LocalBitcoins.com (LBTC), a P2P platform, is one of the fastest ways to trade Bitcoins by either buying or selling.
By having an account, one can post a trade based on the number of Bitcoins they want to buy or sell and the mode of payment, among other terms and conditions.
So, by looking at the trade, potential clients can tell which vendor offers the best rates based on the prevailing market prices.
However, it is possible for persons to engage each other in trade outside the platform.
But of course, this comes with higher risks because the funds are not escrow protected.
The process of escrow on LocalBitcoins is straightforward and easy to understand. It can be illustrated in two ways—From both the buyers and sellers’ perspective.
For the buyer, they will open a trade with the seller, of which the seller has to accept for the business to go ahead. After the seller agrees, the Bitcoins will move into the escrow account.
And once the buyer makes the payment, the seller will acknowledge receipt and release the Bitcoins from escrow to the buyer’s wallet. At this point, the trade is complete and the buyer can leave a review for the seller based on their experience.
The feedback is essential as it helps other persons determine if the trader is worth working with.
Of course, traders will strive to ensure that their reviews are positive since it translates to more clients and better business.
Despite the measures put in place by LocalBitcoins to ensure their users do not fall victim to fraud, some persons have been able to use the platform to scam other unsuspecting persons in relatively large amounts through a variety of ways.
In the latest development, Bitcoin traders in Kenya were scammed through Electronic Funds Transfers that were deposited to their bank accounts.
The traders had posted trades on LBTC, and since those behind the scam were aware of how the system works, they opened a trade which was accepted.
They then discussed the mode of payment, which was through bank transfer, and then funds were sent.
Apparently, the proceeds used to buy the Bitcoins from the traders were illegally transferred from I&M Bank to Equity Bank accounts of the traders. Consequentially, the accounts were flagged resulting in a chargeback.
Apart from Equity Bank, wire transfers were done to other bank accounts and MPesa Paybill Numbers.
It is not clear what banks the rest of the funds were wired to and if other persons have been arrested and charged.
Among the persons affected is Emma Wangari Kariuki who operates under the alias Redkiki on LocalBitcoins, as established by Dark Web News.
Others are Timothy Gachele and Stanley Mumo—Dark Web News has not yet found their nicknames on LocalBitcoins.
For a fact, the majority of traders on LocalBitcoins prefer not to use their real names for trading due to concerns such as privacy and safety.
Apart from the vendors getting scammed, it has also landed them in trouble with the authorities, thus resulting in a double loss since they faced felony charges.
The traders found themselves in the hands of the Banking Fraud Investigation Unit (BFIU)—a department operating under the Criminal Investigation Department (CID)—after they went to check with the bank why their accounts had been flagged without receiving a notification.
It did take quite some time for the bank to figure out what had occurred, and it wasn’t until the BFIU was called in that they finally apprehended the persons.
The victims were arrested on different occasions but had the same charges since the funds all originated from the same source.
The funds in question are slightly over $102,000 and were channeled from I&M Bank to the MPesa Paybill Number system and Equity Bank, as well as other banks within the country in different instances.
The vendors on LocalBitcoins were all approached on different instances by a user going by the alias BADASS20, whose account was only less than three weeks old and not verified.
For Emma, who has been trading on the P2P platform since the year 2013, it is normal to transact with persons like BADASS20 who have unverified accounts.
So, it did not seem peculiar when BADASS20 requested to trade with her on LocalBitcoins.
But the weird bit is that BADASS20 sent sums of money in excess of $960 but requested Emma to wire back the funds. Emma did so, and even received a confirmation message on her phone.
Again, Stanley Mumo traded with BADASS20 using LocalBitcoins and, as usual, an excess amount of money was deposited into his account. This time around, it exceeded by about $500.
When Simon asked his “customer” why the funds were in excess, BADASS20 said that he would initiate another trade, which he never did.
The fact that BADASS20 promised to initiate another trade and never did so made Simon become suspicious.
But at least there were chat threads from LBTC that prove the traders were innocent in going about their daily activities on LocalBitcoins.
Despite the funds being a fraction of the total money illegally transferred from I&M Bank to different avenues, the traders faced charges of conspiring to steal a whopping $102,000, an offense that has some severe reputational damage.
What’s even more disturbing is that, apart for the affected parties getting scammed since their accounts received chargebacks and have criminal charges against them, they also parted with $150,000 cash bails to secure their release.
The fate of cryptocurrency in the country continues to face a variety of challenges despite thousands of users engaging themselves in digital cash transfers in one way or the other.
Some opt trade whereas other choose to venture into mining.
But the primary challenge is the failure of the Central Bank of Kenya (CBK) to give the green light to the citizens of the country to start using Bitcoin, Ethereum and other sorts of digital cash.
Their main argument is they cannot protect the users in case the system fails.