Although several companies are trying to help advance blockchain technology in the gambling space, it’s still always fair to question if they are running a legitimate business. Fairwin, a provably fair blockchain gambling platform based on Ethereum, has been accused of attempting to run either an exit scam or a pyramid scheme.
Fairwin, besides being a platform for gambling, also offers a fairly simple way for users to invest Ethereum into its development, and profit from dividends and referrals. As of the end of September, it was the single biggest driver of volume for Ethereum, making it a pretty big deal in the community.
Clément Lesaege, Kleros CTO and auditor, took to the Ethereum reddit recently to warn the community about Fairwin after he thoroughly researched how their system works. In his analysis, he conclude that either intentionally or not, Fairwin had set up a Ponzi scam. Dividends have been configured to pay out more than a healthy amount, a sytem which pays out existing investors well, but would eventually guarantee a new batch of investors would lose out on their contribution entirely.
To make matters worse, Lesaege also discovered a vulnerability in their contract code that would allow Fairwin’s operators to run an exit scam, if they so choose. If they wished to, they could chose to drain the system of all investments at any time to their own accounts, denying investors any of the promised future dividends.
FairWin wouldn’t allow this to go without comment, Lesaege noted. He later posted their reply to his thread:
“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 posted his analysis, he noted that Fairwin looked like it would become insolvent within the week based on the dynamics of the alleged Ponzi scheme alone. A later post confirmed that the investment account had become depleted within just a couple of days. This could either be because investors had pulled out their funds or the Ponzi scheme had run its course.
This is a strong cautionary tale for cryptocurrency investors and gambling businesses alike. While blockchain technology is on its way for the blockchain industry, not every creation is made equal. Companies lacking professionalism or credibility could become big money pits, and should be researched thoroughly.
