Less than a decade after the meltdown of 2008 and the Bernie Madoff scandal, people fall for a new ponzi scheme.
I never ceases to amaze me how dumb some people are. Well, let me put it more succinctly - how dumb people end up having enough money to lose in pyramid schemes. That such schemes exist is not astounding - con-artists and shysters have been around since the stone age. What amazes me is that poor people manage to scrape together thousands of dollars (or worse yet, borrow it) and hand it over to flim-flam artists.
In the Patent field, we call them "invention brokers" and I have written about them before. They use evangelical tactics (evangelicals themselves being a form of con-artist) to inspire people to send them money. "Your invention is the greatest thing since sliced bread!" they say, "everyone here was blown away by it! You'll be a millionaire! Send us $10,000 to get started!" You know how the rest plays out, doncha?
In the news today, some sort of Ponzi scheme tangentially related to Bitcoin. Bitconnect was some sort of scheme where you would buy Bitcoins and "lend" them to Bitconnect and make 40% interest per month. Perhaps this scheme explains why so many small investors were buying Bitcoins in recent months, driving the price up. Anyway, apparently it all came unraveled, and the site shut down, although some say it is back up again. But the Bitconnect "coin" is now worth 90% less than before - if indeed it can be traded for "fiat currency" anywhere.
This Reddit discussion describes how the scheme worked:
BitConnect was a ponzi scheme using their own cryptocurrency, the BitConnect coin. "Ponzi scheme" means that a company offers a supposed investment opportunity to its customers, promising above-average returns (in this case 120% per year 40% per month). They intend to make good on that promise 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: They encourage the investors to do the marketing for them, by telling their friends, family and online communities.
The end-game for a ponzi scheme is that at some point, when no more people come in and investors start demanding money, they go bust. But not before the people who created it all siphon away all the money they can.
The way this worked here was that people bought the BitConnect coins with BitCoins, and then "lend" it to the BitConnect platform. At the end of it, investors wouldn't get back their money in BitCoins, but the BitConnect coin - which is pretty much worthless everywhere else.
So what happened was that BitConnect grew so big that it attracted media attention, and people rightfully called it out for what it was. (Edit) Due this and the recent bitcoin crash, they decided to close their platform, presumably keeping a lot of the BitCoins that people gave them for their worthless cryptocurrency.
If you watch the YouTube videos - which seem to be their major source of marketing - you see the evangelical-style faith-based investing going on. Lots of chanting, singing, and hyping going on, not a lot of rational analysis. And that is probably why it is on YouTube and not on some text channel, as people who can't read very well are probably their target customers.
And yes, they had a Reddit subreddit, which turned into an echo chamber, as the "moderators" deleted any posting which questioned the value of this "currency," causing a feedback loop. Now that the thing has crashed, they have new "mods" and the tone is decidedly more skeptical.
And yes, they had a Reddit subreddit, which turned into an echo chamber, as the "moderators" deleted any posting which questioned the value of this "currency," causing a feedback loop. Now that the thing has crashed, they have new "mods" and the tone is decidedly more skeptical.
This goes back to a recent blog posting I made, a few win a lot a lot win few - how con-artists can take a few bucks from a lot of people and end up with a staggering amount of money. And actually, that title is wrong, it should be a few win a lot, a lot lose a little, as that more accurately describes what is really going on.
I get e-mails from folks with this "get rich quick!" mentality, who say I am all full of hooey for investing in more normal things, shying away from hyped investments, IPOs, and anything touted on the financial channels. I tend to buy conservative investments and hold them a long time. I am not trading on a daily or even weekly basis. I have not made staggering sums of money over the years (perhaps, on average, doubling or tripling my investments over 30 years or so) but then again, I haven't lost money, in the aggregate. And unlike the folks who put it all down on get-rich-quick, I haven't lost it all.
What do we do to put a stop to these scams and cons? I am not sure we can. In a very early posting, I tried to enumerate all of the cons and bad deals that are out there. But the list just keeps getting longer and longer. I realized that you can spot a bad deal just from the way it is presented to you, and you need not try to "figure out" whether it is a con or not - 99% of the time, you can tell just by the presentation. If it makes no sense to you, it is probably because it makes no sense!
This does not mean, however, that if the presentation doesn't tip you off, you can reliably assume it is not a con-job. You still have to remain astute.
In the case of this "Bitconnect" you can figure out from 100 yards away it is a con-job, just by looking at the Youtube videos and the evangelical way they sell the idea. Anything that is sold to you based on the idea of quick riches and money-for-nothing should be not just suspect, but assumed to be a fraud.
Because if you think about it, if these people could really return 40% on the dollar in a month, why on earth would they tell you about it? They could make far more money just doing the deal themselves, and pocketing all the profits, instead of sharing them with you. And if you think this "secret" is being shared with you because the founders want to "give back" the you are dumber than you look.
Things like scams and frauds used to upset me a bit, particularly when I met people, such as in the invention business, who had been scammed out of money. I felt bad for them, and also realized they were disillusioned about our society and its institutions, which failed to protect them. Get enough people disillusioned about society, and you will have a revolution on your hands. But I stopped feeling sorry for them when one inventor - after I warned him not to use an invention broker company - went out and gave them all his money and then called me a year later and asked why I didn't warn him! Sympathy fatigue sets in, rather rapidly.
A fool and their money are soon parted!
A fool and their money are soon parted!
