Despite Murky Picture, Bitcoin Hatches

Bitcoin, a cryptocurrency created in 2009, has grown popular and received wide use these days. The coins are created by a process called mining, a very expensive computerized operation. Bitcoin networks and clubs have reached Ethiopia, too, and people are investing in these companies. However, the companies are set up under murky business models in which the main source of income is commission payments, what experts describe as pyramid schemes, instead of mining the Bitcoins, writes KALEAB GIRMA, FORTUNE STAFF WRITER.

Eyob Tamiru, a 21-year-old junior accounting major at Saint Mary’s University College in Addis Abeba, heard about the online cryptocurrency Bitcoin about two years ago.

“I was fascinated by it from the very start,” Eyob said. “The fact that I can be a part of it and make money made it even more appealing.”

The next thing he did was to research Bitcoin, a digital currency without a central bank or administrator, that is sent from user-to-user on a peer-to-peer network. When transactions take place, Bitcoins are sent to digital wallets, and a digital record is made in a public ledger using blockchain technology.

“Every time I was on the internet that was what I was reading about, and I was looking and searching for ways to get involved,” he said.

Luckily, he came across Abraham Moshe, a Bitcoin trader on Facebook. He contacted Abraham and later met him in person. Abraham told him he needed to make an initial investment of 40 dollars.

Assured of its profitability, Eyob joined the club with an initial deposit of 80 dollars, paying an equivalent value of Birr.

To attract more buyers like Eyob, Abraham posts different advertisements around the city inviting anyone who wishes to join in a profit-making enterprise while working part-time.

A businessman in his 40s, Abraham mainly bases his life on a translation service from his small office located around Piassa. He has been running the shop for 10 years.

The mining companies and the investors share the mined coins.

In May 2017 he heard about digital currency, which was becoming popular then. Different people were campaigning about Bitcoin, a computer file currency stored in a digital wallet on a smartphone or a computer.

“I heard about it everywhere,” said Abraham, “and I thought it was interesting.”

A friend of him has advised him to buy computers and start mining coins, a process by which transactions are verified and added to the public ledger and new Bitcoins are released.

He initially started mining from a farm in China, which requires him to pay in dollars. Thus, he was supposed to find a way to settle the payment equivalent in Birr.

“The same friend knew a person in South Africa who was willing to pay the money if I deposited the money in Birr into his bank account here,” said Abraham.

He managed to join the club with an initial deposit of 1,000 dollars and became one of the millions across the globe who uses Bitcoin.

Founded in 2009 by a anonymous person known by the alias Satoshi Nakamoto and with an initial value of 0.025 dollars, Bitcoin has become popular, and its value has reached as high as 19,783 dollars each. It has been trading for about 6,500 dollars in recent months.

Bitcoins are mined – not issued – by the network participants who perform specific computational tasks in compiling recent transactions into blocks and trying to solve a computationally difficult puzzle, according to, an online investment data compiler.

Online reviews of the network claim that the club is an underground pyramid scheme. 

Mining is a process of verifying proof-of-work data, which is expensive and time-intensive to produce.

Bitcoin was launched as an open source software where people can mine the coins with complicated algorithms and go through extensive calculations in exchange for some newly minted currency.

The participant who first solves the puzzle gets to place the next block on the blockchain and claim the rewards. The rewards, which incentivise mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released Bitcoin.

Bitcoin mining is intentionally designed to be resource-intensive and challenging, so that the number of blocks found each day remains steady. At the same time balancing the cost of electricity and internet needed to run the program, according to

Back in the days when Bitcoin was launched, mining was possible through ordinary computers. However, it became more sophisticated and now requires specific hardware designed for mining bitcoins, proper infrastructure, high technical skills and high-tech machinery to establish mining farms.

As these processes require an intensive understanding of how the system works and technical capability, mining companies came into the scene.

These companies collect fees to perform the computations using specialized computers to mine the cryptocurrency. They provided a way for more individuals like Eyob and Abraham to invest in the market.

But mining companies do not operate in Ethiopia, as the law of the nation forbids that individuals making payments in forex without the approval and recognition of the central bank.

Eyob and Abraham have deposited the money in Birr in a local bank account owned by someone living abroad, who in turn will pay the equivalent amount in dollars to the mining companies.

The mining companies and the investors share the mined coins.

“Having a computer that mines coins are like owning bank shares,” said Abraham, who also buys bitcoins from individuals. “The value appreciates in time.”

Last month, he bought 6,000 Br worth of Bitcoins from a 17-year-old high school student, Binyam Ayalew.

Binyam swaps electronic books in PDF formats with bitcoin. A family member has given him a collection of books in PDF format to get him started.

He sells textbooks, academic papers and other pirated materials on Telegram, a cloud-based instant messaging and voice over IP service. Buyers place orders on a Telegram group he formed, and he sends them the book after receiving Bitcoin in exchange.

“My prices are lower than Amazon’s,” he said. “Also, people can’t get the books I have down loaded easily online, so they come to me.”

So far, he has made half a bitcoin, which is worth close to 3,000 dollars.

If Binyam wishes to convert the coin he has into local currency, he has to approach traders like Abraham.

He approached Abraham for the exchange. During the meeting, Abraham also asked him if he wanted to join the Bitcoin network, which Abraham and Eyob belong to.

Binyam had refused to join this network, citing that the website of the group had a negative review, which made him think that there was something fishy in the business.

AWS Mining, where Abraham belongs, is a kind of networking structure that allows existing members to get commissions whenever they bring new members join the club. It also takes a certain percentage from recruits and pays older members.

For the past eight months, since he started the business, Abraham has generated 450 dollars both from his investment and commission fees for bringing 50 recruits to work under him.

Not only individuals like Abraham are involved in the business but also larger clubs.

Bit Club, which has 1,000 members, runs a bigger market and spends a considerable amount on advertisements to add more members to the club. It organises bi or tri-weekly events at malls and various hotels to recruit new members.

Fisseha Alazar, a 45-year-old financial expert was consulted by a friend four months ago to join this group. Then he attended one of the presentations.

“I was amazed at first,” he told Fortune, “but the situation changed quickly.”

He watched various videos that demonstrated the profitability of the business and explained what Bitcoin is.

“The whole session was full of affirmation and promises,” says Alazar.

After the presentations, the recruits will be briefed on how to join the networks and become shareholders.

The membership fee to join Bit Club is 99 dollars, and an additional 500 dollars must be paid to become a shareholder. The 1,000 members of the club potentially have invested at least 16.7 million Br to join the network.

In these presentations, the recruits are encouraged to bring other members and get paid commissions.

After attending the session and having a continuous correspondence with the promoters, Fisseha started to believe that the club was running a Ponzi scheme.

It is clear that a big chunk of the money, meant to purchase shares for mining equipment in Bit Club network is directed to referral commissions and bonus payments, said Fisseha.

On the evening of October 23, 2018, talking to recruits at Mafi Mall, one of the presenters by the name of Tamirat stated that since he joined the network 4 months ago, the company had mined 150 dollars for him while he earned an additional 6,000 dollars from commission payments.

According to Chris Russom, a business consultant and one of the Bit Club promoters and [shareowners], 20pc of initial investments of new members go to operating cost of the machines; 40pc is paid in commissions to older members, and the remaining balance of 40pc is spent on buying equipment.

Noah Fekade, the CEO and founder of Yihewu Solutions, a tech company engaged in creating content sharing platforms, commented that the business model does not add technical value.

“The scheme is used as a marketing ploy,” he added.

Solomon Kassa, the host of the popular tv show Tech Talk on EBS shares the concern of Fisseha.

“Bitcoin investment groups [in Ethiopia] are Ponzi schemes run by criminal middlemen,” said Solomon.

Experts also argue that the business is untaxed and unregulated, as the transaction takes place without the recognition of the regulatory bank and tax authorities.

Fisseha has also notified the Federal Police Commission, Information Network & Security Agency and The National Bank of Ethiopia about the club.

The organizers and promoters of Bit Club network disagree and deny any pyramid scheme accusations.

“We are entrepreneurs and investors taking the opportunity of a golden global investment chance,” said Chris, the promoter of Bit Club.

He stated that because of mass investment and advance payments in Bitcoin, the mother company, located outside of Ethiopia, gets the mining machines at discounts. He claimed that it is the difference between the market price and the buying price that’s distributed as commissions.

He also stated that members of the club do not trade Bitcoin and exchange the money for Birr.

Online reviews of the network claim that the club is an underground pyramid scheme.

A couple of years ago, the Ministry of Trade revoked the business license of Tiens Ethiopia Plc, a Chinese multinational company, alleging it was a pyramid business model.

Last March, South Africa’s police started investigating the network with an excess of 25‚700 complaints filed by recruits who paid 50 million dollars or more.




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