crypto scams

How to protect yourself from cryptocurrencies scams:- A guide about Crypto Ponzi Schemes

(Crypto Ponzi schemes have increased in the few years; it’s the prime target for the masters of Ponzi schemes )

According to a study published by the Stanford center, one of the ten cities in the US every year falls victim to crypto hacks every day. Furthermore, hackers can rob a significant amount of your account without your knowledge.

Another crypto crime report suggests that hackers and fraudsters steal almost $4.30 billion worth of cryptocurrencies yearly. Surprisingly, most fraudsters achieve this through the crypto Ponzi scheme.

So let us understand what a Ponzi scheme is, how to notice it, and protect ourselves from these crypto scams.

Key points

  • A Ponzi scheme is a type of financial fraud in which investors are promised to return lucrative profits.
  • People behind Ponzi schemes attract new customers to invest.
  • The Ponzi scheme is named after a swindler Charles Ponzi.

What is a Ponzi scheme?

The crypto Ponzi scheme is a financial fraud that makes lucrative promises and attracts new users to invest. In reality, it is a fraudulent scheme that distributes the funds to early investors with the funds from recent investors until the entire investment pool dries up and people can be revealed about this fraud.

Ponzi scheme organizers do not actually invest the money.  Instead, they pay early investors from the money of later investors and keep some part of their own benefits. In this way, they make schemes look reliable. When the organizers fail to pay investors, this scheme collapses.

History of Ponzi schemes

The Ponzi term was named after a swindler, Charles Ponzi brought massive frauds in 1920. He asked investors to return 50 % of their investment within one month in a short time by buying discounted IRS and selling it at current prices. In that way, many investors fall prey and invest their hard money to get high returns . As a result, Ponzi stole 20 million cash from the investors.

To make his promises legitimate, he paid earlier investors with the money of later investors. In this way, people were getting a return on their investment. So these schemes fooled people for a long time before it was revealed that they were not making earnings from the acquisition; instead, the money was redistributed from other users’ investments.

However, Ponzi was not the first to use this scheme. The first instances of this scheme’s traced to the early 1800 when these schemes had many fraudulent activities in the US. In fact, the methods of these fraudulent activities are mentioned in many famous novels and newspapers of that time.

A Ponzi scheme is a fake investment program claiming users to offer high returns from their investments. But the investors are lured with fake promises, and the scam pays money to earlier users from the investment money of later users.

There have been numerous scams done with Ponzi scams. These scams have collected big money by attracting many investors. Hence it’s important to spot these before you become a victim.

Warning signs of Ponzi Scams

Investors face several problems before making any kind of investment. Everybody wants to grow financially and be a part of the growing financial world. So you should analyze these danger signs in order to make a safe investment.

High returns profits

Scammers often lure users by promising high returns with no risks involved. However, if you have knowledge of the market, you can understand there is no investment option where you can make high profits without risk. The same goes for the crypto market, which is highly volatile, and the price fluctuates according to prevailing market conditions. So becoming transparent about these types of crypto scams can protect your funds.

Low volatile market

Investment markets are volatile, whether stock or crypto. We can experience volatility anytime. On the other hand, Ponzi schemes promise to provide lucrative returns without any risks.

Lack of liquidity

Many assets are illiquid by nature, but cryptocurrency is liquid. Therefore, if you are investing in something, you should know how much liquidity is provided before making an investment decision.

Unregistered projects

If you’re considering investing in any crypto project, ensure it’s registered under any state security and exchange commission. Regarded companies usually submit their details to their regulatory authorities. In addition, Crypto regulations are specially designated to protect from scams.

Complex trading strategies

Ponzi schemes often claim to use a sophisticated trading strategy that is hard to understand. It is done on purpose to avoid scrutiny. So beware of any such trading scheme you cannot understand.

Unlicensed sellers

There are many laws for the investment for e,g licensed sellers. Suppose you are making an investment change with the firm or seller, whether it is licensed or not. Most Ponzi schemes are unlicensed firms or individuals.

Final words

Crypto Ponzi schemes have increased in recent years with the crypto market uptrend. Protecting yourself from these crypto scams can be easier if you notice the mentioned red before investing. Many fraudulent schemes like Ponzi take out billions of funds from investors. So beware of these frauds before making any kind of investment decision.


Q. How do crypto Ponzi schemes work?

Ans. Ponzi schemes are scams that claim people provide high profits without any risks. In this scheme, Earlier investors are paid through the recent investor’s fund until the entire fund is dried up.

Q. How do I spot a crypto Ponzi scheme?

Ans. There are many red flags associated with crypto Ponzi schemes. By looking at these red flags, you can avoid potential loss. Lack of transparency, high profits, and little risk are common risks to look out for in any kind of investment.

Q. What should I do if I suspect a crypto Ponzi scheme?

Ans. If you suspect any Ponzi scheme, you should report it to legal authorities to take action at the right time.

Q. Can I get my money back if I invest in a crypto Ponzi scheme?

Ans. It’s difficult to recover the money If you invested in a Ponzi scheme. This is because Ponzi schemes are designed so only the organizer can benefit from them and often collapses before investors can profit.

Q. How do you beat a Ponzi scheme?

Ans. Most financial experts suggest making investments with the help of an advisor to avoid these types of fraud.