Why OneCoin is a ponzi scheme

Monday September 03 2018
pros002 pix

Onecoin is considered a ponzi scheme because of the history of the people central to its creation and operation

In 2016, the Bank of Uganda (BoU) joined a long list of financial authorities in issuing a public warning regarding one particular cryptocurrency, OneCoin. This followed similar moves by others such as: the Belgian Financial Services and markets Authority; the UK’s Financial Conduct Authority (pointing to an investigation by the city of London Police into the scheme) Nigeria; India; Bulgaria; Italy; Germany and Samoa among, others.

The BoU notice was expected to inform the public that, “One coin Digital Money” is an unlicensed entity and whoever deals with “One Coin Digital Money” does so at his/her own risk.
The public notice drew mixed sentiments, in relation to the divisive topic of cryptocurrencies in general and to a lesser extent, block chain technology.

While the notice may not have had any adverse impact on the mindset of the crypto currency converts, it may have helped to consolidate the fears of the cryptocurrency skeptics.
But the genuine public notice may have been relegated to the background, enabling the continued perpetuation of a potential huge scam. This scam is likely to affect hundreds if not thousands on or around October 8th 2018 when the hopeful ‘investors’ will most likely have their fates sealed.

Red flags
Here are some red flags. Firstly, Onecoin is officially promoted by off share companies, One Coin Ltd (Dubai) and One life Network Ltd (Belize) both founded by Ruja Ignatova.
Unlike other prominent cryptocurrencies, One Coin is not based on a public ledger and its very claim of a cryptocurrency is questioned considering its centralised infrastructure and discreet code.
Although the Onecoin operators have said it works in a “unique Centralised model” with transactions recorded and a ledger it manages called the ‘One coin private block chain’, these claims are very suspicious especially if one understands the nature and essence of block chain technology.

Secondly, the projected returns promised are ‘hot air’ and in the worst case, a well-crafted pyramid scheme. To contextualise this, here a few facts relevant to Onecoin. The total current market capitalisation for all tradable crypto currencies as at 13/07/2018 was slightly lower than $250 billion while the all-time high was $850 billion as of December 2017. This represents the total market value of approximately 1,500 coins and tokens.

One Coin, on the other hand, with 56 billion coins to be mined in 2018 on October 8, promises a value of 20 euros per coin with a projected launch date market capitalisation of $1,188,000,000. In essence, it promises to be bigger than all the coins and tokens in the whole world by over five times!!
The market value for all coins and tokens is mostly driven by demand and supply. For over two years now, all that the One Coin ‘investors’ have bought in are simply ‘educational packages’.


Thirdly, Onecoin is considered a ponzi scheme because of the history of the people central to its creation and operation. According to Bjorn Bjercke, a Norwegian blockchain specialist, Ruja Ignatova the Onecoin founder, was convicted of 24 counts of fraud in Germany, stemming from the 2012 bankruptcy of Waltenhofen Steelworks. Ignatova and her father pled guilty to charges of embezzling money from employees and suppliers, bank fraud, fraudulent accounting practices and attempting to unbolt machinery to ship back to Bulgaria. She received a suspended jail sentence of one year and two months. This experience didn’t shake Ignatova much. Instead, sometime in 2014, she transitioned into the digital realm.

Tim Tayshun, a Bitcoin enthusiast who has spent a number of years researching Onecoin, met with Christian Goebel, a known serial scammer, and Sebastian Greenwood, the man behind scams such as Loopium, Prosper Inc and SiteTalk. Soon afterwards, they all joined forces with John Ng and Jarle Thorson to set up a Singapore-based Ponzi credit scam called BigCoin, riding on the back of the success of Bitcoin. Ignatova became the treasurer using her Crypto Real Investment Trust company. The scheme was marketed as “The Future of Money” and was aimed at Chinese investors. Despite the promises of wealth and largesse, the project stalled and was disbanded in 2014, taking with it $50 million in investor losses.
Yet that was not the end of Ignatova or Greenwood. Recycling almost everything about BigCoin, including the design and marketing materials, they launched the now-infamous Onecoin. The Philosopher George Santayana who once said, “Those who don’t learn from history are doomed to repeat it”.

Fourthly, Onecoin’s main business is selling educational material for trading. Members are able to buy educational packages ranging from 100 euros to 118,000 euros. Each package includes “tokens” which can be assigned to “mine’ Onecoin. To justify its “business” credentials, the official line towed by the company and its officials is that Onecoin doesn’t sell cryptocurrencies but educational material.
However, in a typical Onecoin recreating meeting, most recruiters talk about investing in cryptocurrencies, and the educational material is barely even mentioned. Why? The educational material have no value to any of the prospects let alone the recruiters but is only used as a smokescreen to win the approval of regulators. Further, the selling point is the promise that the “mined” Onecoin is the digital currency of the future, whose promised value at the launch will bring great financial tidings to the early investors. Unfortunately, no investor currently owns any Onecoin that is exchangeable with any other cryptocurrency on any crypto exchange or redeemable with fiat currency.

This practice creates a bigger problem. Early recruiters exploit the gullible people into “buying the educational products” which are instructions on how to make money. Those who do make money are the leaders and the early participants who receive commissions from any investors they sign up. In Onecoin parlance, these are the “Black Diamond” and “Blue Diamond” leaders that manage their downline teams, encouraging them to recruit more investors. In Uganda, many of these leaders have jumped ship after making a lot of money from commissions, leaving their recruits exposed.
Since human beings are greedy and always looking out for the next opportunity to get rich quicker, they become easy prey for such schemes. The majority fail to study the schemes with the view to understanding what cryptocurrencies are.
Having a basic working knowledge would go a long way in helping people exercise some caution before making any investment decision.

No law
But the absence of a regulatory regime regarding blockchain technology in general and cryptocurrencies, has created a grey area that has become the internet’s Wild West for all kinds of fraudulent schemes. From as early as 2016, Onecoin has kept on breaching many undertakings and promises to its investors such as: merchant acceptance, exchange listings, “fixed and finite” coin distribution, coin split and the surprise October announcement of the live “switching on” of a new, improved “blockchain” at the Bangkok One Life Event. It remains to be seen how the hype around the promised launch in October this year will play out. One of two things will happen; OneCoin will miss the deadline and will come up with more excuses, or OneCoin will go public with some altcoin script (takes five minutes to set up), the public price will crash (as most people will be rushing to cash out with no corresponding demand) and that will be the end of it.

Past Ponzi schemes
From Telex free, ad fast, D9 Clube, Global Finance, Amazon Trading, Reilag and many others, Ugandans have consistently been duped and large sums of money lost. While some of these schemes are owned by non-Ugandans, some are owned and managed by the same crop of Ugandans whose appetite for duping Ugandans never ends but gets more convincing with every new Ponzi scheme.

What is a ponzi scheme?
A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. Money invested by clients is not invested in any legitimate business but used to pay the people operating the scheme as well as those who invested earlier on.

Signs of ponzi scheme

Below are some signs that an investment may be a Ponzi scheme
1. It guarantees you high returns with little risk of losing your investment. A good general rule to follow is; if it sounds too good to be true, then it is false.
2. It promises you consistent returns regardless of the market conditions. Legitimate businesses usually experience times of profit and times of loss.

3. The investment strategy or business activities are described as too complex for investors to understand, or top secret. If a business idea cannot be explained, it is suspicious.
4. The company or proprietor running the scheme focuses all their energy into attracting new clients to make investments. Without a constant flow of new investments to continue to provide returns to the scheme owners and older investors, the scheme falls apart.
5. Both old and new clients face difficulty trying to remove their money from the scheme. Many times, it has already been spent on paying the proprietors or other investors.

The writer is an ICT and Telecommunications Lawyer and a Partner at Kampala Associated Advocates.