BitPonzi, aka the new generation of Ponzi Scheme

Let's take a look at how people might try to scam you out of your money with a new edition of the Ponzi scheme.

Hello everyone, sorry for not writing for so long, but life happened.

Today we'll take a look at what a Ponzi scheme is and how it relates to the more known Pyramid scheme and how new technologies like Blockchain and BitCoin have become fertile ground for new scams.

First of all, let's take a look at how a Pyramid scheme works, just as a reminder: every time someone enters the scheme, the person who made them enter earns a small amount of money, as well as a cut of the sales those new people make. You probably heard of companies trying to convince you to join telling you that you would earn money by "inviting 5 of your friends to join". That's most probably a pyramid scheme.

The Pyramid scheme has a mathematical limit, let's say that everyone in the scheme brings 5 friends, you would exceed the world's population in 15 cycles.

The Ponzi scheme is a bit more subtle, instead of directly earning a certain amount of money for each sale your "employees" make, you get a small amount of money each time a new person joins the scheme, invited or not. This means that the oldest that joined will earn money while the newest ones will pay the expenses and might not see a penny before the scheme collapses.

Note: I'm massively simplifying here, please check The Wikipedia Article for Ponzi Scheme.

In the last 2 years, we have seen a huge surge in the trading of a now well-known digital currency: BitCoin.

There has been news about its almost endless climb in value, as well as its fall, and some people have decided to jump on the Novelty Wagon and make their own BitCoin trading systems. One of these is AirBit Club, which can be really dangerous and is known to have left many victims in Russia and Colombia

I'm not excluding the chance that there are other deceptive Ponzi schemes around, and surely new ones will come out, so here I give you a checklist of how to recognize a Ponzi scheme:

  • The operator offers abnormally high and unusually consistent returns
  • The operator keeps their investment strategy either:
    • Secretive
    • Hidden behind vague words that sound awfully specific ("Hedge funds trading", "Binary Trading", "Offshore Investment")
  • The operator usually asks current investors to invest more money (this way the scheme keeps standing up and there is more liquidity going around it, and more money for the "old ones" to earn)
  • The operator shows the investors how much they earned, in the newer versions you see a "virtual wallet" with money growing day by day or month by month. Doesn't mean you're really getting money, could even be a script just increasing the amount randomly for what you know.
  • The operator offers new plans when you try to withdraw money, usually those "new plans" forbid you to withdraw for a specified amount of time in exchange of higher returns
  • The operator tends to over-show how financially sound and solvent the fund is.

Hopefully this post is at least a bit useful to avoid you falling into scammers' traps, who use the novelty of BitCoin and Ethereum (A type of blockchain) to scam you out of your money.

Take care and see you next time.