Exclusive: Possible $500,000 Bitcoin Cloud Mining Ponzi Scheme Uncovered

Roughly nine months ago, Bitcoin Foundation Chief Scientist Gavin Andresen made a rather interesting comment on Reddit in which he claimed, “I suspect many [cloud mining companies] will turn out to be Ponzi schemes.”

There have been a few cloud mining scams uncovered over the past year or two, and it appears that another one could unravel in the near future. An anonymous source has provided information to Bitcoin Magazine regarding the possibility of a scam involving Bitcoin Cloud Services (BCS), which is currently one of the largest cloud-mining providers on the market.

Founded by a known scammer with Photoshop

One of the common attributes of a Ponzi scheme in the Bitcoin world is a reliance on anonymous owners. BTC Cloud Services LTD is registered to Gabriel Kleiman and Esteban Amador Soto Martinez.

While the first name does not bring up any identifying information online, the second name is associated with another bitcoin-related scam, bitcoincloudhashing.com. This information is available publicly on the bitcointalk forums thanks to Puppet’s Cloudmining 101 thread, but it hasn’t stopped an estimated 4,300 users from signing up at Bitcoin Cloud Services.

BCS also claims to be a silver member of the Bitcoin Foundation on their website, even though the foundation recently dropped the cloud mining company as a sponsor.

Further, the pictures of a supposed mining facility on the Bitcoin Cloud Services website contain no information about the mining facility or its owners besides a single banner hanging in the background. Compare to the photo below from Genesis Mining showing CEO Marco Streng in one of the company’s mining farms.

The “company” also released a poorly made video based off the Photoshopped images in an effort to bring more legitimacy to their activities:

The supporting evidence on the blockchain

One of the key pieces of data provided by the anonymous source is a spreadsheet compiled via publicly available data on the Bitcoin blockchain. By watching Bitcoin Cloud Services’ payout address, the anonymous source was able to estimate the number of customers receiving payouts, along with BCS’s profits and losses. BCS seems to have started to operate at a loss near the end of April. How did BCS respond? By offering an extra year on their currently available mining contracts.

This offer could be an attempt to keep a Ponzi scheme going for as long as possible. After all, it will last only as long as new money is coming in. The back-of-the-envelope math based on the spreadsheet indicates that the operators could run off with as much as 2,500 BTC ($570,000 at current prices).

If it looks like a duck…

Going back to Puppet’s Cloud Mining 101 thread, it seems clear that he understands the likelihood that BCS is a Ponzi scheme. The thread lists seven different criteria that are usually found in a Ponzi scheme, and BCS fits the bill in six out of seven criteria.

The only test that BCS seems to have passed is having pictures of their mining facility on their website. Of course, as Puppet notes in his thread, “Pictures can be faked.” This seems to be what has happened in the case of Bitcoin Cloud Services.

Puppet currently has BCS listed under “Likely Ponzi scams that have yet to collapse,” and it’s unclear how long BCS will be able to keep up the charade. Up to this point, Puppet has been correct with 95 percent of his calls of probable Ponzi schemes.

Bitcoin Magazine has reached out to BCS for comment.

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