Vitalik Buterin: BitConnect is a Ponzi Scheme
The unprecedented rise in Bitcoin has coincided with a wild climb in the price of BitConnect, an altcoin promising a return on Bitcoin investments. BitConnect tripled in price since September.
Vitalik Buterin did not know what BitConnect is until now- and as soon as he learned, he pronounced it a clear Ponzi scheme in response to a tweet:
The Ponzi Crypto Coins account is dedicated to uncovering schemes that rely on gathering newcomers. And while BitConnect has been known to involve a multi-level, pyramid-like structure, the gains "on paper" are still continuing.
A few days ago, Ponzi Crypto Coins tweeted to Buterin and Charlie Lee(@satoshilite) and received a reply from the founder of Ethereum.
I actually have no idea what bitconnect is.— Vitalik Buterin (@VitalikButerin) November 2, 2017
But how can BitConnect survive? Easily, with the current high Bitcoin prices. BitConnect promises to give rewards for lending cryptocurrencies. But the payout is in BitConnect coins, which have appreciated a lot. Yet not the amount of coins seen "on paper", only to the amount of the initial cash investment- so actually, at current prices, a user would receive a payout of much less BitConnect coins.
Suppose someone invested 1 BTC back when it was $3,000. On paper, he might have rewards, but if he decides to withdraw- he will receive only his initial investment, in BitConnect coins. Meanwhile, the company would have kept that Bitcoin, which has appreciated to $7,000 and above.
BitConnect is only traded on the internal platform of the project, and is in fact not a free market. Despite this, the dealings of the platform have sent the coin to a price of $271.16, nearly rivaling DASH in terms of market capitalization. BitConnect has appreciated more than 24.9% in the past week.
Then, there is the confusion issue that sometimes, the BCC ticker of BitConnect is confused for Bitcoin Cash, which goes both as BCH and BCC, depending on exchange, but some users bought in confusion, after BitConnect was listed on hitBTC with a ticker of "BCC".
Looks like some people thought they were buying Bitcoin Cash at a discount the first half hour.... pic.twitter.com/ql85fgqre0— Ponzi crypto coins (@bccponzi) November 1, 2017
But otherwise, the coin sees no organic buying, and there is little clarity on how the BitConnect price is formed.
And while BitConnect is not the only similar scheme, it is rather old and continues working, making it even more dangerous.