The Problem of Gambling on Ethereum NetworkAugust 18, 2018
As strange as it might sound, ethereum has a big problem and it comes in the form of gambling. Since July 2018, the products that seem like Ponzi schemes have emerged in large numbers. These are promising high returns for small investment costs and are fully fraudulent. Yet, they have been topping the charts among the dapps or decentralized apps that are being run on the second-largest blockchain. The success of these dapps has surpassed even the popular CryptoKitties app.
Yet, while the transaction volumes and user counts are high for these applications, the same is true for the level of worry about the risks users regularly face with them. Warning cries are mounting and they are coming from tech circles that are not known for their apprehension about risks. These include a group of developers of gambling dapps.
A perfect example is the Team JUST, which is a group of developers whose identity is not known. They are famous for creating now renowned dapps like FOMO 3D. They warned last week that an identical copy of their game is using about one-third of the networks complete computation power. They managed to attain over $7 million in a space of just seven days.
Team JUST took to both official and unofficial channels to let the public know what the game developers thought of LastWinner, a Chinese-made dapp. Team JUST believes they managed to make false users in form of bots that produce false game activity which can then real people see. Clearly, Ethereum network is entering a worrisome phase with events and gambling processes like this.
The Team JUST Explanation
The developers of the Team JUST tried to explain how the same scam takes place. According to them, the developers of the scam use their own ether tokens, around 200,000 of them, as a means of fueling a huge number of transactions that are produced by bots. The purpose of this is to provide the interested players with an appearance of a popular and also legitimate gambling dapp, which is how they lure new players in.
Real human beings then take up the dapp in the hopes that they will win big, but then wagers their own ether funds. One of the leader Team JUST designers, known only as Justo_Bot issued a statement on their Discord channel where the team warned against playing the LastWinner dapp. The statement also ended with the possibility of the dapp being run by criminals.
The reason for this is the scale of the bot wallet and the number of the bots being engaged in all of that activity. The sheer size of the venture suggests that it is most likely run by a Chinese crime syndicate that is trying to scam people on a level that has never been seen before with ethereum network.
Other parties in the development and trading ecosystem are also concerned. The analysis also points to the fact that there was a frenzy of activity related to the LastWinner which took place on several online channels. The chronology shows that the comments on Etherscan began in the days after the dapp launched.
Here, users were noticing that it was fast outperforming even the dapps it was designed to mimic. Many commented that the clone of the F3D is able to surpass the results of the original very fast and apparently without much effort. Soon, data providers also identified the activity and labeled it an anomaly. Amberdata, a company working in the analytics and monitoring, has been one of the first to notice that FOMO 3D clone is placing the ethereum blockchain network under a substantial workload.
Overall, the contract has been used for incoming and outgoing allocation of over $50 million. Validity Labs, another analytics company also picked up on the traffic and called with automatic and highly concentrated, suggesting they were both accounts.
But, being that the source code is not known, no one except the dapp makers can say for sure what is its purpose. At the same time, there is a clear notion that the traffic is used to signal a good opportunity and scam actual players through the notion of the dapp popularity.
The Issue of Purpose
The analytics tools provide only a partial image of the whole issue and many are wondering what is the actual end game of the clone maker. The same time, the warning provided by Team JUST is also under a lot of scrutiny being that it questions the true nature of FOMO 3D dapp itself. Both games have a clear set of rules and instructions for their games, but both source codes have not been verified or disclosed.
Many developers pointed out that unverified source codes should be always perceived as potentially malicious. The same goes for FOMO 3D which could in theory shut down the whole code and claim the jackpot for a single player. Setups like this are known as exit scams which withdraw all of the raised funds at once. There are other vulnerabilities, like the airdrop issue that could allow a small number of funds being skimmed from all prizes being distributed via an airdrop.
FOMO 3D also has this vulnerability, but its creators are saying that they knew about it before of the launch. This is the reason why Team JUST came under fire. If the clone of a dapp has the ability to scam users, this would mean that the original dapp possess the same characteristics.
Word of Caution when Labeling
Finally, just because something appears to be a Ponzi scheme does not mean it actually is one. Bitcoin has been called a scheme ever since it came out and the notion has still not been proven valid. At the same time, there are many means that games or even eSports tournaments use to reward their participants.
The number of these will only continue to rise and the crypto gambling element in all of this provides it with even more allure. This is why games like LastWinner and FOMO 3D will not be the last of their kind.
But, for the ethereum network, the question of load hash rate and bot activity is more pressing. While not all who hold ETH would want to gamble, the network could be put in jeopardy because of those who do engage with unverified dapps.