Most individuals who invest in Bitcoin or other cryptocurrencies – or decide to invest in ICOs or STOs are usually concerned with two things. The first is the Return of Investment (ROI) which represents the amount of return they can get from their initial investment. Then comes the second issue of the possible risk ratio of making that investment. When the risk ratio is too high, investors may lose part or all of their investment, then the ROI will be negative.
In essence, any investment carries a certain amount of risk. However, this rate for investments in illegal Ponzi or Pyramid schemes is much higher than expected. Therefore, it is extremely important to learn about the nature and how this model works.
What is a Ponzi scheme?
The Ponzi scheme or Ponzi scheme is named after Charles Ponzi, a Boston accountant who first devised this fraudulent scheme in 1919. From a faceless and empty man, he became famous. famous and rich all over America. Ponzi is so famous that “Ponzi scheme” and “Ponzi Finance” are present in the curriculum of all universities in the US and Ponzi has a website for himself, http://www.mark-knutson.com/.
In the early 1920s, Ponzi with his model existed for more than a year and fraudulently appropriated the assets of hundreds of victims. Essentially, a Ponzi scheme is a form of investment scam that works in a way that takes money from a latecomer to pay it to a first comer. The point of it is that those who come last usually won’t get a dime. Bitconnect, Ifan, Pincoin, Onecoin Vietnam… are typical examples of the Ponzi model in the virtual currency world.
How does the Ponzi scheme work?
- There will be a first initiator to advertise an investment opportunity in which participants must contribute $1000. This person is promised to receive back the entire initial investment with 10% profit after a certain investment cycle (90 days for example).
- Let’s say this investor gets 2 more investors to join before the 90 day period ends. Then the initiator will deduct $1100 from the $2000 collected from the 2nd and 3rd person to return it to the 1st person. At that time, the first investor will be attractive and more likely to reinvest with the initial $1000.
- By taking money from new investors, the scammer will be financially able to pay early investors and convince them to reinvest along with calling many others to join.
- As the system has grown, the initiator is forced to find new investors to join the model in order to maintain the ability to pay the promised interest.
- Eventually when the system reaches the point where it can no longer be maintained, the initiator will either be arrested or will disappear along with the proceeds from the investors.
6 signs to recognize the Ponzi pattern
Concept Ponzi scam model does not end in 1920. Technology changes and Ponzi scheme also change. In 2008, Bernard Madoff was accused of using a Ponzi scheme to generate fake trading reports to prove to investors that his investment fund was profitable.
In the field of cryptocurrency, many people rely on Blockchain technology to envision a lot of projects using the model Ponzi, the purpose to entice, scam investors to participate. For example, projects like Skyway, Onecoin, etc., there have been countless people in Vietnam in particular and around the world in general who lost money because of investing in these multi-level projects. Therefore, you need to have the knowledge to recognize projects that are operating under this model, thereby avoiding them. Here are 6 signs that will help you identify a Ponzi scheme:
- Committed to high returns with little risk
- Consistent profits regardless of volatile market conditions
- Investment forms are not registered with reputable authorities
- Organizational investment strategies or forms are all called secret or described as very troublesome
- Clients are not allowed to view official papers for their investments
- It is very difficult for customers to withdraw money from the organization
What is the Pyramid Model?
A pyramid scheme is a business model in which members are promised profits or rewards by joining the model and referring new entrants.
For example, a scam initiator presents Ti and Teo an opportunity to buy back distribution rights in a company for $1000 each. They will then have the right to resell these distribution rights on their own and earn a commission for referring new members to join. The $1000 they make from each sale of distribution rights will be split equally 50/50 between them and the initiator.
In the example above, Ti and Teo each need to sell the distribution rights twice in order to get their original investment back, since each time they will get $500 back. Then, the burden of having to resell. The other 2 distribution rights to recoup the initial capital will be passed on to their clients. This model will eventually collapse because more and more people will have to participate in the process. Unsustainable development is the main reason why this model is illegal.
Most pyramid schemes offer no product or service at all, but only maintain on the proceeds of new hires. However, there are some pyramid schemes introduced in the name of multi-level companies (multi-level marketing MLM) legally sell products and services. This is just a way to hide the inherent deceptive nature of this model. So while there are a lot of problematic MLM companies that use the pyramid scheme, not all MLM companies are scams. Companies like Amway, Thien Ngoc Minh Uy, Aloe… in Vietnam are using this form of pyramid fraud, by raising the price of “functional products” to the “top of the pyramid” level and gradually dividing the costs. small tower for the leaders gold silver diamond…and the victim who “swimmes” in the end will get to eat “floating gold”.
Compare Ponzi scheme and Pyramid model
Both of these models are a form of fraud that convinces victims to invest by promising very high returns.
Both require constant cash flow from new investors to stay afloat and successful.
Usually they don’t offer a product or service at all.
The Ponzi scheme is often referred to as an investment management service, in which participants believe that the profits they receive are the result of legitimate investments. Scammers are essentially stealing money from one person to pay another.
The pyramid model is based on a network marketing platform and requires participants to recruit new people to the system to earn money. From there, each member will receive a commission before the entire remaining amount is gradually moved to the top of the pyramid.
How to avoid Ponzi and Pyramid traps.
Always ask questions. Any investment opportunity that promises high and quick returns with a small initial investment is a sign of dishonesty. This is especially true of less common or elusive problems. Unbelievable chance, often unbelievable!
Beware of opportunities falling from the sky. Always be especially cautious of goddamn invitations to long-term investment opportunities.
The seller must be thoroughly investigated. The reality of promoting investment opportunities needs to be thoroughly investigated. A reputable financial advisor, a broker, or a stockbroking company will be registered and regulated in legal institutions.
Don’t rely on trust, rely on authenticity. Legitimate investments need to be legally registered. The first thing to do is to request business registration information. If this investment opportunity is unregistered, a reasonable explanation and evidence should be provided for it.
Understand the nature of the investment. Never invest in something you don’t know. Make the most of possible resources and be cautious with “secret” investments.
Denounce. When detecting that someone has been lured to participate in the Ponzi scheme, it is necessary to immediately notify the competent authorities to protect investors against this form of fraud.
Is Bitcoin a pyramid scheme?
Some people think that Bitcoin is a giant pyramid scheme, which is simply completely wrong. Bitcoin is essentially just money, a distributed digital currency secured by algorithms and encryption used by many people to purchase goods and services. Just like paper money, cryptocurrencies are also used in pyramid schemes (or other illegal activities), but that does not mean that cryptocurrencies or paper money become pyramids. tower okay.
Bitcoin is not a multi-level fraud model, only those who take advantage of Bitcoin and Blockchain technology to promote their junk coins are scams.
Why can multi-level virtual currency, Ponzi and Pyramid be raging in Vietnam?
The cryptocurrency market in Vietnam as well as in the world is very developed and is a very potential money-making opportunity. However, not everyone can make money from this market. You need to have the knowledge, the ability to evaluate, see and analyze, ..to identify which projects should participate, the projects should not participate, the time to join and the time to withdraw capital…
If you are learning about virtual currency projects that invest in a multi-level model, you should learn and consider carefully before participating, the reason for the related evils raging in Vietnam is because:
- Investors are not knowledgeable about financial markets, have limited economic knowledge.
- Investors lack knowledge about virtual currency and Blockchain technology.
- Investors are blinded by the opportunity to get rich quickly, profits are dozens of times higher than bank deposit rates, plus commissions when referring more players, greed has blinded them.
- Investors are inexperienced, “blind” about information technology.
See also: Is Onecoin virtual currency a Ponzi model?
According to Tapchibitcoin
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