Bitcoin and other cryptocurrencies are slowly gaining acceptance in African countries such as Zambia, Zimbabwe, Nigeria, Kenya and Botswana. There is, however, lack of general knowledge and awareness that has led to the rise of of bitcoin scams targeting Africans.
Bitcoin is a decentralised digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
Bitcoin has been on a jumpy road since its inception. The price is what attracts many people. Bitcoin is very volatile, meaning that the price can go up and down a lot in short periods of time. Over longer periods of time the price tends to mainly go up though. It’s a great place to store money for the long term, a bit like a saving account.
Apart from the decentralized nature, with no one in control, also strengthens the fact that supply is limited. There will only ever be 21 million bitcoin. Fortunately 1 bitcoin is divided into 100 million satoshis. You don’t need to buy a whole bitcoin and in 2019 “stacking sats” has become a popular internet meme.
High profile crypto scams in Africa
Some of the high profile scams in Africa include:
- A bitcoin investment company, Velox 10, disappeared with with millions of Kenyan shillings in 2019.
- A bitcoin company, Calabar, disappeared with millions of Nigerian naira. The company promised customers 30 percent earning from bitcoin online trading.
- In May 2018, South African authorities said they were investigating an alleged bitcoin scam, involving a company called Bitcoin Global that defrauded investors of 1 billion rand ($80 million) with promises of huge returns. The company promised customers that they would earn 2 percent per day, 14 percent a week and 50 percent in a month.
- Angry South Africans looted and torched the home of a man who reportedly operated an alleged bitcoin scam in South Africa.
We have come up with a summary of warning signs of bitcoin scams.
1. Bitcoin Ponzi scheme
A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Thousands of South Africans lost money this year from a Ponzi scheme, which promised returns of 100 percent in 15 days.
2. Phishing websites
Phishing is the fraudulent attempt to obtain sensitive information such as usernames, passwords and credit card details. In this case, a phishing website may trick you to enter your private bitcoin key. A private key is a secret passcode used to spend or send your bitcoins to another bitcoin address.
3. Fake Initial Coin Offerings (ICOs)
Exercise caution and take time to gather more information about new ICOs promising to take offer huge, quick returns. Read for more information this article: Why ICOs are Scams and Why You Should Never Invest In Them
We believe that “real” ICOs are also mostly scams that you should not buy into. Simply holding bitcoin for the long term is likely to give you a good return. No need to chase after even higher returns.
4. Membership or training fees
One of the signs of bitcoin scams is when you are asked to pay fees for membership or bitcoin and altcoin training.
5. Fake wallets
A cryptocurrency wallet is a secure digital wallet used to store, send, and receive digital currency like bitcoin. You need to ask experienced cryptocurrency users about a specific wallet you intend to use or read wallet reviews on trusted websites.
6. Cloud mining
Bitcoins are created through mining. It is a costly venture in terms of equipment and time. However, with cloud mining you are able to mine by using a cloud mining service for a fee. There are legitimate cloud mining services but you need to be extra careful when choosing a particular service.
In general, if you want to beat the returns of bitcoin itself, you have to know extremely well what you’re doing. Most of the cloud mining offers are not worth getting into, even if they are not scams.
Some scammers offer bitcoin giveaways by asking you to send money, bitcoins or personal information for registration. Giveaways are mostly scams.
Not per se scams
An exchange is a digital marketplace where people can buy and sell bitcoins. Many people had bought their first bitcoin with Mt. Gox and left the bitcoin on the exchange. Mt. Gox collapsed and years later it’s still not clear how people can get their coins back.
Generally we can say: Not your keys not your coins.
You have to store the bitcoin on your own phone, paper wallet or hardware wallet. You are responsible for your own safety and your own backups.
On exchanges you can also get tempted into trading altcoins.
An altcoin is any kind of cryptocurrency that is not bitcoin. Most altcoins are probably started by people who mean well, but in the end, think about this:
- each and every altcoin founder will store a big part of their wealth in bitcoin.
- if something bad happens to the altcoin founder the price of the altcoin is likely to go down hard.
- none of the altcoins has the level of support, security, available software, usage and notability like bitcoin.
You are better off avoiding any kind of trading altcoins. It is a bit like the casino, you can probably make money if you’re lucky, but then you think you’re smart and you’ll end up spending a lot time trading (gambling) and in the end you’re unlikely to outperform the mad gains that bitcoin has and probably will experience.
- Check out backgrounds of any founder/s of a bitcoin company for criminal record or shaddy business dealings.
- Store funds in a safe crypto wallet .
- Encrypt your wallet.
- A hardware wallet such as Trezor is one of the safest options for storing funds.
- Keep multiple wallets.
- Backup your wallets safely.
- Use two-factor authentication.
- Never share your private keys with anyone.
- Download your wallet from verified app stores.
- If you have become a victim, report the issue to the police and alert all your friends, co-workers and family members to protect them.
Bitcoin is an exciting technology, so it’s normal you want to share this with people you care about. It’s good to not get too crazy about it though. The fact that you yourself hold the value also means that someone else can relatively easily take it from you.
If somone knows you are into bitcoin, this can become a security risk in the long run. If the price goes up like it has gone in the past, if you currently own 100 dollars worth of bitcoin, you may be able to buy a house with that money in 10 years. So keep a low profile (e.g. no lambo) and never tell how much bitcoin you own. If someone asks, “not enough” is the best answer.
Once you lose money in a bitcoin scam, it is completely impossible to recover. Bitcoin transactions are not controlled by central banks or any state financial agencies. Moreover, the transactions are irreversible. It is for this reason, you need to take extra caution when dealing with bitcoin.