In 2008, with his now famous white paper, Satoshi Nakamoto gave birth to the idea of what soon became the bitcoin blockchain. This new technology was seen by many as having huge potential to create more freedom for regular people and as a move forward against government and corporate oppression.
Since the 2009 launch of the genesis block of bitcoin, there has been an explosion in the public’s interest in cryptocurrency and block chain. There have also been billions of real dollars invested by ordinary consumers, institutional investors and speculators in both bitcoin and other alternative cryptocurrencies. Cryptocurrency and blockchain is now a massive industry that spans the globe, with numerous exchanges and over 1,500 different alt-currencies and tokens.
The last decade has also seen several bubbles and collapses in the cryptocurrency markets. These have been caused by various hacks, thefts, and outright frauds. One of the most notorious of these happened with the implosion of the Mt. Gox exchange in 2014 when approximately 450 million dollars’ worth of bitcoins belonging to its customers were stolen. More recently, in 2017 there was a massive bull run in in the value of all cryptocurrencies which saw a spike in the price of bitcoin go up from $1000 in April to over $20,000 in December. Tragically for many consumers, the price then crashed back down in 2018 to below $6,000 and now hovers around $6,500.
Many families and individual investors put their life savings into bitcoin “investments” during the bubble and lost everything in the crash. A recent New York Times article told the stories of some of a few of these investors who saw bitcoin and cryptocurrency as a path to financial security for their families. Instead, with the subsequent crash, many of these families have been financially ruined.
Although all of the reasons behind the 2017 cryptocurrency bubble are not clear, one thing is without question: the cryptocurrency market was—and is—fraught with fraud. Ponzi schemes, pump and dumps, spoofing, wash trading—all of these various types of fraud have been widely reported in both social media and traditional media channels.
Recent news media stories have reported that subpoenas have been issued by various federal agencies to numerous firms and exchanges regarding potential violations involving cryptocurrencies and cryptocurrency trading. However, as has been the case with other similar investigations involving banking and finance in the past, charges may be years away. Meanwhile, consumers who have lost their life savings may look to the civil justice some system as a potential way to seek recovery for their losses. Several consumer lawsuits involving cryptocurrencies have been filed already and more are sure to come.
Cryptocurrencies are a game-changing technology that may well prove to be a gift to consumers world-wide. However, until the fraud is cleaned up, real people will continue to be at risk for being ripped off and financially ruined by scammers and thieves. Civil lawsuits are one tool that may ultimately help clean up the system to allow cryptocurrencies and blockchain technology to truly flourish.
Newsome Melton is currently investigating various potential cases involving cryptocurrency fraud on behalf of consumer clients. If you or a family member have invested in cryptocurrencies and have lost money, call us to discuss your options. You may have the potential to recover some of your losses through the civil justice system.