The cryptocurrency industry has become a breeding ground for many types of scams and illegal behaviour. Criminals are often the first to jump to a new technology and attempt to harness it in a negative way. Those who organise Ponzi and pyramid schemes have been extremely quick to jump on the cryptocurrency bandwagon. Through this, they are able to lure those with little knowledge of the industry into their plans with the promise of great riches.
Cryptocurrency Ponzi schemes work in a much similar fashion to traditional Ponzi schemes. They are extremely difficult to prevent and stop completely. BitConnect was routinely outed as a pyramid scheme, but it was allowed to operate for a long time before its eventual collapse. Indeed, OneCoin is still running despite numerous investigations and legal difficulties taking place right now.
Multi-Level-Marketing
Of course, Ponzi schemes never refer to themselves as such. Instead, those that run them call it Multi-Level-Marketing. This is the typical business of “online entrepreneurs” who go from one scam to another. A quick search of the names of people involved in certain schemes will show that they have been involved in many before, despite them trying to hide their previous businesses online.
Once you’ve been roped in to becoming part of an MLM or pyramid scheme, you will find that the money to be made is not on your initial investment, but instead helping your friends, family, and anyone else you know to sign up as well. Through this, you will earn residual income. And herein lies the issue.
These businesses and cryptocurrencies have no valid product. Instead, the money merely comes from roping more and more people into the scam. Once no one else is being roped in, the scheme usually crumbles. Those who got in first have made their money, while those who get involved late lose their savings. Sometimes new money-making ideas are used to keep the scam running longer, relying on the community to fork out more so those at the top of the pyramid can continue to eat well.
The role of Bitcoin
Bitcoin has proven to be very useful for Ponzi schemers. An issue that has faced many of the top executives of traditional Ponzi schemes is that if they were to suffer legal consequences, banks could halt any money going in or out of their account. By moving their fiat to Bitcoin, Ponzi schemers are able to retain their illegally won money.
Bitcoin’s meteoric price rise also greatly helps in the marketing of Ponzi schemes. The phrase “If you missed out on Bitcoin, you do not want to miss out on this Bitcoin killer” is commonly used. Through this, they lead unsuspecting victims into a case of FOMO.
Grand opening events are held and many glamorous photos are taken to give a sense of legitimacy to these scams. But wait, things get even better. Tired of “working for the man”? Well you’re in luck, because through cryptocurrency Ponzi schemes, you can rope in all your friends and family from the comfort of your living room. Want to work your own hours? No problem. Their sales pitch is one of riches, being your own boss, and working whatever hours you want.
How to protect yourself from a cryptocurrency Ponzi scheme
If spotting a Ponzi scheme was easy, then no one would ever fall for them. There are some signs though that can help you, and fully completing your own research is essential.
If the people involved in the new cryptocurrency have a history of being involved in failed MLM projects, it is most likely a Ponzi scheme. Those involved will say they never expected their previous project to fail and it was down to mismanagement. It wasn’t. It was a Ponzi scheme. They made money from it and are now moving on to their next project. If you see anyone involved in your new cryptocurrency who was involved in BitConnect or OneCoin, why take the risk?
Missed deadlines and failed promises are common. Those in charge will provide great excuses as to why they missed these deadlines, but they are merely trying to take your hard-earned money. Any form of MLM in cryptocurrency is most likely a scam. Steer clear.
Believe it or not, even when there are legal cases against cryptocurrency Ponzi schemes, or if they are banned from certain countries, those in charge will still tell you there is nothing to worry about. Guess what? They are lying. A cryptocurrency should be decentralised and unconfiscatable. If there is a court case or the company has had money seized, it will be a Ponzi.
Cryptocurrency Ponzi frauds know the tricks of the trade. They will keep you sweet for as long as possible despite all the issues they face. Remember, those involved who call themselves “entrepreneurs” do this as a career.
Conclusion
Some people may have read this and believe that I have been too harsh on those involved in MLM schemes. Unfortunately though, these scams can cost people their life savings, destroy marriages, and even cost people their lives. They are a dangerous money-making tool that provide little real-world value and instead make criminals richer.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.