sOn Tuesday 15 Jan 2019 it emerged that the previous day popular Christchurch crypto exchange Cryptopia (also known colloquially as Mr Magorium’s Shitcoin Emporium) had suffered a security breach. Customer losses are being reported as substantial and estimates range from a couple of million to about 13 million NZ dollars.
Their website has been taken offline and displaying an unscheduled maintenance banner.
Firstly a little history. Cryptopia was started originally by Adam Clark and Rob Dawson in 2016 as a hobby. It quickly took on a life of it’s own and became a juggernaut with user numbers increasing very rapidly from several thousand to reportedly in the vicinity of 1.4 million at the peak of the crypto gold rush in late 2017. The rapid growth was a pain point for the company with numerous reports of technical difficulties, missing customer funds and complaints about support calls going unanswered in some cases for months.
Cryptopia initially became popular as it was one of the few exchanges which facilitated trades in a very large number of alt-coins; crypto tokens with low market caps and generally low price, many created using the Ethereum ERC20 token standard which allowed pretty much anyone to create a “crypto” of their own based on the ERC20 standard.
These so called alt-coins are also referred to as shit coins. Shit coins are generally regarded as a coin with no real potential use or value. Some but not all are also scam coins many being created in order to raise capital via an ICO (initial coin offering) for blockchain projects, most of which had no real use case and no real development other than a white paper. Many of these failed and investors were left holding worthless crypto which nobody wanted. Many of the large exchanges did not list these tokens and Cryptopias success and popularity came stemmed from being one of the few exchanges that facilitated trading in a large number of these alt-coins.
Clark and Dawson (also known as Hex in crypto circles) have close ties to another Christchurch tech business, Intranel Consulting who among other things provide software development and consultancy services. Intranel and Cryptopia share several “things”. Intranel co-founder David Saunders is listed as a co-founder of Cryptopia, and another Intranel co-founder Adam Lyness was up until November 2018 the Business Development Manager for Cryptopia. Intranel also provided software development services to Cryptopia and the two businesses seem on the surface to be very closely linked. In fact Intranels “About Us” page features a banner image with from left to right Dawson, Lyness and Clark.
Lyness boasted in early 2018 while working as their Business Development Manager that Cryptopia was trading in the order of $280 million and making a million dollars a day in profit.
Moving forward to today. At 9:50pm The NZ Police website made a media release that they were investigating a “unauthorised transactions” at Cryptopia and that a significant value of crypto may be involved.
Following a tweet by @whale_alert which monitors large crypto transfers, that a couple of transfers in the millions of dollars range from Cryptopia to unknown wallets speculation began that rather than a security breach this may be some kind of “Exit Scam“.
While this is unlikely it’s not out of the question, however it would be premature to say at this point in the investigation that it’s an inside job.
As more developments come to light I’ll update this post. At this stage not much more is known