This article is largely based on research conducted by a third party who would like to remain anonymous. Although much of what is referenced herein has been taken offline by Cryptonia in an apparent attempt to cover its tracks, all the facts stated in this article are supported by screenshots, chat logs, etc. collected by this source and provided to PartTimePoker.

Cryptopoker – that is, online poker using cryptocurrency as chips – is all the rage these days. Like cryptocurrency itself, though, opinions are widely divided on whether it’s truly the way of the future, or simply a flash in the pan. One thing is for sure: Like any hot new trend, it’s attracting a mix of both true believers and more cynical types looking to make a quick buck off the optimism of the former group.

At the more reputable end of things are a couple of sites – Virtue.Poker and CoinPoker – which are collaborative efforts between multiple well-known members of the poker community, both players and industry folk. It should be stressed that “more reputable” is a relative term here, as both are very much works in progress, and CoinPoker has already faced its share of controversy. However, both companies are at least working on bringing unique products to market and making efforts to stay on the right side of the law, or at least in a comfortably gray area.

At the other end of things is an ever-growing collection of smaller operations whose practices make it clear that being “more reputable” than them is a pretty low bar to clear. Particularly egregious among these is Cryptonia Poker, a veritable layer cake of shady behaviour brought to our attention by a source who would prefer to remain anonymous.

Cryptonia remains operational at this point, and has even received endorsements by outlets such as PokerNews and PokerTube. If you’re considering playing on Cryptonia or investing in their currency, the following is crucial information for you.

Throughout the article, I’ll refer to the company by its name, but much of the alleged wrongdoing seems to be the work of CEO and founder Lakshay Anand, and perhaps his co-founder Vivek Jain. What the rest of the team did or didn’t know is a matter of speculation, but it looks like by the end they became victims of the scam themselves.

Red flags

Before we get into the allegations of actual fraud, let’s look at some aspects of Cryptonia which should strike a cautious investor or player as warning signs, even if they’re not illegal.

For starters, much of Cryptonia’s business plan, marketing pitch and the structure of its Initial Coin Offering (ICO) was lifted directly from CoinPoker. Some minor attempts at obfuscation were made, such as changing the total supply of coins being minted to make it less apparent that ratio of purchase prices for its three-tiered ICO were identical to CoinPoker’s. Its self-promotional articles on Medium (since taken down) were also largely plagiarized.

It also claimed to have developed its own software and implemented special anti-bot measures. The software was later discovered to be an off-the-shelf product licensed from a third party, RunYourOwnPokerSite.com, for around €500 per month, while the supposedly advanced bot-detection measures amounted to a standard Captcha.

Plagiarism is, at worst, a matter for civil courts, but when it comes to fledgling industries, legitimate companies tend to want to bring something new to the table, or at least ride on the coat-tails of a proven success. Emulating a company whose only success so far has been in raising investment capital should be seen as worrisome.

Furthermore, a lot of the money raised by Cryptonia in the early going was paid back out to marketing affiliates who would receive bounties for attracting new investors. These affiliates would spam links and endorsements all over social media, crypto sites, etc. This, too, is not illegal, but the hallmark of a company more interested in cashing in quickly on a hot trend rather than developing a legitimate product.

Faking the soft cap

Our source says that it didn’t take long for Cryptonia to begin engaging in explicitly fraudulent behaviour, however. Its first act of outright deception seems to have been in misrepresenting the amount of investment capital it had actually raised.

ICOs generally have both a soft cap and a hard cap. The hard cap is the maximum number of tokens that will be sold in the current round of the ICO. The soft cap is the minimum number required to raise the capital needed for the company to launch its product. If the soft cap isn’t hit, generally the project is cancelled and the collected funds returned to the investors.

Cryptonia reported that it had reached its first two soft caps, albeit narrowly. The amount that it reported raising in the third round was less than the soft cap, but it simply ignored that fact and declared the ICO a success.

That’s not so bad, but it looks as if much of the money it supposedly raised may amount to smoke and mirrors. The total it claimed to have raised was roughly 15,500 ETH, but their account contained a balance of just 40 ETH after the ICO closed. Ether from the receiving account was apparently moved to a separate holding account, which is fine, but our source looked into the transactions coming in to the receiving account, and found that most of them could be traced back to that holding account by way of a handful of dummy accounts.

In other words, the actual amount of money received from outside sources looks like it was just a tiny fraction of the amount Cryptonia claimed it had raised. The remainder of the investments appear to have been Cryptonia shuffling the money around in order to re-invest in itself, buying up its own tokens to appear successful and reach its soft caps.

When challenged on these facts, Cryptonia claimed that most of the investments it had actually received had been in fiat currency and were being held in a conventional bank account. Requests to provide proof of this were ignored.

Immediate insolvency

For a company that had purportedly raised over $2 million worth of cryptocurrency, Cryptonia had an extremely hard time paying anyone it owed money to. For instance, the owner of the software Cryptonia has been licensing reported that they had owed him the relatively paltry sum of €1500 and yet had been making excuses for months. Eventually, he was reportedly paid about half of what he was owed.

It wasn’t long before many of Cryptonia’s management team began to turn on CEO Anand due to non-payment. Our source provided us with logs of many of these conversations, in which they pressured him to make good on his commitments and were given the run-around.

Ultimately, Anand told his team that he would pay them in CPC – Cryptonia’s cryptocurrency – just as soon as he could get it listed on a cryptocurrency exchange so that they’d be able to cash it out for something else.

That proved difficult because, predictably, Cryptonia was having trouble raising the necessary listing fees. Also, Cryptonia’s pitch included insistences that the currency was bound to appreciate in value, a claim that’s illegal in many jurisdictions and which many exchanges consider grounds for delisting. Indeed, the first exchange which listed CPC, Idex, removed it in less than 24 hours, probably for this exact reason.

Eventually, on August 31, Cryptonia did succeed in getting listed on the exchange HotBit (symbol CNP rather than CPC), and the team were reportedly paid. The value of CPC crashed immediately, however. It was listed at an initial value of $0.05, but the first trade was for just one-tenth that price. In short order, it had dropped by another factor of five, to $0.0009. As of this writing it sits at $0.0008.

The plunging value of the coin was presumably the result of the team members divesting themselves of their payment as quickly as possible, having realized by that point that they were aboard a sinking ship. That means that the team members, depending on how quick they were to sell their CPC, received compensation somewhere between 2% and 10% of the amount they were nominally owed.

Scammy promotions

To the extent that Cryptonia has operated a functioning poker site, that too has been rife with alleged fraud. One incentive the site provided to potential investors was a freeroll for anyone investing a certain amount of Ether: initially 4 ETH, later lowered to 2 ETH. The prizes were three WSOP packages, one for the Main Event, worth $13,000 and two for side events worth a combined $5000.

It seems that only one, or at most two investors actually contributed enough to gain entry to the tournament. There were 22 players entered, however. One of these was a test account belonging to the software developer, who was perhaps given entry as compensation for the money owed him. The remaining 19 accounts were all registered to the same IP, and also played the tournament from the same IP (albeit a different one from the registration IP). Since players had to be registered to the tournament manually by Cryptonia, it’s hard to reach any conclusion other than that these were all in-house accounts. Naturally, all three of the supposed packages were won by one of these accounts.

Even non-investing players were subject to some degree of deceit. Cryptonia initially promised that it would be rake-free for the first year. This was never strictly speaking the case, although for a time after launch, it did offer 100% rakeback, and returned raked currency to players each Friday. Shortly after the pre-ICO, however, the wording of the promotion was changed to include the provision “if ICO hard cap reached.” At the time that change was made, it was already impossible for the ICO as a whole to hit its hard cap, since the pre-ICO had not done so.

In other words, Cryptonia had stealthily added a now-impossible condition to its offer, in the hopes that players would fail to notice the change. It could therefore renege on its word at any time, pointing to the failure of the ICO as justification. This did not go unnoticed and was the subject of many player complaints, all of which were simply ignored.

The obvious lessons

Cryptocurrency and online poker are a natural fit in many ways. For one thing, there’s a huge overlap between people interested in one and the other. Both are appealing to people with anti-establishment political beliefs, whether on the left or the right. They emphasize personal responsibility and accountability over third-party protections. Both also have an element of get-rich-quick wishfulness to them, and more specifically, “get rich quick by being more clever than everyone else.”

They also support one another from a practical standpoint. Things that bother poker players include cash-out times and transaction fees, a lack of transparency from a software perspective, and heavy-handed government regulation. Meanwhile, cryptocurrency’s biggest problem currently is a relative lack of useful direct applications, being used at the moment mostly for a mixture of investment purposes, money transfers between individuals, and illicit purchases. Cryptocurrency and its associated blockchain technology provides a solution to many of the problems with online poker, while online poker provides cryptocurrency with at least one puzzle piece towards its much-needed raison d’être.

The two share a more unfortunate commonality, however, in that they are both attractive targets for cheaters and scammers of all descriptions. The cavalier, Wild West attitude embraced by the libertarian, anti-regulation crowd comes at a cost, while the gold rush environment created by the recent cryptocurrency explosion means a lot of people are putting ambition and greed ahead of caution.

Even honest cryptocurrency endeavors are known to be high-risk, high-potential investments, and when it comes to unregulated poker sites… well, we’re not lacking for cautionary examples of how that can go. Cryptonia may be our highest-profile example so far of a cryptopoker site gone wrong, but it certainly won’t be the last, and probably not the worst. Caveat emptor.

Alex Weldon (@benefactumgames) is a freelance writer, game designer and semipro poker player from Dartmouth, Nova Scotia, Canada. And probably an unpopular figure in the cryptopoker world at this point.