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A Ponzi Scheme? Followup on Ethereum’s $5 Million Fee Debacle

A South Korean crypto exchange named Good Cycle is allegedly the victim of the recent absurd Ethereum transactions at a cost of $5.2 million in fees, according to Chinese crypto analytics firm Peckshield. While it seems that the exchange is a Ponzi scheme and wants to keep the incident under the table.

The blockchain security firm has previously put forth the blackmail theory which suggests that the two heatedly discussed Ethereum transfer “blunders” are the result of “Gas Price ransomware attacks” on a crypto exchange.

While this scenario offered by Peckshield is confusing with questions raised as to why the attacked exchange has not come out to claim their loss and retrieve their funds, and whether the hackers have been paid as no more weird transactions are made.

As part of its ongoing research on the incident, Peckshield’s latest finding has tracked down the exchange that owns the wallet from which the two ridiculously high fees were sent.

It turns out to be a small P2P exchange named Good Cycle in South Korea, which, however, seems to be a Ponzi scheme project.

The website of the exchange shows that it was a newly established P2P platform but has already had 6,151 users registered with more than 63,187 ETH traded on it since its launch on May 25. The report explains that it wins popularity in a short time majorly because the exchange advertises that users can enjoy high returns with just a minimum $100 initial investment.

Researchers further found out that the exchange is poorly designed technically, using HTTP protocol instead of HTTPS encrypted protocol access, which makes it vulnerable to phishing attacks and man-in-the-middle hijacking.

An exchange, with promises of high rates of returns, plus low-security website, seems that it could go bust or run away at any time. In this sense, it is easy to understand why the exchange has not halted all operations after being hacked but choose to draw the curtain closed.

The loss of $5 million, for a Ponzi scheme, is just bad luck. They are willing to swallow it and pretend nothing has happened, in order to keep their scheme running and get millions even billions of more funds in. The Peckshield report said that the best strategy for the platform now would be to satisfy the hackers and cover the fact up.

The report points out that there was a large number of withdrawals, totaling over 5,000 ETH, made from the address within a day or two after the two unusual transactions. But soon new capitals kept flowing in. After Peckshield’s findings were published, a whopping of 18,006 ETH was seen transferred out from the address and there’s now only 1.34 ETH balance left.

The report also proposes the possibility that the high-fee transactions might be caused either intentionally or unintentionally by low-level errors on the part of developers at the exchange. While whether it is an “inside job” or a “hijacking”, the loss of user assets has become an established fact.

As the fund’s owner failed to make a valid claim, both the ether mining pools that received the abnormal transactions with $2.4 million fees have opted to distribute the $2.4mln worth 10,668 ETH to miners.

Peckshield said that they have obtained far more information and have put this to South Korean police.

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