✔️ Information reviewed and updated in November 2023 by Eduardo López
One of the best known types of scam is the famous Ponzi system, or Ponzi scheme, which promises great profits and, in the end, turns out to be one more fraud. Such has been the impact of this scheme that it is one of the most used by fraudsters around the world
Cryptocurrencies are the exception, as Ponzi schemes have been found ready to scam people into investing in virtual currencies. To avoid being a victim, here we will tell you what the Ponzi scheme is in cryptocurrencies.
✨ What is the Ponzi scheme? ✨
Explaining the Ponzi scheme is very simple, as it is a form of scam based on promises of very high and fast profits. The objective is to add and add investors, since they allow you to create a boat or investment fund.
When you give your contribution, that money is added to a fund which pays the promised interest to the first investors. The more people join, the bigger the pot gets and you can also pay a lot more people, the youngest in the scheme.
Although this may seem to work, the problem is that as investors demand their payment, the fund is depleted. This is because the fund does not generate money, it is only like a kind of savings bag, so there is no mechanism that generates interest. and therefore pay the promised returns.
In fact, Most Ponzi schemes have been uncovered when newer investors ask for payment and the scheme simply won't cover them. That's when the creators usually disappear and therefore, they leave with the money they have collected, swindling everyone.
✨Similarities with pyramid schemes✨
It is very common to associate pyramid schemes with the Ponzi scheme, since they are basically the same. In both, it is sought that investors invite and invite more people with the aim of thus generating a pot that pays, first to those above and then to those below.
One person is the one who starts the scheme and in turn, invites 6 people. Those 6 people, in turn, invite 6 more people each for a total of 36, which invite 6 and so on until creating a pyramid. The higher you are, the more profit you will receive.
✨ Is it possible to make money with the Ponzi scheme? ✨
The answer is yes, but it depends on many factors and also, at the cost of great, great risk. How? Easy, it depends on your position in the investment pyramid
For example, if you are one of the first 6 who joined the project, then it is very likely that you will receive good profits. On the other hand, if you are of the lower level, with hundreds of investors at the same level as you, then it is likely that you will not see your money and when you want to collect it, the creator runs away.
✨The risks of the Ponzi scheme✨
- Scams: The first risk that we can find is that of the scam, that is, that they end up cheating us and stealing our money. This because of Many Ponzi schemes, at the end of the day, just don't work so you see neither returns nor return on investment.
- Bankruptcy: When we have put all our savings into an investment and it turns out to be fraudulent, we can lose everything. This is one of the biggest risks of the Ponzi scheme, as many people get away with the deception and end up losing all their money.
- Information theft: Another risk we face when taking part in this type of scheme is that our information is stolen. That's how it is, Many times, in addition to giving our contribution or investment, they ask us for sensitive data such as access to our Wallet or bank information.
- It is illegal: Finally, you should know that in most countries, both Ponzi and pyramid schemes are prohibited by law, so being an organizer of these can lead you to commit a crime. The best thing is not to get in trouble with the law so as not to fall into sanctions or jail.
✨How does the Ponzi scheme work within cryptocurrencies? ✨
The Ponzi scheme in cryptocurrencies works exactly the same in the physical world as in the digital world, only with the difference that the modality changes. Here, instead of money, what they will ask you for will be contributions in cryptocurrencies.
Similarly, the same digital currencies can be used as an investment object as if it were a collection. For this, the Ponzi scheme has relied on the so-called Smart Contracts or smart contracts, one of the most used tools in virtual currency trading.
It is through the use of these smart contracts that the creators of Ponzi Schemes have managed to automate both the contribution to the project and the payment of dividends according to your position in it. To do this, they use the Blockchain as their main ally, executing within it the Smart Contracts.
The use of this type of scheme is so cynical that we can find that the same creators of this type of scheme publish the open codes of smart contracts. This makes, For many analysts, the scam is already clear and evident taking advantage of the lack of regulation in this regard.
✨Is it a good idea to invest in a Ponzi scheme? ✨
The clear answer is that no, it is not a good idea to invest at all because here you will only have to wait for the fund to reach to recover your investment. You will have to pray to collect all your interest and now, there will be nothing more to do.
You cannot request a refund or request to leave the Ponzi scheme as this is not possible, there are no mechanisms to achieve it. You just have to wait for the money to reach and that, at the end of the day, it is not a scam. So if you see pages that offer very attractive daily interests, be careful!