Ripple Scam By TradeFortress

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BitcoinTalk Logo/Homepage

TradeFortress created a thread on BitcoinTalk promising anyone who would set up a 100 BTC trust relationship a free "Ripple BTC". By setting up the trust relationship, Ripple users are essentially stating they believe TradeFortress will pay them 100 bitcoin in the future, and in exchange users would receive back one of those bitcoin promises. While there were small amounts of bitcoin lost throughout, the "experiment" finally ended when one user web3r set up a deliberate trust relationship and also had a trust connection of 10.15 backed bitcoin from BitStamp. Their backed bitcoin was swapped for TradeFortress's unbacked bitcoin and cashed out by a different user. After that incident, the experiment was voluntarily closed by TradeFortress. web3r has no expressed interest in pursuing the user who cashed out their bitcoin, and instead was insistent in holding TradeFortress accountable for their loss. This may be challenging, since even if they can argue that TradeFortress promised to pay them 100 bitcoin, this would likely be considered a contract without consideration under the law.

This is a global/international case not involving a specific country.

About Ripple

Ripple Labs, Inc. is an American technology company that developed the Ripple payment protocol and exchange network. The company developed the ripple protocol (RTXP) and the Ripple payment and exchange network.

Ripple Labs (Originally OpenCoin)

The San Francisco company was conceived by Ryan Fugger in 2004, aiming to create a decentralized monetary system. In August 2012, Chris Larsen and Jed McCaleb co-founded OpenCoin, later renamed Ripple Labs, Inc in 2015. Ripple's enterprise blockchain solutions promote the adoption of crypto and blockchain technology for businesses. Ripple's mission is to create breakthrough crypto solutions that enable the seamless movement, management, and tokenization of value globally. Ripple sees themselves as a leading enterprise blockchain company focused on building the Internet of Value.

The Ripple homepage emphasizes the benefits of these solutions, such as faster transactions, transparency, and cost-effectiveness compared to traditional financial services. It showcases various logos of companies and organizations that have partnered with Ripple. Testimonials from multiple partners highlight the advantages of using Ripple's solutions, such as eliminating pre-funding requirements, offering faster remittances at lower costs, and strengthening cash flow positions. The company's focus is on transformative crypto solutions built to connect an evolving world, emphasizing collaborative vision, powerful innovation, and global reach.

Ripple Payment Network

Ripple is a blockchain-based digital payment network and protocol that utilizes its own cryptocurrency, XRP. Ripple's payment network serves as a real-time gross settlement system, currency exchange, and remittance network. Unlike traditional banking systems, Ripple operates on an open-source and decentralized platform, allowing seamless transfers of various currencies. Ripple aims to facilitate secure, instant, and low-cost global financial transactions without chargebacks. Ripple employs a consensus protocol instead of proof-of-work or proof-of-stake systems to validate transactions and prevent double-spending. The first version of the protocol was released in 2012 and is built upon a distributed open-source protocol.

XRP acts as an intermediary currency for quick conversions between different currencies within the Ripple ecosystem, however Ripple also supports various tokens, including fiat currency, cryptocurrency, commodities, and more. The network operates on a shared ledger, validating accounts and balances instantly and delivering payments within seconds. Despite challenges, Ripple has garnered interest from financial institutions and received recognition for its innovative protocol. Transactions on Ripple are fast, cost-effective, and settled within seconds, making it attractive to institutions globally. XRP ranks among the most valuable blockchain-based tokens by market capitalization.

About TradeFortress's Offer

TradeFortress created an offer on the BitcoinTalk forums. He stated he was "giving away 1 BTC on Ripple" as part of a "social experiment". Users could provide a wallet address to receive their free bitcoin.

"How it works: (1) Register for a bitcointalk.org forum account if you haven't. (2) Complete the following steps in your light (not a full node) Ripple client [to create a trust node for 100 BTC]. (3) Post your address here. I will send at least 1 BTC to your address."

"I won't defraud/scam you out of any money. Yes, you can convert the BTC I send you to real BTCs. For continued discussion, send me a PM, responses will be deleted from this point."

The Reality

Ripple operates based on debt, or promises to repay bitcoin. Users who chose to trust TradeFortress were extending him a 100 bitcoin line of credit, which he could then issue bitcoin against. The implication is of a belief that TradeFortress will honour his debt, however TradeFortress had no such intention.

Many users held bitcoin promises from other entities such as BitStamp. The ripple protocol allowed for the swapping of different debts between users. This meant that a user with a BitStamp ripple in their wallet who had chosen to trust TradeFortress, could have it swapped for a TradeFortress bitcoin promise. This was the only way that any user could be able to redeem the bitcoin promise which TradeFortress provided them.

Purpose of TradeFortress Offer

TradeFortress stated that his entire purpose was "[t]o expose and bring awareness to the flaws in the Ripple payment system". When users chose to create a 100 bitcoin trust relationship with him, they would receive 1 bitcoin promise back in exchange. This bitcoin was not backed by any real bitcoin.

"This is a social experiment. Therefore, posts not consisting of an Ripple address to send 1 BTC to will be deleted."

"I do not have 1 tril XRPs, I have 1 tril Ripple BTCs (I can print more if I want), I would be lying if I said I was surprised most people don't understand how flawed ripple is."

Criticisms of OpenCoin and Ripple

A website called RippleScam.org is linked prominently on the original post. The author argues that Ripple is centralized, proprietary, and closed-source despite claims of being open and decentralized like Bitcoin. They claim that the 51% attack vulnerability of Ripple is already being carried out by the 14 employees of OpenCoin Inc. Additionally, the website criticizes Ripple for premining XRPs (Ripples) and having a hidden 100% inflation. The author argues that Ripple's model, where debt is considered money, is flawed and unsustainable. TradeFortress echoes many of these same sentiments in his posts.

"OpenCoin Inc dishonestly markets and presents Ripple as something that it isn’t. OpenCoin Inc advertised Ripple as “open source” when there was no source released (and there still isn’t!). OpenCoin Inc advertises Ripple as open – that no one owns it, despite the ironic fact that they own the trademark for Ripple."

"OpenCoin Inc premined all of the XRPs (Ripples) in existence, and their business model is tricking people into using the Ripple network (you must buy XRPs to use any part of Ripple), playing Federal Reserve, and making money off XRP speculation. That’s directly OpenCoin Inc’s business model."

"You don’t own “Bitcoins” or “USD” or anything on Ripple. You own debt. Anyone worth their salt knows that interest free debt is always worth less than what they represent. Yet the official (and only) Ripple client claims you have “BTC” or “USD”.. you don’t. You own debt."

"Take a look at all the Bitcoin services that have being hacked. MtGox. Bitcoinica. MyBitcoin. Instawallet. You could have lost bitcoins you deposited there – debt – but if you held real bitcoins in your wallet, they were safe. When a Ripple gateway or currency issuer gets hacked, because you can only hold BTC and such as debt .. you lose them. But worse. If you’re unable to repay the debt you owe because someone defaulted on you, then the person you defaulted on might not be able to repay their debtors."

"And because Ripple is based around debt being “money”, you have to take on debt to send even through it’s not presented in the UI. Every single bitcoin or dollar you sent has being debt. And as there is no limit to how many chains the debt can go.. Your friend might default because their friend of friend of friend of friend of friend has defaulted and the chain continues."

"It gets worse in two ways. First of all, Ripple values all IOUs (tokens) the same. If you trust multiple “gateways”, the Ripple client treats both gateways as equal – as a band-aid to get the Ripple network functional. You automatically become a “liquidity provider”, which means that you will automatically trade tokens of one type for another, 1:1, with no fee. You take on significant risk for no gain."

"You can't actually spend these 1BTC, TF has done this to prove a point. He's got a link to a screenshot showing 1 Trillion BTC in Ripple in his signature."

"There's no real reason why that trust would have to happen when you send them a bitcoin. Obviously most of the time it's going to happen that way but it's imaginable that an exchange might have some other reason for assigning you an iou, for example it could be a marketing campaign where mtgox gives out 0.01BTC for every hour of lag or something that their account has experienced. They would just have to create a credit in everyone's account for that amount, and bang every user expects mtgox to honour it."

"Now suppose that instead of 0.01 BTC they decided to give 1BTC to every user instead, if you allow them to have access to 100BTC of your account to help them with a new lag-prevention system. At what point would you say that they stole the money? After they've taken your 100BTC (which you agreed would help them prevent lag) or when you found you could no longer take 1BTC out of your account that they gave you?"

"Trusting someone is not a very good way of scamming them. The 'scam', if there is one here is that people are being made to trust someone."

"If I trust you for 100BTC, I am not scamming you -- I am merely telling the internet that you are a pretty solid person and that they should take you seriously(by the way, I do not trust you for 100BTC, as you are a random internet person to me, no offense)."

"Don't you see that he is just brilliantly exposing a fatal flaw in the Ripple system?"

Community Concerns

TradeFortress was relatively open that his experiment revolved around fake promises for bitcoin. The credits issued by TradeFortress were not able to be redeemed for any bitcoin, other than by tricking other to swap for them. Many throughout the community echoed this as well.

"He is just issuing tons of unbacked debt which will collapse at some point, and the last ones will be left holding the bag with useless IOU's or "Ripple BTC" and 0 real BTC on their gateway's account."

"Of course you are not supposed to trust any anonymous guy of the internet - you should only trust ONE gateway per currency, which should be your bank for fiat currencies and MtGox/Bitstamp etc. for BTCs."

"But "you are not supposed to" is a big assumption. People will do en masse exactly what TradeFortress is doing, you know why? Because creating money from thin air is beautiful, and it's a perfect way to scam - we will see epic scams on Ripple. And this is the interwebz, people will "trust" their buddies, because isn't trusting friends what this is all about?"

"I don't know if his intentions are good but the method itself isn't, EVIDENTLY. Also if he doesn't actually want to steal money from anyone (which i doubt), he's allowing others to steal someone's money, knowingly."

"What he's doing here might leave some of us scratching our heads, and it might be wrong...but it's not stealing. Stealing would be if he cracked the password on your ripple account and sent him a bunch of money(and even that's really a stretch). We should not immediately say that things which make us feel queazy are wrong, and stealing. That's how downloading things on the internet became associated with stealing. What's going on here is a different activity, right or wrong, good idea or not."

"The point is -- when you put real bitcoins into an account at an exchange, what are you doing?"

"You're trusting that they will keep these bitcoins in some form and that you will be allowed to sell them on the exchange for some other currency, and that at some point you will be either able to redeem your claims to that currency or your claims to that bitcoin."

"If you trust him, say for 20 BTC, and you have reliable BTC IOUs (from bitstamp, for example) in the same wallet, THE SYSTEM CAN SWAP IOUS TRUSTED BY HIM WITH IOUS TRUSTED BY BITSTAMP if this is usefull to operate a transaction between users in that trust-subnetwork."

"I.E. the story will probably end with someone previously holding good-true-reedemable BTC loosing all and finding in his wallet only trash-IOUs issued by TradeFortess."

"This will happen if anyone in the network (not necessarily TradeFortess, but he could do that with an anonimous wallet) send the trash IOUS to a trusted gateway exploiting YOU to create a pathway."

"EDIT: you should be actually happy of this. Yours is an excellent example of what will come. You will pass to history to be the very first user to be left holding the bag inside Ripple. And I can guarantee that there will be A LOT of gullible people that will be left holding the bag inside Ripple, including a lot of XRP holders."

"It's simple really."

"As there's no real reason why people would keep these 100BTC lines as 100BTC(if he's trustworthy, that 100BTC can be increased, if he is not they can be decreased) the interesting thing will be, down the line if people realize that TradeFortress isn't who they thought he was, he might owe each of the people who took part in this 1BTC, with no intent to repay them, even when bitcoin is much more valuable than it is today. The endgame here is him owing 100 people for...effectively no loss to them."

"That would make him a scammer, and it would also make him so in a very public way."

"It's an interesting experiment -- to see if 100 promises of bitcoins are worth one promise of 1 bitcoin amongst 100 people who already have an ability to send money, relatively easily to eachother. Apparently it is, to some people."

What Happened

After enough users had established trust relationships with TradeFortress, one of them also had a trust relationship with BitStamp with the ability to withdraw real bitcoins.

Key Event Timeline - Ripple Scam By TradeFortress

Date	Event	Description
April 18th, 2013 10:53:44 PM MDT	RippleScam First Comment	The post on the RippleScam website receives the first comment. The exact time of publication for the article itself is not available.
May 16th, 2013 2:36:31 AM MDT	BitcoinTalk Thread Started	The BitcoinTalk thread is first started by TradeFortress. Users start to supply bitcoin and ripple wallets in order to receive their "free bitcoin".
May 16th, 2013 3:12:47 AM MDT	First Bitcoin Sent Out	TradeFortress announces that he's sent out 3 BTC to users who have signed up so far.
May 16th, 2013 4:00:54 AM MDT	Up To 11 BTC	TradeFortress announces that a total of 11 bitcoin have been sent to users who signed up so far.
May 16th, 2013 4:53:00 AM MDT	Up To 32 BTC	TradeFortress announces up to 32 bitcoin has been sent to users so far.
May 16th, 2013 2:21:56 PM MDT	Warning Thread Posted	A warning thread is posted by user ervalvola, warning users of the risks of enabling the trust relationship and the steps they can take if they've done so. The thread on Bitcointalk.org warns users about a potential scam involving Ripple and TradeFortress. The OP requests trust through Ripple for at least 1 BTC, implying 100 BTC, and sends BTC IOUs that might not be honored. Users who trust him risk losing their BTC. The scam involves swapping trusted IOUs with worthless ones, potentially causing significant losses. Members advise reducing trust to zero and returning the same amount to the source to safeguard wallets. Despite debate on TradeFortress's intentions, the thread urges for its closure and labeling as a scam.
May 16th, 2013 5:28:30 PM MDT	BitcoinTalk Scam Warning	BitcoinTalk user bitaccumulation posts a complaint about how TradeFortress is a scammer on the BitcoinTalk forums. A lively discussion ensues, where some participants argue that Ripple itself is the scam, some defend TradeFortress, and many appear to agree that what he's doing is scammy. A quote from TradeFortress is shared where TradeFortress states "I've being able to exchange my own IOUs for bit stamp ones because of a flawed feature in ripple."
May 16th, 2013 6:31:01 PM MDT	First Bitstamp Redemption	Transactions To Bitstamp reportedly started a few minutes ago.
May 16th, 2013 6:51:20 PM MDT	1 BTC Damage So Far	According to discussions, 1 bitcoin has already been taken in damage so far.
May 16th, 2013 11:00:18 PM MDT	Ripple Withdrawals Down	Bitstamp's withdrawal system for Ripple is reportedly offline.
May 20th, 2013 5:43:03 AM MDT	Prove Your Point	The original post has multiple disclaimers added by moderators. web3r connects an account with 10.15 BitStamp bitcoin in it and asks TradeFortress to prove whatever point he's trying to make.
May 20th, 2013 6:46:34 AM MDT	Nite69 Takes Bitcoin	Nite69 is able to get some of the bitcoin and asks where to return them to.
May 21st, 2013 12:19:20 PM MDT	Nite69 Returns Bitcoin	Nite69 returns the single bitcoin which they've taken from web3r.
June 1st, 2013 10:38:47 AM MDT	Final Address Poster	Despite the thread being closed, one final user posts a Ripple address.
November 7th, 2013 1:26:48 AM MST	Comment About Social Experiment	Reddit user cipher_gnome asks "Tradefortress - Isn't this the same guy that scammed ripple users?" in response to a thread about how the Inputs.io platform was hacked and has to shut down.

Technical Details

The actions taken by web3r were deliberate.

Total Amount Lost

The total amount lost has been estimated at $2,000 USD.

Immediate Reactions

There was significant concern over the situation once the bitcoin was transfered. Many users claimed that TradeFortress owed the 10.15 BTC which went missing in the exploit.

"Yes, TradeFortress is issuing IOUs. However, because webr3's Bitstamp-issued IOUs got exchanged in there with other people's TradeFortress IOUs, some people got webr3's Bitstamp IOUs instead and used them."

"It is a promise to pay 1 BTC, is it not, a promise that is automatically and digitally made liquid the second you are trusted by anybody with a BTC IOU from a trusted source."

"TradeFortress walked in to this with eyes wide open, hoping for exactly this result. It has happened, he has taken out 10.15 BTC worth of debt from a trusted source with me, which he now owes me. It's not my fault he's given it away."

"TradeFortress promised to pay each user 1 BTC who trusted him 100 BTC. He sent IOUs for 1 BTC to each person who trusted him. He had no BTC. As soon as somebody who had trusted him had BTC backed by a gateway that was trustworthy, some of those promises has a trust chain back to a source which would turn the IOUs in to Blockchain BTC."

"TradeFortress did not issue some kind of different, made up, BTC, he promised to pay people real BTC, sending them IOUs."

"I trusted him, using an account with trusted BTC IOUs in it, and people then cashed out the BTC HE (TradeFortress) owed them."

"So, TradeFortress owes me 10.15 BTC, nobody owes him any."

"TradeFortress has asked for trust, and promised people money. He has incurred debt. He has a 100 BTC overdraft with many members of this forum, and he's cashed out over 10 BTC so far. This is money he owes."

Ultimate Outcome

Many users on BitcoinTalk defended the Ripple system, claiming that what TradeFortress had done was not to demonstrate a failure in the Ripple network, but merely to expose a flaw in his own character and that he himself is not trustworthy. Some users even accused TradeFortress of personally being the one to pocket the 10.15 BTC.

BitcoinTalk Controversy

"You my friend have probably succeeded in creating the first lot of counterfeit bitcoins. When the price of bitcoins have gone down the pan I dont think there will be many people thanking you..."

"It's not that simple. He's using a system that is completely different than Bitcoin in order to steal people's real Bitcoin. He has admitted this. Did you not see my screenshot? Or does this not matter?"

"This is not an "experiment." He is using a completely foreign interface to fleece newbie's of their Bitcoin. Why would just put a "make sure you read about Ripple" when someone is flat out trying to scam people? Why not just end the scam?"

"He said he's giving away 1 BTC on Ripple. In order to do that, he is giving people an IOU for a BTC (a PROMISE to pay you 1 BTC) that can be redeemed by you giving him back the IOU. He knows this, knows he will not redeem any of his IOUs (won't fulfill his PROMISE to pay you the BTC) and is using the trust he is asking people to give him to steal BTC IOU's issued by legitimate providers that will redeem their receipts for real BTC. It's a scam, he's running the scam and he's a scumbag for doing it."

"Scamming doesn't make a system fail, it merely illustrates that con-men can take advantage of the ignorant or the gullible. Stealing from the ignorant or the gullible makes you a thief. TradeFortress is now a thief. It's really that simple."

"More to the point, many other people could have been deceived out of up to 100 BTC each (and still could be), and 445+ people have been (potentially) let down by TradeFortress's as yet unfulfilled promises."

"If this isn't a deceitful, foolish, untrustworthy, dirty thing to do, what is?" "I do not understand why this is being debated, if anybody else scammed a user out of BTC, potentially 455 users out of 100 BTC each, they would be gone in a second."

"What TradeFortress has done is abuse peoples trust, by using his reputation as trusted here to con people out of BTC. It doesn't matter what system is used, it has been abused."

"This is nothing to do with ripple, and show's no flaw in it. It simply shows that you should be careful who you trust, always."

"TradeFortress is either trustworthy, or is not. So far, it seems he's one of the shadiest people I've ever met on the internet. He has facilitated nothing but his own demise."

"TradeFortress, make good your promises, repay your debts, contact the people who issued trust to you and ask them to revoke it. What you have tried to do here is low and foolish."

"He also has many BTC promises ready to be cashed in, 455+ BTC by his own count, which can be cashed in the second anybody puts trusted btc IOUs from a reputable gateway in to any of those accounts."

"The ripple system worked perfectly, and had already been demonstrated and used for months."

"TradeFortress simply demonstrated it again, but in a very untrustworthy way, not fullfiling any of his promises. Simply, he only demonstrated that he is untrustworthy, and indeed that he doesn't pay back money he owes."

"No, no, it's not a scam! It is a SOCIAL EXPERIMENT!"

"For a scammer tag, the accused person needs to have promised to do something and then failed to deliver on the promise. TradeFortress never promised to pay anyone any bitcoins here. If you trust him to do something that he didn't promise, that's your problem."

End Of Experiment Summary

TradeFortress published a summary of the experiment, calling it over and commenting on the original goals.

"This social experiment has ended - here was the goals: (1) teach people that Ripple BTCs are not real BTCs. (2) teach people that your BTC.* can be substituted for anything you trust, automatically."

"There was also mass invasion of ripple.com/forum posters. It's not too hard to figure out who they are. Keep this in mind: (1) I have not profited at all from this. (2) Anyone who lost BTC.* had their BTCs exchanged by other people. (3) Anyone who I sent a BTC to could have redeemed someone else's Bitstamp or whatever IOU."

Lasting Legacy

Some users were still commenting about the incident years later when TradeFortress's Inputs.io platform was breached and lost assets.

"Tradefortress - Isn't this the same guy that scammed ripple users?"

Litigation Of Ripple By SEC

Over the years, Ripple has faced regulatory challenges, including a fine from the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) in 2015 and a lawsuit from the U.S. Securities and Exchange Commission (SEC) in 2020. Despite controversies, Ripple has made strides in partnerships and initiatives, receiving recognition for its contributions to the blockchain ecosystem.

Litigation involving Ripple and the U.S. Securities and Exchange Commission (SEC) began in December 2020, with accusations of selling unregistered securities. However, a ruling in July 2023 determined that XRP itself is not a security, although its manner of sale could constitute one.

Total Amount Recovered

There do not appear to have been any funds recovered in this case. From what can be determined, the 10.15 BTC was never repaid by TradeFortress, nor by the individual who withdrew it.

Ongoing Developments

The incident appears to be largely settled, and there doesn't appear to be any ongoing investigation into what happened.

Individual Prevention Policies

Users need to exercise caution and understand each action they are taking. Granting TradeFortress a trust line put any other funds in the user's wallet at risk.

Every approval on Web3 is an opportunity to lose all of the funds present in your wallet. Take the time to review the transaction in full. Fully check over the balance, permissions, and entire address which you are interacting with. Do not trust that your clipboard or any website front-end is guaranteed to provide an accurate address or transaction status. Always perform a test transaction prior to the first high-value transaction in any session.

Any time that you are promised any profit or benefit in exchange for an initial payment, smart contract approval, or deposit, pay special care as to whether the entity making that offer is trustworthy, actually who they say they are, and has the means to fulfill what they're promising. There are no magic algorithms providing guaranteed returns from trading or mining. Trading on average will lose money. Mining is expensive and complex. No one is going to immediately send back more than you sent them. NFT projects will rarely announce a surprise mint in only a single location. Are you fully prepared for the event your money is kept and nothing is delivered in return?

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

This case does not appear to have resulted in a loss to any platform.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

Create a standard tutorial and quiz for all new cryptocurrency participants, which is required to be completed once per participant. This tutorial and quiz should cover the basics of proper seed phrase protection, strong password generation, secure two-factor authentication, common fraud schemes, how to detect and guard against phishing attacks, how ponzi schemes work, as well as other risks which are unique to the cryptocurrency space.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.