions also have a positive effect. With more scams being exposed and fraudsters being put in jail, it sends out a signal that wrongdoing in the crypto world will not be tolerated. As with other crimes, the certainty of punishment is a much stronger deterrent than severity. The more scammers are caught, the more likely potential scammers are going to think twice about implementing their schemes, and fewer people will be enticed to enter the crypto world for the wrong reasons.
In conclusion, Mr. Wright believes that legitimate participants in the crypto mining industry must work together to take out the rotten apples and help sort the industry out, ensuring that it is used for the right purposes. If the status quo continues, Wright fears that it could kill off innovation in crypto, and it will be forever seen as a scam by the general public.
“Sadly, for the past several years, there’s been very little development in cryptocurrency on the protocol level. Everyone seems to be focusing on NFTs and other stuff that promises to make them rich quick,” he says. “I’d love to see more complex development on the protocol level, towards positioning crypto as a new form of exchange with a real-world use. I think that would be very helpful in getting rid of most of the scam stigma surrounding crypto.”
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