If you landed on this page, you probably need the answers on these questions:
- Bitconnect explained! Is it possible, that the coin offering such a crazy ROI (return of investment) is not a scam?
- Did people, that invested in BitConnect and the associated lending business, get back the money they invested in and also get the advertised returns?
- Is BitConnect a pyramid / ponzi scheme?
- How a hell is Bitconnect able to not only pay all those interests but also pay such high referral commisions?!
Well, I did my homework and will try to answer them.
Bitconnect explained! BitConnect is a cryptocurrency, that emerged in November 2016. Since then, it has gotten a lot of attention, albeit much of it has been negative. The reason for this negative attention is because many people suspect, that this service is nothing more than a pyramid/ponzi scheme. Others defend BitConnect, saying their users profit and thus there is no scheme. Well, if there wasn’t any scheme, this wouldn’t work, right?! In this article I will present to you exactly how they are able to run the business, while keeping their users happy.
Essentially, what the BitConnect service says it does, is:
- take your Bitcoin
- immediately convert your Bitcoin into BCC (their own token)
- pay you daily interest from their earnings on their “trading bot” (interest is paid in BCC, not BTC — this fact becomes very important later).
Thus, BitConnect’s main business proposition is: we can invest better than you can, so give us your Bitcoin and we will send you some of the earnings we made from investing it.
The main point here is, the interest rates are very impressive, with an average of about 1% PER DAY (check it out by yourself here). Yes, you see it right – per day! Bitconnect explained!
The first question, a speculative investor should ask is: How is that possible? How can they offer such a crazy ROI and still make everybody happy? Money just don’t drop from heaven, right? If they’re able to get 1% per day trading with their bot, on let’s say $100,000, in one year they’d be looking at close to $4,000,000. Why bother then? Their method of trading would truly be revolutionary. Do you buy that?Actually, I don’t.
I don’t buy it. But you know what’s the funny thing? They don’t even need their bot to run the business (at least from the operability point of view)! Yup, you read it correctly again. Let me explain…
BitConnect guys actually prepared themselves pretty well for the debut in the late 2016:
- they performed a pre-mine to generate at least 4.8 million coins
- they adopted a Proof of Stake / Proof of Work system. Proof of Stake essentially means, that anyone holding BitConnect Coin in their wallet will receive interest on their balance in return for helping maintain security of the network. The interest rate they will reward you is shown below:
Now, what do you get, when you mix these two facts together? Bitconnect explained!
Proof of Stake allows them to accumulate interest on their pre-mined coins!Let’s assume they kept only 2,000,000 BCC from their pre-mine. Their current holdings would look like this: 1,543,122 BCC (interest since Jan 2017 till June 2017) + 160,000 (interest since July 2017 till August 2017) = 1,703,122 BCC accumulated in interest since Jan 2017 till today. In USD, at the current USD/BCC rate, this would be $102,187,320. Remember, this is from the interest alone! Bitconnect explained!
Now, let’s quicly recall the basics of how BitConnect service works. You give them Bitcoin, take in exchange BCC (their own token), which eventually… you give them back again (lend). So… who in fact holds most of the BCC tokens?;> And who takes profit from the Proof of Stake?:> Yup, you got it. They have a virtually infinite supply of them due to the fact that they have staked millions of BCC, which they are accumulating interest on.
So in essence, the interest they are paying you, don’t have to be their returns from trading, but simply just the interest they get from their Proof of Stake system!
Just for fun, let’s see what fraction of their BCC holdings they need to redistribute to their users to keep them happy. First we need to make some assumptions, because I am unaware of how many users they have and what average amount of Bitcoin their users send them. I think the following assumptions might be reasonable:
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! Bitconnect explained
So in 1 month they are expected to pay their users approximately 350 BTC * (40 BCC / 1 BTC) = 14,000 BCC per month. Earlier in this article, I calculated the approximate amount they made in interest due to the fact, they are staking their pre-mined coins. In this month alone, assuming they staked around 2,000,000 coins, they have accrued about 160,000 coins. That 14,000 BCC they need to pay their users is a mere afterthought.
Having a look at the richest BCC address, which I think is more than reasonably assumed to be owned by BitConnect, they can easily sustain 100,000 users just on the interest accrued from this address alone!
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You think that’s it? Not really, that’s just a beginning!
Now, let’s assume, that Bitconnect suddenly becomes very, very popular. The number of users grows exponentially and the demand on BCC surpasses the supply. Also more people starts to accumulate BCC, to take profit from the Proof of Stake on their own. You think, that’s bad, that’s really bad… How will Bitconnect pay all those interests?! Well, actually that’s the best thing that can happen! The bigger the demand and the lower the supply, the higher the BCC price! So now, as they pay the interests in BCC, they have to pay you even less BCC! They pay you less and you still get your money! Isn’t that ingenius?! Now look at the charts:
Look how Bitconnect is ranked by it’s current market capitalization (a digital currency’s market cap is the total supply of coins multiplied by the token’s current market price):
There is more…
Proof of stake is not the only source of income for BitConnect. You should remember, that as they hold most of the BCC available in the market, most BCC based transactions happen on their own trading platform! You trade BCC for BTC and vice versa. You think, they do it for free? Nobody does! They get a decent fee from every transaction (0.25% from both buyers and sellers)!
And what if, in addition, they actually DO have their brilliant BTC trading bot?! Bitconnect explained!
So what is Bitconnect? Bitconnect is a “self-sustaining factory” with a license to print digital money, which they gladly share with the community. Why do they do it? Because they can; because they earn thanks to you; because they can efford it; because they want to make both them and you happy; because they want to popularize Bitcoin and digital currency in general.
Is it a ponzi/pyramid scheme? I don’t thinks so. Why? Because in every single ponzi/pyramid scheme the math says it doesn’t compute. Because in every single ponzi/pyramid scheme the founders run away with your cash after some time. Does it compute well in case of BitConnect? Yes it does, and it does compute ingeniously!Will they run away in some undpredicted moment with your cash? Well, I don’t know that. Nobody knows. But does it make any sense to run away from such a brilliant scheme? Well, answer this question by yourself.
Don’t I see that the real winners here are the BitConnect founders? Of course I do! Nobody does that for free ;]
One final thought – the whole thing is completely LEGAL ONLY, if they really have a trading bot behind the scenes. If the bot doesn’t exist, the coin itself doesn’t have any value and is nothing more than a bubble based on the “greater fool” theory. The fact is, they don’t need a bot to operate but they need it, if they want to stay legal. As I cannot guarantee the bot exists, I try to be fair here and present different points of view and all the facts behind the coin in other articles on this blog.
Now, the gamble part…
If you know the risk and all the aspects of this coin, and still put some trust in it, sign-up now using my referral link below:
PS. Note! These article represents only my personal thoughts! It should not be treated as any kind of financial advisory! As digital currency market is a very high risk market, invest only the money, you’re ready to lose!
PS2. Many facts are taken directly from this “negative” post, however with a different interpretation.
PS3. Be warned, that there are many signs, that this is anyway a ponzi scheme . The decision, whether to trust that coin or not, is up to you!
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