Financial pyramids in the cryptocurrency world: how to recognize and avoid danger

What is a Ponzi scheme?

A Ponzi scheme, also known as a financial pyramid, is a fraudulent investment operation in the world of cryptocurrencies and traditional finance. It involves paying returns to earlier investors using the capital of new participants, rather than from legitimate profit-generating activities.

Key characteristics of Ponzi schemes:

• Promises of high profits with minimal risk
• Lack of clear explanation of the source of income
• Pressure for quick investment and attracting new participants
• Difficulties with withdrawing funds

History and Mechanism of Operation

The term “Ponzi scheme” derives from the name of Charles Ponzi, who organized one of the most famous financial pyramids in the 1920s. Modern cryptocurrency Ponzi schemes often disguise themselves as innovative blockchain projects or high-yield crypto funds.

Mechanism of operation:

1. Attracting initial investors with attractive conditions
2. Payment of “profits” to the first participants from new investments
3. Exponential growth in the number of participants
4. Inevitable collapse due to lack of new investors

Known Cases in the Crypto Industry

The cryptocurrency market has become a fertile ground for Ponzi schemes due to high volatility and promises of quick profits. The most notable cases:

• BitConnect: Promised up to 40% monthly profit, raised over $2 billion before collapsing in 2018.
• OneCoin: Positioned itself as a “Bitcoin killer”, raised around $4 billion before being exposed in 2017.
• PlusToken: A Chinese pyramid scheme that attracted $3 billion in Bitcoin and Ethereum before its collapse in 2019.

How to Recognize a Cryptocurrency Pyramid Scheme?

Signs of a potential cryptocurrency Ponzi scheme:

• Guaranteed high profits without explaining the mechanism of their generation
• Complex or unclear tokenomics of the project
• Aggressive marketing and referral programs
• Lack of transparency regarding the team and technical implementation
• Withdrawal restrictions or complicated exit conditions from the project

Protection Against Cryptocurrency Ponzi Schemes

To protect your investments in the cryptocurrency sphere:

• Conduct thorough research on projects before investing
• Analyze the tokenomics and profit generation mechanisms
• Check the project team and their experience in the blockchain industry.
• Do not give in to the pressure to invest quickly or to involve others.
• Only use verified exchanges and wallets.
• Diversify your investments and do not invest more than you can afford to lose

Remember: in the cryptocurrency world, just like in traditional finance, there are no guaranteed high returns without risk. Be vigilant and critically assess investment proposals.