Crypto due diligence is similar to the traditional forms of due diligence, since it comprises a number of tactics with the end goal of identifying existing issues in order to reduce the likelihood of falling victim to fraud. By way of thorough investigative research and the meticulous review of relevant financial information, crypto due diligence provides the framework to determine the true value of a business transaction or investment. This, in turn, establishes a complete picture for a potential investor to consider and to therefore make an informed decision regarding the legitimacy of crypto assets.
There are currently more than 1,500 (and counting) crypto assets in the public sphere. While many of the designers of crypto assets and projects have altruistic intentions and remain focused on innovation and problem solving, others are clearly motivated by deceit and greed. Thus, proper due diligence is in the best interests of investors, and to take into account every conceivable scenario when navigating the murky waters of crypto currency.
Three of the most pertinent and effective forms of crypto due diligence are:
- Financial Crypto Due Diligence
- Crypto Team / Developers Due Diligence
- Crypto ICOs, Profits and Partnerships Due Diligence
Vladimir Volkov graduated with a computer engineering degree in his home country of the Ukraine. Upon graduation, Vladimir moved to Canada to live closer to his father who had moved his family to Canada while Vladimir was attending university. After several months of job hunting without success, Vladimir was able to secure employment as a custodian at a local hospital. One month after his hire, the hospital was attacked by a malware scam which resulted in the perpetrators profiting $250,000. Angered by the fact that he could not find a new job which he felt that he was qualified for, Vladimir was left with no choice other than to accept a position that paid minimum wage. This – as well as the fact that the fraudsters managed to execute a successful fraud of such significant proportions – forced Vladimir to consider alternative options in order to secure financial stability. He decided to hatch a plan that would defraud unsuspecting investors in the new world of Cryptocurrency.
Vladimir launched his own cryptocurrency through an ICO named VCoin. He deceived investors by reassuring them that his VCoin would revolutionize the way in which the world looks at construction projects. VCoin would allow anyone to invest as little or as much as they wished in any construction project across the world through the use of a tokenized coin. Vladimir promised investors 75% guaranteed returns within the first year of their investment, under the provision that they invested in advance of the ‘countdown clock’ on his website struck ‘0’. Vladimir was able to raise $5,000,000 from unsuspecting investors until he became careless and made his one fatal flaw. Vladimir attempted to defraud Jace Pyroth, a forensic investigator who possessed extensive knowledge of the cryptocurrency landscape.
After Jace reviewed the ICO white papers and performed in-depth research into the tokenized coins, the VCoin development team and the underlying source code, it was not long before he came to the realization that this project this was a scam. He subsequently reported it to the proper authorities.
Relevant Evidence:
- Lack of presence in crypto discord groups
- Whitepapers
- Investigation into the track record and employment experience of the Designer and his or her colleagues
- Review of the Underlying Source Code