Coined after a trickster named Charles Ponzi in 1919, the term “Ponzi Scheme”, according to Investopedia.com, is described as a fraudulent investment scam that promises high rates of return with little or no risk to investors within a short period. The purported payment of returns to existing investors often comes from those contributed by new investors. Most organizers of Ponzi schemes would rather focus on attracting new members in order to meet up promised payments to earlier investors and often times, divert part of the invested funds for personal use than engage in legitimate investments to generate funds for its investors.
As with other types of frauds, organizers of Ponzi schemes are seen to use the latest technology in a bid to project their scheme as authentic enough to yield high returns. With this, potential investors become less skeptical, thereby, seeing such schemes as a way of assessing a novel form of investment as it is with the case of cryptocurrencies.
The prevalence of Ponzi Schemes in the cryptocurrency market is becoming a huge concern to the whole community.
Digital currencies, such as Bitcoin and Ethereum, have recently become popular and are gradually being used as a form of cash. They may be exchanged on online trading platforms, for traditional currencies, or be used to buy products and services.
Asides preying on one major human flaw, which is greed, organizers of cryptocurrency Ponzi schemes also leverage on the anonymity of cryptocurrency as its activities cannot be easily traced, which often makes it convenient for them, and as a result, these scams have become increasingly prevalent.
On 15th July 2020, it was confirmed by Twitter, 130 high-profile accounts were compromised to promote bitcoin scams in a series of tweets. Within minutes from the initial tweets, over 300 transactions had already taken place and bitcoin values running in a little over $100,000 dollars had been deposited into one of the wallet addresses. Being a recent event, this goes to show that cryptocurrency Ponzi schemes are here to stay, and knowing how to identify such scams, is paramount.
How to Avoid Being A Victim of Crypto Ponzi Schemes
Most Ponzi schemes share the same modus operandi, and this also goes for crypto Ponzi schemes. To avoid being a victim, these are common red flags to look out for:
- Unregistered Investment: There are regulatory agencies in all countries, that oversee legitimate investment schemes. In Nigeria one of such agencies is the Securities and Exchange Commission (SEC). Usually, crypto Ponzi schemes are not registered with such regulatory agencies.
- Consistent Returns: One peculiar feature of cryptocurrencies is the unstable market, prices are constantly affected by different factors and thus largely contributes to its instability. Be wary of any scheme that regardless of market conditions, consistently generates returns.
- Trusted Links: Offers to engage in most crypto ponzi schemes usually comes through someone with a shared affinity. Scammers are seen to exploit trust links between members of a group that shares same religious, ethnic or national affiliations to project the scheme in a positive light, all in a bid to gain your trust.
- Pressure to send your crypto IMMEDIATELY: Just like the twitter crypto scam, most often tell their prospective victims that this is a once-in-a-lifetime offer, and it will be gone soon. Do well to resist the pressure to invest.
The nature of cryptocurrencies is a pointer to the fact that crypto Ponzi schemes will still be very much around, so be certain to treat all unsolicited investment opportunities with extreme caution. A little google search can reveal the person behind the offer, and the investment they are pushing. Try not to become a prey to these scammers.