The biggest damage in the blockchain industry comes from Ponzi schemes. They are especially popular with scammers who deceive hundreds of thousands of people every year.
1. How do financial pyramids work?
The organizer of the pyramid scheme invites investors, promising them high profits in the future. There are two conditions: the victims must contribute money and invite new members. Those are given a similar task and so on along the chain. All the profits that early investors get are generated by the late ones. As a rule, the organizers of the pyramid receive most of the funds, and the rest of the participants are left with nothing.
2. Why are crypto pyramids especially popular?
The deception is based on poor awareness of people about the new area, which is used by cybercriminals. Cryptocurrencies are associated with making quick money without much effort. Scammers promise high profits in a short period of time. For example, the largest fraudulent scheme last year, AirBitClub, raised over RUB 500 million. from about 60 thousand people. The money was collected allegedly for the release of tokens and earnings on the growth of their exchange rate. But in reality, the participant could only sell the local currency to other deceived investors.
3. How it all began
One of the most famous cases of fraud in the cryptocurrency market is the Bitcoinnect project. Its representatives promised to create a decentralized p2p cryptocurrency based on open source code. The scheme offered to invest in BCC tokens and receive a stable high income. Bitconnect had a referral system that was classic for pyramids and did not disclose where the money for the payment of bonuses came from. In January 2018, the project’s business model was officially recognized as a financial pyramid. After the closure of the company, the token rate fell by 90%, and by September 2018 it was removed from all exchanges.
4. Cashbury history
Cashbury was positioned as a platform for bringing together investors and borrowers. Borrowers meant people who often need money “before paycheck”, and investors meant people who had free money to lend. Investors were promised a profit of 200-600% per annum. In September 2018, the Bank of Russia declared Cashbury a financial pyramid. The estimated damage to depositors was about 3 billion rubles.
5. OneCoin pyramid
The OneCoin project has attracted over four billion euros from dozens of countries in three years. The founder of the pyramid, Ruja Ignatova, has been in hiding since 2017, accused by the US authorities of electronic fraud, securities fraud and money laundering. Singapore has recognized OneCoin as a pyramid scheme, two supporters of the project have been arrested. During the investigation by the Chinese authorities, 98 people were prosecuted and $ 268 million were recovered. Ruzha Ignatova’s brother Konstantin cooperates with the US authorities, he faces up to 90 years in prison.
6. PlusToken scheme
One of the largest crypto pyramids is PlusToken. It appeared in 2018 and was distributed on WeChat. Investors were promised 10-30% monthly returns and bonuses for attracting new members. The project attracted over 4 million users from China, Japan, Germany, Russia, Ukraine and other countries. PlusToken raised over 200 thousand BTC, 789 thousand ETH and 26 million EOS. To gain people’s trust, the organizers conducted training lectures. Six executives were arrested in the summer of 2019, and another 109 in July 2020. However, it was not possible to return the investors’ funds. The total damage exceeded $ 3 billion.
7. How to protect yourself?
All pyramid schemes have certain properties that can be used to recognize fraud. For example, if the user is offered to earn money by attracting other participants. The organizers of such schemes almost always promise extremely high profits. The most effective advice is not only in relation to crypto pyramids: in the blockchain sphere, they often cheat. If an offer seems too good to be true, it probably isn’t.
