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2017 turned out to be a very important year for the cryptocurrency world. Not all developments, however, were positive ones. Last year saw many large Ponzi scheme‘s come and go. But none of them even hold a candle to the sheer scale of deception that BitConnect brought with it.

BitConnect is now facing legal consequences in the UK and the United States for its shady business practices, and yet they still appeared to be in full operation, with their own native token trading for more than double what it went for when the platform went live last year.

Bitconnect

So read on as we dig into BitConnect, how it works, and how it managed to spread itself so far in such a short time.

Please Note: We will not be linking to BitConnect in this article.

BitConnect – How it’s supposed to work

BitConnect works in a method that is fully in line with almost all traditional Ponzi schemes. Typically, a Ponzi scheme works first by promising massive, unrealistic returns. For example, they might say one percent per day or 10 percent per month or double your money in three months and so on. These kinds of returns are completely impossible under even the most bullish of market conditions. Even if whatever group offering those rates manages to pay it out in the beginning, usually what happens is the first customers are paid out with the money received from later customers buying in.

Next, any money that is deposited in the scheme will typically be subject to a lockdown period, or otherwise, be restricted from withdrawing funds quickly. This could be 30, 60, 90 days and so on. In the case of BitConnect, the lockdown period ranges between 120 and 299 days. The more money you put into it, supposedly the shorter your lockdown is.

BitConnect spreads like a plague

Next, those who sign up for the scheme are encouraged to spread the word of it far and wide through affiliate marketing and affiliate links. If you look online for any discussion of BitConnect you will find the comments riddled with affiliate links. Those who spread the affiliate links may be rewarded with supposedly higher return percentages on their original deposit if their link is used by someone who signs up with it.

Trevon James

The last stage of a Ponzi scheme has usually been the amount of returns that the group needs to pay out is more than what is coming in, and so with the group will simply cash out all assets and disappear without a trace. Any money left in the program by a deposit is effectively gone forever. What’s unusual about BitConnect is that it has been running for more than a year now and shows no sign of slowing other than the impending legal action which may or may not have an impact.

By comparison, another Ponzi scheme that appeared last year called BitPetite has already mostly gone off-line with all the deposited funds likely lost forever. BitPetite was only online for a short time before this it crashed. What makes BitConnect so unique is that it’s still up and running after such a long time. This could be due to its popularity, and that enough new users are joining each month in order to sustain the unsustainable payout rates.

Calculating the madness

If BitConnect is to be believed, how much money would some realistically expect to earn through their program? According to their charts, a deposit of $1000 would expect to see a 40% monthly return. Let’s see what that would actually look like. Assuming the interest compounds, at the end of one month, you would have $1400. Month two, $1960. As you can see after just two months your money is already doubled, which is impossible.

By month six you would have $7529, and by years end you would have $56,693. Think about that for a moment. Would any sane investment company give out $55,693 in interest on a $1,000 loan? If the interest doesn’t compound, an investor would supposedly still clear $400 a month, or $4800 profit over the year, which still represents a ridiculous rate of return. If one were to deposit over $1000, they will supposedly get an addition 0.10-0.25% per day, depending on tier. Assuming a $1010 investment (to qualify for the 0.10% daily) that would mean a daily return of $10 in addition to the 40% monthly.

To compare with another scam, BitPetite, which promised 4.5% per day during its operation, the same $1,000 would have netted you $3,745 after a single month, outpacing even BitConnect.

If it seems too good to be true… it probably is

So how does BitConnect claim to be able to provide such astonishing, unrealistic rates of return? By lending, apparently. Let’s think about this for a moment. Even the worst credit card may only charge around 35% interest. Not only that, but that’s 35% per year, not per month. A $1000 credit card balance would incur $29 a month in interest. Further, a credit card with an APR of 35% is considered awful, and most credit cards charge far, far less to those with average credit scores. 14-24% is far more common.

So who exactly are they lending money to at such a ridiculous rate? With much more affordable credit available, who in their right mind would agree to such rates? The truth is that no one knows who exactly is borrowing from BitConnect. Most likely, no one is.

Where did BitConnect come from?

The official site went live sometime in late 2016. At that time, the site claimed that its goal was to help “freedom loving individuals who, like you, or seeking the possibility of income stability in a very unstable world. “ The site already makes mention of the majority of the components of the scheme, with the exception of its native BitConnect coin, or BCC (not to be confused with Bitcoin Cash, or BCH). That didn’t appear on the site until early 2017.

The BitConnect site back in 2016

The company, or group of people behind BitConnect, appear to be in South East Asia, most likely Vietnam based on their early promotional videos. A company registration does exist in the UK. The UK government, however, has threatened to shut them down if they cannot prove their operation isn’t a Ponzi scheme. Following this, the Texas Securities Commissioner sent them an emergency cease and desist order, demanding that they stop doing any business in Texas until they can prove their operation is legal.

Impending Fallout

BitConnect has become one of the largest and most widespread Ponzi schemes in the world. In the past, such schemes were usually limited to one geographic area or country. But with the ease of money movement that cryptocurrency offers, BitConnect has been duping people across the globe.

So what’s going to happen when the house of cards inevitably falls apart? Sadly, this could prove to be a major black eye for the public image of cryptocurrency. Most likely, major news outlets will say first Bitcoin was for black market drugs and weapons, and now it’s for Ponzi schemes.

It’s difficult to estimate just how widespread this problem is, and how many people will be affected when the site disappears. Tens of millions of dollars in cryptocurrency and Bitcoin could disappear from the market for years, and untold thousands of investors could be put off cryptocurrency forever.

We can only hope that the fallout from the impending BitConnect crash will be a gentle one, and not that damages the crypto economy for years to come.

Posted by Robert Devoe

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