BitConnect was a Ponzi scheme using its own cryptocurrency, the BitConnect coin. It was originally released in February 2016. Initially a huge success, after nearly two years, it lost most of its audience after being exposed as a fraud by multiple organizations. On January 16th, 2018, BitConnect officially announced that it was going to shut down its operations.
The world has always worked on payment system. In our everyday lives, this payment is mostly based upon physical cash such as dollars and euros. However, as technology has become more and more intricate, it has become a necessity to introduce a system of payment that can be efficiently used over digital media. This is basically what a cryptocurrency is. There is no single central cryptocurrency that everyone uses, just like real-life currencies. Some examples of popular cryptocurrencies are those of Bitcoin, Ethereum and Ripple. The records of such a currency are typically stored on digital databases with digital precautionary measures and identifications. Also, cryptocurrencies are not typically stored in a person’s bank account, but there are different methods that allow one to convert cryptocurrency into bank money.
BitConnect officially claimed on their website that the reason they were shutting down the platform was due to “continuous bad press” affecting the platform. There were at least two cease and desist orders issued by Texas and North California’s boards. There were also several repetitive D/DoS attacks made on it over its two years of activity.
It was majorly suspected that BitConnect was a Ponzi scheme. As stated earlier, it used its own cryptocurrency, the BitConnect coin. A Ponzi scheme is another term for a fraud set up by an organization. Such a scheme is used to purposefully lure investors into a false business. Ponzi schemes offer investment opportunities an above-average returns. They work by paying the investors who invested earlier, the profits of those who have invested more recently. Technically, such schemes can go on indefinitely as long as the investors never demand the full repayment of all of their invested assets. That’s because the scheme uses invested assets of one person to pay for the assets of another. Such schemes usually lead the investors to be sure that the profits of their investments are being obtained from things like product sales or other legal means, rather than the whole scheme being a fraud.
Ponzi schemes intend to make good on their promise of profit by attracting more and more investors so that the payouts can be paid by an ever-increasing stream of money. In order to make this possible, they rely on multi-level marketing, that is, they encourage the investors to do the marketing for them by advertising to their friends, family and online communities.
The endgame for a Ponzi scheme is that, at some point, when the rate of investors starts to decrease, and the previous investors start demanding their money, it goes bust. But not before the people who created it siphon away all the money that they can.
In the case of BitConnect, they promised a return profit of 40% per month. The way this worked was that people bought the BitConnect coins with BitCoins (another cryptocurrency), and then “lent” it to the BitConnect platform. At the end of it, investors wouldn’t get back their money in BitCoins, but the BitConnect coin – which was pretty much worthless everywhere else.
The BitConnect team was always anonymous. Besides that, at the time, it was not very clear what the organization’s actual aims were. According to BitConnect:
“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 in investment. This means anyone holding BitConnect Coin in their wallet will take interest on their balance in return for helping maintain the security of the network.”
It is estimated that BitConnect caused a loss of at least millions of US dollars. So, what happened was that it grew so popular that it attracted a lot of media attention, and people rightfully called it out for what it was. Due to this, and the Bitcoin crash that occurred at the time, they decided to close their platform, presumably keeping a lot of the Bitcoins that people gave them for their worthless cryptocurrency.