As several companies in the gambling sector try to help advance blockchain technology, it is always fair to question whether they are operating a legitimate business. Fairwin, an established fair Ethereum-based blockchain betting site, was charged with trying to run either an escape scam or a pyramid scheme.
In addition to being a betting site, Fairwin also provides users with a fairly simple way to invest Ethereum in its growth and benefit from dividends and referrals. It has been the single largest volume factor for Ethereum since the end of September, making it a pretty big deal in the group.
Clément Lesaege, CTO and auditor of Kleros, recently went to the Ethereum reddit to alert the group of Fairwin after researching extensively how their system works. Through his study, he concluded that Fairwin had set up a Ponzi scam whether deliberately or not. Dividends were designed to pay out more than a healthy amount, a system that would pay well for existing investors, but would ultimately mean that a new batch of investors would miss out entirely on their investment.
To make matters worse, Lesaege also found a loophole in their contract code that would allow Fairwin’s operators, if they so choose, to run an escape scam. If they wanted to, they could choose to drain the scheme of all contributions to their own accounts at any time, refusing any of the guaranteed potential dividends to investors.
Without explanation, Lesaege said, FairWin would not allow this to go. He posted his response to his thread later:
“Thank you for your suggestion. We have already found the vulnerability, but we don’t think it is a vulnerability. The contract is judged and the invitation code generated by the user for the first time will be used as the final invitation code. So the loophole is invalid.
“In addition, we have real-time monitoring on our side. Once it is entered, it will be invalid. The intruder, we will alert at the first time, and then exclude the intruder.”
At the time Lesaege wrote his analysis, he noted that within the week, Fairwin seemed to become insolvent based on the complexities of the suspected Ponzi scheme alone. A later post reported the depletion of the investment account within a few days. This could be attributed either to creditors pulling out their money or to the Ponzi scheme running its course.
To cryptocurrency investors and betting companies alike, this is a clear cautionary tale. While for the blockchain industry, blockchain technology is on its way, not every invention is made equal. Organisations that lack integrity and legitimacy could and should be thoroughly researched into big money pits.