Is Bitconnect a scam?
The topic of Cryptocurrency is something that I haven’t exactly spoke of before, therefore i’d like to take a moment to quickly explain what Cryptocurrency is.
If you haven’t heard of Cryptocurrency you’re likely living under a rock. But because it’s 2017 and have nothing against living under a rock I will still go over what Cryptocurrency is for you rock dwellers. Cryptocurrency: “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.” To put it into simple terms, its online money that our governments have no control over.
Bitcoin is just one of many Cryptocurrencies that just so happens to have gained a large amount of attention. In order to gain bitcoins they must be mined, like gold mining, but on your computer. People have built entire factories of computers that mine bitcoins 24/7. These are super computers working around the clock to break down tech walls in order to receive a bitcoin. Luckily these factories have also built websites that allow you to rent a spot in their factory to mine your own bitcoin! Here is a short list of websites that allow you to join the party:
If you are still confused this short video will better simplify what bitcoin mining is all about.
Of course there is also ways to buy a bitcoin straight up! A website such as Coinbase (this link is an affiliate link) which allow one of the simplest ways to invest in bitcoin and other cryptocurrencies. Since I started investing in bitcoin a few months ago the price has literally doubled. Therefore if one bought $10,000 worth of bitcoin, they would have $20,000. That is one damn good ROI.
Now that we know what bitcoin is, where and how we can buy it, let’s go over the not so nice side of it the cryptocurrency world; specifically talking about Bitconnect. Bitconnect claims to be
“an open source all in one bitcoin and crypto community platform designed to provide multiple investment opportunities with cryptocurrency education”
Bitconnect is a cryptocurrency that was talked about on BitcoinTalk in November 2016. Since then it has gotten a great deal of attention, unfortunately most of which is negative. Bitconnect gets most of its negative attention due to the likelihood that its nothing more than a clever pyramid scheme (ponzi scheme). You will still hear a lot of positive buzz around Bitconnect simply because some will say the user’s profit, therefore no scheme.
In a nutshell BitConnect service says it takes your Bitcoin, then converts your Bitcoin into a Bitconnect Coin (BCC) which just so happens to be their own currency. They then pay you interest from their earnings on their “trading bot.” The interest is then paid to you in BCC not in Bitcoin. The interest rates are extremely high, 1% per day on average. (Bitconnect’s projections on interest info here.)
Basically what Bitconnect is saying is; we can invest better than you can, therefore give us your Bitcoin and we will send you part of the earnings we make from investing it.
This is where things begin to get sketchy. Ask yourself this, if you created an automated bot that could invest with extremely high success rates, giving you almost no downside, why would you allow others to use it? At an average rate of 1% per day (365%/year), if you invested $100,000 you’d see a return of close to $4 million. You would have created the ultimate trading bot, and theoretically have unlimited money.
One of the world’s greatest investors Warren Buffett averages between 20%-30% return rate on investments.
This is why many believe there is no trading bot at all. In-fact it’s believed that bit connect isn’t even trading your bitcoin.
Once reviewing the BitcoinTalk, it’s fairly obvious that a pre-mine was done to generate around 4.8 million coins. To add insult to injury Bitconnect uses a Proof of Stake system. This means that you’re rewarded in interested for not selling your coins.
This Proof of Stake system allows Bitconnect to gain interest on those 4.8 million pre-mined coins. Let’s say that they kept a mere 2,000,000 BCC from the pre-mine. Their current holdings would be: 1,543,122 BCC (interest from Jan 2017 to June 2017) + 160,000BCC (interest from July 2017 to August 2017) =1,703,122 BCC accumulated in interest. To put that into perspective that would be around $102,187,320.(as of the USD/BCC rate in July 2017) Don’t forget, this number is just from interest.
Be honest with yourself, if you were able to make that kind of money passively, would you even consider trading?
To clear things up, Bitconnect would NOT need to trade in order to give those daily payouts, due to the fact that they pretty much have an infinite supply of BCC because they have millions of BCC that are accumulating interest. Therefore they are likely paying their users with the interest they get from their proof of stake system.
In an article by Steve Dell (in which a large amount of the information in this post was based off of) he did a calculation to figure out what fraction of BCC holdings Bitconnect would need in order to redistribute to their users to keep them happy. His calculation went as such:
“ 10,000 users, with an average BTC deposit of 0.1 (~$220 at the time of writing this). This means that they have approximately 1,000 BTC in holdings. For an average user of 0.1 BTC, in 1 month they should expect around 0.035 BTC in interest if they’re getting 1% per day. Multiply this by 10,000 users and you get 350 BTC per month that they need to pay their users… But they don’t pay them BTC, they pay them BCC!
So in 1 month they are expected to pay their users approximately 350 BTC * (40 BCC / 1 BTC) = 14,000 BCC per month.”
He goes on to explain that if in fact they did in fact have roughly 2,000,000 coins, they would be receiving 160,000 coins in interest in the month of July alone. That 14,000 BCC that they need to pay out to their users seems pretty small now doesn’t it.
Most defend BitConnect by saying that they are still paying all users interest, therefore the bot has to be real! I think that it’s very clear now that Bitconnect can easily afford to pay out their users simply with the interest they are making. No bot necessary. They have managed to find a way to take your Bitcoin, give you practically nothing in return, and make you happy with that nothing! All they have to do is send you a tiny piece of their interest from the pre-mined coins!
Using compound interest, the creators of BCC are able to obtain a nearly infinite amount of their coins. Through the use of social media marketing and an affiliate program with a hefty payout, they have practically created a way to print money.
On top of everything else Bitconnect is also super secretive. It’s near impossible to find any information on the trading bot. You’d think from a $800,000 company that they would show some proof, simple screen shots of trades being made and the gains associated with them. Even just any proof of this technology! Most major Cryptocurrencies have a white paper (a government or other authoritative report giving information or proposals on an issue.) or board of directors publicly exposed. Bitconnect has made claims that they would like to keep all of this information private so they don’t run into legal problems down the road. Which obviously can be true, seeing a the government is going to want a piece of that pie as time goes on.
Ultimately Bitconnect’s growth is thanks to social media.
I could have easily made a youtube video talking about all these huge benefits of Bitconnect, then thrown an affiliate link in the bottom. Next thing you know I am making MORE money on BitConnect thanks to all the referral commission I am making, that would surely call for another video, right? Then I am making even more money using Bitconnect, when in reality it’s thanks to my affiliate commission, while the people underneath me are seeing minimal gains.
I am by no means an expert in this area, I have been investing in Cryptocurrency for a minimal amount of time. That doesn’t excuse the amount of research I did online regarding Bitconnect. If any new information comes to light regarding their bot and new proof is brought to the surface then I would have no issue saying that I was wrong.