Important Update: Since this post was published I was contacted by Joby Weeks, the founder of Bitclub Network. We basically agreed to disagree. However I decided to rephrase the title of the post from “scam” to “investment warning”. After gathering the facts I can’t prove that Bitclub network is a scam beyond a shadow of a doubt. I do however still think Bitclub Network is very shady and wouldn’t advise anyone to invest in it.
Over the past few weeks I have been seeing these ads for a company called “BitClub Network” on my Facebook feed. I decide to amuse myself and take a look at the video ad only to find some dude that doesn’t seem to know that much about Bitcoin trying to explain why you should join the “BitClub network”.
I believe the video speaks for itself when I say it’s 5 minutes of total gibberish that doesn’t give any value to its viewers. I can safely say that the person on this video doesn’t really know what Bitcoin is and is just reading his text from a page. My favorite quote is probably “There is something called Bitcoin mining, you can get it from lots of places on the Internet” (1:16).
Bitclub network (pardon me for not linking to them) claims to be some sort of mining operation where users invest their money in order to get a part of the revenues generated by the BCN mining pool. You can also generate revenue by referring others to join BCN.
Now, since I have a really big fetish for discovering Bitocin scams and Ponzi scheme I decided to take a deeper look into BitClub Network (also known as BCN) and see if it’s indeed a Ponzi scheme.
For those of you who don’t know what a Ponzi scheme is – it’s a fraudulent investment operation where the operator, pays returns to its investors from new money paid to the operators by new investors, rather than from profit earned through legitimate sources. Usually there’s no actual product or service that the money is being invested in.
So basically the new members of a Ponzi scheme finance the payouts for the old members. This goes on until no more new members come on board, the money runs out and the operation shuts down leaving a lot of people shocked because they didn’t get their money back.
Now for a short example. Let’s say you (the investor) pay the operator $100, and they promise to pay $10/month for the next 12 months (meaning you’ll get more than what you invested). You may be thinking “how will he have enough to pay me after 10 months?”
One option can be that they are investing this money legitimately into some sort of profitable operation – for example, Bitcoin mining. So the operator may actually buy mining equipment to generate income, in this case the money you and other members paid when you joined is like some sort of a crowdfunding campaign.
Another option could be that they are getting money to pay their members from new people joining down the line in order to finance the older members like yourself. This is where referrals come into play.
Imagine the operator saying: “if you bring someone else into this scheme I will pay you an additional commission just for bringing them in”. So now you get someone else to pay $100 dollar to the operator so that you will get a $10 commission and more money will flow into the system to pay the members. Of course the new members are then motivated to bring more members on board.
Why is it so important that everyone will bring in referral? Because in most cases that’s the most consistent source of income for this scheme. And even if the money is invested in some legit operation it’s not consistent enough to cover the payments for all of the members. Usually members joining these types of operations expect a consistent positive return or they will leave. The operator knows that and that’s why he tries to fulfil this impossible request of generating great revenues every month without any risk through other sources (i.e. new members coming on board).
Another way to make the Ponzi scheme survive and not run out of money, is getting the investors to re-invest their money back into the operation instead of withdrawing it. This way the members think they own the money because they see their account balance, but in reality there’s no way they will be able to withdraw that money into their own bank account. The re-investment process is used to keep the investors in the game and delaying the “point of failure” of the Ponzi scheme.
To conclude Ponzi schemes usually survive on the fact that:
- New members are added down the line (and are required to pay a membership fee of course).
- Old members re-invest back their earnings into the scheme in order to increase their (virtual) revenues.
These 2 characteristics are very important as we will see how they line up with BitClub Network.
My Hypothesis – BitClub Network is a Ponzi scheme
Now it’s time to break down BCN’s business model and see if it’s in fact a legit company. I’m going to use various tools to do this – most of these tools are aggregated inside the Bitcoin scam test we’ve lately created here in 99Bitcoins.
How legit is Bitclub Network?
The first thing I did was to see who is the registrant for the domain Bitclubnetwrok.com. Not surprisingly the domain is under private registration which is the first red flag.
When I continued my search and went to the “About” page of the company I couldn’t find any real identities that run the site. The only thing that’s stated is:
BitClub is not owned by any single person or entity, we are a team of experts, entrepreneurs, professionals, network marketers, and programming geeks who have all come to together to launch a very simple business around a very complex industry.
I word of caution – Whenever you see some vague statement about a companies members in the “About Us” page like “we are a team of experts” and no real person is portrayed behind the company – RUN.
So I’m guessing someone doesn’t want to be found. After numerous searches online I couldn’t find one individual who is supposedly in control of BCN. I found a lot of marketers and promoters but no owners. I did find two official BCN webinar but for some reason the host of the webinar doesn’t bother to introduce himself. Also it seems that BCN failed to register with the SEC and therefor doesn’t operate in the US – another red flag.
Trying to dig up some more information on BCN I found something extremely funny. The website used to have testimonial from “customers” as shown here:
As you can see Victor Diaz is pretty happy with his investment in BCN. But apparently Victor’s real name is Ali Ansari and he’s a convicted rapist that has been in jail since 2013:
So I’m guessing Ali probably changed his name and got to bring a laptop and some Bitcoins to his cell for good behaviour. The website also showed a bunch of other fake photos that their sources were traced around the web. All this information is detailed on the original BitcoinTalk thread. Shortly after this came up BCN removed all of the images from the site and now you have only names and not photos in the testimonials.
Some additional searches about BCN on YouTube will reveal a video that look like a news reports endorsing Bitclub Expert (2:01 in the video) however this video was clearly made through a $5 gig on Fiverr (only with a different presenter).
How much money do you need to invest in BCN?
Usually these type of cloud mining schemes are either too good to be true (i.e. scams) or just not worth you investment in the long run (e.g. Genesis Mining). So I decided to do the math behind BCN myself. The first thing I noticed is that I can’t sign up to BCN without a sponsor.
This pretty much reenforces my Ponzi scheme theory that BCN relies heavily on referrals. I mean if this is a legit operation that generates constant profits why would I require a sponsor to sign up? Can’t I just “join the party”?
Alas, I needed a sponsor so I just used the guy from the YouTube video. I mean he started me off on this whole journey anyway, so good for him. Of course the minute after I signed up I was prompted to pay $99 to join BCN without any option to see what I will actually be getting.
So the steps to join BCN are basically:
Step 1: Set up a Bitcoin Wallet
Step 2: Fund Your Bitcoin Wallet
Step 3: Send Bitcoin from your Wallet to our BitClub Address
You got to be kidding me… Basically the site is saying, go buy Bitcoins and then send it to us without ANY explanation of what you’ll actually getting.
Actually that’s not entirely true, if you read down the page you can see some meaningless bullshit like:
- Training and education about Bitcoin mining
- Full access to our exclusive Bitcoin Mining pools
- ClubCoin Opportunity – Get Free ClubCoin
At this point I have a ton of questions like:
- What does “full access” to a mining pool means? (I can access many mining pools around the web without needing to pay a starter’s fee)
- How much money will I make? Or what’s the return on my investment?
- What the hell is Clubcoin? (other than being ranked #619 in the cryptocurrency list right after more anonymous coins like MayaCoin and LeoCoin).
So for now it seems to me like a lot of pretty words to cover up the fact that there is no valuable proposition behind the scenes. Of course I did not pay the $99, however if I did pay the membership fee I would them be enticed to pay another $500 or more for different mining packages.
Let’s do the math!
You pay $99 just get access to BCN and then you can choose between 1 of 3 packages – $500, $1000 and $2000. Depending on which package you chose you will get a percentage of the mining pool earnings. For example, if you choose the $500 package you will get 50% of your share in the pool and the rest will “be used to fund the mining operation and to purchase additional mining shares”.
I must admit that BCN does have a very legit front with their mining pool being responsible for 4.2% of the Bitcoin network’s activity. So at least they are not lying about actually mining Bitcoins. Now let’s see how much we can earn with BCN.
Each day around $1.1m is paid to Bitcoin miners around the world. This means that BCN makes around $46.2K daily or $1.4m monthly (4.2% of the daily mining revenue). This of course will need to be distributed amongst all of BCN’s users.
So if for example, you got the $500 package that lets you keep 50% of the earnings you’ll need to make $0.83 a day to break even after 600 days (that’s how long the package lasts). Since you’re keeping only 50% this means you need $1.67 revenue a day to break even.
Now remember, this is only if you want to break even after 600 days, if you want to actually make a profit you’ll need to make more. I’ve searched for hours around the web for “proof of profit” and couldn’t find a single person who shows profit. Every testimonial is just the same rehash of empty words about how this is a great tool for passive income.
But if you think about it this is very logical as people are trying to increase their profit by brining even more people on board and getting referral commissions.
One YouTube video claims to have made more than a million dollars with BCN since he started out on October 2014 (22months ago). But when he shows his personal dashboard you can see that he was only paid 5.35648BTC until today. He also states that he bought one share of $500, one share of $1000 and one share of $2000. This means that he invested $3500 and got somewhere around $2500 until today (since the Bitcoin price varied a lot in the last 22 months I took a rough average).
The rest of the earnings for this account are only “on paper” I guess. The video also states how he used the rest of the earnings to reinvest into buying more shares. Meaning no money is actually withdrawn from the account.
As a matter of fact most if not all of the testimonials show how they reinvest 100% of their earnings in order to generate more revenue even faster. These people think they are making money when they are actually just seeing numbers increase on a screen.
Of course everything seems nice and dandy when nobody is withdrawing their money from BCN because it seems like they are profiting, but once a critical mass of people start to withdraw their balances you will see how the Ponzi scheme falls apart in days. It’s the same old story all over again….(very similar to today’s banks by the way).
UPDATE: After publishing this post I’ve gotten response from Joby Weeks and other BCN founders as you can see in the comment section. Joby supplied me with a video they made a year ago showing proof of earnings. I can’t vouch or dismiss this video but I think it’s an important piece of information. This earning video is from someone who joined BCN from day 1 in 2014. (if you can’t see the video click this link)
So who is behind BCN?
Honestly, I don’t know. The only “real person” I could find is a guy named Ryan Conley that seems to be a seasoned MLM marketer. However, Ryan doesn’t say he owns BCN, he only does aggressive marketing for them through YouTube videos and other online marketing techniques. I will not state my opinion about Ryan’s operation in this post, but I will mention that he used to endorse OneCoin (suspected to be a global MLM scam) and that he seems to be a professional MLM marketer. This means that it’s in his interest to get more people onboard so I won’t expect to see him driving people away from BCN.
The only video I could find about someone claiming they have established BCN is this video from Joby Weeks. It was uploaded under Ryan Conley’s YouTube channel and Joby specifically says “What we decided to do was to set up our own data center up in Iceland….and crowdfund it if you will….”.
So Joby basically implies that he is a part of the BCN founding team. In the video description Ryan details:
“My business partner at BitClub Network and fellow Bitcoin miner Joby Weeks explains on his sea cruise what is taking place.” This makes me wonder if Ryan and Joby are indeed working together on BCN but are just not admitting it in order to avoid the public.
Even though the owners of BCN can’t be verified beyond a shadow of a doubt, there is evidence supporting the idea that factions of the Zeek Rewards Ponzi scheme might be behind it. Another theory that came up is that Clubcoin – a cryptocurrency used only by BCN at the moment was introduced in order to make up for lack of funds to pay to investors.
This means that instead of investors getting Bitcoins for their investment they will receive Clubcoin – a cryptocurrency that has no real value or substantial trading volume. This quote is taken from the official Clubcoin website:
Now that you have Clubcoin where can you spend it? BitClub Network is the first merchant to accept Clubcoin
So basically there’s nothing to do with Clubcoin other than to pay for your BCN mining operations. By doing this BCN is basically saying “Here’s a worthless coin you may be able to trade with other people who may be willing to pay for it for some reason”. So now investors are saying “Hey, we are actually getting paid!”. But the fact remains that they are getting something that no one really wants and that they may not be able to sell anywhere.
Another last thing to keep in mind is that apparently the only payment method BCN accepts are cryptocurrencies. This seems to be in order to keep the individuals behind BCN anonymous. I mean if the operation was completely legit they would accept credit cards (like Genesis Mining for example). However, since they do not want their identities known they allow payment only with Bitcoin.
Bitclub Network has a HUGE warning sign hovering above it
Summing it all up BCN seems to be following a similar path to a lot of other Bitcoin scams that have gone bust. I admit that BCN probably has a valid mining operation up and running but I’m still convinced that it is (or will become) insolvent and will not be able to pay out the majority of its investors.
Much like what happened with Bitcoin Trader in the past and numerous other HYIPs that survived a long time before completely collapsing, BCN fails to pass the main questions you need to ask yourself when evaluating any Bitcoin investment such as:
- Who is behind this operation?
- When will I break even on my investment?
- What is the actual product that I am investing in?
- And much more…(see in the comments)
Another thing to consider is that the recent block halving has probably put a dent into a lot of mining pools including BCN’s. It will be interesting to see how this plays out in the future.
Finally, here are a ponzi scheme’s characteristics taken from the SEC’s web site, let’s see how BCN does on the Ponzi test:
- High investment or return promised with little or no risk. CHECK
- Overly consistent returns – “Normal” investments tend to fluctuate – sometimes you’re profiting and sometimes you’re losing. A common characteristic of a Ponzi scheme is that you are consistently profiting money. CHECK
- Unregistered investments – Usually you won’t see a Ponzi scheme company registered with any financial authority. CHECK
- Vague language used to explain the investment – The promoter sells shares to investors by taking advantage of a lack of investor knowledge or competence, or using claims of a proprietary investment strategy which must be kept secret to ensure a competitive edge. Another option could be that the investment strategy is too complex to understand. CHECK
Last but not least several reports have been posted on Reddit indicating BCN reps trying to get people to sign up through Bitcoin meetups. The reps infiltrate the meetup or in some cases create a specific meetup that allegedly teaches people about Bitcoin just in order to get them to sign up to BCN.
I highly advise not to put your money into this business and if you’ve already invested in it withdraw it as soon as possible. I have no doubt that BCN will go bust sooner or later. It may not happen today, this month, or even this year, but when it does a lot of people are going to feel ripped off and hurt, so make sure you’re not one them.
TL;DR version of this post:
If you have had any experience with BCN (good or bad) and would like to reinforce this article or prove me wrong I welcome it. Feel free to leave your comments in the comment section below.
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