Issue 224: 2019 11 21: Crypto Scams

21 November 2019

How to spot a Crypto scam

…Or create one.

– by Frank O’Nomics.

News that one of the “brains” behind the cryptocurrency OneCoin has admitted to it being a vast Ponzi scheme ought get many investors into similar projects asking serious questions. While new ideas can offer great returns, they also present opportunities for the unscrupulous to take advantage of the unwary.  How then can we try to spot a cryptocurrency, or indeed any financial scam?

Set up in 2014 by a Bulgarian, Ruja Ignatova, OneCoin was sold as a more universal version of Bitcoin.  A currency that was free from the constraints of governments who can print at will, safe from the vulnerability of the banking system, which could become a trading mechanism for the unbanked.  It promised freedom for its users and great riches for those who invested.  With a high profile and charismatic leader, investors flocked into OneCoin to an extent that is still coming to light.  Estimates of $4 billion look modest, with a number three times that size possible when the amounts sold into China and Africa are included. The current value of those investments?  Nothing.  Zero.  Zilch.  Nada.  Despite Ms. Ignatova going missing in October 2017, the cult of OneCoin persisted into this year, with many continuing to be attracted by the false claims. This finally looks to be (almost) over, but there are already signs of new bogus cryptocurrencies emerging. To avoid being duped we need to understand just what are the key ingredients.

  • Appeal to people’s greed. Don’t you wish that you had bought bucket loads of Bitcoin at a few cents? You may not have been smart enough to offload at the peak of $18,000, but even at the current level of $8,000 you would be one of the wealthiest people on the planet. When shown a new currency that, its proponents argue, will not only usurp Bitcoin’s status as the premier cryptocurrency, but will become the global medium of exchange, it is hard for the avaricious investor to ignore.
  • Appeal to the desperate. By creating low cost entry-level packages of the currency people of very modest means can get involved. For investors in the UK (who parted with around £100 million) this could mean taking out bank loans. For those in Africa it meant spending small but very important cash savings and, as a recent BBC investigation discovered, the selling of goats that were a key provider of sustenance and income.
  • Appeal to people’s better natures. For the vast numbers of those without bank accounts OneCoin, it was argued, would provide a way of safe transactions via mobile phones or the Internet. The currency could not be manipulated by governments and was not at risk of being held in a potentially unsafe bank. OneCoin was supposedly backed by Blockchain technology (it wasn’t) and hence all transactions were validated and recorded. Why not invest in a currency that was designed to help the bottom billion in the world?
  • Wrap in an air of credibility. With a charismatic Oxford-educated ex McKinsey founder, OneCoin was able to generate intellectual kudos and, with persuasive presentations at venues as large as Wembley Arena, investors would have felt that they were in good company. Most people do not understand Blockchain technology, which makes it easier for those who purport to to pull the wool over their eyes. Add to this that the currency is tradable over a platform and still more will be hooked. Close inspection of the platform, Dealshaker, shows a currency largely only usable in conjunction with Euros (the value beyond the Euro amount is hard to discern) to buy a limited product range. To actually trade the coins for fiat currency is a much tougher prospect.
  • Employ multi level marketing. This is an old established sales technique that still employs a great many people in the UK.  I buy a package of products (vitamins, Tupperware, etc.) and sell them to two others, who then sell packages to two people each.  I generate commissions on all of their subsequent sales, and the sales of people that they sell to. The person at the top of this tree can make a huge amount of money out of the efforts of the rest, but by the time it has progressed a number of layers those selling at the bottom will make very little. There is nothing wrong with such marketing if there is a tangible product. If not, it is an illegal pyramid scheme. OneCoin employed experienced and very successful multi-level marketers, many of whom were just as duped as the people to whom they sold the OneCoin – they were encouraged to reinvest their commissions into OneCoin.
  • Create a cult. Through a process of marketing at large rallies and conferences, OneCoin rapidly became OneLife. If you are not part of it you are against it and anyone pointing out the deficiencies in OneCoin is vigorously targeted on social media.
  • Control the price. Without any facility to trade the currency there is no marketplace where a price can be set. Deciding what the price is, and then gradually pushing it up over time to satisfy those involved, and make others feel that they are missing out, becomes a simple process.
  • Use jurisdictional differences. While the authorities have stepped in in most nations to stop their activities it is, even now, possible to buy packages of OneCoin online.

Do any of these factors seem familiar with other investment products?  That is for you to decide.  Sadly, the most vulnerable of the victims of OneCoin are the least likely to be able to spot all of these markers.  It may be tempting to indulge in a little schadenfreude as speculators motivated by pure greed lose money that they can afford to, but there are thousands in developing nations, tempted by the prospect of freedom from poverty, for which such cons are an utter disaster.


For those wishing to learn more about the OneCoin story, I highly recommend the BBC podcast “The Missing Cryptoqueen” by Jamie Bartlett.

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