Exposing Bitconnect: A $2.6 Billion Ponzi Scheme

If you’ve been closely monitoring all major Bitcoin projects over the last two years, you probably heard about Bitconnect at some point. Fast forward to this day, and you might learn that the $2.6 billion Ponzi scheme is now considered as one of the most appalling scams in cryptocurrency history! But first, let’s go over some facts…

The Scammer Is Born

Bitconnect launched in November 2016, maintaining ICO active until the end of December that very same year. However, the initial coin offering didn’t raise nearly enough money to reach a healthy investment level, as it got stuck at 468 Bitcoins, or $410,000 at the time…

Although it may seem like a lot of money, back in 2017, before the ICO bubble happened, it was actually quite normal to raise funds for such projects, and who can resist some good old mining, right? Important to realize is that nowadays it is typical to see similar projects raise between $10M and $50M… but don’t get any ideas just yet.

BCC was born in a completely different environment, and as such, it had some advantages over its competition, such as the lack of whitepaper, but the funny thing is that the team was also pretty much ignorant about the whole project… Nobody can blame them, especially after reading the following statement:

“BitConnect coin is an open source, peer-to-peer, community-driven decentralized cryptocurrency that allows people to store and invest their wealth in a non-government controlled currency, and even earn a substantial interest on investment. This means anyone holding BitConnect Coin in their wallet will receive interest on their balance in return for helping maintain the security of the network.”

From Shadowy ICO To Billions

After announcing the official timeline in December 2016, BCC outlined four major phases that would take place over the next two years. This includes the following:

Phase 1 – ICO marketing efforts get underway and run until the end of December 2016. During this campaign, a sum of 4.8 million BCC coins was promised to both the community and cryptocurrency investors

Phase 2 – BCC wallet and desktop client launch. The software should’ve allowed staking and mining of coins

Phase 3 – Plans to push mining live and launch the staking pool. Holders are promised to get a 120% return per year

Phase 4 – ‘Smart Card’ introduction and merchant adoption of BCC coin

After the announcement of their lending platform, BCC really started to raise suspicion. It doesn’t require much knowledge to recognize a Ponzi scheme, particularly if the cryptocurrency’s website promises over 480% returns per year in USD and a guaranteed profit of over 91%.

Unfortunately, nobody noticed the warning lights despite the fact that a return of 5% to 10% per year is considered a solid income in most other assets.

Reality Behind The Numbers

The reason why approximately 1.5 million people got scammed is due to the poorly advertised daily percentage. On the other side is the volatility software interest, which is dependent on the performance of the bot. The equation is pretty simple:

Volatility software interest + Daily interest = Monthly return

So, expecting returns of up to 40% was possible only if it were a good month, and if you by chance loaned out $10,010 to Bitconnect with a guaranteed daily interest rate of 0.25% it would look reasonable to continue, right?

What returns were exactly promised? To put it differently, here’s how it really looked:

• 0.25% daily interest compounded for a year = 91% returns
• 40% monthly returns compounded for a year = 480% returns

When the numbers are finally calculated, it turns out that BCC offered 91% to 571% returns a year for users investing in excess of $10,010. Just to compare, if someone invested this amount for 10 years, they would have generated around $92 million, which according to the source, equals the riches of rapper Drake (net worth estimated around $90 million).

The Illusion Of Being Rich

Despite the numerous warning signs such as the amount of time to get capital back, spelling errors, business model, manipulation, agressive promotion on social media and BCC trading bot, the illusion of getting rich seemed to have no end...

The price of the crypto increased as the supply of tradable BCC coin shrinked, causing consequently a grow in demand. Additionally, the scam also remained in operation as tokens price increases surpassed the interest payments made.

The lesson is: Getting insanely rich along with the others is probably a good sign of a well planned scam, to say the least. Perhaps it’s more interesting that Bitconnect lasted as long as it did, and since they created a massive network of different companies registered in world tax havens, the money is completely untraceable. Bad news for the investors, we’re afraid.

Source:

“Bitconnect Scam: The $2.6 BN Ponzi Scheme” Found in Costa Rica”, Tom Alford, totalcrypto.io, October 8, 2018.