How To Identifying And Preventing Bitcoin Ponzi Schemes?

A Ponzi scheme then, is Bitcoin? Why do so many people fall for Ponzi schemes and what exactly is one? Let’s dissect everything you need to know about it and discover how to avoid any potential attacks in the world of cryptography.

What is a Ponzi scheme?

Ponzi schemes are a sort of investment scam that tries to draw in and enlist numerous investors. To learn more about the person who devised this plan and how it was carried out, let’s take a trip down memory lane.

The term “Ponzi scheme” was named after the perpetrator of a significant fraud in the 1920s. By purchasing inexpensive International Reply Coupons (IRC) abroad and selling them at the current market price in the US, this confidence trickster by the name of Charles Ponzi guaranteed his investors a 50% profit within 45 days or 100% insane profits in three months.

He paid early investors with money from later investors’ investments to make his investment scam appear genuine; in other words, these investors weren’t really benefiting from Ponzi’s business activities. However, because every investor was able to benefit from Ponzi in believable amounts at first, there was nothing dubious about the scam.

Before the scam was discovered, he was successful in fooling many individuals for more than a year, costing Ponzi’s “investors” $20 million. It’s interesting to note that Ponzi didn’t create this particular investment fraud; it dates back to the 1830s. However, the scam came to be closely associated with him since he orchestrated the enormous illicit investment operations with such success—hence the moniker.

In what way do Ponzi schemes operate in the cryptosphere?

In Ponzi schemes, con artists devise a business strategy that makes money by luring investors. Fraudsters use the money they get from new investors to pay off their existing investors since this type of scheme needs a steady supply of cash to function. By doing this, investors are seduced by the promise of gains from the company they backed. In actuality, though, they’re just wasting their money.

As soon as fraudsters find it difficult to lure in new investors and persuade them to cash in, the days of steady and enormous earnings will come to an end. The same techniques are used to deceive individuals in this plan across a variety of organizations and industries today.

Ponzi schemes and cryptocurrencies

According to a YouGov study, BTC is the most well-known cryptocurrency and eight out of ten Americans, or around 81 percent, are aware of at least one sort of cryptocurrency. In 2019, about 18% of all Americans made cryptocurrency purchases, and 35% of them are millennials. Popular companies are now beginning to accept cryptocurrency payments, which contributes to the growing acceptance of this digital invention.

These statistics demonstrate the exponential growth of cryptocurrency users around the world, thus it is understandable that fraudsters would target this developing sector, especially because bitcoin is currently the most popular cryptocurrency. Decentralization, volatility, and other desirable characteristics of bitcoin make it the perfect asset for market investors. However, scammers are also aware of Bitcoin’s beauty. They are attempting to profit from it because of this, but in an entirely different way.

How can I spot a Bitcoin Ponzi scheme?

Detecting cryptocurrency Ponzi schemes can be tricky, but it isn’t impossible. To help you recognize such frauds, here are seven common red flags you need to look out for in an investment opportunity.

Investments with little to no risk

It’s important to know that investments come with a set of risks. As investors often say, “The higher the risk, the higher the reward.” But scammers can promise you high investment returns with little to no risk. So if you’re offered a similar proposal that sounds too good to be true, it’s possible that you’re being recruited to a Ponzi scheme.

Overly consistent returns

Market movements are unpredictable and this is why investment returns aren’t always consistent. Bitcoin’s price can either go up or down, so be careful with investments that make consistent returns despite unstable market conditions.

Unregulated businesses or firms

Fraudsters often run investments that aren’t registered in the Securities and Exchange Commission (SEC). This allows them to fly under the radar and confidently carry out their malicious intentions.

Unlicensed individuals

Investment professionals are required by federal and state securities laws to be licensed. However, most crypto Ponzi schemes involve individuals running investment operations and giving investment advice without a license.

Business strategies that are secretive and hard to understand

Investing can be thrilling, especially with cryptocurrencies. But if the investment sounds like rocket science and the advisor or recruiter can’t explain the business to you well enough, then maybe it’s time to look for other opportunities.

Problems with documents

Be wary of excuses about having issues with paperwork. In some cryptocurrency Ponzi schemes, investors receive excuses when they ask for the information in writing. Read all details carefully and be on the lookout for possible mistakes in account statements. While it’s not always the case, errors may be a sign of fraudulent activity.

Issues with receiving payments

Be skeptical if you’re having trouble cashing out your crypto investment funds or if you didn’t receive a payment. Some fraudsters often convince their victims to “rollover” or delay the payments, with a promise of even higher investment returns.

How can I protect myself from crypto Ponzi schemes?

Bitcoin pyramid schemes, exit scams, and other forms of fraud are prevalent, but you can always steer away from such attacks. Here are some of the things you can do:

Familiarize yourself with the ins and outs of Bitcoin

If you’re new to the crypto world, be sure to do your research to learn what Bitcoin is and how it works before you jump into an investment. As a rule of thumb, don’t invest in something you don’t clearly understand.

Check the credibility of crypto investment firms

As we mentioned earlier, Bitcoin Ponzi schemes often involve unregistered firms and advisors. Before bringing in amounts of your money for investment, don’t forget to check the individual or company’s reputation. Remember, this involves your hard-earned money, so you better make sure that they will be in the right hands.

Seek help from a professional

You can always seek assistance from investment managers or lawyers you know and trust if an opportunity from unfamiliar people knocks on your door. This can help you in deciding whether you should push through with the crypto investment or not.

What should I do if a Ponzi scam gets me?

One of the scams that individuals are most prone to fall into is this one. Therefore, if you believe you may have been a victim, contact investment fraud attorneys, the SEC, the Financial Industry Regulatory Authority (FINRA), or your state securities regulator as soon as possible to report the occurrence and obtain the assistance you require.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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