Tax season begins to hit crypto Reddit hard

With so many newcomers to cryptocurrencies this year, and the often complex tax situations cryptocurrency trading can create (assuming it's reported at all), some traders are beginning to receive unpleasant surprises in the mail. One Redditor has posted in horror after receiving a letter showing they owe upwards of $100,000 to the IRS.

Questions like "How can crypto be a viable currency if every transaction is taxed?" are beginning to pop up as well, and more than a few commenters have described their plans to not report any of their crypto activity — certainly a wise thing to be discussing on a public Internet forum.

Streamer Ice Poseidon admits to scamming his followers out of $500,000 with his "Cxcoin" made for streamers

Paul Denino, also known as "Ice Poseidon", is a livestreamer, Internet personality, and cryptocurrency enthusiast. In July 2021 he launched Cxcoin, a forked project he said was intended specifically to allow streamers and other content creators to earn money. Denino had said in an earlier video that "the reason why I'm not going to start a cryptocoin is because someone is gonna get fucked, because dude if I see a million dollars, I'm selling, I don't give a fuck. I'm not going to be like 'I'll hold for you guys', bro I see a million dollars in my portfolio, I'm out". He later claimed that he was just joking, though unfortunately this turned out to be exactly what he did (though with somewhat less than a million). Although Denino claimed he was "locked in" for five months, he started draining hundreds of thousands of dollars from the project only two weeks in, which served to tank the token price for remaining holders.

On January 31, 2022, a YouTuber named Coffeezilla released a video in which he confronted Denino about his actions and urged him to return the money to his fans who'd bought in on the project. Denino replied, "I could give the money back, it is within my power, but I am going to look out for myself and not do that." According to Coffeezilla, Denino took a total of $200,000 from the token's presale, $250,000 that was earmarked for marketing, and $300,000 from the liquidity pool. In the end, Denino pocketed around $300,000 and his developers took around $200,000. After realizing that Coffeezilla would be releasing the interview, Denino promised to "use the buyback function to put 155k into the liquidity" — which turned out to mean 155,000 BNB rather than dollars, roughly equivalent to around $40,000.

Someone starts selling colors on the blockchain, because why the hell not I guess

Color swatch of a light cream color, with hex code #F1EECE (spelling "fleece")I wonder if this color is taken (attribution)
As the NFT gold rush continues and people attempt to slap price tags on everything in sight, Omar Farooq detailed his plans to sell colors on the blockchain. He said he will then build a platform where the "owner" of a color gets a cut of platform fees for any NFT using the color (or one close to it). He's offering 10,000 colors for sale at starting prices of $350 a pop, and then building an NFT platform where portions of the platform fees for any NFT sold will go to the "owners" of the closest colors in proportion to how much of the color is used in the image. Why artists would actually choose to buy or sell their artwork on the color-based platform is unclear — novelty value maybe? Its promised platform fee of 2.5% is the same as its popular competitors OpenSea and Rarible.

Qubit continues to try to tempt the attackers who stole $80 million to return it, with increasingly-desperate messages

After a bug in their code allowed an attacker to make off with $80 million, Qubit immediately began trying to contact the exploiter and convince them to return the money. First they wrote that they were "prepared to offer the maximum bounty", which was $250,000, or 0.3% of the amount the attacker had just stolen. The exploiter presumably felt that $80 million was truly the maximum bounty, and didn't take them up on the offer. The next day, Qubit wrote a message asking the exploiter to "negotiate directly with us... if the maximum bounty offer is not what you are looking for". The day after that, Qubit bumped the reward to $1 million (a whole 1.25% of the $80M!) and begged the exploiters to "please consider the big amount of people, families, stories involved in this". On January 30, Qubit announced they would be offering "the highest bounty in history", $2 million (2.5% of $80M), continuing to underscore that they wouldn't seek prosecution if the attacker returned the funds. A number of hours later, Qubit apparently decided to change tactics, writing that they were "developing a website that users can easily search their losses related to the exploit... users can connect their wallets to get documents to report to the police".

Wonderland protocol founder writes that the "Wonderland experiment is coming to an end", despite vote ongoing and majority of participants voting to continue

Charts showing "yes and yes - value of votes" and "yes and no - number of individual votes", showing large amounts of value supporting "yes" whereas total number of votes supporting "no"Comparison of vote value supporting each proposal, vs. individual number of votes (attribution)
The Wonderland protocol had a rough week, first experiencing massive losses in "cascading liquidations" and then the unmasking of the previously pseudonymous lead developer as Michael Patryn, a shady operator with a long history of financial crimes. The project team decided to hold a vote on whether the project should wind down: "giving every wMEMO holder back the funds from the treasury that they are entitled to and declar[ing] the OHM Fork experiment closed". The project leaders wrote that they "strongly believe that this would be the cleanest way of moving forward". The vote began on January 29 and was slated to end on January 31.

By raw numbers it appeared most investors opposed the idea, as many will receive miniscule amounts compared to their initial investments. However, the larger holders (most of whom bought in at low prices) stand to make money from the liquidation and some have supported winding down. Because the DAO voting operates in a plutocratic model, where people can vote based on how many tokens they hold, at one point votes from a relatively small number of whales were trending the vote towards supporting winding down even though 90% of individuals wanted the project to continue. The votes to continue had begun to beat out the votes to wind down when Daniele Sestagalli announced on Twitter on January 30, before the vote's scheduled end, that the "Wonderland experiment is coming to an end."

Ultimately, Sestagalli ended up respecting the wishes of the community, who decided to continue the project despite having lost 90% of their money, presumably in hopes of regaining some of the losses.

Justin Bieber "buys" a Bored Ape for $1.3 million in a deal that is shady in one of two possible ways

A sad bored ape in a black t-shirt on a blue backgroundBAYC #3001 (attribution)
The media went a bit nuts when Justin Bieber reportedly bought a Bored Ape (for several times what it was "worth", for some reason). This served to generate hype for several NFT projects, including Bored Apes, that Bieber has reportedly bought. However, some investigation by @interlunations and Dirty Bubble Media showed that something shady is going on, and neither possibility looks great for Bieber. Either Bieber does own the wallet that spent millions on the Bored Ape NFT and hundreds of others, in which case he was paid more than $2 million by the inBetweeners project — this would mean that inBetweeners lied about not paying influencers to promote their projects, and it would mean that Bieber never disclosed the financial relationship (in violation of FTC rules). If Bieber doesn't own the wallet, then Bieber has lied about owning the Bored Ape he supposedly "bought", as have the projects (though possibly unknowingly) who are generating hype by telling everyone Bieber owns one of their NFTs. The full investigation by Dirty Bubble Media is worth a read.

Trader loses $510,000 trying to convert funds between two currencies

Reddit post titled "Did I just lose half a million dollars by sending WETH to WETH's contract address?" Text: "Please tell me that I didn't :(

Edit: Full story. Sent ETH to WETH contract and got WETH back (after some googling I found this is how the contract works). Assumed it works the same way backwards and sent WETH back to the contract. No ETH back. Apparently you have to use a frontend to get the ETH back. ETH lost forever."Reddit post by the trader (attribution)
A trader learned that, in order to exchange Ethereum tokens (ETH) for Wrapped Ethereum (WETH), they should send their ETH to the WETH token contract and receive the WETH in return. Intending to convert WETH back into ETH, they erroneously assumed that it "works the same way backwards". The trader sent 195 WETH ($510,000) to the WETH contract only to find they received no ETH in return, and their money was lost forever.

Transaction history on Etherscan shows they were the 265th person to make this mistake. Most people did so with far smaller amounts of WETH, although another unfortunate trader lost 115 WETH (at the time valued at $360,000) on August 11, 2021. A total of 432 WETH has been irretrievably lost to this contract this way since July 2018 — currently valued at $1.1 million.

Fake Bored Ape project pulls in $17,500 following high-profile endorsement of Bored Apes

OpenSea collection called "Bored Ape Original" using the same icon and header image as the real account. Description says "BAYC is a collection of 10,000 Bored Ape NFTs. Certified by opensea"Fake Bored Ape collection (attribution)
After Paris Hilton and Jimmy Fallon engaged in a frankly bizarre discussion of their beloved Bored Apes on The Tonight Show, a fake projects imitating the Bored Ape Yacht Club began popping up on OpenSea. OpenSea shut down several projects of this type, which each brought in several hundred dollars an hour. One such project was left up for two weeks, duping investors out of nearly $65,000.

Lazy Lion Ape Club rug pulls for 50 ETH ($125,000)

An ape face with a purple and turquoise lion mane, wearing a fedora styl hat and a wide collared shirt. It's grimacing and bubbles are coming out of its ears.LLAC #33 (attribution)
Lazy Lion Ape Club, an NFT project in somewhat resembling the mega-popular Bored Apes, listed their NFTs on OpenSea on January 26. In addition to the NFTs, the project promised to generate passive income for its holders, as well as give them 3D models of their ape/lions to be used in the metaverse. The project leaders managed to generate 50 ETH (about $125,000) in sales before emptying the project of its funds and deleting their website and social media accounts.

Khan Academy charity auction ends in blatant wash trade, and Khan Academy removing several former employees from alumni Slack channel for raising concerns

An illustration of two people looking at a hologram of a sphere"Inspiring Teacher" NFT auction piece (attribution)
Khan Academy, an otherwise excellent non-profit offering online educational tools, announced they would be participating in an NFT charity auction on January 19. The auction featured an NFT playing card by Parallel, a sci-fi card game that requires players to buy packs of cards (NFTs) to play. Like so many blockchain gaming projects, it appears that the actual gameplay doesn't exist yet — somehow that required a $500 million funding round first.

The auction ended on January 21, with a winning bid of 77 ETH (nearly $200,000) from ParagonsDAO, plus the promise of another 34 ETH ($87,000) donation from the DAO to Khan Academy. However, ParagonsDAO is a DAO created specifically to "play a key role in Parallel's governance" and "support the creation of an ecosystem for Parallel to thrive". Former Khan Academy employee S. M. Lundberg raised their concerns about the wash trading, and "KA elevat[ing] Parallel on its own channels to a largely underage and under-resourced user base" in the Khan Academy Slack, and was removed from the channel by Khan Academy founder Sal Khan. At least three other former employees were removed from the channel for criticizing the decision to engage with the NFT project, as was an additional person who protested the removal of those raising concerns.

Although the auction ended with more than $250,000 going to Khan Academy, it is likely that Parallel got the better deal here — Khan Academy is an enormous name to have promoting one's project. Sal Khan actively hyped the project in various spaces, including in an appearance on CNBC's Squawk Box.

No JavaScript? That's cool too! Check out the Web 1.0 version of the site to see more entries.