The PlusToken Cryptocurrency Scheme: Architecture and Exposure

The PlusToken scam involved cryptocurrency mining, a relatively new investment model that few average people know about, much less understand.

Victims believed they had found a new way to make money. In reality, they were giving money to criminals and making money from the latest victims of the scheme.

How did the PlusToken scam work?

Imagine if a banker told you that you could invest a tiny amount of money and get a great deal in return. You'd likely scape together all the funds you have now, and you'd tell everyone you know to join you and make money too.

PlusToken, like most Ponzi schemes, relied on a gullible audience of people hoping to make quick money on something they didn't quite understand.

If you signed up for PlusToken, you would:

• Invest. You pay a fee, and the scammers tell you they will use your money to develop cryptocurrency products, like bitcoin.

• Transform. An app helps you convert your money into cryptocurrency, which you can then use to buy more PlusToken products.

• Recruit. Entice your friends and family members to join, and you'd gain more purchasing power and credits.

• Accept. Any profits are paid via PlusToken, which you can reinvest very quickly.

If you lived in mainland China in 2019, it was nearly impossible to resist PlusToken. You saw ads on your social media accounts, you saw prompts in grocery stores, and the scammers enticed you to go to physical meetups to learn more about the products.

While early investors did make money, their profits came on the backs of other victims. Investments from new PlusToken clients went toward paying dividends owed to existing clients. There were no real products.

How did the PlusToken Ponzi scheme end?

Cracks in the PlusToken plan appeared in June 2019, as investors struggled to withdraw their earnings from the platform. Late that month, the organisers withdrew more than $3 billion in bitcoin and other cryptocurrencies and posted the cryptic message, "We have run."

Cryptocurrencies aren’t like cash assets. Investors typically move money from wallet to wallet before transforming it to a new currency form and escaping with it. The flow of funds triggered by the PlusToken scam continues today.

As recently as March 2020, cryptocurrency markets continue to struggle with the aftereffects of the PlusToken scheme. On one day, the markets fell by nearly 10 percent, and analysts attributed the drop to PlusToken scammers moving bitcoin around and offloading their holdings.

Estimates of the final cash prize attributed to the masterminds range from $3 billion to $6 billion, although calculating the true amount is a remarkably difficult task.

In July of 2020, more than 100 people were arrested in connection with the fraud. And in December of 2020, the ringleaders were sentenced to up to 11 years in prison for their work.

PlusToken today

With ringleaders in prison and news of the scam filling the papers, it's reasonable to assume that PlusToken is dead and gone. Unfortunately, that's not quite the case.

Scammers often promise new beta versions of PlusToken on social media sites. It's likely those announcements are meant to keep investors on the hook, so they won't exit the platform altogether and take their money with them.

Officials look for new ways to protect the cryptocurrency market. Some suggest that tools involving on-chain analytics could spot market problems quickly before people lose their money.

But the cryptocurrency regulation landscape varies dramatically from country to country. In Hong Kong, for example, cryptocurrency isn't considered a currency at all, and as a result, assets like this aren't subject to regulation.

Meanwhile, cryptocurrency traders can live anywhere in the world, and their trades often cross borders. As long as a gap exists in regulation between countries, it's likely new schemes like this will appear regularly.

Cryptocurrency markets rely on the concept of blockchain, which can be very difficult to understand. Read this podcast summary from Okta to learn more about what blockchain is and how it works.

References

How the PlusToken Scam Absconded With Over 1 Percent of the Bitcoin Supply. (August 2019). Bitcoin Magazine.

Bitcoin's Sharp Price Drop May Have Been Prompted by $120M Scam Selloff. (March 2020). Coin Desk.

China Arrests Over 100 People Suspected of Involvement in PlusToken Cryptocurrency Scam. (July 2020). ZD Net.

Chinese Cryptocurrency Scam Ringleaders Jailed in $2.25 Billion Ponzi Scheme Involving PlusToken Platform. (December 2020). China Macro Economy.

Cryptocurrency Exchanges and Custody Providers: International Regulatory Developments. (October 2018). Norton Rose Fulbright.