The Dark Days of Dogecoin: How Scammers and Bandits Brought Down Crypto’s Friendliest Currency

 Bitcoin News

It was a bustling, summer day in San Francisco just like any other for Jackson Palmer, a marketing manager at Adobe that a year earlier had co-created a parody cryptocurrency featuring a Shiba Inu dog meme.

When he sat down at his work desk and started answering emails, one in particular caught his attention. The subject line read: “moolah – Mr. Alex Green.” The first line: “Alex Green = Ryan Kennedy/Gentle.”

Ryan Kennedy was the founder and CEO of Moolah, a dogecoin exchange startup that Palmer and Ben Doernberg, a friend he met through the cryptocurrency’s non-profit foundation, had just interrogated via a public Skype video over its sketchy doings.

Palmer pretty quickly Facebook messaged Doernberg, who was on the other side of the US in New York, sending him screenshots of the email.

The message was from a group of people, one of which was an ex-girlfriend Kennedy abused, who said she wanted to expose him for running a ‘Magic: The Gathering’ scam in Bath, England. The note also accused Kennedy of many other past exploits as a scammer in the UK.

Later, Palmer received a dump of Kennedy’s entire C: drive from a laptop he had left behind after police had arrested him. (This was after his first crypto-scam on Bitcoin Talk). Some former roommates who were part of the group emailing Palmer had received the laptop from police once Kennedy didn’t return for it.

“Holy shit,” Palmer thought at the time, although, he and Doernberg had sensed trouble from the beginning.

The group had only put two-and-two together after reading a TechCrunch article about Moolah declaring bankruptcy. Palmer and Doernberg then spent several days putting all the evidence together before publishing it all online as a warning to the dogecoin community.

But the community still didn’t buy it, said Palmer. That is, not until Kennedy wrote a blog post admitting to changing his name, although he still denying responsibility for Moolah’s stolen funds.

The breaking point

Most cryptocurrency enthusiasts will remember the Moolah debacle.

Kennedy came into the community under the guise of Alex Green, an entrepreneur wanting to make buying, selling and trading dogecoin easier. He threw around dogecoin, and not just a couple dollars worth here and there via Twitter, but tens of thousands of dollars at dogecoin meetups.

Plus, the company took the lead on several dogecoin-based fundraisers, including sponsoring the NASCAR driver, Josh Wise.

Because of all this, the community loved Kennedy.

And so it was more than willing to buy into Kennedy’s company, sending bitcoin and receiving a token equivalent to shares of the company (this was even before ‘initial coin offerings’ (ICOs) were part of the broader cryptocurrency lexicon).

Through that process, Kennedy raised somewhere around $750,000 from mostly wide-eyed teenagers getting their first taste of the cryptocurrency world, according to Palmer.

“I was skeptical of this at first, thinking [Moolah] was a shady, corporate interest taking the fun out of dogecoin,” Palmer explained, adding:

“It all seemed like a some kind of pyramid or Ponzi scheme, and Ben [Doernberg] and I started pushing back on it pretty hard.”

And the community, hypnotized by a manipulator, was not happy about this.

The Skype interview and the published evidence of Kennedy’s alleged scams “culminated in a backlash … and the community kind of ousted us for our opinions,” Palmer said. “We got shouted out and we just said ‘screw it’.”

A perfect target

This wasn’t the only case of fraud that swept through dogecoin. And that might seem strange given the cryptocurrency’s friendly outward appearance.

From the outside, the parody cryptocurrency featured a Shiba Inu dog and traded for less than a penny – it seemed cute and innocent, but under the surface, was a dark history, riddled with scams.

Initially, this piece was just a harmless oral history, but as I spoke with the people whose lives revolved around dogecoin several years ago, it became clear that the story would focus on fraud and as Doernberg told me: “I think that’s the only accurate way to tell the story.”

Dogecoin launched in early December 2013, cloned from bitcoin with a few adjustments (including a faster block time, the total number of coins to be released and the hardware needed to mine, oh, and the code was written in the Comic Sans typeface) that made the coin easier for people, especially those new to cryptocurrency to interact with.

The jocular tone brought a group of people to the community that didn’t take themselves (and the cryptocurrency) quite so seriously, and because of that, the dogecoin community was known for being far more friendly than the bitcoin community which could be sometimes cut-throat and haughty.

Palmer said:

“The thing that was cool about dogecoin, I had just spent the past eight months or so learning about bitcoin, but the bitcoin community was full of overly serious know-it-alls. On dogecoin, there were all these regular people that just wanted to know more about cryptocurrency.”

Started as a parody because of the vast number of altcoins being launched after bitcoin’s initial rise, the dogecoin community never took itself that seriously.

When people came in determined to rally people around raising the price, most responded with memes and the disjointed dialogue of the ‘doge’.

That casual style not only caught newbies’ attention, but also scammers’. And with an industry still unregulated, it was a perfect target.

“Most scammers saw it as easy to pull off,” said Doernberg, adding:

“Because of the unclearness about whether cryptocurrency was legal, even if you ripped someone off, those people many times wouldn’t go to the cops.”

Long-time coming

It’s almost surprising dogecoin didn’t disband sooner.

The first hack happened less than 20 days after the cryptocurrency was launched. About 21m dogecoin, which at that time was equal to $12,000, were stolen from Dogewallet.

But the community was determined to keep the joke alive. The community decided to raise the amount of money stolen from the web wallet to reimburse the victims of the hack. According to Doernberg, nearly $13,000 was raised.

And that might have been the ‘aha moment’ for many of the community’s leaders, who then began brainstorming ideas for other fundraisers that the dogecoin community could participate in.

Plus, only three months later, Dogetipbot, a doge in a spacesuit that allowed users to send dogecoin tips via Reddit, Twitch and Twitter (functionality is currently only available via Reddit now) caught fire as well.

Josh Mohland uploaded the tipbot to Reddit and asked if people would upvote his post so he didn’t have to type in a Captcha every time the bot needed to send a tip. The next morning, 3,000 people had upvoted the post and “the thread took off and users started rolling in,” he said.

“Before we knew it, we had 5,000 users of the tipbot and hit 10,000 users in a month,” said Mohland, who’s now a customer champion at application automation provider Zapier.

Many people “saw it as a gateway cryptocurrency,” said Mohland, explaining:

“People would come to dogecoin because it was a nice community that was active in explaining cryptocurrency in a non-technical way that was welcoming.”

And to experiment the community decided to fundraise for charities.

The first fundraiser, sending the Jamaican Bobsled Team to Sochi, Russia, for the 2014 Winter Olympics, raised $30,000 in dogecoin in 24 hours.

And subsequent fundraisers for charities – including one that helped children with autism; one that worked with service animals; and one, Charity Water, which built wells in Kenya – all had similar success.

The dark side

But there was a seedy underground abounding with mining and wallet hacks.

“Dogecoin is only second to bitcoin as the shadiest thing in cryptocurrency,” Doernberg said.

According to him, while all this big-heartedness was going on, there were more sinister things happening in the background, including people threatening to attack mining pools unless they were paid, and the founders of digital wallets running off with customers’ money.

Doernberg dealt personally with an interestingly nefarious scam when the dogecoin community was raising money to send Shiva Keshavan, an Indian luge athlete, to the Sochi Winter Olympics. According to Doernberg, the head of the Winter Games Federation of India, began emailing Doernberg to send the money directly to him or his son, who was also an Olympic athlete.

It seemed that the head of the federation wanted to use the money on his son instead of on Keshavan. Keshavan, also in contact with Doernberg, allegedly told him not to send the money to the federation.

In the end, the dogecoin community raised about $7,000 for Keshavan, but it never got to its intended recipient. The Indian Ministry of Sports, who at first denied having the money to send athletes, agreed to pay Keshavan’s travel expenses and the dogecoin raised was returned to the donors.

Then there was Wolong, a pseudonymous character pretending, according to Doernberg, to be a Singaporean day trader on behalf of the Chinese. “That was the weirdest,” Doernberg said.

Wolong created an IRC (internet relay chat) channel that people had to pay to join. Further, people that wanted access had to buy his book of life advice.

Wolong apparently manipulated the price of dogecoin for a while before launching ‘pandacoin’, which he pumped and then, three days later, dumped – his millions of coins making significant money for himself while ripping off everyone else that had invested in the altcoin.

Money corrupts

Ironically, such pump-and-dump schemes were why dogecoin was created in the first place. But, it seems that nothing in cryptocurrency can be all fun and games, not when money is involved.

Even though dogecoin weathered the storm of a number of fraudsters and scammers, the Moolah incident created a fissure in the community that it has never fully recovered from, Palmer said.

Palmer and Doernberg would eventually be justified in their suspicions about Kennedy – about a year later, he was sentenced to 11 years in prison on several counts of sexual assault and rape.

Still, despite these negative events and characters, Palmer believes dogecoin offers an important lesson.

“Dogecoin’s value is in its history and lessons about community,” Palmer contends. “There are multiple lessons for other cryptos that can be gleaned from how dogecoin grew and how the community helped that. And at the same time, what [those projects] should strive for their communities to be like.”

And this is why a lot of people have stuck with dogecoin. And why those same people will be upset to see it fall into disrepair.

“It’s a sad thing, whether the coins you lose are worth much money or not, it’s like losing a piece, a fun piece, of the cryptocurrency history,” said one ‘shibe’ (the name adopted by supporters of the altcoin) who preferred to remain anonymous.

He added:

“I don’t have much dogecoin. It wouldn’t be a big financial loss, but it would be a loss of something important.”

Darth Doge image via Reddit

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