Beware of extraordinary claims

May 4, 2017

For those of us who love Bitcoin, and especially for me as the Head of Growth at Xapo, it is always great news when we see more and more people adopting Bitcoin every day with almost magical organic growth that helps the bitcoin price rally.

So I should be happy every time I see that, right? The answer is no. Not always.

Last year brought highly-welcomed news of the increasing adoption of both our wallet service and Bitcoin overall. Along with the significant growth in many legitimate use-cases, there has also been significant growth in use-cases that take advantage of the poor, defraud people, and take their money and their hopes. We have noticed an increasing trend of virtual currency-related scams, particularly pyramid schemes, and we would like to bring some awareness to this issue.

We first noticed the problem in South Africa. About a year ago, we saw a spike in demand for our Bitcoin wallet services there. There was no clear reason why it should have happened in South Africa versus other markets but in the Bitcoin world we love to create optimistic rationales. It was the devaluation of the Rand, or perhaps the unbanked discovering financial services.  Actually, no, it was the con artist Sergei Mavrodi and his MMM pyramid scheme.

When we discovered this reality, we sent emails to our South African users, warning them about the scam, and we notified the local authorities.  Then Kaboom!, in September 2016 MMM in South Africa “reset”, i.e., it went bankrupt and it lost most of their members’ money, as all pyramid schemes eventually do.

Unfortunately, this was not the end of of the story. During the end of 2016 and the first months of 2017, more countries started to show spikes in growth without plausible explanation. I recently investigated and found literally hundreds of MMM copy-cats globally  (Even in South Africa MMM was rebooting).  Some of these copy-cats are as large or even larger than MMM, like TwoBitcoins, Airbit Club, Bit Kingdom, Gladiacoin, Onecoin and many others.

Despite Xapo’s rigorous regulatory compliance (the documents we require to comply with the Know Your Customer regulations and the process we have for Anti Money Laundering) processes and cooperation with local and international authorities, these scams survive under a “legitimate” multilevel marketing facade.

The typical structure includes:

  • Unrealistic, guaranteed returns.  For example, “Make 50% on your investment every month” or similar claims.
  • Shady or non-existent leadership. Some of the ponzis use the structure of a “community” or “club” to obfuscate this.
  • Multi Level Marketing or pyramid format. The more people you bring, the more you money you make.
  • In-person meetings, often large seminars, to capture more members. These meetings are run like a combination of motivational workshop and religious sect. Here is where they encourage you to invest your money, and to bring friends, family and acquaintances to invest their money and promise to make you rich.

If you are involved in these scams, you may think that what I am saying is wrong or unfair; you may believe that these schemes are legitimate businesses. If that is the case, please watch this. Remember extraordinary claims require extraordinary evidence. Guaranteed return of investment its an extraordinary claim. 

Perhaps you know that it is a scam but you are betting that you will not be the last one to cash out. The problem is that there will be “last ones” and there will be bad consequences for them.

While I cannot know with certainty what percentage of Bitcoin volume is attached to this use case, I do know that these schemes disproportionately hit the poor and underbanked, i.e., the very people that we claim Bitcoin will help the most.  As an industry, we need to raise our voices against these and other scams that use Bitcoin.

Often the best way to combat the schemes is to educate your user base and notify local authorities who, very likely, are already trying to combat the problem.

As for Xapo users, we reiterate our previous warnings to stay away from these scams, and ask that you report activity via email to

Tiburcio de la Carcova

By Head of Growth


Article published on May 4, 2017

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