With all the furore considering crypto investments that are less than legitimate, we thought it was only right that we talk about some of the problems certain platforms have found themselves in. Today, we’re going to be talking about platforms such as Davor coin and Bitconnect.
We’re also going to read through the class action lawsuit in Florida that was filed against many large Bitconnect promoters such as Craig Grant and CryptoNick.
The Notoriety of Crypto Lending Platforms
You’ve probably seen these so-called “lending platforms” around the cryptocurrency space. Essentially, what these platforms do is promise a 1% return daily on your initial investment. If you're already thinking that this sounds too good to be true, you're probably right.
Before we talk more about Bitconnect and Davor coin, we’re going to talk about pyramid schemes. These schemes attempt to use exponential growth to their advantage – once they have their initial set of users who deposit, they push those users to get as many other people to join the platform as possible. This is basically what Craig Grant and other YouTubers have been doing.
When these new users join the platform and deposit, the money that they deposit used to is used to pay the person who referred them and also used to pay the 1% that was promised daily.
This cycle continues to repeat until the system is no longer sustainable. When you first sign up for these lending programs, you are prompted to deposit your Bitcoin on to your website balance. Once there, you'll exchange this Bitcoin for their coin (in Bitconnect’s case, it was a BitConnect token). Once you have their special coin, you'll lend out that money, which is said to generate the 1% daily.
The Warning Signs of Bitconnect
This is one of the first red flags that people saw with these programs. A 1% per day is very hard to sustain, hence why many people were initially skeptical.
At some point in time when this system is no longer able to hold its own weight, it collapses. You may have seen this in early January, when BitConnect crashed, when they exited to keep as much money as possible.
BitConnect returned everyone's balance in the BitConnect token, which was inevitably going to go down. This is where BitConnect made most of their money – when they promise to pay people back, they said that they would be giving away BitConnect tokens at a rate of $362 dollars each, even though the price had dropped over 95% to around $8.
This allowed them to hold onto all of the Bitcoin that people deposited, while paying them back with a worthless coin. That's essentially how lending platforms are set to operate.
The Story Behind Davor Coin
Davor Coin was also another cryptocurrency scheme focused around lending, similar in a way to BitConnect. The main difference with Davor Coin, however, was that investors saw red flags much earlier.
Davor Coin’s demise came when the team behind Davor got rid of all their coins, causing the value of Davor to plummet by 99%. The tell-tale signs cropped up in January, however, the team held on until February. Prior to that, the coins had been locked away. They issued a hopeful statement, but Davor never managed to fully recover.
Apparently, another market could be on the horizon for Davor coin, with the team having written a lengthy post promising to transform the fallen crypto into a worthwhile digital asset. Unsurprisingly, their assurances still sound unconvincing.
Also like BitConnect, the final nail in the coffin for Davor Coin was due to a Cease and Desist order from the state of Texas. The regularity of crypto scams has been getting greater throughout the year, and so regulation has become much tighter.
The state of Texas issued this order due to Davor Coin having hired individuals that offered investment opportunities sans having registration as a dealer or an agent.
A Few Words of Advice
We would not advise anybody to invest into a lending platform. They will all inevitably collapse in a manner similar to Bitconnect. Just for context, Davor coin announced that they will start allowing people to withdraw their lending balance whenever they want.
We compare this to a crash style game on a gambling website. You don't know when it will crash, but you know it will crash at some point!
The Lawsuit That Changed Everything
Now that we’ve talked about the lending platforms, we’re going to go ahead and talk about the class action lawsuit against Craig Grant and other BitConnect promoters. This lawsuit consists of six plaintiffs.
If you’re unaware of what a plaintiff is, they’re essentially the person who's attacking you in a court of law. These six people had a total of over $771,000 invested in BitConnect and they're going after a variety of big promoters along with the corporation itself.
Trayvon James, Ryan Hildreth, Craig Grant and CryptoNick are all listed as defendants on this lawsuit. As of right now, none of them have publicly responded about this and some of them have even moved on to new lending platforms.
The Contenders for Best ICO Scam Thus Far
Who would have thought it would be so easy to convince investors to part with their hard-earned cash and walk away with millions of dollars without so much as a product?
This is the wild world of cryptocurrency - simply set up a well-groomed website, create some fake LinkedIn profiles and produce a white paper that is full of technical buzzwords that nobody understands and you have yourself a record breaking ICO. We’ve decided to curate five of the most brazen cryptocurrency scams of all time. Read on to see which ones you’ll be glad you had nothing to do with them!
The first of these is Indian-backed Onecoin, which was the result of a multi-million dollar fundraising campaign and has since caught the attention of law enforcement agencies in more than one jurisdiction.
Those behind the scam have locked horns with Italian authorities, who find the entity two and a half million euros, Chinese authorities who seized more than 30 million dollars and then eventually the Indian authorities, who have since held the fraudsters in custody.
The next Ponzi scheme to be included in our list is Plexcoin, whose late 2017 15 million-dollar ICO promised investors unprecedented monthly returns of 1300%. The result was that the operation was shut down by the FCC, with the Plexcoin founder later incarcerated.
Ifan & Pincoin
The next ones that should be on the list are Ifan and Pincoin. It was two for the price of one with this particular scam, as it was subsequently revealed that both projects were controlled by the same people. The masterminds behind this managed to convince more than 30,000 investors to hand over more than six hundred and sixty million dollars to the Vietnamese-based Ponzi scheme, with their offices since vacated.
Next on our list, and a close second, is Centra the cryptocurrency debit card backed by both Visa and MasterCard. Who would be the best person to endorse this groundbreaking product? Look no further than boxing champion Floyd Mayweather, who with his efforts, managed to raise in excess of $32 million.
It eventually turned out that the project was nothing more than a scam. Thankfully, those behind the fraud have since been arrested, with investors also filing a lawsuit for the return of their funds.
Last but not least, the number one spot goes to Bitconnect. The now defunct cryptocurrency exchange could no longer fend off the never-ending accusations that the project was a Ponzi scheme. With Bitconnect abruptly announcing it was shutting its doors in January 2018.
In return for their native BCC coin, the scammers promised highly significant returns to those who were happy to part ways with their Bitcoin. However, no returns ever surfaced. An FBI investigation is now ongoing, as well as the U.S. court subsequently freezing the Bitconnect assets.
A Few Words Of Caution
In summary, it's important to remember that these are just a select few of the many ICO scams that have graced the cryptocurrency industry with their presence. Ultimately this should be a stark reminder that no matter how great the ICO looks at first glance, even when backed by an A-list celebrity, there's always the chance that you could lose your investment in its entirety.
Making the Right Decisions When It Comes to ICOs
Now that you've read this, we hope that you don’t get caught up in these lending platforms. If you've already lost some money, learn from your mistakes. Just remember if it sounds too good to be true it probably is.
As a matter of fact, it’s increasingly important to do your due diligence when it comes to any matter concerning cryptocurrency. The increasingly diverse world of digital currency is only getting more and more complex, and being able to navigate these opportunities correctly is more important than ever.
Take a further look at our blog and you’ll find a wealth of information on various types of cryptocurrency, how they function, what makes them tick, and anything else that you should know before investing.