How to tell if a cryptocurrency project is a Ponzi scheme
The crypto world has experienced an increase in Ponzi schemes since 2016 when the market gained mainstream prominence. Many shady investment programs are designed to take advantage of the hype behind cryptocurrency booms to beguile impressionable investors.
Ponzi schemes have become rampant in the sector primarily due to the decentralized nature of blockchain technology which enables scammers to sidestep centralized monetary authorities who would otherwise flag or freeze suspicious transactions.
The immutable nature of blockchain systems that makes fund transfers irreversible also works in the scammers’ favor by making it harder for Ponzi victims to get their money back.
Speaking to Cointelegraph earlier this week, KuCoin exchange CEO Johnny Lyu said that the sector was fertile ground for these types of schemes due to one main reason:
“Until clear and internationally approved financial regulation of the crypto industry is set in place, it will continue to witness the rise and collapse of Ponzi schemes,” he added.
The Ponzi scheme phrase emerged in 1920 when a swindler named Charles Ponzi marketed a high-returns program to investors which supposedly leveraged postal reply coupons to achieve impressive earnings.
He promised investors returns of up to 50% within 45 days or 100% interest within 90 days. True to his word, the first group of investors got the claimed returns, but unbeknownst to them, the money they received was actually from later investors. The cycle was designed to lure new investors and enabled Ponzi to steal over $20 million.
While he wasn’t the first to use such a scheme to scam people, he was the first to use it to such a scale; hence the technique was named after him.
In a nutshell, a Ponzi scheme is a fake
Read more on cointelegraph.com
