Have you heard of the old Ponzi or pyramid scheme that swindle you out of substantial cash? Now, there’s a cryptocurrency variant that you should be aware of… Since the introduction of Bitcoin (BTC) in 2009, cryptocurrency have significantly grown and are now being used by the majority of people. However, the popularity of digital currencies has led to various frauds, such as Ponzi and pyramid schemes.
The main purpose of these scams is to defraud you and unaware crypto investors. What is the crypto Ponzi as well as pyramid frauds and how do you stay clear of these scams?
The basics of Ponzi or Pyramid Schemes Crypto Industry
Crypto Pyramid schemes and Ponzi involve shady actors who lure and defraud innocent investors who are looking to make profit. Although they have different methods of operation they both promise huge gains from what appear to be legitimate financial transactions, but investors usually suffer enormous losses.
What is an Crypto Ponzi Scheme?
In the crypto Ponzi scams, fraudulent actors solicit new investors with promises of huge returns on investment (ROIs). They offer a range of investment options such as stakestaking, automated crypto trading or trading in crypto arbitrage but in reality, they make payments to early investors by using funds from investors who are new.
A crypto Ponzi scheme’s organizer could invite investors to purchase a brand new token, such as “XYZ” or loan their current tokens perhaps BTC. The fraudulent organizers could claim a high interest rate and claim that they’ll earn money as they invest or pledge your money. They usually take advantage of the current trends which is why, when you’re a cryptocurrency investor, and staking your assets is in the news, they’ll say they’ll invest your money in a way that is lucrative.
If you put your money in early, you may get paid and think the scheme to be legitimate. This is a tactic to generate hype about the fraud. Most people sign up later, investing their funds and hoping to earn enormous profits. However, after a significant commitment to assets and a significant amount of money, the scammers would take all crypto assets and then disappear.
Ponzi schemes may also fail in the event of a shortage of investors. Since there’s no flow of capital and no new investors, there’s no way to make money to investors. As of now, investors would simply take what’s in their hands and put it to use.
A case study of a Crypto Ponzi Scheme
“Ponzi scheme” is the term used to describe “Ponzi scams” was invented by Charles Ponzi, who promised investors a 50 % ROI for an alleged international mail coupon investment. Ponzi made payments to investors before him with the money of new investors and fled after accumulating enough funds.
In the year 2013 Trendon T. Shavers as well as his company, Bitcoin Savings and Trust (BTCST) provided investors with an interest rate of 7 percent based upon Bitcoin market arbitrage. The reality is that BTCST wasn’t selling Bitcoin or purchasing Bitcoin. After the company had billed Shavers and his company for the transaction, BTCST was able to report that the Securities and Exchange Commission (SEC) reported that BTCST earned a net profit of more than $164,000.
Since then, a number of cryptocurrency Ponzi schemes have been discovered, including Bitconnect, Regalcoin, and Mining Max. The schemes have been exposed in various forms: fake cryptocurrency trading platform, stake service, loans services, cloud mining services and trading bots. They ultimately led to the loss of funds from investors.
What is an Crypto Pyramid Scheme?
A crypto pyramid scheme entails the scammer’s initial recruiter contacting others investors to find more investors, and on. At first glance, this scheme appears similar to a Multi-Level marketing (MLM) scheme that is where the sales are driven by an array of individuals or groups and companies. But unlike MLM the these pyramid schemes are not able to provide genuine products.
As with other Ponzi schemes in crypto The people at the top of the pyramid make more money while those who are at the bottom loose funds. If crypto investors are able to invite many more participants, they can make more money since the money moves from the lower levels to the upper.
In the crypto Ponzi scheme fraudsters offer investors an investment opportunity, for instance the opportunity to purchase an asset in digital form and then sell it for a higher cost. Each investor must pay the recruiter for the chance to be eligible for this privilege. The recruiter then has to make a contribution of a specific percentage of the fees to those in higher positions in the hierarchy.
Some examples of pyramid schemes for Cryptorency
In December 2022 in 2022, the Department of Justice announced that Karl Greenwood, a co-founder of OneCoin was found for fraud and laundering charges following the launch of an estimated billion dollars of cryptocurrency in a pyramid scheme. Greenwood along with Ruja Ignatova started OneCoin in 2014 and began offering ONECOIN an untrue crypto asset, via an international MLM network.
The fraudulent gang claimed that the token was an upcoming trend, possibly the end of Bitcoin. This led to a plethora of investors enlisting more investors until nearly $4 billion was committed. Greenwood and Ignatova altered the fake price of tokens on the fake cryptocurrency exchange, ranging from EUR0.5 to more than EUR29 and enticed unsuspecting investors to invest until the year 2017.
10 Signs that are Common to Crypto Ponzi and Pyramid Schemes
While crypto Ponzi schemes need the purchase of digital assets and crypto pyramid schemes require that you pay fees, purchase digital assets, and then recruit others to invest. These are additional indicators to look out for Ponzi as well as pyramid schemes within the cryptocurrency industry:
- Despite the fluctuating cryptocurrency market the majority of scams provide extremely high and steady return on investment.
- Sometimes it is true that crypto Ponzi and pyramid schemes say they present very little or no risk to investors.
- If the team members involved in the crypto project are not non-identifiable this could indicate an untrue project.
- When crypto firms use massive lavish, extravagant marketing campaigns that are flashy and extravagant it is likely that they are to be promoting a fraud project.
- The pyramid scheme and crypto Ponzi are mostly provided by unregistered, unlicensed, and unregulated companies.
- Most firms offering these programs have complicated commissions, fees, and the investment structure.
- The organizations also have limited or no documentation. There are no whitepapers, or maps.
- Another indication is the absence of conditions for investment. Everyone is typically allowed to invest and earn money in cryptocurrency Ponzi schemes or pyramid scheme.
- If you’ve been a victim of fraudulent projects you may find that you aren’t able to make your investment cash or that the project’s organizers continue to suggest that you roll over your investment.
- You may also spot mistakes in your account statements or calculations for payments when you review the financial documents.
How to avoid Crypto Ponzi and Pyramid Schemes
Despite the growing popularity of cryptocurrency Ponzi as well as pyramid scheme and pyramid schemes, they are still growing. It is your responsibility to safeguard yourself from the frauds. Here are some actions you can take to be sure you don’t fall for the trap:
- Before making a decision to invest in any cryptocurrency investments, do your own investigation. Read whitepapers, authentic reports from news sources, assessments of investors as well as project affiliations.
- You must verify the identity or the team behind each crypto project prior to committing yourself. It is also possible to check the public opinion about the team to see if it’s positive.
- Be on the lookout for certifications, licenses, as well as affiliations. Verify that each crypto business that you deal with adheres to the regulations applicable to it. If it’s an Decentralized Finance (DeFi) project, look up independent audits as well as additional relevant certificates.
- Do not be deceived by the promises of huge gains. The crypto market is still uncertain and every investment is a risk.
- Be wary when you discover cryptocurrency projects through unwelcome solicitations and emails. It could be that the company has launched massive marketing campaigns to attract in unsuspecting investors.
- Do not invest more than you afford to lose. Every smart crypto-investor has an investment plan. Don’t invest more money due to “sure” assurances of returns.
What Should You Do If You’re a victim to Crypto Ponzi and Pyramid Schemes
If you’re lucky, you’ll be able take a few of your investments before the scheme is unraveled. Once you have regained your assets, or even if it’s impossible to recover them, you must inform the local enforcement agency or state securities regulators or for instance, the SEC, Financial Industry Regulatory Authority (FINRA) or the Federal Trade Commission (FTC).
You could also instruct others investors about the pyramid scheme and crypto Ponzi and ensure that the extraordinary fake returns don’t deceive them.
