How not to blockchain - a look at OneCoin
In the recent weeks there has been a resurgence of news about OneCoin, what appears to be a high-profile MLM ponzi scheme disguised as an altcoin. From what I can gather, the renewed popularity of the topic was sparked by OneCoin's Coin Rush Global Event:
Watching this video as someone that has been around Bitcoin for 5 years now, there are more red flags here than you would see during International Workers' Day in some places. In fact, the video and OneCoin in general are such a good example of how you can bamboozle people by saying just the right thing that it might be a worthwhile exercise to dissect a lot of it.
Going onto a cryptocurrency website you want to look for a few key pieces of information:
Getting all five of the above points is a good start for any currency, but as we can see, even some of the largest coins are missing one or two of those features. Lacking all five does not bode well.
Putting all of that aside, let's look at the video proper and see what the event is about. Apparently the big news that day was that OneCoin is retiring it's old blockchain (!) and launching a new one in October so they can make more onecoins (!!). The justification being, and I kid you not, that they need more coins to grow, since there might not be enough coins for new merchants, Latin America, India, etc.
Let that sink in for a bit. A cryptocurrency that is not explicitly tied to a fiat currency is running out of coins for people. So instead of letting free market organically settle on a price it thinks the coins are worth and say, buying the coins from the market to give to the new merchants if they want, they instead decide to make more coins...
The issue is also more complicated than just that. OneCoin on its FAQ page claims its blockchain is mined with a custom solution based on Script and X11. However, you don't mine the blocks directly, instead "you just sign up on the mining dashboard on the exchange in your back office". This might remind some people of Proof of Stake or Delegated Proof of Stake, but no, OneCoin does it differently - "People are signed up and assigned to mining pools on a first come, first serve basis. Whenever a place is free you can join a pool.". The process appears to be:
But even all of that is not the whole story. Enter the splits and tokens. You don't directly buy the onecoins, instead you buy packages that include tokens and splits:
Apparently in order to keep the price attractive, you split the tokens as you would company shares. In the end it means that you have a higher quantity of tokens that you can use for mining, but the value stays the same, I think. The splits apparently can only be used on the tokens, not the coins that are mined, and you can combo the various packages in some "strategy" to receive more and more splits.
This seems to accomplish a few things:
So in other words, the entire system looks like a shady mobile app:
If that wasn't enough, you also can't forget about the match bonus for people you refer:
Because nothing inspires more confidence than a pyramid-like structure with the money flowing to the top...
There is also something about not actually purchasing tokens, but instead purchasing training from OneAcademy that conveniently comes with tokens, BVs and what have you, but at this point I think I made my point. Purchasing any cryptocurrency is simple - you take your money, you get your tokens. With OneCoin, a simple trade is a drawn out process taking many months with zero transparency. Mining is a joke, the numbers are multiplied over and over. But the story doesn't end there...
During the Coin Rush Global Event, there have been a number of claims made about OneCoin and other coins as well. After hearing a lot of them, one feels the urge to shout "show us your proof". In no particular order:
Even after pointing out the various problems for a long while, there is still a lot more that needs to be addressed. Going into detail on everything would probably make this lengthy article probably twice as long. So let's finish off everything else in some quicker fashion. What follows are various claims, quotes and other titbits from the video presentation:
OneCoin, officially based in Dubai, boasts an impressive "ecosystem", consisting of 10 distinct items:
OneCoin, perhaps going in Microsoft's footsteps of wishing their products to be abbreviated into "The One" has raised a lot of red flags on all fronts. It does not instil any confidence in its products, its business strategy, or legitimacy of its creators. It takes money from a lot of people, turns it into a flashy show to boost confidence, and talks about its "community" and "family". The way it does business is overly complicated, intentionally opaque, and unverifiable. It is a blockchain and cryptocurrency only by self-proclamation. Keep as far away as you can from anything related and enjoy the slow-motion train wreck.
Related Links:
The Bitcoin Bullshit List
Your post advocates a new:
(x) Altcoin
(x) Permissioned blockchain
(x) Centralised / decentralised exchange
(x) Remittance service
(x) Gambling website
(x) Investment scheme
(x) Wallet
(x) Mining service (hardware, software, etc.)
(x) Mining pool
Your idea will not work. Here is why it won't work.
(x) The proposed security model is (x) flawed / ( ) not enough / (x) completely wrong and therefore you will be ( ) scammed / ( ) hacked / ( ) stolen from / (x) implode quickly
(x) There is already a product on the market that does exactly what you’re doing, but (x) faster / (x) cheaper / (x) better / (x) is more established / (x) is not a scam
(x) You are proposing exorbitant fees for the use of your product that are unsustainable in the long run
(x) Your product gives unfair preferential treatment to (x) yourself / (x) the earliest adopters / ( ) early investors / ( ) select few / ( ) _____________________
(x) You violate the core principles of Bitcoin, including: (x) core cryptography of the protocol / ( ) 21M coin limit / ( ) coin distribution / (x) ownership of private keys / (x) inclusive nature of the network / (x) pseudonymity of users / (x) lack of transaction censorship / ( ) ______________
(x) You promise unreasonable return on investment without a clear business model of where the money is coming from
(x) Your project cannot be run legally at your jurisdiction
(x) Your project will not be compliant with the current ( ) KYC / ( ) AML / (x) gambling / (x) MLM regulations
(x) You rely on proprietary ( ) hardware / (x) software / ( ) intellectual property / ( ) _________
x) Your solution is worse than general-purpose computing hardware / software
(x) Your product is poorly implemented
(x) Your presale tokens have no economic value
(x) Your adoption goals are unrealistic
(x) Your product has zero transparency
Specifically, your plan fails to account for:
(x) The existing regulations
(x) The required Money Services Business license
(x) The anonymous nature of cryptography
(x) The geopolitical map of the world
(x) Adaptability to growth of the market cap
(x) The miner incentives
(x) Public reluctance to accept weird new forms of money
(x) Huge existing software and hardware investment in Bitcoin
(x) The known security exploits of the existing Internet services
(x) Secrecy of data decryption
(x) Increase in currency unit supply not being the same thing as increase in wealth
(x) Disproportionate increase in currency units drains wealth from one group into another
(x) The long-term sustainability of the project
and the following philosophical objections may also apply:
(x) It is a MLM scam
(x) It is a pump and dump
(x) It is a (x) ponzi / (x) pyramid / ( ) ___________ scheme
(x) A known (x) scammer / (x) person with poor reputation is involved with your project
(x) Why should we have to trust you and your servers?
(x) Incompatibility with open source or open source licenses
(x) Feel-good measures do nothing to solve the problem
(x) Extraordinary claims require extraordinary evidence (aka “Proof or GTFO”)
(x) I don’t trust YOU with the money
Furthermore, this is what I think about you:
(x) Sorry dude, but I don't think it would work.
(x) This is a stupid idea, and you're a stupid person for suggesting it.
(x) You’re a scammer and you should feel bad.
Bitcoin Bullshit Tier
You are advertising a new Bitcoin / crypto related project. Based on the information provided, you have reached the Bullshit Tier of 4 for the following reasons:
Bitcoin Bullshit Tier 1 - marketing babble, technology misunderstanding
(x) “Blockchain”
(x) “As good as / better than Bitcoin”
(x) Misunderstanding the technology
Bitcoin Bullshit Tier 2 - willful misinformation, bait and switch
(x) Selling overpriced / underperforming hardware or software
(x) Claiming your project can accomplish something hard without a clear explanation of how to do so
Bitcoin Bullshit Tier 3 - Many red flags
(x) Assuring your product is legal
(x) Speaking about profits / return on investment
(x) Providing no company contact information
(x) Multiplying coins
(x) Rebooting the blockchain
(x) Company being hosted in hard to reach countries
(x) Claiming your product services / is available at a large amount of institutions without a proof
Bitcoin Bullshit Tier 4 - Outright scams
(x) High return on investment
(x) Describing a financial security and claiming it’s not a security
Coin Rush Global Event
Watching this video as someone that has been around Bitcoin for 5 years now, there are more red flags here than you would see during International Workers' Day in some places. In fact, the video and OneCoin in general are such a good example of how you can bamboozle people by saying just the right thing that it might be a worthwhile exercise to dissect a lot of it.
The Basics
Going onto a cryptocurrency website you want to look for a few key pieces of information:
- Who is developing the project / the code? You want to find at least a competent development team identifying themselves. Examples: Bitcoin, Ethereum, Ripple. For OneCoin, the best resource I could come across was OneDream Team's "Top Leaders", which only boasts some news.
- Where is the company located? It is especially important for exchanges and other companies you're giving money to, but can be useful for the core development team if applicable. Examples: Ethereum (listed on the bottom page), Bitcoin Foundation, BitStamp, not as much for Bitcoin Core (as it's a more decentralised development) Ripple, OneCoin or xcoinx.
- Where is the source code? If you can't see the code, you can't be sure what you're installing isn't malware or whether the blockchain itself is really there. Examples: Bitcoin, Ethereum, Ripple, but nothing for OneCoin.
- Is there a block explorer? If you can't browse the blockchain data and validate it yourself, how can you be sure everything adds up? Examples: Bitcoin, Ethereum, Ripple lacks a proper explorer, but has a public API endpoint. For OneCoin, best you can get is a falsi explorer (thank you /u/TimTayshun for the screenshot)
- Do any reputable exchanges trade it? A coin that isn't tradeable might not be a currency at all, but instead some "funny money". For a smorgasbord of examples, you can check out CoinMarketCap, indexing things as low as $8 market cap for COIN. OneCoin, despite boasting 5.2B USD market cap, is conspicuously missing...
Getting all five of the above points is a good start for any currency, but as we can see, even some of the largest coins are missing one or two of those features. Lacking all five does not bode well.
That's not how blockchain works
Putting all of that aside, let's look at the video proper and see what the event is about. Apparently the big news that day was that OneCoin is retiring it's old blockchain (!) and launching a new one in October so they can make more onecoins (!!). The justification being, and I kid you not, that they need more coins to grow, since there might not be enough coins for new merchants, Latin America, India, etc.
Let that sink in for a bit. A cryptocurrency that is not explicitly tied to a fiat currency is running out of coins for people. So instead of letting free market organically settle on a price it thinks the coins are worth and say, buying the coins from the market to give to the new merchants if they want, they instead decide to make more coins...
The issue is also more complicated than just that. OneCoin on its FAQ page claims its blockchain is mined with a custom solution based on Script and X11. However, you don't mine the blocks directly, instead "you just sign up on the mining dashboard on the exchange in your back office". This might remind some people of Proof of Stake or Delegated Proof of Stake, but no, OneCoin does it differently - "People are signed up and assigned to mining pools on a first come, first serve basis. Whenever a place is free you can join a pool.". The process appears to be:
- You send OneCoin money to buy the right to mine the coin
- You sign up to mine
- You wait for your turn to mine
- You get your coins
In other words, it's like purchasing coins from an exchange (send money, get coins), but with an arbitrary wait period (currently 3-6 MONTHS!) between sending money and receiving coins. As /u/TimTayshun pointed out, the block times are also very strange - too regular for a Bitcoin-like mining scheme. The blocks appear to be generated at the 10 minute mark without much variation. If there is any real mining going on, there is no real competition, no difficulty adjustment or anything like that. It looks a lot more like Ripple's Consensus algorithm than anything mining-related.
Splits and tokens
But even all of that is not the whole story. Enter the splits and tokens. You don't directly buy the onecoins, instead you buy packages that include tokens and splits:
Apparently in order to keep the price attractive, you split the tokens as you would company shares. In the end it means that you have a higher quantity of tokens that you can use for mining, but the value stays the same, I think. The splits apparently can only be used on the tokens, not the coins that are mined, and you can combo the various packages in some "strategy" to receive more and more splits.
This seems to accomplish a few things:
- Make the process more opaque
- Incentivise people to buy more and more packages to get the best value for their money
- Make people feel like they are in control of how to get the most money and get ahead of everyone else
- Widen the distance between real money and onecoins by extra few steps in a freemium-like model
So in other words, the entire system looks like a shady mobile app:
"Money, money, money money money money"
If that wasn't enough, you also can't forget about the match bonus for people you refer:
There is also something about not actually purchasing tokens, but instead purchasing training from OneAcademy that conveniently comes with tokens, BVs and what have you, but at this point I think I made my point. Purchasing any cryptocurrency is simple - you take your money, you get your tokens. With OneCoin, a simple trade is a drawn out process taking many months with zero transparency. Mining is a joke, the numbers are multiplied over and over. But the story doesn't end there...
Show us your proof
During the Coin Rush Global Event, there have been a number of claims made about OneCoin and other coins as well. After hearing a lot of them, one feels the urge to shout "show us your proof". In no particular order:
- OneCoin has 2 million active users, no other currency has as much - I would love to see a proof of that claim, since it not only asserts a lot of people are using OneCoin, but claims to know how many people are using other cryptocurrencies, which is an information that is hard to come by. Someone estimated Bitcoin to have 50M users by 2015, but that's a guess. How many people are actually active on Bitcoin or OneCoin, that would be interesting to know.
- OneCoin has 4.5B USD market cap - seeing as the coins aren't actively traded at any reputable exchange and the blockchain is not verifiable, any number you throw out there is as valid as any other.
- Bitcoin has almost no merchants taking it - there are 8000 physical locations taking Bitcoin today, in 2014 BitPay estimated the number to be over 20k. All in all, it would be interesting to see where the data is coming from, since it's not that easy to come by
- OneCoin is in 195 countries, it's bigger than Western Union - It would be really interesting to see the actual list of their operations. There are 195 countries in the world, which means they would have to operate in the US, North Korea, Iran Sudan, Syria and Myanmar at the same time, violating a lot of international sanctions.
- OneCoin can do more transactions than Visa and Mastercard combined - this would mean it can handle more than 2'000 transactions per second, it would be an impressive amount of data to synchronise in a blockchain
- OneCoin stores all customer KYC information encrypted on the blockchain - this would not only be a huge customer data protection concern (blockchain by definition is shared between multiple parties, so all you need is a blockchain and encryption key leak and someone has compromised all of that data), but also an can be an issue of how decryption would be handled under a warrant
And from other sources:
- "We are proud to be the first cryptocurrency company in the industry that introduced a monthly audit of its blockchain. All OneCoin blockchain audit reports have proved that the OneCoin blockchain is consistent and that the number of mined coins is genuine" - so you performed an audit and you have claimed yourself that the number of your mined coins is okay. You don't feel compelled to provide a verifiable and falsifiable proof of solvency, invite some reputable auditor to perform the check, nothing?
The Icing on the Cake
Even after pointing out the various problems for a long while, there is still a lot more that needs to be addressed. Going into detail on everything would probably make this lengthy article probably twice as long. So let's finish off everything else in some quicker fashion. What follows are various claims, quotes and other titbits from the video presentation:
- It takes over a year to mine one bitcoin - unless you're 21.co, nobody advocates Bitcoin mining to newcomers. Just like mining gold in real life, it's best left to professional companies
- There are "Mickey Mouse coins" that copy OneCoin's concept - don't flatter yourself, everyone is aping Bitcoin
- Just like you need a driver's license to drive a car, you need a drivers license for the cryptocurrencies - one of the beautiful things about Bitcoin is that it's inclusive - anyone can use it, you don't need a permission. While education is valuable, forcing people to go through a test before they can use cryptos is missing the point
- OneCoin wants to be number 1 cryptocurrency world-wide in 2 years
- When Bitcoin was one year old, it was worth 15 cents and nobody cared about it - it took two years for Bitcoin to be worth 15 cents, but now the speed at which good coins accelerate in price has increased thanks to Bitcoin. Dissing on the history to make your coin appear better is a false equivalence
- OneCoin is one year old and it already wrote history - not really, but it will certainly write history once the jig will be up
- They are aiming to have 20 million active users and 1 million merchants in 2 years
- "We are the bigger community - we decide what the philosophy of cryptocurrency is"
- The merchant / Latin America / India market capitalization is X trillions, OneCoin is only worth 5 billion, it simply does not work - normal coin would allow the price to grow to accommodate the market and use the 8 decimal places the coin has. Saying that you need to increase the amount of coins to grow is like saying you need to slice an apple into more pieces to make it bigger
- "We can close new registrations, reject merchants... Or make more coins!"
- "Biggest coin out there is Ripplecoin [sic], with 100 billion coins[sic]", and OneCoin will increase its number of coins to 120 Billion to be bigger than Ripple - that will still make you 3 times smaller than Fedoracoin, why not go for more?
- You can't increase the amount with the current blockchain, need to retire the blockchain and launch a "new, more powerful blockchain" - you could, if your developers were up to snuff. Or maybe you're doing this to delete some old data from the old blockchain, or introduce some different balances that aren't supposed to be there?
- Every account balance will be doubled after the blockchain is updated - again, increasing the numbers is not the same as increasing the value those numbers represent
- When posting a question "will my coins be worth less after the update", the answer is not a clear "yes or no", but instead saying that the value of coins comes from brand and usability
- Restaurant or retail store will never take Bitcoin - 8000 times false
- "OneCoin will write history, and the cryptocurrency comminuty will have to rewrite philosophy"
- "In 2 years nobody will speak of Bitcoin anymore"
And finally - "OneCoin Cryptocurrency is Unique, Safe, Global & With No Risk of Inflation", other than the doubling of the coins, the extra amount of coins that will be pumped into the system after the switch, etc. Those little things.
The Ecosystem
OneCoin, officially based in Dubai, boasts an impressive "ecosystem", consisting of 10 distinct items:
OneCoin's ecosystem
- OneAcademy, an e-learning platform teaching about tarding, stock exchange, cryptocurrency, etc. in a 6-level program, boasting over 2'000'000 students and supporting 231 out of the current 195 world countries
- OneExchange, currently not online
- OneLife Network - "a digital platform with a unique ecosystem of sophisticated products and social networking tools that help members achieve financial independence", whatever that's supposed to mean. But fret not, they will offer you an "Ultimate Trader Package" for the low low price of 118'000 EUR, and a tablet to match for 550EUR, only 5-6 times more expensive than a comparable tablet. No contact information
- Merchants
- OnePay - a payment solution based in Bulgaria
- OneForex - an exchange that is not functional yet, but it will somehow be different from OneExchange?
- Investment Funds
- OneWorld Foundation - a charity helping the children based in Bulgaria, not to be confused with one world foundation, or One World Foundation or One World Foundation
- CoinCloud - a cloud storage where you can buy 100GB of data space for 1 year for 3'030 EUR, which is about 1'500 times more expensive than Google Drive
- CoinVegas - a gambling website based in Malta
Conclusions
OneCoin, perhaps going in Microsoft's footsteps of wishing their products to be abbreviated into "The One" has raised a lot of red flags on all fronts. It does not instil any confidence in its products, its business strategy, or legitimacy of its creators. It takes money from a lot of people, turns it into a flashy show to boost confidence, and talks about its "community" and "family". The way it does business is overly complicated, intentionally opaque, and unverifiable. It is a blockchain and cryptocurrency only by self-proclamation. Keep as far away as you can from anything related and enjoy the slow-motion train wreck.
Related Links:
- What is OneCoin and is it legitimate?
- One Coin, Much Scam: OneCoin Exposed as Global MLM Ponzi Scheme
- Onecoin retiring their old 'blockchain' and launching a new one in October to make more Onecoins!
Bullshit checklist:
The Bitcoin Bullshit List
Your post advocates a new:
(x) Altcoin
(x) Permissioned blockchain
(x) Centralised / decentralised exchange
(x) Remittance service
(x) Gambling website
(x) Investment scheme
(x) Wallet
(x) Mining service (hardware, software, etc.)
(x) Mining pool
Your idea will not work. Here is why it won't work.
(x) The proposed security model is (x) flawed / ( ) not enough / (x) completely wrong and therefore you will be ( ) scammed / ( ) hacked / ( ) stolen from / (x) implode quickly
(x) There is already a product on the market that does exactly what you’re doing, but (x) faster / (x) cheaper / (x) better / (x) is more established / (x) is not a scam
(x) You are proposing exorbitant fees for the use of your product that are unsustainable in the long run
(x) Your product gives unfair preferential treatment to (x) yourself / (x) the earliest adopters / ( ) early investors / ( ) select few / ( ) _____________________
(x) You violate the core principles of Bitcoin, including: (x) core cryptography of the protocol / ( ) 21M coin limit / ( ) coin distribution / (x) ownership of private keys / (x) inclusive nature of the network / (x) pseudonymity of users / (x) lack of transaction censorship / ( ) ______________
(x) You promise unreasonable return on investment without a clear business model of where the money is coming from
(x) Your project cannot be run legally at your jurisdiction
(x) Your project will not be compliant with the current ( ) KYC / ( ) AML / (x) gambling / (x) MLM regulations
(x) You rely on proprietary ( ) hardware / (x) software / ( ) intellectual property / ( ) _________
x) Your solution is worse than general-purpose computing hardware / software
(x) Your product is poorly implemented
(x) Your presale tokens have no economic value
(x) Your adoption goals are unrealistic
(x) Your product has zero transparency
Specifically, your plan fails to account for:
(x) The existing regulations
(x) The required Money Services Business license
(x) The anonymous nature of cryptography
(x) The geopolitical map of the world
(x) Adaptability to growth of the market cap
(x) The miner incentives
(x) Public reluctance to accept weird new forms of money
(x) Huge existing software and hardware investment in Bitcoin
(x) The known security exploits of the existing Internet services
(x) Secrecy of data decryption
(x) Increase in currency unit supply not being the same thing as increase in wealth
(x) Disproportionate increase in currency units drains wealth from one group into another
(x) The long-term sustainability of the project
and the following philosophical objections may also apply:
(x) It is a MLM scam
(x) It is a pump and dump
(x) It is a (x) ponzi / (x) pyramid / ( ) ___________ scheme
(x) A known (x) scammer / (x) person with poor reputation is involved with your project
(x) Why should we have to trust you and your servers?
(x) Incompatibility with open source or open source licenses
(x) Feel-good measures do nothing to solve the problem
(x) Extraordinary claims require extraordinary evidence (aka “Proof or GTFO”)
(x) I don’t trust YOU with the money
Furthermore, this is what I think about you:
(x) Sorry dude, but I don't think it would work.
(x) This is a stupid idea, and you're a stupid person for suggesting it.
(x) You’re a scammer and you should feel bad.
Bitcoin Bullshit Tier
You are advertising a new Bitcoin / crypto related project. Based on the information provided, you have reached the Bullshit Tier of 4 for the following reasons:
Bitcoin Bullshit Tier 1 - marketing babble, technology misunderstanding
(x) “Blockchain”
(x) “As good as / better than Bitcoin”
(x) Misunderstanding the technology
Bitcoin Bullshit Tier 2 - willful misinformation, bait and switch
(x) Selling overpriced / underperforming hardware or software
(x) Claiming your project can accomplish something hard without a clear explanation of how to do so
Bitcoin Bullshit Tier 3 - Many red flags
(x) Assuring your product is legal
(x) Speaking about profits / return on investment
(x) Providing no company contact information
(x) Multiplying coins
(x) Rebooting the blockchain
(x) Company being hosted in hard to reach countries
(x) Claiming your product services / is available at a large amount of institutions without a proof
Bitcoin Bullshit Tier 4 - Outright scams
(x) High return on investment
(x) Describing a financial security and claiming it’s not a security
Watching this video as someone that has been around Bitcoin for 5 years now, there are more red flags here than you would see during International Workers' Day in some places. In fact, the video and OneCoin in general are such a good example of how you can bamboozle people by saying just the right thing that it might be a worthwhile exercise to dissect a lot of it.
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