BitConnect ControversyUpdate 17/1/2018: BitConnect has now shut down its operations following a slew of legal troubles, cease and desist letters and negative publicity.
BitConnect has been accused of being a Ponzi scheme and a scam, offering a “too good to be true” return on investment of about 1% a day.
On January 3, 2018 the Texas State Securities Board issued an emergency cease and desist order to BitConnect with several claims against the company, including that BitConnect is intentionally failing to disclose financial information about how they are going to pay those who have invested in coins in the BitConnect-QT wallet. They’re also accused of using misleading and deceptive statements by not clearly disclosing the risks involved with investing in cryptocurrencies.
On 7 November 2017 the UK government issued BitConnect a notice saying that it has 2 months to prove its legitimacy or be dissolved and have all its assets confiscated.
If BitConnect does not adequately prove its legitimacy and ends up being shut down, there is no guarantee of you being able to recover any investment you had in it at the time.
- If you are thinking about investing with BitConnect you may want to wait at least 2 months first. By then it should either have been proved to be legitimate, or will have been dissolved.
- If you are a current investor in BitConnect you may want to consider withdrawing your funds until the situation is resolved one way or another.
BitConnect wants to be a self-regulated, peer-to-peer financial platform, allowing users to lend bitcoin using blockchain technology.
Released in 2016, BitConnect’s goal is to become the world’s first peer-to-peer bitcoin lending platform, allowing users to lend bitcoin and gain interest automatically. Perhaps more importantly, the value of its coin (BitConnect Coin, or BCC) skyrocketed in 2017, offering great investment opportunities.
This information should not be interpreted as an endorsement of cryptocurrency or any specific provider,
service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and
involve significant risks – they are highly volatile and sensitive to secondary activity. Performance
is unpredictable and past performance is no guarantee of future performance. Consider your own
circumstances, and obtain your own advice, before relying on this information. You should also verify
the nature of any product or service (including its legal status and relevant regulatory requirements)
and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
What is BitConnect?
Relatively little is known of the history of BitConnect. Its goal is to allow users to lend bitcoin to the platform itself, but at the time of writing this guide (September 2017), that goal had yet to be reached.
|Icon||Symbol||Initial release date||Algorithm type||Max. supply|
|BCC||15 February 2016||Scrypt||28 million BCC|
In the meantime, BitConnect Coin acts as a regular altcoin with the added feature that it earns interest while you hold coins in your wallet. This Proof-of-Stake system is paired with a Proof-of-Work mining platform for a hybrid currency that offers the best of both worlds.
In what ways are BitConnect and BCC different from bitcoin?
BitConnect and BitConnect Coin (BCC) are two different aspects of the same platform. BitConnect aims to be a bitcoin lending platform, while BCC is the value token used by the platform.
Proof-of-Stake alongside Proof-of-Work
Mining (also known as Proof-of-Work) has been a staple of the bitcoin platform since the beginning. In mining, users of the blockchain earn cryptocoins by having their computers work on validating transactions.
Proof-of-Stake is a system in which the cryptocurrency platform rewards you with more coins for owning coins over a specified period of time. As strange as this might seem, having users own coins is very important for any cryptocurrency. When investors see people purchasing a particular cryptocurrency and then holding and using the coins they purchased, they gain confidence in the platform which will likely increase the coin’s value.
BitConnect enjoys faster transactions compared to the bitcoin platform. This is a result of BitConnect using Scrypt as an encryption algorithm which is faster to decode by miners than bitcoin’s SHA-256.
As of September 2017, transactions on all blockchains are instantaneous. This means that anyone receiving digital currency will receive it immediately. That doesn’t mean you can use those coins as soon as you receive them. Instead, a miner on the blockchain must validate the transaction before you can use the funds (to make sure that you’re the rightful owner, and the sender was the rightful owner before you). While this makes the process a little slower, it’s a small price to pay for peace of mind and security.
The stronger the hashing algorithm, the more secure the platform, but it also makes validating transactions slower. In the end, it’s all about achieving a balance, with some cryptocurrencies opting for speed while others opt for absolutely unbreakable security.
Where can I use BCC?
As of the time of writing this guide (September 2017), BCC is accepted by a very small minority of merchants and is mostly used between users of BitConnect.
Meanwhile, most people who own BCC do so as an investment opportunity, either in an attempt to diversify and grow their portfolios or as proof of their belief in the cryptocurrency.
How do I invest in BitConnect?
To invest in BitConnect, purchase BCC and hold it in your wallet. It’s that simple. This achieves two things:
- If the value of BCC increases, so does the value of your investment once you sell the coins. If for example, you purchase at US$50 per BCC, and sell the coins when the value reaches US$100, you will have doubled your investment.
- BCC in your wallet earns you interest. This interest is dependent on the money made on the market by BitConnect, and everybody owning a minimum of a hundred dollars’ worth of BCC receives a percentage of those profits.
Transacting with BCC
BitConnect Coin (BCC) is simple to use as long as you have the official BitConnect wallet installed on your computer. Here are three easy steps to follow:
- Get the recipient’s address. Whoever is receiving the BCC should be able to give you an address, which is a public key consisting of letters and numbers. Sometimes, a QR code is provided instead to avoid having to type the address into the wallet yourself.
- Enter a BCC value. Next, input the amount of BCC you’d like to send.
- Send over the BitConnect platform. Finally, just press “Send” and the BCC will be delivered to the recipient’s wallet. While the transaction is instantaneous, it will take up to 10 minutes to validate, especially if the platform is busier than usual.
Making money with BitConnect
- Get paid in BCC. While still not widely adopted by merchants (as of September 2017), nothing stops users from being paid in BCC for products and services sold. Simply give out your public wallet address, and if someone owns BCC, they can use it to pay you. An increase in transactions often results in increased public trust in a cryptocurrency, which might translate into an increase in value. In 2017 alone, BCC grew from US$22.16/BCC on 1 June to US$117.33/BCC on 18 September. That’s an increase of almost 530% in just four months.
- Invest in BitConnect. When you purchase and hold BitConnect Coins in your BitConnect wallet, that amount is treated by BitConnect as a loan, which in turn is used for investing in bitcoin. If bitcoin gains value, BitConnect makes a profit, a percentage of which is returned to you based on the size of your investment.
Keep in mind
As exciting and revolutionary as BitConnect is, there is relatively very little information available online about either the platform itself or the company behind it. This is considered a red flag by a lot of potential investors because a lack of information is often the result of a startup without a clear roadmap.
Of course, this doesn’t mean that BitConnect is not a legitimate investment opportunity. However, until more information appears, especially about how the lending system will work, you should perhaps tread a bit more carefully around BitConnect compared to other altcoins.
What’s next for BitConnect?
The company highlights two main goals for the future of BitConnect:
- More adoption by merchants. A strong marketing plan is in the works for BitConnect to help increase adoption by merchants and service providers online. Without merchants, the system will likely see little use beyond investment by speculators, so attracting them remains the company’s first and foremost goal.
- Improve the lending platform. The lending platform is BitConnect’s flagship improvement over the bitcoin platform. However, as of September 2017, the company seems to have put that on the backburner, instead focusing on merchant adoption of its BitConnect Coin. The future of BitConnect’s lending platform remains to be seen.
Frequently asked questions
Image sources: Shutterstock, CoinMarketCap