:orphan:

Examples
========

This gallery walks through ``blockchainkit.fraud``, one experiment per
breakthrough on the :doc:`fraud history page </history/fraud_breakthroughs>`:
Ponzi schemes from Ponzi's own to Ethereum's and BitConnect; Benford's law;
proofs of reserves, liabilities and solvency, Mt. Gox and FTX; scam
contracts whose verified source deceives, from honeypots to the Squid Game
token, and ICO exit scams; the Willy bot, pump-and-dumps and wash trading;
and approval phishing and address poisoning.

Each script is self-contained and runs with
``python examples/fraud/<section>/<script>.py``.


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  <div id='sg-tag-list' class='sphx-glr-tag-list'></div>


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Fabricated figures
------------------

How the leading digits of honest numbers betray invented ones.


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    <div class="sphx-glr-thumbcontainer" tooltip="Simon Newcomb noticed in 1881 that the first pages of logarithm tables wore out faster than the last; Frank Benford checked 20,229 numbers from rivers to street addresses in 1938 and found the same law. In data spread over several orders of magnitude, the leading digit is d with probability">

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  .. image:: /api/gallery/fraud/figures/images/thumb/sphx_glr_plot_01_benford_law_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/figures/plot_01_benford_law`

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      <div class="sphx-glr-thumbnail-title">Benford's law: detecting fabricated figures (1938)</div>
    </div>


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Market manipulation
-------------------

Moving prices with unbacked money, coordinated crowds, and trades with oneself.


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    <div class="sphx-glr-thumbcontainer" tooltip="Between February and November 2013, two accounts on Mt. Gox, later dubbed the Markus and Willy bots, bought about 600,000 bitcoins without paying for them: the exchange credited them with dollars it did not have. Over the same months the price of bitcoin rose from about 150 to over 1,000 dollars. Gandal, Hamrick, Moore and Oberman compared the price change on the days the bots traded with the other days and found it rose about 4% a day on the former and fell slightly on the latter. In a thin market, buying moves the price: with Kyle&#x27;s linear impact \lambda,">

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  .. image:: /api/gallery/fraud/manipulation/images/thumb/sphx_glr_plot_01_willy_bot_price_manipulation_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/manipulation/plot_01_willy_bot_price_manipulation`

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      <div class="sphx-glr-thumbnail-title">Gandal et al.: price manipulation in the Bitcoin ecosystem, the Willy bot (2018)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="Telegram groups with tens of thousands of members announce a coin at a set minute; members rush to buy it, and the price jumps within seconds. The organizers bought it quietly beforehand, and sell into the rush. Xu and Livshits studied 412 such pumps from 2018 and 2019, and predicted which coin would be pumped from its market&#x27;s features. On a constant-product market the organizers&#x27; advantage is arithmetic: each buyer of \Delta y gets x \Delta y / (y + \Delta y) coins at a higher price than the one before, so those who buy first and sell first win what the late buyers lose,">

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  .. image:: /api/gallery/fraud/manipulation/images/thumb/sphx_glr_plot_02_pump_and_dump_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/manipulation/plot_02_pump_and_dump`

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      <div class="sphx-glr-thumbnail-title">Xu and Livshits: the anatomy of a cryptocurrency pump-and-dump (2019)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="A wash trade is a sale between parties who are really one. On NFT markets it fakes a price history for a token, or earns trading rewards: in early 2022 LooksRare paid its token to traders in proportion to their volume, and most of its volume was washed. Von Wachter, Jensen, Regner and Ross looked for the shape such trading leaves on a public ledger: a token that passes through a few accounts and returns to one that held it. A cycle of \ell sales among a_1, \dots, a_\ell,">

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  .. image:: /api/gallery/fraud/manipulation/images/thumb/sphx_glr_plot_03_nft_wash_trading_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/manipulation/plot_03_nft_wash_trading`

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      <div class="sphx-glr-thumbnail-title">Von Wachter et al.: wash trading in NFT markets (2022)</div>
    </div>


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Phishing
--------

Taking funds without stealing keys: allowances and look-alike addresses.


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    <div class="sphx-glr-thumbcontainer" tooltip="An ERC-20 approve lets a spender move the owner&#x27;s tokens later without asking again. Exchanges ask once for an unlimited allowance, so users learn to sign approvals without reading them. In February 2022 Microsoft named ice phishing the attack that exploits this: a fake airdrop or mint page asks the victim to approve the attacker&#x27;s contract, and the attacker empties the wallet whenever it likes. Nothing is stolen from the keys; the signature the victim reads in the wallet is the whole attack:">

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  .. image:: /api/gallery/fraud/phishing/images/thumb/sphx_glr_plot_01_ice_phishing_approvals_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/phishing/plot_01_ice_phishing_approvals`

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      <div class="sphx-glr-thumbnail-title">Approval ("ice") phishing on ERC-20 allowances (2022)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="An Ethereum address is 40 hexadecimal digits, and wallets show only the first and last few. From late 2022, poisoners watched for payments, ground out an address matching the payee&#x27;s ends, and sent the payer a worthless transfer from it, so that the look-alike appeared in the payer&#x27;s history right next to the real one. The next payment copied from the history went to the poisoner; in May 2024 one victim sent 68 million dollars this way. Tsuchiya, Dong, Soska and Christin measured millions of such attempts. Matching k digits takes about">

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  .. image:: /api/gallery/fraud/phishing/images/thumb/sphx_glr_plot_02_address_poisoning_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/phishing/plot_02_address_poisoning`

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      <div class="sphx-glr-thumbnail-title">Address poisoning with look-alike addresses (2022-2023)</div>
    </div>


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Scam contracts
--------------

Contracts whose source deceives the reader who checks it, and token sales that vanish.


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    <div class="sphx-glr-thumbcontainer" tooltip="Block explorers let a contract&#x27;s author publish its source and verify it: the explorer compiles the source and checks that the bytecode matches the code at the address. Solidity&#x27;s metadata hash, added in December 2016, made the match exact, and a green &quot;verified&quot; badge came to read as &quot;safe&quot;. It certifies only which code sits at one address. A buyer who checks the verified source of an upgradeable token reads a proxy:">

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  .. image:: /api/gallery/fraud/scam_contracts/images/thumb/sphx_glr_plot_01_verified_source_deception_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/scam_contracts/plot_01_verified_source_deception`

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      <div class="sphx-glr-thumbnail-title">Verified source code, and why a verified source can still deceive (2016)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="In 2017 initial coin offerings raised billions of dollars for projects that existed only as white papers. Nothing tied the team to the money: once the sale closed, it could withdraw everything and disappear, an exit scam. In December 2017 the SEC&#x27;s new Cyber Unit froze the PlexCoin sale, which had promised a 1,354% return within a month. Buterin&#x27;s DAICO proposal of January 2018 keeps the ether in the contract and releases it at a tap rate \tau, while contributors may vote to refund what remains:">

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  .. image:: /api/gallery/fraud/scam_contracts/images/thumb/sphx_glr_plot_02_ico_exit_scams_daico_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/scam_contracts/plot_02_ico_exit_scams_daico`

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      <div class="sphx-glr-thumbnail-title">ICO exit scams and the DAICO (2017-2018)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="A honeypot holds ether and seems to leak it to anyone who spots a flaw in its source. The reader sends ether to exploit the flaw and loses it. Torres, Steichen and State found 690 honeypots on Ethereum and sorted them by technique. Three rest on EVM semantics or on what the block explorer shows. Balance disorder: the reader sees that sending at least the contract&#x27;s balance pays out both,">

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  .. image:: /api/gallery/fraud/scam_contracts/images/thumb/sphx_glr_plot_03_torres_evm_honeypots_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/scam_contracts/plot_03_torres_evm_honeypots`

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      <div class="sphx-glr-thumbnail-title">Torres et al.: honeypot contracts that trap would-be thieves (2019)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="Four of the honeypot techniques Torres, Steichen and State classified are quirks of the Solidity language or compiler of the time, which the reader of the source does not suspect. They are reproduced here by their effect; nothing is compiled. Inheritance disorder: the child redeclares owner, so the bidder who becomes owner is not the one the parent&#x27;s modifier checks.">

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  .. image:: /api/gallery/fraud/scam_contracts/images/thumb/sphx_glr_plot_04_torres_solidity_quirks_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/scam_contracts/plot_04_torres_solidity_quirks`

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      <div class="sphx-glr-thumbnail-title">Torres et al.: the Solidity quirks honeypots exploit (2019)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="Anyone can issue a token and open a market for it on a decentralized exchange. In November 2021 a token named after the Squid Game series rose from a cent to 2,861 dollars in a week; its buyers could not sell, because the contract refused transfers into the market unless the seller held &quot;marbles&quot;, which nobody could earn. Its creators then sold and vanished, and the price fell to nothing in minutes. The rule hid behind an innocent-looking override, of the kind many scam tokens use:">

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  .. image:: /api/gallery/fraud/scam_contracts/images/thumb/sphx_glr_plot_05_squid_game_rug_pull_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/scam_contracts/plot_05_squid_game_rug_pull`

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      <div class="sphx-glr-thumbnail-title">Rug pulls and hidden-mint tokens: the Squid Game token (2021)</div>
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Ponzi schemes
-------------

Paying old investors with new money, on paper, in contracts, and on lending platforms.


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    <div class="sphx-glr-thumbcontainer" tooltip="In 1920 Charles Ponzi promised Boston investors 50% in 45 days, supposedly from arbitrage on international reply coupons. There was no arbitrage: each payout came from later deposits. Such a scheme pays its promises only while new money grows fast enough. A deposit D made \tau periods ago is owed (1 + r) D today; if deposits grow by g per period and the operator keeps a fraction s of each, the scheme keeps up exactly when">

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  .. image:: /api/gallery/fraud/schemes/images/thumb/sphx_glr_plot_01_ponzi_scheme_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/schemes/plot_01_ponzi_scheme`

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      <div class="sphx-glr-thumbnail-title">Ponzi's scheme: paying old investors with new money (1920)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="Bartoletti, Carta, Cimoli and Saia collected 184 Ponzi schemes running as Ethereum contracts and sorted them by how they pay. The commonest is the chain: each deposit is queued, owed a multiple of itself, and paid out of later deposits in order of arrival, as in Doubler and Rubixi. Its source is public, and the victims who read it see exactly that:">

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  .. image:: /api/gallery/fraud/schemes/images/thumb/sphx_glr_plot_02_bartoletti_ponzi_contracts_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/schemes/plot_02_bartoletti_ponzi_contracts`

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      <div class="sphx-glr-thumbnail-title">Bartoletti et al.: dissecting Ponzi schemes on Ethereum (2017)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="BitConnect took bitcoin deposits into a &quot;lending program&quot; and credited interest of around 1% a day, said to come from a trading bot. Nothing was traded: interest and withdrawals were paid out of new deposits, and recruiters earned commissions down several levels of the investors they brought in. Credited balances compound, so the liabilities grow as">

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  .. image:: /api/gallery/fraud/schemes/images/thumb/sphx_glr_plot_03_bitconnect_lending_ponzi_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/schemes/plot_03_bitconnect_lending_ponzi`

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      <div class="sphx-glr-thumbnail-title">BitConnect and lending-platform Ponzis (2018)</div>
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Custodians and solvency
-----------------------

Exchanges that hold their customers' coins, how they fail, and how they can prove they have not.


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    <div class="sphx-glr-thumbcontainer" tooltip="An exchange can show that it holds coins by moving them, but holding coins proves nothing unless one also knows what it owes. Gregory Maxwell proposed in 2013 that the exchange publish the root of a Merkle tree over its customers&#x27; balances in which every node also carries the sum below it,">

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  .. image:: /api/gallery/fraud/solvency/images/thumb/sphx_glr_plot_01_maxwell_proof_of_reserves_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/solvency/plot_01_maxwell_proof_of_reserves`

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      <div class="sphx-glr-thumbnail-title">Maxwell's Merkle-sum-tree proof of reserves (2013)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="In February 2014 Mt. Gox, then handling most bitcoin trading, halted withdrawals and blamed transaction malleability: an attacker could alter a withdrawal&#x27;s signature encoding in flight, changing its txid; the exchange, which tracked withdrawals by txid, would not find it on chain, and paid again. Weeks later it filed for bankruptcy, about 850,000 bitcoins short.">

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  .. image:: /api/gallery/fraud/solvency/images/thumb/sphx_glr_plot_02_mtgox_malleability_excuse_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/solvency/plot_02_mtgox_malleability_excuse`

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      <div class="sphx-glr-thumbnail-title">The Mt. Gox collapse and the malleability excuse (2014)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="Maxwell&#x27;s proof reveals the exchange&#x27;s total liabilities and, to show its reserves, which addresses it owns. Dagher, Bünz, Bonneau, Clark and Boneh hid both with Pedersen commitments C(v, r) = g^v h^r, which multiply into a commitment to the sum. The exchange commits, for every address in a large public set, to that address&#x27;s balance if it owns it and to 0 if not; it commits to every customer&#x27;s balance; and">

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  .. image:: /api/gallery/fraud/solvency/images/thumb/sphx_glr_plot_03_provisions_proof_of_solvency_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/solvency/plot_03_provisions_proof_of_solvency`

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      <div class="sphx-glr-thumbnail-title">Provisions: privacy-preserving proofs of solvency (2015)</div>
    </div>


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    <div class="sphx-glr-thumbcontainer" tooltip="In November 2022 FTX, then one of the largest exchanges, could not meet a rush of withdrawals and filed for bankruptcy. Its affiliated trading firm, Alameda Research, had been allowed a negative balance on the exchange and had spent billions of dollars of customer deposits. The books still showed every customer&#x27;s balance; the coins were gone. With reserves R and liabilities L, a run pays the first customers in full and the rest nothing once">

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  .. image:: /api/gallery/fraud/solvency/images/thumb/sphx_glr_plot_04_ftx_commingled_funds_thumb.png
    :alt:

  :doc:`/api/gallery/fraud/solvency/plot_04_ftx_commingled_funds`

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      <div class="sphx-glr-thumbnail-title">FTX, commingled customer funds, and proof of liabilities (2022)</div>
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.. toctree::
   :hidden:
   :includehidden:


   /api/gallery/fraud/figures/index.rst
   /api/gallery/fraud/manipulation/index.rst
   /api/gallery/fraud/phishing/index.rst
   /api/gallery/fraud/scam_contracts/index.rst
   /api/gallery/fraud/schemes/index.rst
   /api/gallery/fraud/solvency/index.rst


.. only:: html

  .. container:: sphx-glr-footer sphx-glr-footer-gallery

    .. container:: sphx-glr-download sphx-glr-download-python

      :download:`Download all examples in Python source code: fraud_python.zip </api/gallery/fraud/fraud_python.zip>`

    .. container:: sphx-glr-download sphx-glr-download-jupyter

      :download:`Download all examples in Jupyter notebooks: fraud_jupyter.zip </api/gallery/fraud/fraud_jupyter.zip>`


.. only:: html

 .. rst-class:: sphx-glr-signature

    `Gallery generated by Sphinx-Gallery <https://sphinx-gallery.github.io>`_