Beware of Scams: Don’t Be Fooled! 3 minutes to understand Ponzi schemes in Crypto

There is more and more talk about the cryptocurrency sector, there are great financial opportunities every day, but which ones are real?

Indeed, cryptocurrencies and Bitcoin in particular are known for their volatility and high returns. This has led to the arrival of many scammers who do not hesitate to lure you with juicy offers; proceeds of 100%/150% per month without risk, reduced entry prices as you bring in other investors…

One of the most famous scams is the Ponzi scheme or commonly known as: Ponzi scheme. This old fraudulent system has claimed all its victims in the traditional sectors and is now attacking the web3.

The cryptocurrency sector and move-to-earn in particular have been singled out, just like them golden opportunities or Ponzis ?

Don’t worry, we’ll explain everything in this article.

What is a Ponzi scheme?

A Ponzi scheme is a fraudulent financial scheme which consists of remunerating the initial investors with the funds provided by the new entrants. The goal is to attract customers through extraordinary returns to maintain an influx of newcomers. For example, thanks to the new cash inflow, the scammer can pay the announced proceeds.

Example :

A dishonest person offers you an investment at 100% interest per month with 20% commission; you have to give him $100 right away and he will return you $200 minus $20 in commission, or +$180 (80%) for the first month.

Sounds like a good deal to you and given the performance you see no problem in him taking 20% ​​commission.

However, the system is only stable if another client enters the loop after you. So the interest you receive is the $100 invested by the second client, minus the 20% commission.

So this system must have an influx of customers continuous and exponential making this financial arrangement unstable over time. This example would require the clients to adhere to the project with a power of 2 (2,4,8,16,32…1024,2048…), which quickly puts a limit on this system.

The application to cryptocurrencies:

Digital assets are a financial sector to high efficiency and with little legal framework which facilitates the setting up of scams and thus of Ponzi.

During the year 2022, we created a bubble on the Move-to-Earn with an evolution of +249% compared to 2021. Many projects have been mentioned for their high yields with less effort, especially Stepn who has been the subject of numerous studies.

Read also Cardano (ADA): 5 Fundamental Points You Must Know Before Considering Investing in ADA

Unfortunately, who says financial bubble, says financial settlement and thus Ponzi, so to avoid scams here are some tips:

  • Very high performance compared to the competition : If most crypto projects in this sector offer returns of around 15%, it would be suspicious to see a project offering 60% returns.
  • Few risks : All investments come with risks and even more so in volatile environments like crypto.
  • Unclear capital management : you absolutely have to understand where your money is! If you don’t understand how your money flows and fluctuates within the project, it’s hard to consider investing in it.
  • scandals : Check that the team members are not linked to old scams.
  • The promises in the wind : If you do not receive your interests in time, stop the adventure immediately! (Tip: The creators of Ponzi won’t hesitate to mark your next payments to make sure you stay).
  • See if the The revenues depend on the number of newcomers.

You can find the answer to most of these questions by analyzing social/basic market. But for those who aren’t very comfortable with this kind of analysis, you can form a fairly realistic vision by reading the white paper and their websites.

Conclusion

The cryptocurrency industry is still new and unclear to most people, which is: conducive to fraud. Most Ponzi schemes are easy to spot, but unfortunately dishonest people will always come up with other schemes to mislead novice investors.

So I encourage you to always do your own research and make up your own mind to succeed in this booming industry.

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