Context in The Blockchain: BitConnect

My name is David, and I’m new to the world of cryptocurrency. Often times, it’s hard as a beginner to trace a story back to its roots. Whenever a piece of news happens, I miss out on all the historical context that can accompany it.

Follow me on my journey in my series “Context in the Blockchain,” where I explore the significance behind the different moving pieces in the blockchain world and provide you background from what I learn. In this article, I look at the BitConnect scandal, who was involved, and how many people saw their investments fall to zero.

Photo by Isai Ramos on Unsplash

BitConnect is a word I’ve come across quite often and it’s usually not too far behind other words like “scam” or “Ponzi scheme.” Recently, BitConnect (BCC) was delisted from the last exchange that allowed trading of the token to the sound of people wondering who was even trading such a coin. There has also been news that the head of the Asia division for BitConnect, Divyesh Darji, was just arrested for being involved in the scam. Notably, he and his fellow colleagues ended up cheating investors out of $3 billion — but what exactly is BitConnect?

What is BitConnect?

BitConnect was a ‘lending and exchange platform’ on which you could only use its native token (also called BitConnect) and was purposed for crypto investments as well as crypto education. Story checks out so far, but who founded it? When I jumped back in time, my research was pretty much fruitless. I found posts about the founder being from the UK, the company being based in Indonesia, and even posts suggesting that Divyesh was actually a co-founder. It seems like BitConnect had quite the global reach, and it’s uncertain if some of its promoters were in on it or not. The reality is that no one really knows because the inner workings of BitConnect are both shady and obscure by design — the organization was actually founded anonymously.

It can do all that just by borrowing your money and with no other details? Story checks out!

What we do know is that it was founded around 2015 (according to Crunchbase), but almost all of its traction was gained in 2017. It went viral on social media and many personalities began to emerge shilling BitConnect and BCC. There’s Carlos Matos, who became a certified meme with his over-the-top speech at a conference (hey hey hey, wasawasa — bitconneeeect!).

And the best hype-man of the 21st century goes to…

There are also YouTubers who are generally brought up in a very negative context: CryptoNick, Trayvon James, and Craig Grant. That’s just for the U.S. side; there were directors for BitConnect over the world like Divyesh in Asia or John Biggaton in Australia. The large social reach as well as number of faces associated with BitConnect made it a lot tougher to know who to point fingers at when it all came crashing down.

The Fall of BitConnect

BitConnect itself was based on the multi-level marketing scam, the classic pyramid/Ponzi scheme with a crypto twist. In this type of scam, money funnels towards the early investors who benefit from all the latecomers (the majority of people) who end up losing their money.

In this scenario, BitConnect asked for an investment loan which you would give up and lock with BitConnect for a long period of time, say 120 days. They promised that they would give you anywhere from a .25% to 5% daily interest rate. That would result in an average of a 1% daily interest rate, and the minimum you would get over a year is a 120% return on investment. How is this done? BitConnect claimed that they had a trading bot that can win during market volatility. Therefore, if you give them money to maximize on their returns, they’ll give you part of it back as a reward. Moreover, you could gain more money by being an affiliate and giving referral links to people, earning money that way as well. Sounds great, right?

Investment return galore brought to you by “good guy” BitConnect

In reality, BitConnect wasn’t doing anything of value except shoveling the money from later investors into the hands of the early investors. The locked money from the newly initiated was used to subsidize the impossible interest rate BitConnect promised. The kicker is that all the loans and transactions within BitConnect had to be made in BCC — you had to exchange Bitcoin into BCC, use that BCC to make your investment, and receive your returns in BCC as well. This made it so that the value of BCC rose to the extraordinary price of $430 at its peak, despite having no actual intrinsic value or utility.

BitConnect would also make it harder for investors to cash out of BCC once things started going downhill due to the extra illiquidity. Everything else about Bitconnect was all done to increase the marketability, reputation, and the idea of a “get rich quick, easy” scheme to reel in more people.

As soon as the price of Bitcoin dropped, the scheme became unsustainable. During the January collapse, BCC dropped from $430 to $180. At this point, Bitconnect made an announcement that they were forced to close their lending operations and that they would refund anyone who had an active loan at the rate of $362. The caveat was that the refunds would be in BCC. Probably the most unbelievable part about this was that they blamed the crash on bad press and DDOS attacks, neatly avoiding any mention of the fact that they were a glorified ponzi scheme. Soon after the announcement, BCC tanked even further from $180 to $8 by the end of the month, meaning that people who hadn’t gotten out early enough were left with close to nothing.

The Aftermath

Today, before being delisted from its last exchange, BCC was trading in the range of $0.40-$0.60. There were many people who were very upset or angry, and there were others who chided these people for believing in something that was “so obviously” a scam. Except, it’s understandable — hope can move mountains. When people really believe that their lives could be changed and there is a mass media campaign to convince them of such, then it’s not so crazy that they could fall into such a trap. It’s happened time and time again since the original scheme executed by Charles Ponzi. This time, it cemented BitConnect as one of the most bitter memories in cryptocurrency of 2018.

People lost life savings by investing in BitConnect, and groups have formed to create lawsuits against pretty much anyone who was involved. Most connected to the company have gone underground, deleting any videos relating to BitConnect on their YouTube channels because of the negative connotation associated with it. Some instances of backlash have been particularly extreme — the wife of John Biggaton, the director for BitConnect in Australia, went missing soon after they received death threats.

The same founders of BitConnect are still active, currently spinning up BitConnectX. One can only hope that the world has learned its lesson when it comes to this specific hustle.

An example of a group attempting to sue the global network of BitConnect promoters

BitConnect and scams like it are bad looks for the cryptocurrency community, but more importantly, they hurt a lot of people. It’s an unfortunate stain on the image of cryptocurrency, and this will serve as a painful reminder for people to do their own research and to never trust something that seems too good to be true. For now, with the delisting of BCC from its final exchange, the story of the greatest crypto Ponzi scheme comes to an end.


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