What’s the Difference Between a Bitcoin Scam and a Bitcoin Hack?

Within two years after it was founded in a bedroom in 2019 by two teenage brothers, Africrypt grew to become one of Africa’s largest and most successful cryptocurrency trading sites by promising returns of as much as 500%. And then, suddenly, without warning, something happened. 

In April, the Africrypt website shut down. Investors were notified that the platform was freezing all accounts and shutting down due to a hacking attack that supposedly compromised their crypto assets. In an email, however, the elder brother, who served as Africrypt’s chief operating officer, curiously instructed investors not to alert the authorities, dubiously claiming that would compromise the investigation.  

How much is all that crypto worth? The estimate is the equivalent of at least $3.6 billion in bitcoin – anywhere between 60,000 and 69,000 of them, depending on reports – which, if true, would make it the largest cryptocurrency heist in history.

So, what happened to it? That depends on who you ask. 

A Cape Town law firm retained by investors claims that the brothers – Ameer and Raess Cajee – pocketed the coins and fled to the UK after transferring pooled investor funds from a Johannesburg bank account. Calls went straight to their voicemail. The office formerly occupied by Africrypt is now for rent. Relatives of the Cajee brothers state that they have had no contact with them since April. 

The solicitors for the investors referred the case to the Hawks, a unit of the South African police that investigates financial crimes. But the solicitor who was then representing the brothers asserted that the Africrypt platform was indeed hacked, that the $3.6 billion figure is an exaggeration, that they ‘categorically denied’ that they embezzled the crypto, and that they went into hiding because of the numerous death threats they have received. Moreover, they are committed to working with the authorities, even though they never reported the alleged hack to the police.

What Can Be Done to Track Down the Bitcoin?

Surely, South Africa’s financial regulator, the Financial Sector Conduct Authority (FSCA), would be able to intervene. Unfortunately, it cannot. Since cryptocurrency is not defined as a financial asset in South Africa, the FSCA has no standing. It did advise, however, that the 500% profit advertised by Africrypt was ‘akin to those offered by unlawful investment schemes,’ especially Ponzi schemes.

The inability of the South African regulator to supervise the crypto market, however, is the global rule by default, not the exception. Cryptocurrencies were created to be independent of government regulation. Their advent caught both the regulators and the legislatures that write the laws that limit the power of regulators off guard. Whether Africrypt turns out to have been the largest bitcoin scam ever or just the largest bitcoin hack ever is ultimately immaterial. If regulators cannot regulate it, criminals will continue to conspire how to outmaneuver it, putting even larger amounts of crypto assets at risk. Indeed, the Africrypt loss was preceded in 2000 by the Mirror Trading scam, another South African crypto platform. Mirror Trading (which many cynics now refer to as ‘Smoke and Mirror Trading’) collapsed when its founder disappeared and apparently left the country. Approximately 23,000 digital coins, then worth $1.2 billion, were lost. 

The Africrypt saga has resulted in calls for greater involvement by regulators in the cryptocurrency sphere, especially in South Africa, where investments in crypto are extremely popular. Regardless of whether Africrypt turns out to have been a scam or a hack, or whether there is a difference at all, the time for crypto regulation may finally be near. 

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