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5 of the Biggest Crypto Ponzi Schemes #Shorts
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Coinbase is one of the best, safest and easiest places to buy and sell cryptocurrency.
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Written By: Andrey Sergeenkov
The crypto industry is full of investment opportunities. The average crypto investor is well aware that the innovative nature of crypto and blockchain technology can unlock high investment returns, particularly in sectors poised to attract mainstream adoption in the not-too-distant future.
It is this common perception that has also fueled the recurrence of crypto scams, both large and small. The rationale behind these is that it is possible to pitch fuzzy and unrealistic crypto investment solutions to investors because of digital assets’ famous price volatility and the inherent complexities of their underlying technology. Therefore, when devising strategies to defraud investors, most crypto scam projects capitalize on the growing appeal of crypto assets, the odds of discovering the “next Bitcoin,” and a general lack of public education regarding the basics of crypto technology.
In this guide, we will cover five of the most notorious crypto Ponzi schemes in the industry’s history and highlight how the actors behind them took advantage of the volatility, complexity and novel appeal of crypto. But first, let’s take a look at the defining characteristics of a crypto Ponzi scheme in general.
What Is a Crypto Ponzi Scheme?
A Ponzi scheme is usually an elaborate investment scam designed to lure investors with the promise of generating high and quick rates of returns off the back of a non-existent enterprise. More often than not, the company focuses on receiving money from new investors and distributing it to earlier backers, under the pretense that this money is profits accrued from a legitimate investment activity. Eventually, such a system unravels when the flow of new investments dries up.
In the case of a crypto Ponzi scheme, the fraudsters set up imaginary crypto enterprises and lure investors with various stories and pseudo-statistics. With crypto, it is somewhat easier to market unrealistic profits to an audience that does not deeply understand how crypto actually works or is otherwise dazzled by the potential of digital assets to generate alluring returns on investment.
Note that the history of Ponzi schemes goes way back to the 19th century. However, it was the illicit operations of Charles Ponzi, an Italian swindler, in the early 1920s that finally cast a spotlight on this specific type of fraud. Although Ponzi schemes have evolved along with technological advancements, they are often characterized by certain red flags:
The promise of quick and risk-free investment returns, regardless of market conditions
Investment models or business activities behind such schemes that are presented as allegedly too complex to explain.
Withholding access to documents that could attest to the legitimacy and existence of the business and its investments
Unfortunately, Ponzi scheme operators know how to mask these red flags and manipulate investors’ emotions. This is why Ponzi schemes continue to thrive today, a full century after the swindler that gave them his name.
Are Ponzi Schemes Different From Pyramid Schemes?
A pyramid scheme is similar to a Ponzi scheme as the system relies upon the inflow of new investments in order to pay returns to earlier investors. The only difference is that a Ponzi scheme markets itself as a legitimate venture that generates profits by providing services or selling products. In contrast to this, pyramid schemes do not attribute the purported profitability of the scheme to the performance of an enterprise.
The Biggest Crypto Ponzi Schemes in History
Onecoin
Onecoin is perhaps the longest-running Ponzi scheme ever witnessed in the crypto industry. Founded by the Bulgarian fraudster Ruja Ignatova, aka Cryptoqueen, Onecoin managed to lure investors in their numbers between 2014 to 2019. During this period, the Ponzi scheme was said to have defrauded investors of $5.8 billion by marketing Onecoin as a “Bitcoin Killer” and the next hottest innovation in the crypto industry.
Beneath this “business venture” was a multi-level marketing scheme that compensated members with cash and Onecoin each time they onboarded new investors. The problem was not the marketing strategy per se but the fact that Onecoin had no blockchain of its own. So, whenever investors received or bought Onecoin, they held a worthless coin that was not backed by accepted digital asset technology.
After years of warning investors against investing in Onecoin, the U.S. government eventually cracked down on the company’s operations and levelled charges against its leaders. However, by this time, Ignatova herself had vanished into thin air.
- - -
Written By: Andrey Sergeenkov
The crypto industry is full of investment opportunities. The average crypto investor is well aware that the innovative nature of crypto and blockchain technology can unlock high investment returns, particularly in sectors poised to attract mainstream adoption in the not-too-distant future.
It is this common perception that has also fueled the recurrence of crypto scams, both large and small. The rationale behind these is that it is possible to pitch fuzzy and unrealistic crypto investment solutions to investors because of digital assets’ famous price volatility and the inherent complexities of their underlying technology. Therefore, when devising strategies to defraud investors, most crypto scam projects capitalize on the growing appeal of crypto assets, the odds of discovering the “next Bitcoin,” and a general lack of public education regarding the basics of crypto technology.
In this guide, we will cover five of the most notorious crypto Ponzi schemes in the industry’s history and highlight how the actors behind them took advantage of the volatility, complexity and novel appeal of crypto. But first, let’s take a look at the defining characteristics of a crypto Ponzi scheme in general.
What Is a Crypto Ponzi Scheme?
A Ponzi scheme is usually an elaborate investment scam designed to lure investors with the promise of generating high and quick rates of returns off the back of a non-existent enterprise. More often than not, the company focuses on receiving money from new investors and distributing it to earlier backers, under the pretense that this money is profits accrued from a legitimate investment activity. Eventually, such a system unravels when the flow of new investments dries up.
In the case of a crypto Ponzi scheme, the fraudsters set up imaginary crypto enterprises and lure investors with various stories and pseudo-statistics. With crypto, it is somewhat easier to market unrealistic profits to an audience that does not deeply understand how crypto actually works or is otherwise dazzled by the potential of digital assets to generate alluring returns on investment.
Note that the history of Ponzi schemes goes way back to the 19th century. However, it was the illicit operations of Charles Ponzi, an Italian swindler, in the early 1920s that finally cast a spotlight on this specific type of fraud. Although Ponzi schemes have evolved along with technological advancements, they are often characterized by certain red flags:
The promise of quick and risk-free investment returns, regardless of market conditions
Investment models or business activities behind such schemes that are presented as allegedly too complex to explain.
Withholding access to documents that could attest to the legitimacy and existence of the business and its investments
Unfortunately, Ponzi scheme operators know how to mask these red flags and manipulate investors’ emotions. This is why Ponzi schemes continue to thrive today, a full century after the swindler that gave them his name.
Are Ponzi Schemes Different From Pyramid Schemes?
A pyramid scheme is similar to a Ponzi scheme as the system relies upon the inflow of new investments in order to pay returns to earlier investors. The only difference is that a Ponzi scheme markets itself as a legitimate venture that generates profits by providing services or selling products. In contrast to this, pyramid schemes do not attribute the purported profitability of the scheme to the performance of an enterprise.
The Biggest Crypto Ponzi Schemes in History
Onecoin
Onecoin is perhaps the longest-running Ponzi scheme ever witnessed in the crypto industry. Founded by the Bulgarian fraudster Ruja Ignatova, aka Cryptoqueen, Onecoin managed to lure investors in their numbers between 2014 to 2019. During this period, the Ponzi scheme was said to have defrauded investors of $5.8 billion by marketing Onecoin as a “Bitcoin Killer” and the next hottest innovation in the crypto industry.
Beneath this “business venture” was a multi-level marketing scheme that compensated members with cash and Onecoin each time they onboarded new investors. The problem was not the marketing strategy per se but the fact that Onecoin had no blockchain of its own. So, whenever investors received or bought Onecoin, they held a worthless coin that was not backed by accepted digital asset technology.
After years of warning investors against investing in Onecoin, the U.S. government eventually cracked down on the company’s operations and levelled charges against its leaders. However, by this time, Ignatova herself had vanished into thin air.
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