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What is a Ponzi Scheme?

Have you ever lost money in an investment scheme before? Many have been in this situation at some point, and most of the time, it is because of something called a Ponzi scheme.

The best way to avoid a Ponzi Scheme is by taking the time to learn what they look like and the signs that you might be about to invest in one. Read on to learn more about what a Ponzi Scheme is as well as what to watch out for when investing.

Ponzi Sceme

What is a Ponzi Scheme?

In simple terms, a Ponzi scheme is an investment scam in which money obtained from new investors is used to pay off older investors. Most of the time, people who subscribe to Ponzi schemes are not aware of this crooked and unsustainable arrangement and are simply happy with the idea of potential returns. That is, until the returns never materialize.

The origin of Ponzi schemes can be traced back to Charles Ponzi. He was an Italian businessman in the early 19th century who cajoled victims to invest in his business, making them think their funds were being put into sales of products and profitable investments.

Ponzi believed that if he could figure out a way to buy Postal coupons in a large quantity, he could simply buy and resell them to make a lot of money. To implement this idea, he promised a 50% profit in 45 days to cajole a small number of investors into providing him with startup capital. This was the beginning of the pyramid scam that still retains Ponzi’s name today.

Ponzi sustained the scheme at the early stage by paying the earlier investors with funds from the later investors. As long as new investors keep putting money in and the majority of investors continue to believe in the false assets they are supposed to possess. This is a key feature of any Ponzi scheme, and sadly, people still fall victim to this scheme today.

What is a Ponzi Scheme in Crypto?

Crypto Ponzi schemes have drastically increased over the past couple of years, and people keep falling for them because they don’t know what to look out for.

A crypto Ponzi scheme involves fraudsters setting up false crypto projects and luring investors with a variety of tales and made-up stories. With cryptocurrency, it is a little simpler to advertise and talk about irrational gains to an individual that doesn't fully comprehend or adeptly understand how it operates.

Most newbies are often blown away by the promise of enticing returns on investment in a crypto project. Unfortunately, the decentralized nature of blockchain technology, which allows scammers to evade centralized financial regulators that would normally flag or freeze questionable transactions, has led to the widespread adoption of Ponzi schemes in the crypto industry.

1.12.2 Ponzi Fraud

Known Crypto Ponzi Schemes

There are many crypto Ponzi schemes out there. Among them are Onecoin, Bitconnect, PlusToken, GainBitcoin, Mining Max, and which, among many other crypto projects, have been confirmed to be Ponzi schemes in the crypto space. And here at MintDice we suspect Hex Coin is another crypto Ponzi scheme. Let’s take a deeper look at the first two of the schemes;


The companies behind the Onecoin scheme were Onecoin Ltd and OneLife Network Ltd. These companies were set up by a Bulgarian called Ruja Ignatova who later disappeared in 2017, but not before the company has raised about $4 billion.

Onecoin was reported to have successfully lured a large number of investors between 2014 and 2019 by promoting it as a "Bitcoin Killer". In essence, it was marketed as a crypto project designed to serve as bitcoin’s competition, the newest and trendiest advancement in the crypto currency space. That way, they were able to deceive investors and swindle them to the tune of a staggering $5.8 billion.

Participants were paid in cash by Onecoin whenever new investors came on board. Nothing was wrong with their marketing strategy, but the issue was with the fact that Onecoin had no blockchain of its own. So, anytime investors purchase or receive Onecoin, they are in possession of a useless coin that does not have the backing of any digital asset technology.

It is actually funny to think of a cryptocurrency project that is not on a blockchain at all. However, the companies behind Onecoin got rich off this scam, which is impressive considering they had no cryptocurrency experience.  


Bitconnect operated as a platform that advertised significant profits to participants who lent their cryptocurrency to others. This is a common project type in the DEFI world.

Participants were also offered rewards for inviting others to join the platform, which, as a result, people advocated for the project through various channels, such as social media, to receive affiliate rewards. This campaign was fueled by BCC’s price increase in 2017 following its first coin offering (it increased from $0.17 to an all-time high of $463). However, the project crashed when Bitconnect’s price fell to nearly zero in December 2017 before falling to $0.40 as of March 11, 2019. Afterwards, BCC’s stock fell by 90%, costing investors a total loss of approximately $3.5 billion. Sadly, many users lost their funds.

Bitconnect is a Ponzi scam because of its multilevel marketing design and absurdly high rewards (they were offering a 1% daily compounded interest).

Tips for Avoiding a Crypto Ponzi Scheme

Although Ponzi schemes have evolved along with technological advancements, they often have the following characteristics;

  • The assurance that investment returns would be rapid and free from risk without putting the market condition into consideration.
  • Investment strategies about the scheme that are not clear to investors.
  • Refusing to grant access to records that could verify the validity, or existence of the company’s investments.

Below are the tips for avoiding crypto Ponzi Schemes as you begin to invest;

  • Become familiar with Bitcoin's ins and outs.
  • Verify the legitimacy of cryptocurrency investing companies; be aware of your dealings.
  • Researching an offer before committing to it if it seems too good to be true.
  • Avoid unauthorized investment ventures
  • Ask a professional for assistance.

While cryptocurrency has brought about financial breakthrough to many, some have been on the opposite end of the stick and have watched their savings be stolen through Ponzi Schemes.

Unfortunately, Ponzi schemes will continue to emerge and fall in the cryptocurrency business unless the financial aspect of the sector is regulated, which is against the point of cryptocurrency in the first place. To avoid falling victim to a Ponzi Scheme, remember that if it sounds too good to be true, it probably is.

Ponzi scheme | Crypto | Cryptocurrency scam | Scams in crypto | Cryptocurrency | Charles ponzi

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