Updated on Dec. 2016
As you may know, there is big problem in the cryptocurrency space. Bitcoin, by its nature, makes moving value very easy and is a guarantee against charge backs and well, because it’s very useful for everyone scammers also love it.
There are plenty of Ponzi schemes (or pyramid schemes) around, even some that aren’t trying to hide themselves, marketing it as a form a gambling. Nevertheless, the most profitable business for this kind of scam is to hide it, showing impossible returns on investment to people that can fall into it.
I’m not going to explain what a Ponzi is so I’ll just let that Wikipedia link here.
So I decided to write today to warn people about a very popular scheme that is called BitClub. What is insidious with them is that they’ll try to recruit people at Bitcoin meetups around the world (some people wrote about it on Bitcointalk I think) and try to appear as genuine Bitcoin supporters. While it might be the case for some of them who are falling into the trap, it’s not the goal of the guys who built it of course. The goal is to pump as much money as they can from credulous people and using Bitcoin makes sense to them it seems.
First red flag, Bitclub is showing us that their profits are coming from mining. Cloud mining has been widely used by scammers to get money out of your pockets, so it’s the first red flag (even if there are legit cloud mining operations, but you won’t likely make profits).
Second red flag is that they were (I use the past) offering those sorts of package you see on any Ponzi schemes websites like “Buy the C package from 1500$ and receive 100% profits !”. We all know that they’ll only do that if the pyramid is still healthy and it means… Recruiting people ! And it gets more interesting. I’m not really good at describing those businesses let’s get some help from “Behind MLM” (great website to know about those scams). Who writes about Bitclub.
Pass-up Referral Commissions
In addition to binary referral commissions, there’s also a pass-up element to the BitClub Network compensation plan.
An affiliate’s first two recruits pay a straight 15% referral commission on any investments they make. Any commissions generated by affiliates recruited by these two affiliates are passed to the recruiting affiliate’s upline (the affiliate who recruited them).
An affiliate’s 3rd to 5th recruited affiliates pay 20% referral commission on any investments made. A 5% referral commission is also earnt on investments made by the first two affiliates they recruit, the first two affiliates those affiliates recruit and so on and so forth.
An affiliate’s 6th to 8th recruited affiliates pay a 25% referral commission on any investments made. A 10% referral commission is also earnt on investments made by the first two affiliates they recruit and 5% on the third, fourth and fifth affiliates recruited.
As with the referral commission paid out on the 3rd to 5th recruited affiliates, these referral commissions extend down a theoretical infinite depth.
The 9th affiliate recruited pays out a 27.5% direct referral commission on any investments made. Subsequently a 12.5% referral commission is paid on investments made by the first two affiliates they recruit. 7.5% is paid on the 3rd to 5th recruited affiliates and 2.5% on the 6th to 8th.
Once again, these referral commission extend down and are passed up by any recruited affiliates in the 9th recruited affiliate’s downline.
The mathematics are impressive right ? I don’t even want to try to understand ! But anyway, we can see that a large part of the business is dedicated to recruiting affiliates.
Today, Bitclub seems more closed though, we can only join with a “sponsor”, I’d say that it’s a tactical move from them. More and more people are aware of how those online Ponzi works, so they hide and say “Go find a sponsor”, hopefully a good one that will convince you. It’s also a sign that they’re progressively trying to get out, hopefully with as much money as they can get.
What is also impressive is that those “sponsors” are potentially very active in the Bitcoin community, making them even more “legit looking”. As I said, they would come at Bitcoin meetups or even try to interview Roger Ver.
Anyway, if you want a more in depth description of this really dangerous hybrid Ponzi (because it seems that they really have miners, to look more legit… again), just go read the Behind MLM analysis.
UPDATE (Dec. 2016) : You can read 99bitcoins analysis on BitClub which is very thorough.