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BEWARE: All Bitcoin HYIPs and MLM Schemes are Scams!

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Bitcoin is the oldest and most popular cryptocurrency in the world. However, as bitcoin adoption is on the rise so is the number of bitcoin scams. Unfortunately, many of these scams have infiltrated Africa in the past few years and are preying on unknowing users who want to make money online using bitcoin.

In this article, you will find out why all so-called bitcoin high yield investment plans (HYIPs) and MLM schemes that involve bitcoin are outright scams and how to identify these schemes so that you do not fall victim to them.

What Are Bitcoin HYIPs and Why Are They Scams?

HYIPs (high yield investment plans) promise their “investors” very high returns on their invested bitcoin. The claimed returns (which are sometimes “guaranteed”) can range from 1 percent per day up to 100 percent per month, or more.

HYIP operators usually claim that they invest their “investors” bitcoins in a sophisticated way to generate high returns. Of course, that is a complete lie. Instead, they only pay out when new money trickles in through the registration of new “investors”, which is exactly why all HYIPs have well-paying referral programs that are there to lure new members to the scheme and to keep existing members propagating it.

In other words, all bitcoin HYIPs are simple and straightforward Ponzi schemes where existing investors are paid with the money coming in from new investors until the scheme collapses and the operators disappear with the funds. Due to bitcoin’s pseudo-anonymity, disappearing with stolen funds is easier than ever. Hence, the sudden growth in this type of scam.

No Protection for ICO InvestorsLegitimate cryptocurrency investment platforms, such as Iconomi, have annual management fees and transparently show their users what they are investing in and how their funds are performing. Also, users can pull out their invested funds at any time.

HYIPs, on the other hand, are always very secretive about their “investment” activities and it is hard to get your money out once you are in the scheme. Why? Because they are simply scams aimed at stealing their investors’ money once the pot has gotten big enough for the operators to exit.

What are Bitcoin MLM Schemes and why are they scams?

Bitcoin MLM (multi-level marketing) schemes take the popular element of network marketing (also known as direct selling) and leverage the popularity of bitcoin to create a scam.

It is very easy to identify a bitcoin MLM scam as they all have one thing in common. They do not sell a product or a service. Big companies that use multi-level marketing such as Herbalife, for example, have products that their direct sales people sell. When it comes to bitcoin MLM schemes there is no product and no service, which is why they can be so easily identified as just another pyramid scheme.

bitcoin scamMembers of bitcoin MLM schemes only really earn by recruiting new members, which is why you can find so many individuals posting referral links in Facebook groups promoting their “investment plan”, bitcoin doublers, (fake) cloud mining sites or MLM scheme.

The funds paid to their users are a small share of the new money from other participants. Those who join have to pay a fee. Then, the organisation pumps the amount into paying referrals. In the end, when the operators have earned enough the scheme collapses and they disappear with the money.

Alleged Bitcoin Scams in Africa

MMM

The recently reincarnated MMM is an alleged Ponzi scheme that has been around for decades. Its founder, Sergei Mavrodi, who ran MMM since the late 80s was found guilty by Russian courts in 2007 of defrauding 10 000 investors out of over $4 million in total and was sentenced to 4.5 years in prison. Unfortunately, after his release, Mavrodi relaunched MMM and targeted new markets, including Africa, for his scheme.

MMM came to South Africa in 2015 and has since spread to Nigeria, Ghana, Kenya, and Zimbabwe. The organisation promises a 30 per cent return on investments but gives no indication of how the business actually intends to generate these returns other than “individuals helping each other”. This should ring alarm bells as it clearly means that MMM is a pyramid scheme. Well, that and the fact that the company’s owner has already been convicted for running a Ponzi scheme with the same name back in Russia. Many governments were quick enough to caution their citizens about the scheme, yet MMM is still up and running in countries like Kenya and Nigeria and preying on unknowing bitcoin newbies who want to invest their coins.

According to reports by MoneyWeb, MMM South Africa collapsed in 2016 and its operators have disappeared with their victims’ funds. MMM announced on its South African Facebook page that the RB “was an experiment, and, unfortunately, it failed”. Victims who were involved in the scam, lost all their invested bitcoin as their accounts online were frozen as is traditionally the case when scammers collapse their schemes.

Onecoin

Onecoin is an alleged pyramid scheme that is claiming to have its own blockchain and cryptocurrency. However, no proof that its blockchain exists has ever been presented, whereas every other blockchain has a blockchain explorer where transactions can be viewed. Furthermore, its “digital currency” is not listed on CoinMarketCap as it is widely believed not to exist at all.

bitcoin hyipsAt the moment, Onecoin is under investigation by law enforcement departments in several countries across the globe including the UK, Germany, and India, where arrests were made.. Even the central bank in Uganda has warned its citizens about OneCoin.  Nonetheless, you will still find OneCoin “investors” send out promotional material with referral links to unknowing users online in the hope to make money by perpetuating the scheme.

MMM and OneCoin are two of the most prominent alleged bitcoin scams in Africa but there are much more. Many of them promise high returns from bitcoin cloud mining but are in reality just another form of Ponzi scheme.

How To Avoid Becoming Victim to a Bitcoin Scam

1. Ensure that company details and names of the owners are listed and real!

Most bitcoin scams will not list the company address nor have a team section that clearly outlines who runs the business and who the owners are. This is a clear red flag, so it should be the first thing to look out for.

If the company is legally registered and there are owners listed, go do a quick google search and see if these details are actually real. Fraudsters will happily provide false information in the hope that their victims do not conduct thorough research.

2. If the scheme “guarantees” you returns, it’s a scam!

If you come across a website or a system that guarantees you returns, it is almost certain to be a scam. There is always a risk when it comes to investing, so returns can never be guaranteed.

3. If the returns they state that they will generate for you are very high, that’s a red flag!

Despite the sometimes fast-increasing value of digital currencies, if you come across a scheme that tells you that it will double your bitcoin within a month or pay you 10 percent return per day, for example, you will have come across a scam with pretty much 100 percent certainty.

Just use common sense, how would a company be able to pay you 10 percent or even 1 percent returns per day other than by using the money from one investor and giving to the next as Ponzi schemes do? Bitcoin mining will definitely not make you 1 percent per day. That is mathematically impossible as we know how much the blockchain can pay out in rewards each day.

4. Read unbiased reviews online and reach out to users to hear about their experiences!

Another great way to check if an investment platform is legitimate is to find unbiased reviews and to reach out to users who have invested there. However, be wary of those who send you referral links or have them in their reviews as these opinions are not unbiased. Individuals who send you referral links when they give you their opinion are only looking to cash in on referral income, which is how participants in Ponzi schemes make money until the scheme collapses.

5. Check if the company is listed on badbitcoin.org!

The gentlemen who run the website badbitcoin.org provide an invaluable service to bitcoin novices who are tempted by high-returns promising investment schemes that are in reality just straightforward scams. The platform lists most known bitcoin scams and new sites are added on a regular basis.

6. The Golden Rule is: “If something sounds too good to be true, it probably is!”

Probably the easiest way to determine whether something is a scam or not is if it sounds too good to be true. If you are being guaranteed high returns that you can make passively online by “just” investing a few hundred dollars, you will almost certainly have come across a scam.

7. There are no legitimate bitcoin HYIPs or MLM schemes. They are all scams!

Finally, not falling for a bitcoin investment scheme in the form of a high yield investment plan or MLM/pyramid scheme is actually very easy because every single one that you come across online is a scam.

While there are many ways to earn bitcoin online, high yield investment plans and MLM schemes are not part of them and need to be avoided at all cost. If you invest in any of these schemes, you will very likely lose money sooner or later when their operators collapse the scheme and make an exit.

Unfortunately, African bitcoin Facebook groups are often full of individuals (usually with fake Facebook accounts) posting about “amazing” bitcoin investment opportunities that almost always include a referral link to a HYIP, MLM or a fake cloud mining scheme. So, keep your wits about yourself when looking for investment opportunities online and remember: “If it sounds too good to be true, it probably is!”

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Meet Africa’s Blockchain Startups: Custos Media Technologies

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South Africa-based Custos Media Technologies aims to fight online media piracy using blockchain technology. Founded in 2014 at the New Media Research Lab in Stellenbosch, the startup is run by a team of experienced specialists in disciplines such as cryptocurrency, signal processing, machine learning and media economics. Since its inception, the company has been working towards creating a watermarking technology that combats piracy using the bitcoin blockchain.

Custos’ CEO G-J Van Rooyen is an Electronic Engineering Ph.D. holder who majors in the commercial application of the blockchain. Custos Technologies aims to help film makers and other content creators to ‘eradicate piracy’ in a smart manner. They identify the specific people responsible for illegally leaking files using a trace back technique. 

How It Works

Custos Media TechnologiesCustos embeds a reward on target files. It utilises the ‘bounty hunter’ method, where individuals who find pirated files are rewarded for finding new infringements. The company embeds bitcoin rewards on the copies sent out to recipients. This lures anonymous bounty hunters to claim the prize, and this way, Custos can instantly detect the leak. The company then trails back to the person who initiated the leak, and then informs their client about who the original pirate is.

The targets comprise of three groups. The first group consists of the bounty hunters, who are basically anonymous users in piracy communities. To get a large number of users, Custos makes pieces of free software. In most cases, these bounty hunters use the Custos’ tools for personal gains. The company notes that humans are ‘endlessly resourceful in finding things’ especially when there’s a reward for it.

These hunters allow Custos’ software to crawl into the dark web, deep web or anywhere else where ordinary content crawlers have no opportunity to scour. The fact that the bounty hunters remain anonymous makes the deal even more lucrative for them.

The second group consists of Custos’ trusted partners who offer web crawling services. The crawlers search and identify the Custos protected files. Then, the third group is made of Custos’ forensic team. The team utilises web algorithms to find pirated content. Once the client is informed, it is up to them to deal with the source of the leak.

According to Van Rooyen, a bounty on contraband eBook or film or any other content takes less than five minutes to be claimed. On leading social networks, it can take about 42 seconds for the reward to be claimed. Rooyen says that Custos is also able to detect content shared offline. He adds that it takes 28 minutes to identify a movie or file shared on a DVD or USB drive.

Early Success

Despite all the hype, Von Rooyen indicates that the project is still in its ‘very early stages’. Yet, Rooyen says that Custos has been able to catch a good number pirates. He says that the majority of its bounty hunters are college students from developing countries who take the $5-$10 worth of bitcoin reward seriously.

Regarding the use of bitcoin, Rooyen explains that Custos relies on several anonymous users who have the information needed by clients and bitcoin, he believes, is an ideal way to pay them anonymously. 

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