In Investment there is an inherent risk that is beyond the control of the investor, but there are several points that must be analyzed before making the decision to bet our money on a project, so we will avoid falling into any type of deception or scam. In this guide we are going to see what they are and how to avoid the dreaded ponzi schemes and pyramid schemes that are causing so much talk in the cryptocurrency sector.
Most of the people who invest in Bitcoin [BTC] or any other cryptocurrency and those who decide to participate in an ICO / IEO or a new project in the sector, tend to have the same concerns. The first of them is whether with that investment they are going to make a profit or recover their capital.
Another concern for many investors and especially for the most veteran in the sector, is the exposure of personal data to which they will be subjected in that investment. The well-known KYC or Know Your Customer , are usually the first step when investing in a project, to "overcome" these KYC data is requested that can be: name, address, telephone number, ID or send a photograph holding the DNI and a paper with a phrase or code provided by the company.
While it is true that these KYCs have been created to prevent possible money laundering or a criminal use of the funds obtained in the investment, it is something that puts many investors back, since anonymity is one of the essences of cryptocurrencies.
Other concerns, especially for new investors, is the difficulty associated with making the investment, since without prior knowledge, taking the necessary steps to complete the investment can become a difficulty. The need for a specific cryptocurrency, creating an account on a platform, overcoming a KYC ... are the obstacles that new investors may encounter.
But undoubtedly the biggest fear that any investor, whether first-time or veteran, faces is if the project they are betting their money on is really going to return what they promise or if, on the contrary, they are going to be victims of a scam.
What is a Ponzi scheme?
The Ponzi schemes have existed for centuries, the name of this type of fraudulent investment activity is associated with the name of an Italian immigrant from the 20th century named Charles Ponzi. Carlo became famous for his fraudulent extortion system with which he managed to deceive hundreds of victims.
In most cases, the scheme is created for fraudulent purposes so that the organizers can carry it out and do not need to go to great lengths to make a profit at the expense of investors.
A Ponzi scheme is a type of pyramid scam, in which a project offers a return to investors who invest their money in it. In this type of scams, the new investors are those who contribute the capital to pay the older ones, the problem comes when "new clients" stop entering said scheme, since the last ones who have entered will not recover their investment and possibly not receive any type of income.
The principle of support of these schemes is as follows:
The first investors, obtaining their first benefits, begin to speak well of the project and its good profitability, showing their earnings and promoting it to their circle of friends, making it appear that the system is legal and attracting new investors.
In addition, to continue to maintain their source of income for as long as possible, the creators of these schemes offer incentives to those who bring new investors to their platform. In this way, each investor is a potential recruiter who will do his best to attract new investors and therefore new capital to the platform and thus take their incentive, making the wheel of this scam turn a little more.
The only beneficiaries of these schemes besides the creators of it, are those who first invested in it, since they are the ones who receive the payments from the first moment and in the best of cases they will even obtain a profit.
The worst unemployed are the last to enter this scheme, since their investment will be destined to fatten the pockets of the creators of the scam and in return they will not receive any return.
Is bitcoin a pyramid scam?
The answer is easy, NO, Bitcoin is not a pyramid scam , what is true is that both bitcoin and any cryptocurrency can be used as a means to raise funds in a pyramid scam, just as it has been done for years with fiat money , but that does not mean that bitcoin is a scam.
How to protect yourself from Ponzi schemes?
The first thing to think about is that if it is too beautiful to be true, it may not be. If the investment opportunity that has been presented to you offers a great return in a short space of time, it is a reason for the alarms to begin to sound. Starting with distrust before making an investment in a project is not a bad thing, on the contrary, being alert and analyzing every detail can save us from falling into a scam.
It is very common to find publications on Facebook and other social networks of people showing the profits they have obtained thanks to their investment, this type of attitude is very typical in people who have entered a pyramid scam and want to attract new investors to take a commission .
On some occasions, these types of scams offer the opportunity to freeze your funds for a few months and thus obtain a greater profit, this is also usually a cause for alarm, if this type of practice is carried out, there are many possibilities that when you will arrive The moment you can withdraw your profit, the company closes and your profits disappear along with your investment.
Carrying out an investigation of the project and the team that composes it is another essential point to verify if it is a legal project, if it is a false project, the images of the team will be false in 100% of the occasions, would you put your Facing a project with which you are trying to scam investors? Identifying this deception is as easy as looking for similar images in google and checking if they have been used in other projects or pages.