What We Can Learn From OneCoin, Crypto's Biggest
Scam
by Emma
Newbery | Published on Oct. 23, 2021
Investors
lost over $4 billion to OneCoin leaders.
Cryptocurrency
investing can be an adventure. There are over 12,000 coins to choose from, the
market can post dramatic gains or losses in a single day, and crypto projects
range from the world-changing to the ridiculous.
Volatility
is part and parcel of crypto investing. Getting caught up in cryptocurrency
scams shouldn't be. Sadly, crypto's short history is already littered with
stories of fraudsters, and OneCoin was one of the biggest. OneCoin's leaders
stole more than $4 billion from investors around the world over several years.
What was
OneCoin?
OneCoin was
a Ponzi scheme posing as a cryptocurrency. Launched by self-styled cryptoqueen
Ruja Ignatova in 2014, the scam attracted millions of investors over a
two-to-three year period. Through flashy launches and catchy messaging, the
glamorous Ruja convinced people in 175 countries to buy packages of educational
materials and OneCoin tokens. She told people they were going to get rich and
made them believe they were a part of something big. Sadly, the "something
big" turned out to be a big scam.
OneCoin
claimed to be a cryptocurrency, but it never even had a blockchain behind it.
It used multi-level marketing (MLM) to incentivize people to sell to friends
and family. The project was not traded on cryptocurrency exchanges -- it had
its own platform.
In 2017, as
authorities worldwide closed in on the scammers, Ruja Ignatova disappeared and
has not been found since. Her brother, who took over as OneCoin CEO, was later
arrested.
If you
think all of this sounds like the plot for a movie, Hollywood agrees.
Apparently, there's a film called Fake in the pipeline. And the scam is already
the subject of an excellent nine-part BBC podcast called The Missing
Cryptoqueen.
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Nobody
wants to fall victim to a scam, even if they know it might happen. Here are
some ways to protect yourself.
Research a
project's leadership
Before you
invest in anything, whether it's a cryptocurrency or a stock, check out the
leadership. It's hard to know if internet research in 2014 would have shown
this, but Ignatova already had fraud charges pending against her in Germany. As
early as 2015, authorities in various countries were starting to question the
project's legitimacy.
Beware of
projects that dismiss critics as "haters"
OneCoin
encouraged investors to join small communities led by OneCoin salespeople. It
was almost like a cult that indoctrinated its customers into only believing the
good about the project. Any critical news articles or voices from outside these
groups were labeled as haters and dismissed.
If you are
a part of an investment forum that uses similar tactics, be careful. It is easy
to get emotionally drawn in, especially when your money is on the line. But
investigative journalists rarely criticize a project just for the fun of it or
because they don't like someone. Listen to the critics and evaluate their
comments -- then you can decide for yourself if their argument has merit.
Use a
reputable cryptocurrency exchange
OneCoin hid
the fact it wasn't a true cryptocurrency by only trading on its own exchange.
Big exchanges have pretty limited lists of coins, so there are often good
reasons for a coin to not be available from major U.S. cryptocurrency apps and
exchanges. You should always try to find out why the coin isn't easy to buy,
and don't trust a coin that only works on its own exchange and nowhere else.
Look beyond
the crypto hype
As the
crypto industry grows, we see more and more PR-led projects. Paid celebrity
endorsements are just the tip of the iceberg as currencies try to tempt unwary
investors to buy their coins. Do your own research and look for projects that
have utility and a long-term strategic road map.
Another
simple method is to search the internet for "[token name]" and
"scam." You may find unfair accusations from disgruntled investors
who lost money when the price fell, but the comments are still worth reading.
Also use sites like Token Sniffer and Coinopsy, as they flag potential scam or
dead coins.
Don't get
seduced by promises of high returns
As we've
seen in crypto this year, some investments can generate extraordinary returns.
If a coin promises those high returns though, that's a definite crypto red
flag. Nobody can perfectly predict whether the price of a cryptocurrency will
increase.
It's
different if it is a decentralized finance (DeFi) lending-earning project or
you're staking your coins to earn rewards for contributing to the overall
network security. Those are often legitimate ways to earn interest on your
assets. But even then, be sure to understand how those promised revenues will
be generated.
Only invest
money you can afford to lose
One of the
heartbreaking aspects of the BBC's podcast was the interviews with people who'd
put everything they had into OneCoin. Worse, some had even borrowed money. In
Africa, where salespeople targeted remote farmers at harvest time, families
sold land and cattle to buy into the scheme.
Even if an
investment sounds like an unmissable opportunity -- indeed, especially if it
sounds like an unmissable opportunity -- don't borrow money to invest in it.
The risk is just too high.
Don't let
the fraudsters take your money
Sadly,
cryptocurrency has all the ingredients of a great scam. It is built on a
technology that many investors don't completely understand. There's little
regulation to stop people lying about their projects or manipulating the
market. And this year, the headlines have been full of stories of huge rewards
and crypto millionaires.
This makes
it easy for criminals to construct believable and tempting stories. They want
to create a situation where people are scared of missing out on a great
money-making opportunity. But if you arm yourself with knowledge and critical
thinking, you'll be less likely to give them your money.
ABOUT THE
AUTHOR
Emma
Newbery
Emma owns
the English-language newspaper The Bogota Post. She began her editorial career
at a financial website in the U.K. over 20 years ago and has been contributing
to The Ascent since 2019.
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