Based on research conducted yearly by the Stanford Center on Longevity, one in ten US adults are victims of fraud or scams each year. Chainalysis’s 2020 Crypto Crime Report was published in 2019 and revealed a surprising thing: large numbers of people’s cryptocurrency worth almost USD 4.30 billion was stolen by scammers globally. Interestingly, a significant 92% of this sum was obtained through Ponzi schemes, which are Bitcoin-related scams. The question that is now raised is: Is Bitcoin itself a Ponzi scheme? To properly grasp this, let’s examine what a Ponzi scheme is, why so many people fall for it, and most importantly, how you can defend yourself in the world of cryptocurrencies against such attacks. In addition, if you are starting to trade Bitcoin, you must have a reputable trading platform such as bitalpha-ai.
About Ponzi Schemes
A Ponzi scheme is a cunning form of financial fraud that seduces numerous people into investing their money. Charles Ponzi, who committed a significant scam in the 1920s, is responsible for giving the phrase “Ponzi scheme” its name. This Ponzi man-made outrageous promises to his customers, such as a 50% profit in just 45 days or an amazing 100% return in three months. He asserted that he could achieve this by purchasing International Reply Coupons (IRC) at a discount from other nations and reselling them at full price in the US. But here’s the tricky part: he reimbursed the early investors with funds from the late investors. Therefore, they weren’t turning a profit from his company. Because everyone received their money back at first, everything appeared to be legitimate. Ponzi deceived many people for more than a year, but when his plan was discovered, those who had invested lost a staggering $20 million. It’s interesting to note that Ponzi didn’t create this particular fraud; it has existed since the 1830s. However, he rose to fame for operating this significant criminal scam, which is why it is known as a “Ponzi scheme.”
What’s the deal with Ponzi schemes in the world of cryptocurrency?
Ponzi schemes include cunning con artists coming up with a strategy to make money by luring in investors. The problem is that this kind of scheme requires consistent cash flow to remain viable. These con artists utilize money from new investors to repay the previous ones to maintain the entire ruse. Investors are being duped into believing they are profiting handsomely from their investments when they are dumping their money down the drain. When the con artists struggle to attract new investors and persuade them to cash out, the gravy train of steady, impressive profits inevitably comes to an end. This scam is not limited to a single sector; instead, its methodologies are used throughout many industries, including the cryptocurrency sector, where identical approaches are used to deceive unwary individuals.
The Connection Between Cryptocurrencies and Ponzi Schemes
According to a YouGov survey, 81% of Americans are aware of at least one type of cryptocurrency. Among these, BTC stands out as the most well-liked. Unexpectedly, approximately 18% of all Americans purchased cryptocurrency in 2019, with 35% of these customers being millennials. Adding to this pattern, well-known companies have started accepting cryptocurrency payments, encouraging a wider uptake of this technological advancement.
These statistics show the exponential growth in bitcoin users around the world. It should come as no surprise that scammers are preying on this burgeoning sector, concentrating particularly on Bitcoin, the most well-known cryptocurrency at the moment. Market investors find Bitcoin appealing due to its decentralized structure, unpredictable price volatility, and other advantageous characteristics. However, these very same characteristics make fraudsters want to take advantage of it in a different way. The good news in this situation is that there are several ways to identify and foil such scams.