REVISITING THE BANK OF UGANDA ONECOIN ALERT: GENUINE

CRYPTOCURRENCY OR HYPED PONZI SCHEME?

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’s public notice for all the mixed feedback it generated was for all
intents and purposes, a plain disclaimer, and came from the perspective of the
Central Bank which was acting in furtherance of its general mandate of
maintaining economic stability. The gist of the notice was and still is, simple; to
inform the public that, “One coin Digital Money” is an unlicensed entity and
further telling the public that, whoever deals with “One Coin Digital Money”
does so at his/her own risk.

Understandably, the public notice drew mixed reactions and sentiments,

depending on where one stood in relation to the still divisive topic of
cryptocurrencies in general and to a lesser extent, block chain technology. It
was therefore not surprising that the majority if not all people who had already
ventured into the cryptocurrency space as investors, saw this as an
unwarranted attack on cryptocurrencies in general. 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.

As with many public debates, there is always the danger that the message gets
lost in the noise. My fears are that the aforesaid genuine public notice may
have actually been forgotten and relegated to the background, thereby enabling
the continued perpetuation of a potential huge scam. This scam is likely to
affect hundreds if not thousands on or around the 8th October 2018 when the
hopeful ‘investors’ will most likely have their fates sealed.

At the risk of negative backlash or outright dismissal from the Onecoin

‘Investors’, I will venture to give a few red flags that should cause some
concern. Firstly, Onecoin is officially promoted by off share companies, One
Coin Ltd (Dubai) and One life Network Ltd (Belize) both founded by Ruja
Ignatova. However, unlike the majority of the prominent cryptocurrencies, One
Coin is not based on a public ledger and its very claim of a cryptocurrency is
questioned considering its centralized infrastructure and discreet code. Of
course, the Onecoin operators have previously stated that it operates in a
“unique Centralized model” with transactions recorded and a ledger that it
manages called the ‘One coin private block chain’. These claims are very
suspicious especially if one understands the very nature and essence of the

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block chain technology. While the informed and technical people will know that
cryptocurrencies can’t be run on SQL Servers, as cryptocurrencies need
decentralization, the gullible and possibly uninformed majority don’t have that
luxury and actually believe what they are told

Secondly, the projected business model or returns promised under the scheme
are for a lack of a better description hot air and in the worst case, a well-
crafted pyramid scheme. To contextualize this, it helps to give a few facts
relevant to Onecoin. The total current market capitalization for all tradable
crypto currencies as at 13/07/2018 was slightly lower than two hundred and
fifty billion dollars while the all-time high was eight hundred and fifty billion
dollars as of December 2017. The above represents the total market value of
approximately one thousand and five hundred coins and tokens. One Coin on
the other hand with a promised fifty six billion coins to be mined in 2018 and
promised to be launched on the 8th October 2018, promises a value of twenty
(20) euros per coin with a projected launch date market capitalization of one
trillion two hundred and eighty eight billion dollars. In essence, it promises to
be bigger that ALL the coins and tokens in the whole world by over five times!!

It should be noted that, 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 the creation and operation of Onecoin. 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 even 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. According to Tim Tayshun, a
Bitcoin enthusiast who has spent a number of years researching Onecoin, she
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 (CRIT). 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

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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, by its very nature, Onecoin 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. In a bid to demonstrate or 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 of the time recruiters talk about
investing in cryptocurrencies, and the educational material is barely even
mentioned. It is easy to understand why. The educational material have no
value to any of the prospects let alone the recruiters but is only used as a
smokescreen in a bid 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, the problem with this find of dishonest
practice is that, no investor at the moment owns any Onecoin that is
exchangeable with any other cryptocurrency on any crypto exchange or
redeemable with fiat currency.

This dishonest practice creates a bigger problem. The early recruiters exploit
the gullible people into “buying the educational products” which are basically
instructions on how to make money. The ones 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
spread the word and recruit more investors. In many countries though, many
of these leaders have jumped ship after making a lot of money from
commissions, leaving their unfortunate recruits exposed. This seems to be the
case in Uganda as well.

And because, we as human beings are generally greedy and always looking out
for the next opportunity to get rich quicker, we become easy prey for such
schemes. The majority fail to study the schemes with the view to appreciating
and understanding what cryptocurrencies are. Having a basic working
knowledge would go a long way in helping people exercise some caution prior to
making any investment decision. After all, investments ought to be informed,
even if risks may exist.

Lest I am misunderstood, I am a strong believer in the enormous potential of

the block chain technology and to some extent cryptocurrencies. These are
game changers and will continue to disrupt many services world over. As with
many things in life, technology can be used for both good and bad motives.
While there is no fixed formula for what a good cryptocurrency should be, there

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are plenty of wrong ways to ‘create’ one. I have only tried to exemplify some
herein above in relation to one particular ‘coin’ as it was the specific subject of
the BOU Public Notice and has further been the subject of various public
warnings in various jurisdictions, which is not common within the
Cryptocurrency circles.

Suffice to note that the absence of a regulatory regime regarding the blockchain
technology in general and cryptocurrencies in particular, has created a grey
area that has become the internet’s Wild West for all kinds of fraudulent
schemes. I am not in position to make a judgment call on any cryptocurrency
as I am no regulator. However, it is in the public interest that I reiterate the
above concerns, which have been raised by many industry experts and
observers world over. From as early as 2016, Onecoin has kept on breaching
many undertakings and promises made to its investors such as: promises of
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 current hype around the promised launch on the
8th October 2018 will play out. Going by the history, it is easy to predict that
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 5
minutes to set up), the public price will crash (as most people will be rushing to
cash out with no corresponding demand) and that’ll be the end of it.

As a Country, this has not been the first and neither will it be the last Ponzi
scheme. 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 and only gets more convincing with
every new Ponzi scheme. The script is the same at the end, Ugandans in tears
with wiped out savings and lost investments. It seems many never learn from
history and are thus doomed to perpetually repeat the same.

At the end of the day, people need to be reminded that there is no get rich
quick formula anywhere in the world, save for Ponzi schemes. Secondly, no
amount of friendship or sweetness of the deal should take away the need for
people interested in making any investment to carry out some basic study and
understanding of the very basic principles under pinning any proposed
investment. As the adage goes, knowledge is power.

Most importantly, it is not constructive for the public to disregard any caution
and warning issued by anyone, especially if it is coming from a key financial
services sector player such as the regulator. While it is not mandatory for the
public to agree with their views or advice, it is prudent for people to pose and

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reconsider their position in order to manage the potential exposure to financial
loss and in some cases ruin. As anyone will realise, the absence of a regulatory
framework relating to blockchain technology and cryptocurrencies constrains
any institution or law enforcement agency from taking any meaningful,
informed and objective intervention relating to any suspected fraudulent digital
scheme. It is understandable that many regulators are still grappling with the
disruptive nature of many technologies and have for the most part sat on the
‘regulatory fence’ waiting to see how the market will react to the technologies.
What is certain is that, over regulation of any technology is as destructive as
having no regulation at all. The former stifles innovation while the latter
creates regulatory uncertainty which gives rise to all kinds of issues, including
fraud. Such uncertainty coupled with the unchecked fraudulent schemes
become a cancer to the growth and positive adoption of genuine technological
innovations. These fraudulent schemes also feed into another problem of illicit
financial flows, as most money is lost to the founders, most of whom are non-
Ugandans. As the economists may argue, this equally affects our currency, as
most payments for these schemes are dollar based.

It is therefore a good development that the Government has commenced public

engagement and consultations regarding the proposal to create regulations for
the use of blockchain technology and possibly cryptocurrencies. This should be
fully embraced by all interested parties, especially those interested in
cryptocurrency investments, as it is arguably the largest current use of the
blockchain technology. In the meantime, Ugandans, should exercise caution in
some tokens and coins that are riding on the bitcoin hype without taking time
to study and understand the fundamental basics about the blockchain
technology and some cryptocurrency universally accepted as the minimum
industry standards. As with most things in life, we should trust but verify.

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