In Part 1 of the Bitcoin and MLM scam series, I discussed the basics about cryptocurrency MLMs. In this section, I provide specific information to help consumers stay safe.
After the writing of this article, Securities and Exchange Commission (SEC) disclosed this in a public notice on its website, stating that none of the individuals or companies promoting the use of the currencies is recognised by it or any other regulatory agency in Nigeria.
The commission stressed the risks and possibilities of investors losing their money to such investments being promoted by these companies, including fraudulent pyramid schemes.
This comes in the wake of the return of Nigeria’s leading Ponzi scheme, MMM Nigeria, which had earlier placed a one-month ban on all withdrawals from December 13, 2016.
Upon resumption, the scheme introduced the use of bitcoins as part of its payment options, citing bitcoin’s steady growth in value as a reason for participants to adopt the currency.
However, SEC advised the public to exercise extreme caution with regard to digital currencies as a vehicle of investments.
“The public should also be aware that any investment opportunities promoted by these persons, companies or entities are likely to be of a risky nature with a high risk of loss of money, while others may be outright fraudulent pyramid schemes,” the regulatory body noted.
SEC added that, “Given that these instruments and the persons, companies or entities that promote them have neither been authorized, nor any guidelines/regulations developed for them by any of the regulatory authorities in Nigeria, there is no protection available to users or investors in these virtual currencies from financial losses if the virtual currencies fail or the companies promoting them go out of business.
“The public and consumers of financial services are further advised that before making any investment or entering into any financial services transaction they should ascertain that the entity with whom the investment or transaction is being made is authorized by the commission or other financial services regulatory authority as applicable to provide such services.”
Before I get into the specifics, I want to answer three questions:
(1) What is cryptocurrency? Cryptocurrency is digital money that relies on cryptography. Instead of relying on a centralized company (banks) to govern the ecosystem, cryptography allows the entire network to exist publicly without triggering privacy concerns. In other words, cryptocurrency is an open system that allows for the creation and distribution of digital assets (money, coins, tokens, whatever).
(2) What is a cryptocurrency MLM? It’s a network marketing program that either sells a Coin in exchange for money or provides some sort of ancillary service that supports a Coin’s network.
(3) What is mining? Mining is the process of contributing your computer resources to ensuring the transactions on the Bitcoin network (or any other coin’s network) are authentic.
Ponzi Schemes / Pyramid Schemes
Can a digital coin like Bitcoin, by itself, serve as a product for purposes of fueling an MLM? The answer is clearly NO.
With cryptocurrency MLMs, there are very few coins (if any) that are publicly available via an exchange. In this scenario, the Coins must be bought exclusively from the company. How is the price determined? The price is manipulated internally, increasing over time based on “market demand” (determined by new enrollments into the scheme). See the problem? Ponzi scheme! Understand, in order for a Coin to have real legitimacy, there needs to legitimate usage in the marketplace. Consumers need to do business with the coins, transferring funds to merchants in exchange for products. As the Coin’s usage increases, its value will grow. If there’s no usage, there’s no real way to measure value. Why would a merchant ever accept an experimental coin without knowing its real value? The answer is obvious…it’s not about user adoption it’s about the return on investment.
So there’s the first clue: In a ponzi scheme, the value of the Coin is determined in a CLOSED system, free from market tension. In a CLOSED system, the value is controlled and manipulated. The whole point of cryptocurrency is to be OPEN and operate in a TRUSTLESS environment where its existence does not hinge on a controlling entity (hence, the word “trustless” i.e. there’s no need for trust because it’s all in the open).
Second clue: we can look no further than the SEC. Weighing on the current desperation by Nigerians to invest in the growing trend of Ponzi schemes, promising mouth-watering profits, the Central Bank of Nigeria (CBN) has equally warned Nigerians against the use of virtual currencies, including bitcoin, ripples, litecoin, Swisscoin.
A statement issued by the CBN monitored on The Cable stated that virtual currencies are largely used in terrorism financing and money laundering, considering the anonymity of virtual transactions.
“The attention of bank and other financial institutions is hereby drawn to the above risks and you are required to take the following actions actions pending substantive regulation or decision by the CBN,” the statement read:
“Ensure that you do not use, hold, trade and/or transact in any way in virtual currencies. Ensure that existing customers that are virtual currency exchangers have effective capital AML/CFT controls that enable them to comply with customer identification, verification and transfer, monitoring requirements.
“Where banks or other financial institutions are not satisfied with the controls put in place by the virtual currency exchanger/customers, the relationship should be discontinued immediately.
“Any suspicious transactions by these customers should immediately be reported to the Nigerian Finance Intelligence Unit (NFIU).”
The apex bank said anyone trading in bitcoin is doing so at his or her own risk.
“The CBN reiterates that VCs such as bitcoin, ripples, monero, litecoin, dogecion, onecoin, etc., and similar products are not legal tenders in Nigeria.
“Thus, any bank or institution that transacts in such businesses does so at its own risk.”
Bitcoin was the best performing currency of the year 2016. It has appreciated from four cents in 2010 to over $1,000 in 2017.
The CBN’s warning may have been provoked by an online website, Mavrodi Mondial Moneybox popularly known by its over 2m subscribers as MMM which recently posted a message on its site intimating its customers that it may be adopting the bitcoin in future transactions.
It a statement posted under the heading: MAVRO-50% IS AVAILABLE WHEN YOU PROVIDE HELP IN BITCOIN, the online website hinted that “From now on, there is an opportunity for all of the participants of MMM Nigeria to acquire Mavro-50% when you provide help in Bitcoin.
“Mavro-50% work under the same rules as Mavro-30%. For example, all bonuses are rewarding to them according to the normal procedure. Bitcoin is an international digital currency. Bitcoin transactions take a few seconds and the transaction fee is charged very low ($0.05).
“Bitcoin does not belong to any government, companies or particular persons, which allows you to be independent from the banks and to manage your money as you want. MMM and Bitcoin strives to beat social inequality and to make the world more fair. With the help of Bitcoin MMM participants can provide financial help to each other worldwide,” it concluded.
My Conclusion, You Are Not a Bad Person if You Are Involved in MLM
One thing I have learned over the years is that people seeking any form of opportunity have different reasons for doing so. Money is obviously a major motivating factor and that is why it seems OK to promote MLM’s a lot of the time. If your neighbours and friends are doing it, then it must be OK. Unfortunately, there is nobody there to tell you otherwise and it takes something like this post to give you perspective.
If you are involved in an MLM, you are not a bad person. If you have been involved in many, you are not a bad person. We are defined often times in life by what we achieve and what “material” stuff we have, that is why a lot of us have an internal motivation to make money, make it fast, and make it just like the people at the top of these pyramids.
You are a good person, with motives I respect. I also know that there are opportunities out there for you that can carry you far beyond any MLM program could ever, affiliate marketing being one of them. I encourage you to think outside of the box and think outside of the bubble if you have been wrapped up in one or more MLM’s and are having a tough time getting it off the ground.
There comes a time where the hustle is not worth it and the realization that 95% of people fail with multi-level marketing schemes simply because their motivation is based on recruitment of others (which is a constant and tireless hustle) versus offering a quality product to people that are already interested in that very product (like affiliate marketing).
I would be happy to entertain all comments, questions, and experiences here within my comment thread. I know a lot of you will have some awesome insights to share along with some opinions. I would love to hear them and I promise to get back to you!