Onecoin: Cryptocurrency for the gullible

Stifled with poverty, we would turn to anything that would give us a ray of hope even if it means throwing common sense out the window

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Our society seems to be fascinated with credulity and self-delusion. I first noticed this back in 2013, when “Engineer” Agha Waqar came up with a no-cost transportation solution way before the Toyota Aqua was introduced in the Pakistani market. The water-kit was supposed to be the revolution we had all been waiting for; a car solely powered by water! Best of all, it was invented by a virtually unknown engineer in the small village of Khairpur, further adding spice to the rags-to-riches story.

Though the very premise of the water-kit contradicted a fundamental law of Thermodynamics, Waqar managed to garner national attention without so much as explaining how his invention really worked. Some of the biggest names in the Pakistani scientific community, including Dr Abdul Qadeer Khan, defended the engineer when critics pointed out the ridiculousness of the entire affair. Rather uneventfully, Waqar failed to provide controlled demonstrations of his water-kit and eventually faded into obscurity. Mr Engineer got his fifteen minutes of fame and we all carried on with our lives.

Though this isn’t related to what I’ll talk about, the ordeal brilliantly demonstrates the psyche of Pakistan as a nation. Stifled with poverty, we would turn to anything that would give us a ray of hope even if it means throwing common sense out the window. On the flipside, we would be quick to coin something as a scam if we don’t fully understand it, hence the eyebrow-raising against cryptocurrency in general. It’s understandable; nobody can really pinpoint what drives the value of virtual assets such as Bitcoin. All we can really deduce are the high price fluctuations and appreciation of this asset class.

The story of Bitcoin is one in a million. The six-digit percentage increase in less than a decade is unheard of in the entire history of finance. This meteoric rise managed to catch the attention of the average Pakistani, who wanted to cash in his Honda 125 for a BMW. The only problem? He didn’t know where to start. If only there was a localized version of Bitcoin that could multiply his returns. Enter Onecoin.

Onecoin was founded by a Bulgarian lady known by the name of Ruja Ignatova. Not much is known about this woman. What is known is that the parent organization, Onelife, has been banned from multitudes of countries for operating a Ponzi scheme. This includes Italy, Germany, Belize, India and most recently Pakistan. Oh, and one of the people involved in their day to day operations has also worked for Unaico. That’s the same company investigated for fraud by the Securities and Exchange Commission of Pakistan.

Therein lies the first problem for Onecoin. Let’s hypothetically (and I am using the term very loosely) suppose that Onecoin is the real deal. That it’s actually backed by a solid business model and will eventually be the one world currency we have all been waiting for. Since it has received such bad press, it becomes much harder to convince people to buy into the currency and support the network. Because of the low computing power and capital for the organization, they are unable to sustain day to day operations. It becomes a cyclical self-fulfilling prophecy and the network crumbles under its own weight since miners are now less willing to purchase Onelife’s mining packages.

Mining Packages?

Yes, you heard that right. To mine the currency, you must purchase certain mining packages from the organization. These range from Pak Rs35,000 for the beginner package all the way to millions of rupees. And what do you get for this investment? A bunch of tutorials on how to “directly sell” to clients along with tokens for the currency. To increase your initial investment, you refer other people to buy the currency and get a certain commission on the amount they invest. When they find someone to invest in the currency, you get a commission out of that too and the cycle goes on in a “triangular” fashion, with the ones at the top receiving commissions from each sale made at the bottom. Sound familiar?

Here’s the real kicker; the coins that you initially purchase via the organization directly hold no value at all. As in, the small number of Onelife sponsored merchants that accept Onecoin don’t accept the tokens that you initially receive. You can buy goods through the commission tokens you earned by selling to other people down the pyramid.

So, a universally negative sentiment along with a Ponzi business model. If you are still not convinced about the illegitimacy of the currency, just watch the borderline comical promotional videos they post on Youtube. I’ve gone through perhaps six of their pitches – not one of them clearly explains what the currency’s USP is or what it does. All they talk about are the huge gains the currency will receive within the next few months using big words that don’t mean anything. In a bold move, they also brought on cricketer Yasir Hameed to endorse their “financial revolution”, as if he is the Warren Buffet of Pakistan.

There also seems to be a common belief among Onecoin investors that it’s the same thing as Bitcoin. In fact, one of their promotional videos goes to great lengths to reason how Onecoin will be worth about 14 times its value today. Why? Because a price chart displayed the meteoric rise of Bitcoin that would now be bestowed upon Onecoin through the powers of Bulgarian voodoo.

First, let’s clear a few things out. Bitcoin and Onecoin are two completely different things. Bitcoin is not a closed platform – no one controls it. There is an active community of miners that support the currency, thus giving it value. It serves a purpose: to act as a currency, an asset and even a commodity. It runs on the blockchain, which in simple terms is a transparent online ledger recording each and every transaction taking place on the network. There is no one organization controlling it, unlike Onecoin. It serves a different purpose entirely and cannot be controlled by any single entity. Yet, the two things are used interchangeably by most novices in Pakistan.

This is my grudge with such scams in a developing country like Pakistan. While most people would like to put the blame on greedy investors that were willing to supersede common-sense with the promise of riches, the real problem lies in misinformation fostered with a culture of herd mentality. For example, during the recent PM disqualification debacle, the KSE index fell more than 4000 points. Did the disqualification really have as big of an effect on the fundamentals of the companies? Similarly, people are mistrusting of the global consensus on schemes such as Onecoin. Why? Because they have been referred to by a friend or someone they know. In fact, this is one of the biggest arguments people give for investing in the currency.

The implications for the financial markets, once the scheme goes bust, are unfortunately going to be much worse than a couple of people losing money. Already Pakistanis look at banking and other financial industries with a sceptical eye. While the rest of the world enjoys conveniences such as mobile wallets and automated payment systems, more than 80% of our population doesn’t even have a bank account. This will be yet another devastating blow to the already frail Fintech industry in Pakistan.