By Kotie Geldenhuys
In these tough economic times one cannot blame people if they want their money to grow, especially when good returns are promised, as in the case of cryptocurrencies. These include Bitcoin and Ethereum, Dogecoin and Tether and many other types of cryptocurrencies, which can be very overwhelming to people who want to invest in the crypto market. White-collar criminals are well aware of this and will eagerly scam people out of their hard-earned money.
Cryptocurrency is described as a digital currency in which transactions are verified and records maintained by a decentralised system using cryptography, rather than by a centralised authority (lexico.com). It was made famous when Bitcoin was launched in 2009 (Baker, 2022). This form of virtual or digital money, in the form of tokens or coins, are not only used to purchase goods and services, but has also become a popular investment vehicle. Cryptocurrencies are unregulated and since there is no central banking authority that manages their value, this value is derived from what users are willing to pay per unit. Blockchain technology enables, records and stores all online transactions and is based on strong cryptography to secure each transaction. Africa has the smallest cryptocurrency economy globally, but the market is growing steadily and if used legitimately, crypto can boost e-commerce on the continent (Chelin, 2021).
However, with a currency which is designed with anonymity and no centralised control in mind, it comes as no surprise that cryptocurrencies have become an attractive and lucrative target for criminals. The latter engage in crypto scams as well as organised crime and financial crimes such as money laundering or crypto laundering. Cryptocurrencies are appealing to criminal syndicates due to its global reach and the transacting speed (Realuyo, 2022). When the world’s largest Bitcoin exchange Mt.Gox went offline in January 2014, 850 000 Bitcoin (valued at $450 million at that time) were gone for their owners (Marr, 2017). Criminal syndicates can easily send and receive payments without revealing their identity as many cryptocurrencies provide users with complete anonymity. Bitcoin has however intended to address this gap by tracing its users via the e-mail addresses they use to create an account (Chelin, 2021).
Scammers are fond of “using” cryptocurrency, due to its anonymity and unregulated nature, to scam investors out of their money. When investors have little knowledge about digital currencies, it plays even more into the hands of scammers. Although the specifics vary, the majority of these scams fit in with the characteristics of pyramid and Ponzi schemes. There are many examples of these scams such as Velox 10 Global, which was a pyramid scheme with roots in Brazil that took millions of shillings from Kenyans in 2018 and 2019. Velox 10 Global claimed to trade in Bitcoin and charged a membership fee of almost $100. Members were told that they could earn up to $4000 daily by paying an additional upgrade amount of $200. Investors never received those returns (Mureithi, 2021). Although Africa has the smallest cryptocurrency economy globally, two scams that were initiated out of South Africa, namely Mirror Trading International and Africrypt, have brought about more scrutiny to crypto on the African continent. In this article we will briefly discuss these two scams as well as two others which were recently perpetrated in South Africa. All these cases are still under investigation and it is common knowledge that these types of investigations can be very time-consuming. It is however, important to share the information about scams involving cryptocurrencies as a warning to people.