Updated: Jan 19, 2022
The world of cryptocurrencies has been through many ups and downs in recent years, including the rise and fall of Bitcoin from over $63,000 to $33,000.
The volatility of cryptocurrencies has brought it to the attention of governments and authorities around the world. However, volatility is not the only reason why certain countries are keen on exploring and regulating cryptocurrencies.
One of the primary reasons governments may want to put some regulation into effect is the nature of scams that have emerged since cryptos have gained popularity.
India's been a growing hotbed for cryptocurrencies. Per Business Today, around 7 million individuals have spent over $1 billion in cryptocurrencies, and this means that the government cannot ignore the prospects that it holds in the country. Several other countries have regulated cryptos. But for India, regulation challenges remain, and the framework that the government might want to put in place is continually marred by cryptocurrency scams, such as the Morris Coin cryptocurrency scam from 2020.
Inside India's Morris Coin cryptocurrency scam
Cryptocurrency is a new game for many people in the world, including India. Consider how everything's so well laid out — ads that make it appear easy to invest in cryptos, to regular market bursts that reveal how lucrative it could be to invest in Bitcoin and other cryptocurrencies. Indian trading platforms that have emerged in the recent past are adamant — at least that's how they put it — to drag cryptos from the backlogged files in the government's plan and make it a primary discourse.
The hype is real, so much so that a 36-year-old from Malappuram in Kerala decided to dupe people into trading a 'cryptocurrency' that did not exist. Local media reported that the police arrested Nishad, the MD of Long Reach Global Private Ltd, for swindling billions of rupees from investors, saying that depositing a minimum of $200 will ensure around $3.6 every day. For investors looking to tap into the fame of cryptos, this may have just been the ideal gateway to access the otherwise elusive success model.
Adding pyramid schemes to cryptocurrency scams
Scamming people on the promise of high returns is not a new idea, but what makes this Indian crypto-cam unique is that the Morris Coin investment model also relied on a pyramid scheme that prompted investors to get more people on board.
The scheme highlighted that if someone brings others to it, they will get a 10% commission on the investments made by the new investor. The scheme also stated that investors could sell their Morris Coins after 300 days of receiving dividends. However, it was unclear as to how and where they could sell the coins.
According to Nishad, as reported by local media, the money received through the scheme would be invested in industries like petroleum. However, the police did not find anything to back his claims. The police also added that investors were reluctant to file a complaint as they thought they'd lose the money they had invested into the scheme.
Nishad claimed that he was the first Indian to develop a cryptocurrency. This made the police suspicious, as they wondered how he could come up with his cryptocurrency without having higher technical education. The fact that Nishad had around a million investors made it evident that the scheme was working. Unlike the police, his investors failed to ask how he'd pay such a large dividend and how he managed to create the cryptocurrency in the first place.
Even though there were no complaints, the police registered a case under the Prize Chits and Money Circulation Schemes (Banning) Acts. People who have been calling the police after discovering that the scheme's under investigation are recent investors to the scheme. Others who have made a profit have remained silent.
Awaiting the government's call on cryptos
Considering how far cryptocurrencies have evolved, it's right to assume that it won't belittle itself; there's no going back. What lies ahead is putting up a framework that acknowledges cryptos as a future for transactions.
The Indian government has only recently ruled out that cryptos cannot be banned in India. However, there are no frameworks around it, which also means that disputes cannot be resolved. Besides, the fact that cryptocurrencies are highly volatile only adds to the complications of coming up with a practical framework.
For now, the major challenge for cryptocurrency exchanges is to find banking partners that can ensure seamless transactions, something that does not seem to be happening so quickly. Until and unless there are clear and practical guidelines around the trade and usage of cryptocurrencies, it is highly likely that scams — such as the Morris Coin cryptocurrency scam — may emerge. With no clear legislation around cryptos, dealing with them will be anything but a smooth affair for all the parties involved.