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Ponzi scheme is a type of investment plan for early investors with the promise of high and fast returns. In fact, Ponzi scheme and pyramid scheme fraud in digital currency are one of the most common fraud methods. In Ponzi scams and its variants, fraudsters promise investors quick returns and high profits. As you know, asset protection and financial risk management are very important in all types of financial markets. It doesn’t matter which Ponzi company list or new Ponzi sites you invest in, if you don’t take the necessary security measures, you are always at risk of losing your assets.
Digital currency Ponzi companies and pyramid schemes generally pay the profits of the first investors with the assets of the second generation investors, and in this way they gain people’s trust. This process continues until the initial designers of the project are unable to pay profit to the last generations of the project, and this fraud chain has reached its end and the project file will be closed.
In the continuation of this article, to your questions, such as what is a Ponzi scam? What is a Ponzi scheme? I will answer and explain to you the concept of Ponzi scheme and pyramid scheme scam in digital currency.
What is a Ponzi scheme?
A Ponzi scheme is an investment plan in which investors are promised high and fast returns. The Ponzi scam and its variants are named after Charles Ponzi , who was an Italian scammer who became famous for his fraudulent money making system. In the early 1920s, this person was able to sacrifice hundreds of people with his Ponzi scheme, which lasted for a year from the time it was implemented until it was stopped.
In Ponzi scheme and pyramid scheme scams in digital currency, the profits of previous investors are paid by the money obtained from new investors. In fact, nothing useful is done with the resulting money, and the promises made by the organizers of this plan regarding the methods of working with people’s capital are completely false.
Although the initial investors who entered the project early in the project receive part or even all of their money with profit, the last people who enter the project always lose all their capital. In this sense, it can be said that Ponzi scheme and pyramid scheme are the same. When the flow of new users to the plan is interrupted, the system stops due to the inability to pay the previous investors. This situation is the best opportunity for scammers (the original designers of the project) to disappear with whatever amount of profit they have earned up to that moment.
What is a Ponzi Scam? Ponzi is a type of collective and not individual robbery!
One of the common mistakes in this field is to think of Ponzi as a kind of personal fraud; In that process, a person (a company or entity) takes people’s capital by claiming to provide high profits and provides capital profits through other people’s investments.
In the end, he ends up with a huge amount of fraud and debt from many people. Understanding the Ponzi scheme will show us that, contrary to the popular perception of Ponzi, this scam is not personal at all. Ponzi scheme is a type of fraud and mass robbery.
In the process, a group of people who have invested earlier will benefit. And the group that enters the project later and invests will suffer losses.
This means that digital currency Ponzi companies or new Ponzi sites organize a plan and by claiming to be legal, they convince investors that the profit they receive from investment is legal and risk-free. At the beginning of the plan, regular interest is received in order to gain the confidence of the investors.
In this way, the investor will be tempted to invest more money in the project and even convince other people to enter the Ponzi scheme. People who entered the scheme early on provided that they withdraw their money on time, not only do not lose but also make a good profit. Its loss is for those who entered the end of the plan and there is no more money and the plan is going to be collected.
That is why everyone, knowing the list of Ponzi companies, knowingly enters into Ponzi scams and its types. In fact, from a moral point of view, it cannot be said that this work is moral, but there is a hard and bitter logic behind it.
Looting as an economic strategy to generate wealth
From the beginning of history until now, looting has been used as an economic method to generate wealth. The basis of looting is that other people or ethnicities do not deserve the wealth and resources at their disposal due to various reasons such as intellectual, physical, technological, military, ethnic and racial weakness. Therefore, other groups or individuals consider themselves to be the first and more worthy than those people to have their wealth and resources, and these people were introduced as looters.
The theory and the act of looting have been forcibly occurring on the planet since the long years of the presence of Homo sapiens or current humans. It has only been a few years that more modern types of looting have been used instead of coercive methods, which are carried out peacefully and without bloodshed. Ponzi scheme is an example of modern robbery.
An increase in the amount of Ponzi looting as a natural consequence of the privatization of money
The privatization of money (Denationalization of Money) proposed by Mr. Friedrich Hayek had a technical problem that made its implementation impossible. That problem was the lack of a system to create trust between people. In fact, people had to use government money due to the lack of trust in each other on a wide urban, national and global level.
What is clear is that the first basis for using money is to trust the issuing authority.
Over time, it was observed in most parts of the world that the governments and even the central banks independent by a liberal institution, were not a reliable authority in this case, and by using the money printing machine, they have engaged in vindictive and justified looting. Looters who by pumping powerful money into the society, have been able to set up a Ponzi game on a national and global scale. Some of the manifestations of this game can be seen in the inflation of various societies and in the global dimension.
Creation of Bitcoin decentralized financial system
In 2009, Satoshi Nakamoto created a system without third-party governance, based on building trust between two strangers. The invention of Bitcoin for the first time created a kind of financial system in the world in which members could trust each other and have financial transactions with each other without knowing the other party.
Before the creation of this system, people had to rely on the central bank of their country as the only authority trusted by the public and use the money issued by it. The creation of the Bitcoin system was a fatal blow to government money.
Now, 15 years after the invention of Bitcoin, it is possible to develop all kinds of crypto tokens (in some ways they can be called private money) for the community. Therefore, each person can have his own money.
In fact, now like governments, individuals can have their own private money printing machine and start a new Ponzi game. Therefore, it is not far-fetched to guess that Ponzi’s loot will increase in the future.
The reason for getting caught in the Ponzi scam and its types
Looting by a Ponzi scheme is a form of mass loitering in which a group of participants, including those who joined the Ponzi scheme earlier, benefit. And in contrast to another group of participants who entered this plan later, they will suffer losses.
Therefore, it is a mistake for the public conscience and the law to find only one person guilty of Ponzi fraud and its types. Certainly, a large group of participants in Ponzi and pyramid scheme scams in digital currency are not simple people. Because according to the warnings from various authorities and social networks about the harmful consequences of participating in Ponzi fraud and its types, more and more people are joining these projects every day.
It is very unlikely to imagine that the people participating in these projects are smooth and simple people; who have agreed to give their capital to Iran’s Ponzi companies and individuals without any proof, and they are not even sure of their authenticity.
Therefore, you may be wondering how people who consider themselves experienced and economists fall into the trap of Ponzi schemes and new Ponzi sites? I will explain to you further.
The emergence of a new business called Ponzi
The art of malbakhtagi is a new art and profession that has appeared with the Ponzi scheme and the spread of private money. The idea of the new profession of malbakhtagi may be a joke in the first place. But at least in projects like Ponzi and digital currency pump and dump and such mass looting is considered as a profitable job. Definitely, a person in this kind of scams is a person who knowingly invests his capital in these projects with the greed of big profits.
If the investor succeeds in receiving a large profit from this project, he will withdraw without any responsibility and attribute the blame to the fraudster who initiated the Ponzi scheme. If he loses his money, he will appear everywhere as an active plaintiff and in most cases he will succeed in recovering his money multiple times.
Certainly, this kind of people cannot be considered as losers; Rather, they should be accused of participating or at least assisting in the crime. People who participate in Ponzi projects and cryptocurrency pump and dump are aware that in this type of collective fraud, if someone can enter the project in time and also exit the project in time, it will be possible to receive a very good profit. In this way, a minority can rob the capital of the majority. Whether a person can be among the winning minority depends on his entry and exit time, his skill and to some extent luck.
Therefore, because luck is one of the main parameters of this kind of looting, even people who know the nature of these projects are encouraged to participate in them. The losers in these projects are like gamblers who have bad luck and lost. In fact, they cannot be called deceived people.
Ponzi scheme and pyramid scheme fraud in digital currency
With the spread of all types of private money, this kind of collective looting will also increase. Especially because it also brings windfall profits for its founders.
Therefore, this important thing should not be forgotten when dealing with the cryptocurrency market. It is also noteworthy that participating in and finding this kind of mass looting has also become a thriving business in today’s world; To the extent that participation in pump and dump, Ponzi scheme and pyramid scheme in digital currency can be considered as a profitable trading strategy.
Therefore, it may not be bad for the legislators around the world, especially when it comes to Ponzi schemes and pump and dump schemes, as well as the issuance of unbacked tokens, to take this issue into consideration and if the developer of the scheme is subject to punishment, then the participants will also be punished. Do not exclude.
Participants in cryptocurrency Ponzi and pyramid schemes (known as the honorable profession of money-losing) deserve to be punished even if they are truly money-losers. Considering the punishment for these people will be very effective in limiting this kind of mass looting that is spreading and to a large extent, it will reduce the workload of the judiciary in different countries and will prevent the spread of loss of property which has become a lucrative job.
Ponzi scheme working process
In general, all Ponzi schemes follow a similar cycle; But the appearance and form of this fraud can be completely different. The main cycle in all Ponzi scams and its types goes through the following steps:
Deceptive advertising
At the beginning of the scheme, some people are attracted to the system by false advertisements, generally on social networks or the Internet, and invest a small amount. Also, some digital currency Ponzi companies, new Ponzi sites and Iranian Ponzi companies also use marketing methods that will receive more profit if a user introduces a new member to the system.
Gaining trust by depositing initial profits
Profits are deposited regularly to gain the trust of users to enter more amounts and make bigger investments. These profits are paid either from the initial capital of the designer or by using the capital of other new investors.
More capital inflow
After gaining people’s trust, a large wave of capital enters the system. Old investors also put in more money and even invite their friends and acquaintances to the Ponzi scheme. At this stage, blind prejudices may cause some investors to take heavy loans, loans or sell their cars and houses.
The collapse of the plan and the end of the entry of a new investor
The repetition of the first to third steps continues until a lot of money is collected or there are no more new investors to enter the plan. After that, the designer and organizer of the Ponzi scheme or digital currency Ponzi companies take the money and disappear.
Ponzi scheme detection method
You may not be able to tell if a scheme is a Ponzi at first, but by knowing the common characteristics of these schemes, you can recognize them. By being suspicious and sensitive about these characteristics and warnings, you can do the necessary investigations with vigilance and not get caught in the trap of Ponzi scams and its types. Below I mention some of these specifications and warnings:
The promise of return on investment with a large profit without risk
No investment, big or small, is without risk. The higher the profitability of a project, the higher the risk. Whenever you are introduced to a plan that guarantees big profits without risk, you should definitely doubt it.
Early and permanent efficiency
A logical and correct investment plan and project, in any market and field, always has various ups and downs. It is almost impossible to enter into investment and always be on the upward and profitable slope. Whenever you notice that a plan or project, regardless of market conditions and Elliott waves, has a positive trend continuously, be suspicious of investing in it.
Especially in the digital currency markets, due to extreme fluctuations, traders use various strategies such as fundamental and technical analysis , determining the loss limit, etc., in order to withdraw their capital before the market collapse. But Ponzi schemes always have a positive and upward trend.
Incomprehensible and complex strategies
Every plan and investment that is looking for an investor must have a defined and specific goal. If Bitcoin does not have a defined creator and operator, it instead has a clear and understandable purpose that justifies the nature of the technology and the programs ahead of it. If you read a white paper or cryptocurrency project plan and do not understand the purpose of its designers, stay away from it.
Unofficial unregistered projects
The registration and formality of a plan can give you an acceptable percentage of confidence about its authenticity. If the organizers of a project used a fake identity and refused to introduce themselves, you should doubt the nature of the project.
The interesting thing is that the things that have caused people to think of Bitcoin and other cryptocurrencies as a Ponzi scheme is the fact that the identity of its creator is not clear. However, although cryptocurrency projects do not have specific creators, it cannot be said that all projects with anonymous identities are Ponzi schemes. In any case, the anonymity of the operators of a plan can be a warning sign that the plan is a Ponzi scheme.
Problem in capital liquidity
One of the most important things in investing is liquidity. In fact, the higher the liquidity of the investment project, the more credit it has. In a valid project, you shouldn’t have any problem in criticizing your capital. If the project prevents liquidation of your assets by promising higher returns, you may have fallen into the trap of a Ponzi scheme.
Ponzi techniques of digital currency companies
One of the techniques of digital currency Ponzi companies to show their activities legitimately is to connect them to highly reputable organizations, groups and projects. The strong support of valid cryptocurrencies and their high profitability makes digital currency Ponzi companies put a crypto dress on their project using their name as a cover.
For example, one of the Ponzi scams is to offer an unbacked cryptocurrency. Due to the existence of platforms such as Cardano and Ethereum, it is now possible to create a new digital currency in the form of a token. In the following, buyers are promised a bright future and high profitability of the created token; While there is no specific project about it.
Ponzi and pyramid scheme token has practically no use and benefit and therefore the project will not generate income. Therefore, according to the way the Ponzi scheme works, the interest of the initial token buyers and investors will be paid only if new members join and purchase the token by them.
Note that the scheme implementer may be able to add his fake coin or token to some directories due to having enough initial capital. But eventually its value will be zero. So far, many projects have been expanded by exploiting powerful projects such as Tron and Ethereum such as DoubleWay, Rocket Trade, Tron Royal and Tron Holding.
Fraudsters are trying to deceive people by emphasizing the security of the blockchain and the smart contract of the projects. Therefore, you should note that although a smart contract is immutable and transparent, the fraudster can escape to achieve his goals by creating a smart contract and receiving money from you transparently.
Is Bitcoin a Ponzi Scheme?
Despite the explosion of Bitcoin’s popularity, many people are still skeptical of this untouchable digital currency, believing it to be a pyramid scheme, a Ponzi scheme, or some other scam. Bitcoin’s goal was to become a digital currency, and in practice it is considered to be such a thing. Decentralized and uncontrolled ownership of digital currencies may cause many fraudsters to take advantage of this issue and try to implement a Ponzi scheme. But still, this is not something that can question the nature of Bitcoin and other digital currencies.
The Ponzi scheme of Bitcoin based on the growth of the price of Bitcoin, which has not only risen but also experienced falls, is rejected. Bitcoin is bought as a permanent token and not as an income generating asset. In other words, Bitcoin digital currency does not promise its investors and buyers anything in the form of ongoing returns. In fact, even with the entry of a new investor, there will never be profit and yield for the owners. The only way to liquidate Bitcoin holders is to sell it to someone else.
Also, the fall of Bitcoin is very different from the digital currency Ponzi scheme. One of the possible triggers could be the collapse of a major stablecoin. Based on the lack of regulation and disclosure, it’s not hard to imagine a large stablecoin such as a regulated money market fund causing the market crash. Despite all this data and information, various schemes can be found in the corners of the digital currency market that indicate a Ponzi scheme. These schemes are separated from the main nature of the market, but they are considered a kind of Ponzi scheme and have trapped many investors.
Read more: Bitcoin price depends on what factors?!
Ponzi schemes in Iran
The examples we introduced in the previous section, such as Unique Finance and Mr. DigiCoin, are among the ponzi schemes whose operators are Iranian. Today, due to the reputation of the cryptocurrency market, it is very easy to launch a scam project with the claim of “using smart contract and not being able to change and manipulate investments” or “using artificial intelligence and machine learning for profit”. These are the difficult words that obscure the understanding of a company’s business model.
Ponzi and pyramid schemes are emerging like mushrooms, and every day we see a new scheme emerge after the fraud of a project from investors is completed. Today, due to the chaotic economic and livelihood situation of people, unfortunately, Iranian compatriots are looking for illegitimate ways to earn profit to compensate their expenses, and participating in such schemes is considered one of the simple ways.
However, as you have probably seen by now, the losers of these types of schemes seek to return at least a part of their capital by referring to the FATA police and filing a complaint in the judicial authorities.
Panzi companies of Iran
Some examples such as Mr. Digicoin, Unique Finance, etc. They are among Iran’s panzi companies. Today, due to the reputation of the cryptocurrency market, it is very easy to launch a fraud project based on the claim of having a smart contract and the impossibility of changing and manipulating investments or using machine learning and artificial intelligence for profit.
These are difficult words that make understanding a company’s goals and business model incomprehensible. Ponzi schemes and new Ponzi sites are mushrooming.
Nowadays, due to the unstable economic and livelihood situation of people, Iranian compatriots may also look for illegitimate methods of earning profit to compensate for their expenses, and participating in this type of Iranian panzi company schemes is one of the simple solutions. However, as you have seen so far, the losers of these schemes are trying to get back at least part of their capital in the judicial authorities and FATA police.
Some cases of Ponzi scams and its variants
Familiarity with Ponzi fraud and its types can warn users about similar projects and make them no longer be encouraged to invest in a project against promises of huge profits. In 2019, almost $40 million was destroyed by Ponzi schemes.
From that time on, recognition of Ponzi fraud and its types and more serious notifications were undertaken. Today, people are trying to be more vigilant in the cryptocurrency market after receiving information about Ponzi schemes. Below I have mentioned some digital currency Ponzi schemes for your information:
BitConnect
One of the famous Ponzi schemes is BitConnect, which started operating in 2016. The promise of this Ponzi scheme to capitalists is that by investing in the Bitcoin digital currency of this scheme, you will get more than 40% monthly profit. It was also claimed that the capital of these people will be returned to them within 120 to 299 days. Participation in this plan requires at least $100 investment and introduction of a number of sub-sets to the plan (like other pyramid schemes).
In this type of fraud, profit was made only for the first members of the group. Because with the increase in the number of subgroups, it was not possible to manage capital transfer between different levels of subgroups. It was like this in the BitConnect plan, and the initial investors earned 5%, the next level 3%, etc. from the purchase fee of low-ranking members.
After that, the rewards were decided; Because the bigger the group, the closer the failure. Pyramid schemes such as BitConnect are one of the types of Ponzi schemes. In the BitConnect plan, the plan for receiving profit was such that if a person invested $1,000 and did not receive it after 3 years, he would get $50 million in profit. This plan is logically impossible.
The reason people trust Bitconnect
The BitConnect project was able to easily gain people’s trust due to the profitability of the initial investors. In this way, the desire of people to participate in this fraud project increased day by day. But due to the fact that this project did not make a profit, the profit was actually provided by the capital of new people.
The coin of this Ponzi project called BCC reached 463 dollars in a short period of time. But after a month, the BitConnect project was closed and after the investigation by international organizations, one of the project managers was arrested.
Bitconnect scam project signs
Every Ponzi scheme has some warning signs that will show before the scheme fails. Below I mention some BitConnect symbols:
- Pyramid structure of the project
- The promise of huge and unreasonable profits
- The promise of risk-free investment
- Creation of BCC token without backing and purpose
Pi network project scam
Pie Network project was created through a mobile application for mining digital currency. The token of this Ponzi scheme called pi was mined only through mobile and is not yet listed in the exchanges, but a good future can be imagined for it.
These sentences probably seem familiar to you. The Pi project was one of those Ponzi projects that are still being debated to this day. But now some of the doubts about this project have become certain and there is basically a suspected Ponzi scheme in the list.
According to the latest news, more than 60 million users’ information has been exposed in this project and it has been put up for sale on the Internet. But before this event, Pai Network had some warning red flags, which I will discuss below:
Network foot warning signs
The reward scheme of the Pie Network application is a pyramid scheme. By inviting new members, people get more rewards.
Pie Network application had no added value for users, except for the PAPAM system. Users spend time in this application hoping that one day they will be able to convert their token into real value.
Pie Network currently has an authentication system. This system is not a problem in itself, but if the promise of profit is behind it and no effort is made to realize it, it is an important warning for collecting information by the project managers.
Only users value this application. One of the methods of generating income for the project managers is to view advertisements, etc., but nothing has been paid to the users so far.
On May 27, 1400 users reported to the Cointelegraph application that 17 gigabytes of user information of Pie Network app was exposed. Information including phone numbers, home addresses and emails of about 10,000 Vietnamese citizens were put up for sale during the disclosure. The seller also demanded $9,000 in Bitcoin or Litecoin for this information.
Bitcoin Era
Do you have $250 in cash right now? An attractive project has started its activity that will turn your $250 into $1 million in less than a year. Undoubtedly, this promise seems very exciting, but at the same time, it can also be a red flag to warn of a Ponzi scheme.
Bitcoin Era is a platform for trading Bitcoin and other cryptocurrencies. In this platform, users are promised that you will be able to receive 1100 dollars profit by trading with a robot for only 20 minutes a day.
The BitEra project is currently active. This project has introduced itself as a powerful algorithm created by the hidden strategies of the most skilled traders and guarantees huge profits. But remember that even the most reliable investments have the possibility of losses.
Bitera warning sign
- Creating false excitement
- Big profit promise
- No loss guarantee
OuadrigaCX Canadian Exchange
A report by the Ontario Securities Commission in June 2020 suggested that Canada’s largest digital currency exchange was a Ponzi scheme. After the death of the founder of this exchange, Gerald Cotten, it was found that Cotten was covering the deficit of the exchange account with the deposits of other customers by creating several fake accounts with fictitious balance.
OuadrigaCX Canadian Exchange Warning Sign
- Lack of transparency of foreign currency accounts of the owner of the exchange
- Delay in settlement of dollar and foreign currency accounts
In digital currency exchanges, it is more difficult to distinguish scam projects from other projects. Because in these plans, the scammer has some property and currency from users, which allows him to cover his thefts for a long time.
Solar (Unitedsolar) is the latest Ponzi scam project
The solar project (Unitedsolar) claimed to protect the environment and promised that by attracting more capital and bringing in new members, users can receive several times their capital in a short period of time. This company operates not only in Iran but also in many other countries. Although at the beginning of United Solar’s activity, there were many warnings from various organizations about its being a Ponzi scheme, but there were many people who gave their capital to this company.
After a period of time, messages about the bankruptcy of United Solar were published in Telegram channels and groups that published project news. Although some supporters of this project are still in favor of this fraud, but currently the user accounts of many of these people are blocked and it is not possible to access the main site of the Solar project.
The Ponzi scheme continues as long as there are enough investors and the amount of money obtained is satisfactory to the organizer of the Ponzi scheme. Based on the rule of escalation and population, usually this period is not more than two years, however, some plans may continue to attract more money for 10 years by constantly changing their plans and attracting new capital.
No, Ponzi scheme is a common fraud method in all financial markets. But digital currency markets have attracted the attention of the designers of this scheme and fraud due to its newness and increasing popularity.
By being skeptical, avoiding unwanted opportunities, doing a lot of research, not trusting easily, having a high understanding and reporting it to the judicial institutions, you can try to keep yourself and your fellow citizens away from the ponzi scheme.
Some of the new Ponzi sites and the list of Ponzi companies include Double Way Ethereum, Eco Smart, King Money, Mr DigiCoin, Unique Finance, Laxsson, Lottochi, Amazon Cell, Richato, etc.
