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Crypto Vs Ponzi: How To Avoid Crypto Scams

How to Avoid Crypto Scams

When we are faced with something new or unfamiliar, especially financially inclined endeavours, people often tend to be wary, automatically put it into a box…and close it! Bitcoin is not an exception. From the early days of crypto investment, sceptics have called it a Ponzi scheme. Their argument is that ‘Bitcoin doesn’t accomplish anything familiar like the traditional banking system, and is probably a financial bubble.



Does this, therefore, make it a Ponzi scheme? No! Let’s get started and find out how to differentiate between a Ponzi and a cryptocurrency project.

What is a Ponzi scheme?

The term “Ponzi” owes its origin to a swindler named Charles Ponzi, who made his name in 1920. Born and raised in Italy, he became known in the early 1920s as a swindler in North America for his quick money-making schemes. He promised clients a 50% profit within 45 days or a 100% profit within 90 days by buying discounted postal reply coupons in other countries and redeeming them at face value in the U.S. as a form of arbitrage.

A Ponzi scheme is a fraudulent investment scheme that promises high rates of return with minimal risk. This is orchestrated by a “portfolio manager” taking an investment (payment) from a recruit and using those funds to pay off earlier investors, taking a portion of the funds for themselves.

Characteristics of a Ponzi Scheme

  • Unregistered investment schemes under phony names

  • Extremely perfectly regular returns in the first period

  • Unexplainable means of generating the returns.

  • Unidentifiable team

  • Guaranteed unreasonably high profit

  • Difficulty/complicated or delayed cashout process

Why Crypto is Not a Ponzi Scheme.

Although Ponzi schemes and scam projects exist in the crypto space, it is worth noting that no financial sector is without bad actors. Cryptocurrency is digitally generated money processed on blockchain technology. It is widely accepted as money because it is verifiable, has no double spending, and has a limited supply. Because it offers more financial freedom than the traditional system of money, it is seen as digital oil.

The reasons enumerated below clearly show why crypto is not a Ponzi scheme;

  • Transparency: cryptocurrency technology is open source. Anyone can see it at any time. e.g, All BTC transactions can be viewed on the block explorer, likewise every other open source public blockchain project.

  • Decentralized: Blockchain technology has no intermediary processing transactions. There is no central governing authority that will be responsible for all the decisions. Rather, it allows numerous parties to verify and store data through the use of computer nodes, which maintain the network.

  • Faster Settlement: Payments or funds transfers are usually faster, especially for cross-border transactions.

  • You are in Charge of Your Finances: Crypto is designed to make you in stay charge of your assets. You are your own bank.

  • Classed as taxable investments: In some developed countries, crypto is now classed as a registered asset and returns are taxable under capital gains.

  • Licensed Crypto Exchanges: The buying and selling of cryptocurrencies are made possible by exchanges licensed within the countries they operate.

  • Highly liquid markets: Crypto has a market with willing buyers and sellers at any given time.

  • Immutable: On the blockchain, no transaction or activity can be changed or interfered with by anyone, not even the creators.

  • Consensus algorithm: For a transaction to be accepted and recorded on the blockchain, all the participants or nodes must agree to follow the same rules.

  • Keeps Record: all transaction data is recorded and stored publicly.

Cryptocurrency offers an alternative to a traditional system of money. It has proven quite useful in this digitally evolving world. It may be considered a digital store of value, an exchange, and a lot more.

However, while dealing in crypto,

  • Always do your own research — DYOR before you invest in a crypto project.

  • Join a community that is reliable and genuine

  • Only invest disposable income.

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