Several weeks ago, an acquaintance invited me and my wife for a discussion. He wanted to sit down with us to talk about how we could ‘achieve financial freedom’. We had met him at a seminar we had attended in July, and we were all seeking ways to expand our income. Thinking it was a simple dinner and discussion, I agreed to meet him.
Instead, he brought us to a small office in Rochor MRT station, situated near the eponymous canal to the south of Singapore. Banners near the entrance proclaimed ‘Blockchain 4.0’ and ‘Cloud Token Online’. Inside the office, rows of chairs had been set up in front of a projection screen. On the screen, a video presentation on Bitcoin began to play.
We had walked into a sales event of some sort. Part of me wanted to leave. But I decided to stay, to see if I could learn something new about cryptocurrency.
It was a mistake.
After the main feature, the organizer delivered an hour-long presentation on the next big thing in cryptocurrency: Cloud Token. A guaranteed method of generating passive income, with returns of 6 to 12% every month.
The heart of the scheme was a cryptocurrency trading bot named Jarvis. Using a proprietary algorithm, Jarvis would conduct cryptocurrency arbitrage trading. By investing in Jarvis, we, too, stood a chance to earn a share of the yield. All we had to do was to invest a minimum sum of USD 500 worth of cryptocurrency in Cloud Token’s wallet and hand it to Jarvis. The bot would use the funds for trading, then distribute the rewards as proprietary CTO tokens.
Not only that, we could stand a chance to earn even more CTO. All we had to do was refer more of our friends to sign up for the program using referral codes, and we would receive matching bonuses. And if their friends invited more friends, we would receive more matching bonuses from the downlines. CTO offers compensation plan for up to 21 levels of downlines. Plus, when your team hits designated volumes, you become a leader, and earn even more matching bonuses.
The value of CTO had been steadily rising month after month, and with Bitcoin’s value slated to increase dramatically with next year’s projected mining reward halving, now was the time to get involved in CTO and generate passive income.
My wife and I demurred. We had to do our due diligence.
And in our research, we found a number of red flags.
You Don’t Own Your Private Keys
This is the biggest red flag of them all: you don’t own the private key to your CTO wallet account. In fact, so far as I can tell, there are no private keys.
CTO’s mobile wallet allows you to store several cryptocurrencies, including Ethereum, Bitcoin, Dogecoin, and more. Some of these sub-wallets allow you to export your private key for that wallet. But the main wallet has no private key.
In other words: you do not own your money.
A Fine Wallet
CTO has complete control of your wallet. At any time, it can reach into your account and withdraw your CTO tokens. In fact, they already have.
On June 8, Cloud Token’s CTO Ronald Aai posted the following on Facebook:
What Cloud Token gives, Cloud Token takes away. Cross the organization, create trouble for the management, and they will fine you of the CTO tokens you’ve earned.
And if they can take away your CTO any time they please, how can you be sure that they won’t take your cryptocurrency too?
I don’t think Cloud Token can sustain itself for the long haul. Even if Jarvis makes perfect trades all the time, the compensation scheme will be the death of the company. With 21 layers of compensation, plus leadership bonuses, plus regular payouts, I can’t see Cloud Token remaining profitable forever. There will come a time when it will start making losses.
And Cloud Token has the means of confiscating every last token in every single CTO wallet.
The presentation video presented a rosy picture of the CTO token. Since its inception, the token’s value has been steadily rising. Currently (3rd September 2019), it is valued at USD 0.4740 per token.
But CTO is not listed on any exchange. Its value is not derived from market forces or trades. How, then, is its value derived?
The answer lies on page 21 Cloud Token’s current whitepaper:
At the top of the diagram, a box reads: ‘CTO price is determined by the Ratio between CTO in Circulation and the Jarvis Asset Reserve’.
How is the ratio used to calculate the price? What is the formula used to determine the CTO price? Why is it isolated from cryptocurrency exchanges, and thus market forces?
Most importantly: how do I know that CTO won’t arbitrarily set the price to suit its needs?
Not only that, the following clauses in the white paper should give the astute reader pause:
No regulatory supervision. None of Cloud Token Wallet or its affiliates is currently regulated or subject to the supervision of any regulatory body in Singapore. In particular, Cloud Token Wallet and its affiliates are not registered with MAS in Singapore as any type of regulated financial institution or financial advisor and are not subject to the standards imposed upon such persons under the Securities and Futures Act, Financial Advisors Act, and other related regulatory instruments. Such persons are required to comply with a variety of requirements and standards concerning disclosures, reporting, compliance, and conduct of their operations for purposes or maximizing investor protections. Since Cloud Token Wallet is not subject to such requirements or standards, it will make decisions on those issues at its own discretion. While Cloud Token Wallet will have regard to best practices on these issues, holders of CTO tokens may not necessarily enjoy the same extent and degree of investor protections as would be the case.
No fiduciary duties owed. As Cloud Token Wallet is not a regulated financial institution, it does not owe investors in CTO tokens any fiduciary duties. This means that Cloud Token Wallet has no legal obligation to always act in good faith in the best interests of holders of CTO tokens. While Cloud Token Wallet will have regard to the interests of holders of CTO tokens, it is also permitted to consider the interests of other key stakeholders and to prefer these interests over the interests of CTO token holders. This may mean that Cloud Token Wallet is permitted to make decisions that conflict with the interests of CTO token holders. Not owing any fiduciary duties to holders of CTO tokens also means that holders of CTO tokens may have limited rights of recourse against Cloud Token Wallet and its affiliates in the event of disputes.
When coupled with the red flags highlighted above, they paint a disturbing picture. CTO can manipulate the price of its tokens, confiscate a member’s tokens, shut down wallets and seize all funds — and the members will have no right to legal recourse.
Perhaps this is why CTO is already engaged in pre-emptive reputation management.
A quick Internet search of ‘Cloud Token Online’ reveals the following websites:
All of them are different sites. Different aesthetics, different layout, different content formatting. But all of them have one thing in common: promote CTO.
If you cast a wider net, you’ll find even more websites doing the same thing, just registered in different countries.
The first question that comes to mind is: Why?
Distributing content across multiple websites is a poor content creation strategy. It dilutes your keywords and SEO impact, reducing your visibility on the Internet. If you want people to find your website using various keywords, a cheaper and more effective option is to simply point multiple domain names to the same website.
But it is an excellent strategy for reputation management.
To search engines, this would seem as if many different people started their own websites extolling the virtues of CTO. To ordinary users, it would appear as though these sites were all created by different people, all of whom are promoting or have benefited from CTO, serving as social proof.
By publishing many positive and/or promotional websites and online content, a company can drown out negative content through sheer volume.
if you search ‘Cloud Token’, chances are you’ll see a pageful of websites just like the ones I linked above. You won’t find the websites that call Cloud Token a scam unless you scroll down, or specifically look for terms like ‘Cloud Token scam’.
I’m not saying that Cloud Token definitively authored all these websites. They could, for example, be created by different CTO affiliates and influencers, either as individuals or as part of a global marketing push. But the sheer uniformity of content across the websites and the lack of individual personality is suspicious. In addition, regardless of the origins of the websites, they have the overall effect of pushing out negative content.
The next question that comes to mind is this: why would a legitimate cryptocurrency need to engage in reputation management?
And why are so many websites out there claiming that it’s a scam?
CTO claims to be founded on ‘Blockchain 4.0’ technology. Secure, reliable and fast, it promises to be the cryptocurrency wave of the future. CTO claims to have many technology partners: it is working on a MasterCard debit card that allows conversion of CTO to cash, a point of sale app that uses CTO for transactions, and partnerships with other agencies and companies.
But don’t let the tech jargon and the companies dazzle you. The wise investor knows that he must understand the technology for himself.
Corporate partners are not proof of legitimacy. All they prove is that the partner believes that there is money to be made in the partnership.
To the layman, Cloud Token’s white paper is filled with convincing tech jargon that explains how ‘Blockchain 4.0’ works. In a nutshell, it uses a vast network of parallel atomic chains. Each CTO wallet is a node that retains only the part of the blockchain that pertains to itself; there is no master blockchain or global node. This may look well and good, but there is one key failing in the white paper: security.
Chapter 7 of the white paper describes how the CTO wallet is secured against a variety of security risks. This is well and good, but it neglects the most important risk: the insider threat.
Going back to the beginning, we note that the CTO wallet does not have a private key. You do not own your keys; CTO does. As demonstrated above, CTO can fine its members at will. Which means CTO can access member funds, funds that are allegedly ‘secure’.
Even if you fully and completely trust in Ronald Aai’s eternal benevolence, can you say that some disgruntled or unscrupulous employee won’t one day withdraw funds from every member’s wallet?
It doesn’t matter how many corporate partners a coin has or how convincing the tech looks. If the crypto wallet is not inherently secure, it is not safe.
So Many Red Flags
Other websites have highlighted other risks associated with Cloud Token, such as Behind MLM, Julian Leahy, and New Hot Programs. These risks include lack of track record, being promoted by scam artists, allegations of securities fraud, and more.
Scamcoin developers historically follow a predictable pattern. Roll out fancy-looking terms, hook people with reward plans, dish out useless tokens, and the moment the scamcoins stop being profitable, the devs would take all the invested funds and disappear.
CTO doesn’t seem to be any different to me.
CTO has all the markings of a scamcoin. I cannot in good faith recommend anyone to join the program. If you are already invested in it, pull out now. The returns might be attractive in the short term, but the longer you stay, the higher the risk of CTO disappearing with your funds forever.
Cryptocurrencies are the wave of the future, a future that is reflected in my superhero novel HOLLOW CITY. One part police procedural, one part superhero science fantasy adventure, our hero Adam Song finds himself counting on cryptocurrency when the establishment turns against him. You can check it out here!
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