Beware of Ponzi Schemes In Crypto World, Too!

Ponzi schemes have always been a regular feature of scams the world over and have been catching up fast with the ever-expanding world of web 3, and the crypto world, too! India has already been hit by perhaps the biggest ever crypto scam where about 1 lakh victims are believed to have lost over Rs 1 lakh crore in the GainBitcoin scam.

Like other Ponzi schemes, GainBitcoin also had a pyramid, multi-tiered scheme, with operations in India and abroad. Gainbitcoin promised a 10% monthly return in Bitcoin-on-Bitcoin deposits for 18 months through multi-layered marketing.

The world has already been rocked by Ponzi schems like Onecoin, perhaps the longest-running Ponzi scheme ever witnessed in the crypto industry that was run by Bulgarian fraudster Ruja Ignatova, aka Cryptoqueen, and is said to have defrauded investors of a whopping $5.8 billion!

So, what is a Ponzi scheme and how do investors fall for them?

Ponzi schemes are dishonest investment frauds that assure investors of great rates of return with little to no risk. It is a kind of a pyramid scheme where money from new investors is used to reimburse capital from previous investors. When new investors stop coming in, there is no more money to benefit the previous investors, Ponzi schemes collapse.

The phrase “Ponzi scheme” was first used in 1919 to refer to a conman by the name of Charles Ponzi. Charles was an Italian swindler who was active in the U.S. and Canada. He used to promise clients a 50% profit within 45 days or 100% profit within 90 days, by buying discounted postal reply coupons in other countries & redeeming them at face value in the U.S. as a form of arbitrage. The US Postal Service was a key component of Charles Ponzi’s first plan.

Key details about the Ponzi scheme include:

• Similar to pyramid schemes, Ponzi schemes attract new investors by promising them large returns with little to no risk in exchange for their money.
• Both fraudulent schemes rely on the use of money from new investors by existing investors.
• Companies that run Ponzi schemes constantly focus on luring new investors so that the earlier ones can benefit at the latter’s cost.