Have you heard about crypto ponzi schemes?
Chances are you probably have no idea what this is. Especially if you are new to the world of cryptocurrencies and if you are an old school saver / investor. However I bet you have a vague idea of what a ponzi is right?
Charles Ponzi is where the term comes from. He defrauded 1000’s of investors back in the 1920’s. He promised his clients 50% profit within 45 days of investing with him. He said that he was doing a form of postal arbitrage but ultimately he ended up just running a ponzi scheme.
Of course at the time the phrase “ponzi scheme” didn’t exist because the name comes from the very man himself.
Okay getting back to the point of the article. You may have heard about cryptocurrencies. Surely you have heard about Bitcoin?
Well over the past 1-2 years there has been a huge rise in cryptocurrency related business opportunities. Think of your typical MLM scheme. Well in the past these were selling things like cosmetics, coffee and more recently digital products like e-books, video courses and more.
Now with the huge rise of cryptocurrencies like Bitcoin the scammers in MLM have moved onto created MLM schemes around Bitcoin. Now don’t get me wrong I am not suggesting that all MLM programs are scams. I know people involved in many legitimate ones with real products.
However MLM is a scam when it’s to do with Bitcoin and I will explain a number of these scams and how they work.
Lending programs are the main scam I am talking about here.
Basically what happens is you are told that by buying a particular cryptocurrency coin and then lending it back to the coin creators they will give you daily % returns. Usually this percentage is around 1% return and they promise this. They say that all you need to do is lend your cryptocurrency back to them, and they will trade it for you giving you amazing returns.
This all sounds great but it’s a complete scam. It follows the exact same method that Charles Ponzi himself did. The 1% is paid out however it’s paid by new investors coming into the scheme. Investor B pays investor A essentially.
Some examples of these that have been exposed are BitConnect, Davor Coin and Falcon Coin.
I recently came across a great review of Davor Coin that exposed it and made reference to all the other copycats out there like Falcon Coin also. You can read this article exposing Davor Coin on this popular internet marketing blog.
There are a number of mining scams that are very similar to the lending program scams. These are where the website tells you that you can invest in cloud mining. In case you are new to cryptocurrencies let me explain. Cryptocurrencies like Bitcoin can be mined using advanced computers. The computers run algorithms all day long to work out equations and when they do this enough times you are rewarded with free Bitcoin or whatever cryptocurrency you are mining.
I won’t get into the ins and outs of why mining exists but it’s all part of the de-centralised nature of cryptocurrencies and is extremely important to keep them running (hence why miners are rewarded).
Anyhow, it is very expensive to set up mining computers. The difficulty of mining gets harder over time and years back when Bitcoin first started you could mine it using a simple desktop computer or laptop. Now though there are specialist mining computers called ASIC miners and they cost $1,000’s.
This means that your average person cannot afford to buy these, plus there’s also the running costs and cooling costs too since they get extremely hot and use up a lot of energy. This means that in reality only huge companies can afford to invest in these mining operations.
This has meant that a service known as cloud mining has started up. Cloud mining is essentially where you rent mining equipment from a company but you never actually see it. They set up the computer in their own warehouses which are specially designed and you rent the mining rig for say 6 months or 12 months. That means you pay a set price and you get the returns paid to you.
The concept is legitimate and real however it’s a market that is filled with scams because ultimately you never really know whether you are renting legitimate mining equipment or whether you are getting involved in another cryptocurrency ponzi scheme.
Most of the time it’s a ponzi scheme and many of these programs have been exposed. USI Tech was recently issued with a cease and desist and it could not prove it’s mining operations. All these people had stated how it was a great business and was completely safe and legitimate yet when push came to shove they couldn’t prove it.
Another shout out to my friend at nobsimreviews.com for exposing USI Tech in this post here.
These are the 2 main types of cryptocurrency scams however there is a common theme amongst all crypto scams. They always offer unrealistic returns on investment. If you see a website saying it can give you 40% returns per month or 1% returns per day you need to run a mile.
These kind of returns are impossible unless a ponzi scheme is being ran and all ponzi’s will eventually collapse because they require new members to be constantly joining and investing funds.
If you want to learn how to get started with cryptocurrencies legitimate then you should invest in your education. YouTube is a great place for this and you can follow legitimate people in cryptocurrency like Cedric Dahl (ICO investor) and Tai Lopez crypto channel.
By the way I do not endorse everything Tai Lopez does however is crypto channel is good since he brings in experts in the space to discuss so that you can learn real techniques for investing.