Pyramid and Ponzi Schemes in Cryptocurrency Investments, How to avoid them?

Scams in crypto
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In any investment there is an inherent risk that escapes the control of the investor, but there are several points that must be analyzed before making the decision to bet our money on a project, so we avoid falling into any type of scam or fraud. In this guide we are going to see what they are and how to avoid the feared Ponzi schemes and pyramid schemes that are giving so much to talk about in the sector of cryptocurrencies.

Most of the people who invest in Bitcoin [BTC] or any other cryptocurrency and those who decide to participate in an ICO/IEO or a new project in the industry, usually have the same concerns. The first one is if with that investment they will get to obtain a profit or to recover their capital.

fraud coins

Another concern for many investors and especially for the most veteran in the sector, is the exposure of personal data that will be subject to that investment. Known as KYC or Know Your Customer, are usually the first step to when investing in a project, in order to “overcome” these KYC, some information is requested that may be: name, address, telephone number, ID or sending a picture holding the ID and a paper with some phrase or code supplied by the company.

While it is true that these KYCs have been created to avoid possible money laundering or criminal use of the funds obtained in the investment, it is something that throws back many investors, since anonymity is one of the essence of cryptocurrencies.

Other concerns, especially for new investors, is the difficulty associated with making the investment, because without previous knowledge, taking the necessary steps to complete the investment can become a difficulty. The need for a specific cryptocurrency, the creation of an account on a platform, to overcome a KYC, etc. are the obstacles that new investors can find.

But undoubtedly the greatest fear that any investor, whether first-time or veteran, faces is whether the project they are betting their money on is really going to give back what they promise or if on the contrary they will be victims of a scam.

What is a Ponzi scheme?


Ponzi schemes have existed for centuries, the name of this type of fraudulent investment activity, is associated with the name of a 20th-century Italian immigrant named Carlo Ponzi. Carlo became famous for his fraudulent system of extortion with which he managed to deceive hundreds of victims.

In most cases, the scheme is created for fraudulent purposes so that the organizers can carry it out and do not need to make great efforts to obtain benefits at the expense of investors.

A Ponzi scheme is a type of pyramid scheme, in which a project offers a return to investors who invest their money in it. In this type of scams the new investors are the ones who contribute the capital to pay the oldest, the problem comes when they stop entering “new customers” to this scheme, since the last ones that have entered will not recover their investment and possibly not Receive any type of income.

The principle of sustenance of these schemes, is the following:

The first investors getting their first benefits, begin to speak well of the project and its good profitability, showing their profits and promoting it to their circle of friends, making them see that the system is lawful and attracting new investors.

In addition, to continue maintaining their source of income for as long as possible, the creators of these schemes offer incentives to those who bring new investors to their platform. In this way, each investor is a potential recruiter who will make every effort to attract new investors and therefore new capital to the platform and thus take their incentive, making the wheel of this scam turn a little more.

The only beneficiaries of these schemes besides the creators of it, are those who first invested in it, since they are the ones who receive the payments from the first moment and in the best of cases they will even get a benefit.

The worst consequences are for the last ones to enter this scheme, since their investment will be destined to fatten the pockets of the creators of the scam and in return they will not receive any benefit.

Is bitcoin a pyramid scam?

The answer is easy, NO, Bitcoin is not a pyramid scam, what is certain is that both bitcoin and any cryptocurrency can be used as a means to raise funds in a pyramid scam, just as it has been done for years with the fiduciary money, but that does not mean that bitcoin is a scam.

How to protect yourself from Ponzi schemes?


The first thing you should think, is that if it is too good to be true it may not be true. If the investment opportunity presented to you offers a great performance in a short space of time, it is a reason for the alarms to start jumping. Start with distrust before making an investment in a project is not bad, on the contrary, be alert and analyze every detail can save us from falling into a scam.

It is very common to find publications on Facebook and other social networks of people showing the profits they have obtained thanks to their investment, this type of attitude is very typical in people who have entered into a pyramid scheme and want to attract new investors to take a commission.

Sometimes, this type of scams offer the opportunity to freeze your funds for a few months and thus get a greater benefit, this is also often cause for alarm, if you do this kind of practice, there are many chances that when you get there the moment you can withdraw your benefit, the company closes and your profits disappear along with your investment.

Carrying out an investigation of the project and the team that composes it is another essential point to verify if it is a lawful project, if it is a false project, the images of the team will be false 100% of the time, would you put your face to a project that tries to defraud investors?, identify this deception, is as easy as looking for similar images in google and check if they have been used in other projects or websites.


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