Countries gradually recognize the legal status of coins and tokens, and El Salvador has made Bitcoin its second national currency. Residents of the United States, Great Britain, and soon the whole world will be able to pay in cryptocurrencies for everyday purchases in shops, cafes, and transport via PayPal.
Calling all cryptocurrencies a pyramid is now wrong, even from a legal point of view. Nevertheless, scammers continue to create new fraudulent schemes using blockchain technology, so it is important to stay alert.
How to Identify a Cryptocurrency Pyramid?
Identifying Ponzi schemes is not an easy task, and that is why even highly suspicious programs can operate until they collapse and expose their Ponzi nature. But still, here is a list of signs indicating possible cryptocurrency fraud.
- Young Project. The website and legal entity registered two months ago indicate the initial stage of product or technology development. A new startup cannot come out of nowhere with revolutionary technologies ready to go. But it can easily disappear with the stolen money.
- Guaranteed high returns. If project founders know how to increase the deposit by 30% per month, why should they collect pennies from hundreds of thousands of users? Be highly suspicious of anyone who offers you a guaranteed return on your investment.
- Bad reputation of creators. If there is little information about the developers or they have a dark past, then there is a high probability of scam.
- The need for more investors. If one of the main ways to make money in a project is to search for referrals, then the founders are amateurs who cannot conduct IEO or scammers.
- Lack of any technical details. Developers do not have a page on GitHub where investors can monitor the progress in the code. Instead, they claim that their product is very innovative so that it should be hidden from competitors, the government, etc.
- Lack of any documentation. No whitepaper, no roadmap with precise dates and goals specified.
- Pressure to reinvest. Ponzi schemes crash without regular income or when too many investors cash out.
If you have found at least 2 out of 7 points, ignoring and running away from such a project is recommended.
The Most Famous Financial Crypto Pyramids
Here are the most famous cryptocurrency pyramids, from which millions of investors suffered and whose activities amounted to billions of dollars in losses.
The total financial damage caused is from 4 to 15 billion euros. The cryptocurrency was positioned as a ‘Bitcoin killer,’ which in 3 years would become the most popular means of payment on the planet. At the same time, the project did not have blockchain and mining functions. The founders themselves were engaged in the emission, while payments and transfers were allowed only on the sites under their control.
For three years, regulators in different countries have warned people that the project has all the signs of a financial pyramid. For the 4th year of work, the founder of the project, Ruja Ignatova, suddenly disappeared and is still on the wanted list. They managed to arrest only the chief lawyer and two minor organizers.
The total financial damage caused is $3 billion. The Chinese pyramid attracted investors by 30% income per month and bonuses for referring friends. PlusToken, in which investors held their capital and received payments, was listed on Bithumb Huobi.
The search for fraud victims took place through educational training for cryptocurrency newcomers. About 4 million people from Japan, China, and Europe became targets of the fraudsters. There are suspicions that the founders manipulated Bitcoin prices thanks to accumulated funds.
Six organizers were detained and sentenced to long terms of imprisonment. In addition, the company failed to return the money stored in cryptocurrency wallets. Unknown persons withdrew funds from all accounts after the project was closed.
The total financial damage caused is more than $1 billion. The company promoted the allegedly decentralized peer-to-peer coin BCC. Investors were promised 90% of annual income with a $10,000 deposit. Users initially had access to a referral payment system, from which it was clear that this was a classic pyramid.
In 2018, American regulators officially recognized its fraudulent status, due to which the price of the coin decreased by 93%. In the same year, BCC token was delisted from all exchanges, and the team of anonymous founders disappeared with all the money.
Today, we have considered the three most notorious crypto Ponzis and found out that not all cryptocurrencies should be considered fraudulent schemes. However, when it comes to selecting a crypto exchange, security should always be the top factor to consider.
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