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A quick look at How Nigeria Overcame Bitcoin Scams

Reading Time: 2 minutes by on January 23, 2018 Bitcoin, Commentary, News

To those familiar with the market, it would almost be appropriate to say that Nigeria’s love with cryptocurrencies started with a scam. Millions of Nigerians lost their money between late 2015 to end of 2016 due to a 30-year-old Ponzi scheme known as Mavrodi Mondial Moneybox (MMM) that began in Russia. The scam promised 30 percent returns in 30 days, which eventually brought it to the notice of the government.

MMM’s operators cut banks out of its deal when the government forced a crackdown on the accounts linked to the scheme and started requiring victims to use bitcoin. Before suspending its payouts in late 2016, MMM had already duped an estimated three million people in Nigeria of $50 million.

This, however, led to Nigerians understanding the working of bitcoin. The rising price of the cryptocurrency has also led many of them to believe that it is the future. Lucky Uwakwe, co-founder of Blockchain Solutions Ltd. said, “Trade has risen to around $4.7 million worth of bitcoin every week up from about $300,000 a week since last year.” According to a researcher from CryptoCompare, the volumes traded in Nigeria are comparable to those in Indian Rupees and Chinese Yuan but far lower than the $1 billion traded daily in the US.

“It took two years to get 10,000 customers, and now we added 90,000 customers in the last year itself,” said David Ajala, who runs NairaEx a digital currency exchange in Nigeria. “The growth has been crazy,” he added.

The scams have continued though, where scammers promote their get rich quick schemes and disappear once they’ve taken their share. The scams follow a similar pattern where tricksters, disguised as a royal Nigerian, persuade the masses to wire money in exchange for bitcoin. A few cases have also been noticed where scammers used details of a real dealer to create a trading profile that passes background checks.

Aminu, a digital security expert and Bitcoin enthusiast, says, “Everyone I know of has been scammed in some or the other way.” This motivated Aminu to form an informal trader group on the popular messaging app Telegram. The group, today, is used as an informal exchange for trading among its members. A new member of the group needs to have his documents and bank details verified by Aminu. He also started acting as a broker holding a buyer’s money in escrow until the seller liquidized his position.

Aminu’s group has now grown to include more than 800 members. He said that there are several such groups which have a wide array of security procedures and some of which also arrange face-to-face meetups for trading bitcoin. Importantly, Aminu recently removed more than 100 people whom he felt were not trustworthy. As a result, a growing number of informal networks of professional bitcoin traders in Nigeria are verifying transactions. These informal groups all contribute to the Nigerian trading volume. The size of Nigeria’s market could thus be much bigger because of this informal trading as they are not included in public figures.

Bitcoin’s meteoric appreciation has convinced people like Smart Oluwadola, who left a job selling health supplements, to become a bitcoin peddler. His investment of a couple of hundred dollars of bitcoin is now worth several thousand.

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