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 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 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 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 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.

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

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