How to spot Ponzi schemes (and why bitcoin is a target)

By Michael Rosenblat
Published on Sep 9, 2017

Years ago, bitcoin was labeled a scam and a Ponzi scheme. At the same time, high-yield investment programs (HYIP) continued to increase in popularity. The funny thing is, bitcoin has always been a legitimate investment while HYIPs are textbook examples of scams, designed specifically to steal money from uninformed participants.

Bitcoin’s recent price increase and rise in popularity has attracted a large number of scammers, and they are leveraging people’s fear of missing out to dupe new bitcoin users. Many people have heard about bitcoin’s sharp price increases without fully understanding the technology behind it, which makes it a prime subject of scammer pitches. Don’t fall for the hype! Here are some useful guidelines to ensure you don’t fall victim.

How to spot a scam

  1. Promises of high, guaranteed returns. The best hedge funds in the world are happy if they can provide 20% annual returns, and they never claim profits are guaranteed. If someone says you’ll earn 1% interest per day, it definitely falls into the “too good to be true” category.
  2. Integration of a multi-level marketing (MLM) structure. The company must not be legitimate enough to pull in new users directly if they are growing primarily through these tactics, in which you earn more money by convincing others to join below you in the pyramid. It could also mean the company wants to grow as quickly as possible before the scam is found out, and is willing to make unsustainable promises to do so.
  3. Fuzzy or vague details about how the profits are generated. The most common ploy is to claim “algorithmic trading” is the secret tool that consistently spits out money. But all trading carries significant risk and cannot guarantee returns. And if they really had a secret money-making machine, why would they need to share it with everyone?
  4. Fake claims of being regulated or certified. Ponzi schemes will often claim to have earned special credentials that permit them to do what they do. Look closely to see what they are actually claiming, and do a quick google search to verify that what they claim to have is even a real thing.
  5. A flashy website with spelling errors. Many schemes are spun up quickly and make a lot of mistakes that get overlooked. Some scams even try to target careless victims, and introduce spelling mistakes on purpose. The hope is that the more observant and savvy users will avoid joining, which reduces the risk of someone figuring out the scam and blowing the whistle too soon. If something doesn’t feel right, it probably isn't.
  6. Anonymous or inaccessible founders. Ponzi planners know that eventually the scheme crumbles, so they are careful to hide their identities. If the team is listed on the website, do a few searches to find out more about them. If any of them don’t exist, aren’t actively involved in the project, or have a history of past scams, stay away.

The world of cryptocurrency has plenty of risk to go around, but it’s a legitimate and growing market ripe with opportunity. High-yield investment programs (HYIP) prey on greed and usually don’t last very long, leaving a lot of heartbreak in their wake. Stay safe, and remember that if something seems too good to be true, then it probably is!

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