A few weeks ago, I wrote an honest review of Mining City and how it has opened the door for many people to mine Bitcoins. I also showed you why I believe it is a legitimate way to be part of the Blockchain Revolution.
You can read that blog post here.
In today’s post, I go the opposite direction. I walk you through one of the biggest scams in Blockchain history. It started with a company called Bitconnect.
Since its inception, Bitcoin has been considered digital gold. Amidst the many good things that Bitcoin brought, so many people have used it as a means to scam others.
The goal of this post is to show you how to identify a scam and the things to look out for before making an investment in Blockchain.
Let’s dig In.
How Bitconnect Started
BitConnect was a cryptocurrency company that first launched in February 2016 in Indonesia.
They came into the cryptocurrency market with an initial coin offering (ICO) in December 2016. Fast track to 2017, their coin it became one of the best-performing currencies on CoinMarketCap with a market cap of over $2.6 billion and a value exceeding the $400 mark.
Before we go into full details on the Bitconnect scheme, let’s talk about how the company operated.
1. The Bitconnect lending- you lend the company your Bitcoin in exchange for profit opportunity. The idea is that they trade on your behalf.
2. The Bitconnect Trading- you are expected to buy and sell the Bitconnect Coin with a strong view on making profits as the market fluctuates.
3. The Mining- in Bitconnect Coin mining, you earn your money as you confirm previous transactions completed using cryptocurrency.
How Bitconnect Worked
A Bitconnect investor trades Bitcoin in exchange for BitConnect Tokens using the exchange platform, which in return, the investor gets daily profits in the form of dividends.
The dividends percentage depends solely on the number of new investors he/she invites to join his team under BitConnect, and how many tokens the new investor buys.
Furthermore, Bitconnect claimed the returns are accumulated through an investment algorithm that had been created, which automatically invests in Bitcoin when the market value is very low and sells it back into the market when it’s a hot cake.
What’s surprising is that Bitconnect does not provide any detailed review on how its algorithm works, the market variables, or even how it made all its predictions on when the value is high or low and the best time to sell or reinvest.
Basically, Bitconnect takes your bitcoin, trades with it, and pays a certain percentage back. Let’s examine their promise a little further.
Based on the first post of Bitconnect that ever featured on BitcoinTalk, they had pre-mined and had a minimum of 4.8 million coins. That was a minimum. They never stated the maximum.
They also adopted proof of stake, what this means is that you get rewarded for not selling your coin. Proof of stake means the more coin you have as a miner, the more mining power you have, and also, you accumulate interest on your pre-mined coins. (basically proof of stake means, you should never sell your coin)
So with proof of stake, Bitconnect users need not convert their coins because they will lose out if they sell the coin.
Next, they promised their investors something else after the stake. They promised a 1% Return on Investment (ROI) daily. They claimed they had a trading bot and volatility software that turns bitcoin into a fortune. They claimed the software and trading bot would monitor the market to buy low and sell high.
According to the information available on their website, if you invest $1000 worth of Bitcoin at the beginning of your first year.
You leave the money for three years at 1% per day at compound interest (not the usual interest. Compound interest is your initial deposit plus your interest per interval) For three years, $1000 should have increased to $62,705,655.44 (62 million-plus) – too good to be true.
How was Bitconnect able to pull off the scam?
Simple, since they already mined an infinite amount of coins, they were making a profit from the stakes and were paying their members from the profit of the stakes, so there was no trading taking place.
To cut a long story short, BitConnect kept collecting Bitcoin from its users and kept paying interests in BCC, which was nothing compared to the bitcoin they kept sending to the system. Now, since they already pre-mined an uncountable amount of coins (remember bitcoin is just 21million), they will keep making fractions in terms of profit.
Most users didn’t notice the scam soon, because the profit was almost zero but consistent. Guess what, in reality, when you multiply anything by zero, you get zero. So BCC users were consistently getting zero without even knowing.
It became easy to scam people because if they were being paid in Bitcoin, it would be easy for people to detect the scam, so they kept paying in BCC until they closed down.
The first person to complain about BitConnect as a scam was the founder of Ethereum Vitalik Buterin. He wrote on Twitter in November of 2017 that “If one percent per day is what they offer, then that’s a Ponzi scheme.”
You don’t need a prophet to tell that Bitconnect was indeed a scam. Promising rewards based on proof of stake and still asking them not to sell is wrong. Compound interest of 1% per day is just impossible. The positioning of the lending services was incorrect. Simply put, everything about Bitconnect was wrong. The promises were too outrageous and vague.
In a nutshell, when you see any business come to you with outrageous promises, my dear friend, you should run. If you care about making money without falling for scams, I can show you the way.
Jump into the comment section or apply to work with me and I will show how I invest in cryptocurrency without falling into scams.
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