MYCOIN BITCOIN SCAM – THE SEQUEL TO A BITCOIN NIGHTMARE

When the first major bit-heist, Mt. Gox, happened, many in the crypto community might have been forgiven for thinking that it had been but a minor case of arrhythmia. However with the latest incident involving MyCoin, a bitcoin exchange in Hong Kong, it appears that we might soon have a full-scale coronary. There will have to be stronger guarantees for client funds going forward if we are not going to abandon the promise of Bitcoin altogether.
MyCoin went belly up a week ago, disappearing with about US$ 387 million, leaving 3,000 clients out in the cold. This latest incident could not have come at a worse time for Bitcoin, which has been struggling in the lower 200s against the US dollar.
MyCoin – A Classic Ponzi Scheme
According to some of the clients who lost funds in this latest MyCoin scandal, it would appear that the company operated a Ponzi scheme. MyCoin clients were promised huge returns on investment, as much as an ROI of HK$ 1 million for a mining contract worth HK$ 400,000. Clients were also promised additional prizes such as cars or cash if investors recruited others. In December 2014, the company changed its terms of service, prohibiting clients from withdrawing their funds. Clients were also promised their money back on condition that they recruit new clients for the company. In January 2015, the company announced that they had closed for renovations.
Ponzi schemes are named after Charles Ponzi. Ponzi duped residents in New England that he could provide a 50% return on their investment in three months. All they had to do was invest in postage stamp scheme. At the time, the interest rate on a bank account was only five percent, making his scheme too good to be true, which it was. In the beginning, he bought a small number of international mail coupons as a cover for his ruse, but then later on started using funds from new investors to pay the promised returns to the initial investors. Ponzi schemes do share many features in common with pyramid schemes.

This post was published at Crypto Coins News on February 20, 2015.