How to identify a Ponzi scheme behind a cryptocurrency project

The birth of Bitcoin has triggered a series of both positive and negative events for the cryptocurrency ecosystem. During his career, these events created a divided opinion in the community, being considered on the one hand as a real alternative to the traditional financial market and on the other, as a risk for people in this same aspect.

Just as the concept of Bitcoin allowed us to develop another large number of cryptocurrencies, blockchain technology has also helped in the creation of projects that expanded the investment market and diversified the options for users, thus giving it more visibility in the eyes of the public. community.

The result of the above was a greater adoption and greater interest on the part of investors to get involved with these digital assets. However, through this interest, opportunities were given for the frequent use of deceptive offers that ended up damaging the perception of the market.

The number of scams related to the use of Bitcoin and other cryptocurrencies have been largely made through the well-known Ponzi scheme, plaguing the network with initial offers of currencies (ICO) and cloud mining platforms that seek to take advantage of users with less knowledge about this system.

¿What is a Ponzi scheme?

The Ponzi scheme gets its name in honor of its creator, a well-known Italian criminal and scam expert named Carlo Ponzi. It is based on a fraudulent investment system that promises high percentages of interest to its participants.

In the operation, the promise of return of interest is covered with the own money contributed by the main investors and by those that are joined next, in such a way that the profits never come from a real investment in financial instruments, but that the money goes from hand to hand as more people join.

It should be noted that this system, also known as a pyramid system, is only viable if the number of victims keeps growing, since the returns offered will depend solely on the funds contributed by the new members. In this way, if at any time they stopped entering more people, the scam would be impossible to execute.

Keys to recognize a Ponzi scam in the cryptocurrency market

Leaving aside the myth widely denied that Bitcoin is a Ponzi scheme, cryptocurrencies and this type of scam on the other hand, have reached a crossing point where one has served the other to carry out its mission.

Although the Ponzi schemes have not lost their validity on a regular basis, the popularity of projects and platforms related to cryptocurrencies have been lent to affect this deception to make use of them in their operations.

Because of this, to avoid suffering the loss of funds, it is important to evaluate certain types of aspects in the investment alternatives that are presented in the market. Some of these points that will give us warning signs in the offers are the following:

High yields with little or zero risk

Due to the high volatility that characterizes the cryptocurrency market, one of the main hooks for people who want to invest and do not have much knowledge in the area, is a project that guarantees high returns without any type of risk.

However, a basic reminder in this aspect, is that each investment is linked to a certain degree of risk and as a consequence, those in which it is possible to generate more income, also imply a large amount of financial risks.

Finally, we can conclude that the higher the promises of high returns without some kind of implicit risk, the greater the chances of it being a scam.

Great returns consistently

In this case, the volatility of cryptocurrencies also comes into play. Generally over time, the market suffers fluctuations that vary the amount of profits obtained according to the size of the investment and if it is designed to obtain high yields, it will also be susceptible to constant variations in dividends.

Consequently, any investment that, in spite of market conditions, generates large returns in a consistent manner, may mean an alert that it is in the presence of a pyramid scheme.

Therefore, before any doubt or suspicion, it is always necessary to request and review the information on the investment plan, which helps determine the veracity of the strategy.

Absence of qualification as an investor

Most pyramid schemes look for people with a low or zero level of financial education and investments, since they may be the easiest to persuade to place their money in the scam.

Usually proposals with the phrases "does not require minimum investment capital" and "you do not need to be an expert in finance to invest" is a clear signal that there may be a deception behind the offer.

Obstacles to receiving dividends

Those investments in which there is participation and where there may be problems to receive timely results, where unexpectedly stop receiving any payment or otherwise can not fully withdraw your investment, may be an alert about a possible operation of pyramid schemes.

In a serious project about their plans or strategy, the investor should be able to receive their dividends on time and should they decide to withdraw completely, they could do so without any problems.

Final words

The world of cryptocurrencies has gained notoriety in recent years for its characteristics and some people have taken advantage of the lack of knowledge in the field to start practicing this type of scams. That is why Bitcoin related frauds have become increasingly frequent in the community, affecting the initiative of people to venture into the market.

It is necessary to be cautious in the face of advertising or offers of doubtful investment plans, which can be found in specialized cryptocurrency forums or in related media. In the same way, social networks are another route that is very used to attract victims, in which caution must be exercised.

Any investment in both the traditional financial market and that of cryptoactives entails their respective risks, which is why a prior investigation that provides security and confidence before putting some capital in the concept is necessary. In addition to this, on any suspicion, the aforementioned keys may help to clear any doubt.