Onecoin is up there with the most successful fraud schemes ever and it popped up in the news again last week when its founder, the acclaimed ‘Cryptoqueen’ was added to the list of FBI’s 10 most wanted criminals.
Since many were not yet conversant with the crypto space when the project was gaining traction, shall we dive into the details of one of the most fascinating and at the same time devastating hoaxes in history?
Let’s get to it.
What is OneCoin
Described by The Times as “one of the biggest scams in history”, OneCoin was fundamentally a Ponzi scheme disguised as a cryptocurrency.
A Ponzi scheme is a form of investing scheme that promises a high rate of return on an investment with little or no risk to the investors. It is essentially a pyramid scheme in which early investors are repaid by bringing in new ones.
OneCoin did just that. Launched in 2014, its promo materials positioned it as the next big cryptocurrency and a “better Bitcoin”.
At its peak, it is believed to have had over 3 million members in 175 countries, bringing in between $4 billion and $19 billion for the founder and Cryptoqueen and her accomplices over a two-to-three-year period.
Names behind OneCoin?
The mastermind of the OneCoin project is Ruja Ignatova, dubbed as The Missing Cryptoqueen in a BBC podcast series about the OneCoin scam. Born in May 1980 in Bulgaria, she graduated with a PhD in International Law from the University of Konstanz in 2006.
She launched OneCoin alongside the two other key personas: her brother, Konstantin Ignatov and Sebastian Greenwood.
Ruja Ignatov got to know Greenwood from ‘BigCoin’, which was a sort of alpha version of the OneCoin project. It was said that many of the schemes and scam dynamics used in BigCoin were later recycled for OneCoin.
Sebastian Greenwood was a proper scammer. According to Cointelegraph, he had launched a pyramid scheme hiding behind MLM practices called Unaico before OneCoin.
Ruja’s brother, Konstantin Ignatov played an important role but did not mastermind the scam.
How did OneCoin do it?
By deploying glamorous launches and catchy messaging
Ruja convinced people in 175 countries to buy packages of educational materials and OneCoin tokens. OneCoin promised all the buzzwords that cryptocurrencies throw around: Safe transactions, Easy to use, Cheap and time-saving etc. Buyers could mine OneCoins, which would eventually hit the market and revolutionize global payments.
In reality, OneCoin was never worth anything. It claimed to be a cryptocurrency, but it was not even backed by blockchain technology. It used multi-level marketing (MLM) to incentivize people to sell to friends and family.
The scheme made money selling educational materials and using its cryptocurrency as a marketing vehicle. The coins users mined could never be traded on crypto exchanges, it had its own platform.
Although they had a nominal internal value on the OneCoin site, users could not cash out and could only transfer their coins in limited quantities within the closed system.
Behind MLM, a website uncovering MLM scams detailed an example of how a restaurant in 2016 was willing to accept OneCoins for a meal — but at only 0.16% of their actual value. For instance, a meal that cost £13.99 GBP could be paid with 1,399 OneCoins, which were worth £8,572 GBP, according to the website.
However, you shouldn’t blame those naive and innocent ‘investors’. It must have been difficult not to believe a charismatic, PhD-holding leader with sterling oratory prowess speaking to over 90,000 people at the Wembley Arena promising ‘heaven on earth’ assurances.
Dr Ignatova even appeared in the Bulgarian version of Forbes. You could watch this video to confirm how ‘promising’ Ruja made OneCoin look.
Ruja and her friends told people they were going to get rich and made them believe they were a part of something big. Unfortunately, “something big” turned out to be a big scam.
How the scam was discovered
OneCoin was accused of being an MLM Ponzi even before it officially crashed. In 2015, Cointelegraph wrote:
“The amount of evidence contributing to OneCoin’s status as a pyramid scheme is considerable. Its directors have previously been involved in other known scam operations, its resources contain no verifiable evidence for any of its business claims and documentation uploaded to support claims often conflicts with the claims themselves.”
In October 2017, Ruja Ignatova failed to show up for a convention of OneCoin promoters in Lisbon. There were fears that she had been killed or abducted by their ‘haters’.
By that time, warnings of OneCoin being a scam were widespread. Famously, Björn Bjercke, a blockchain developer, had been contacted by the OneCoin team to build a blockchain for them. He explained how the team did not have a clue about blockchain technology and warned people about investing in OneCoin.
According to a BBC report, court documents revealed that Ruja boarded a flight from Sofia to Athens two weeks after the Lisbon event. Her whereabouts in those two weeks remain a mystery, and that is where her trace gets lost.
With Dr Ignatova hiding underground, it was her brother’s turn to take over. The Bulgarian authorities raided the headquarters of OneCoin in Sofia, Bulgaria in January 2018 at the request of German prosecutors, but the scam website continued operating.
It only stopped after Konstantin Ignatov was arrested in March 2019 in Los Angeles. He later pleaded guilty and went into witness protection. The OneCoin site was closed in December 2019.
The OneCoin fraud scheme was so big that several central banks warned against investing in it, such as the Croatian National Bank in 2017, and the central banks of Latvia, Sweden and Norway in 2016. In 2017, Germany’s Federal Financial Supervisory Authority also issued a cease and desist order on OneCoin.
Why OneCoin was that big
To understand how widespread and big OneCoin was, it was at one time the second largest cryptocurrency by market cap. It had over 50% of Bitcoin’s market capitalisation and it was poised to become bigger and eventually kill the flagship asset.
Below are some excerpts from a promotion show at the Wembley Arena, London, by Ruja Ignatova on June 11, 2016.
“It is really a pleasure for me to be here, one and a half years after we launched our cryptocurrency, OneCoin….
This network was created to become and to fuel the growth of OneCoin, which I strongly believe will be the number one cryptocurrency worldwide. And the reason why I believe it is because I see all of you here.
OneCoin is easy to use. OneCoin is for everyone. Make payments everywhere, everyone, globally. And this is who we are. Global citizens of a small world, wanting to make a change.
So in the last two years, I have been called a lot of things. And probably the best thing that the press called me, was OneCoin, who is supposed to be the bitcoin killer. Well, I must say I like it.
You all know, that since we mined our first coin in January 2015, our growth exploded. Sebastian and Kari showed us the numbers. Today, over two million users. Users mean active users. Our database has easily more than 12 million entry points. But this two million are active users. And no other cryptocurrency has as many users as we do.”
A piece by BBC tagged “The Missing Cryptoqueen” also gives an insight into what lured investors into the OneCoin trap:
“Investors often told us that what drew them in initially was the fear that they would miss out on the next big thing. They’d read, with envy, the stories of people striking gold with Bitcoin and thought OneCoin was a second chance. Many were struck by the personality and persuasiveness of the “visionary” Dr Ruja. Investors might not have understood the technology, but they could see her talking to huge audiences, or at the Economist conference. They were shown photographs of her numerous degrees, and copies of Forbes magazine with her portrait on the front cover.”
OneCoin was a sort of second chance for those that missed Bitcoin but still believed that cryptocurrencies were revolutionary.
A Scotswoman, Jen McAdam, who invested in OneCoin narrates her ordeal. She remembers turning into a OneCoin webinar and being blown away by the “very up-tempo, full of beans, full of passion” style of the presenters.
Following that, she invested €10,000 of her own money and persuaded friends and family to invest €250,000 of theirs.
However, a few months later, Jen received a message from Tim Curry, a Bitcoin enthusiast that was educating people about the scammy practices of OneCoin. Jen started asking questions. After persisting, she eventually found out that there was no blockchain at all behind OneCoin. It was all based on an SQL server, which was not a blockchain.
She recalls in a BBC interview:
“You’re told not to believe anything from the ‘outside world,'” she recalls. “That’s what they call it. ‘Haters’ – Bitcoiners are ‘haters.’ Even Google – ‘Don’t listen to Google!'” Any criticism or awkward questions were actively discouraged. “If you have any negativity you should not be in this group.”
A reason why Ruja’s monkey business was a success was that they identified people’s weaknesses, which was covetousness and they exploited them since there was no substantial technical/blockchain understanding then.
In that era, Bitcoin was trading just above $500, Litecoin was still a top-five coin and basic crypto education wasn’t widespread as we have it now.
So the wild gospel of riches for those that missed the Bitcoin boom (from 0 to over $500) was too tempting to ignore. According to estimates, the OneCoin scam was highly successful. Cointelegraph quotes sales revenues between $4.4 and $19.4 billion.
Also in 2021, law enforcement in Seychelles was asked to look into transactions of 230,000 Bitcoin rumoured to be connected to the scam.
Where are the perpetrators?
Sebastian Greenwood was indicted and is being held at a New York prison for the duration of his trial. Last year, he was found to have moved $20 million from a smuggled phone he received.
Konstantin Ignatov, Dr Ruja’s brother pleaded guilty and revealed that his sister had fears of being tipped off to the feds before disappearing. He is now on witness protection.
The engineer of the largest Ponzi scheme the world has ever seen, Dr Ruja Ignatova, known as Cryptoqueen, was last seen in Athens, Greece in October 2017. There have been multiple reported sightings of her in Dubai, Thailand, and elsewhere, but none have been verified.
There are talks that she may be hiding in plain sight thanks to plastic surgery. Whether Ruja Ignatova will ever resurface or be caught remains to be seen.
What we can learn from this
There are a plethora of lessons to be learnt from the rise and fall of OneCoin. The technology behind the blockchain is one of the easiest to launch scam projects. In order not to fall victim to that, it is best to protect oneself.
Before making any financial investment, research the leadership team at least.
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. A simple internet search could have revealed and prevented millions of people from falling victim.
Second, it is imperative to state that cryptocurrency is not a cult. OneCoin was like a cult that indoctrinated its customers into only believing good news about the project. Any critical news articles or voices from outside these groups were labelled as haters and dismissed.
It is best to heed investigative news reports, critics and remarks from knowledgeable people in the space. Evaluate those comments and beware of projects that dismiss their critics as “haters”.
Third, do not trust coins that only work on their own exchange, and are not listed on other major exchanges. OneCoin concealed the fact it was a sham by only trading on its own exchange.
Lastly, do not invest more than the amount you can afford to lose. Any scheme that proposes trading for you or that promises extraordinary returns in a short period is most likely a scam.
As the crypto industry continues to grow, we will see more paid celebrity endorsements. It is proper to do your own research and look for projects that have utility and a long-term strategic road map.
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