Ponzi or not Ponzi? 4 factors to evaluate an investment platform – CVBJ

In the realm of bitcoin (BTC) and cryptocurrencies, there are many companies and investment platforms that promise financial returns. In this context, it is necessary to be able to distinguish the genuine from the potentially fraudulent.

A frequent scam modalities are Ponzi schemes or pyramid schemes. As defined in the corresponding CriptoNoticias page, in this type of fraud, those who enter first get investment interest from the most recent participants. For this, it is necessary to bring in new participants until, eventually, the system collapses.

The NGO Bitcoin Argentina, in November last year, warned of the growth of pyramid schemes in the South American country. Many times, as Javier Madariaga explained, they use “famous personalities, athletes or influencers” to promote them.

Some Ponzi schemes can be obvious. This is the case with the “abundance loom”, very fashionable a few years ago. In this type of scam, each person – after having invested an initial capital – had to recruit others who also put in the money. No product or service was offered. It was purely and exclusively a pyramid fundraising scheme that made a few millionaires and lost money for many.

Other promoters of pyramid schemes are more cunning and disguise the scam in order to attract new members. Next, we present 4 things that you need to evaluate when considering a platform that offers you to make investments with them.

1) High returns guaranteed

The cryptocurrency market is characterized by its high volatility. You can earn a lot of money, but also lose it. In contrast, the fixed income exchange typically does not pay more than 5% per year in dollars, and variable income sometimes reaches around 20% or 25% per year.

Corn no trader, regardless of their experience, can guarantee that they will get certain returns..

For this reason, if any person, platform or company offers you investments with a guaranteed high return, supposedly from trading, it is a reason to be wary.

Recently, a businessman was arrested in Brazil for such a scam. On his Mirror Trading International (MTI) platform, Johann Steynberg promised a return of 10% per month to those who put money into it. This Ponzi scheme, which operated in South Africa, paid investors on time until the money stopped coming in and the fraud scheme collapsed.

In this regard, an important clarification: Ponzi schemes, as long as the money comes in, eventually pay investors the agreed return. Many promoters of this type of system use the argument: “we always pay” or “I have always been paid”.

Either way, it is considered a scam. The system is unsustainable over time, and as soon as new investors stop entering, it will inevitably collapse.

2) Focus on recruiting new members

As seen in the previous point, the key for a pyramid scheme to be maintained is the entry of new members (and therefore more money) consistently over time.

If an investment company constantly encourages its members to proselytize the company Or, as we say in the niche, to “prospect” or “propose memberships”, it is possible that the financial model used is a pyramid scheme.

The motivation is usually to form “your own sales team”. This is a group of people seeking, in turn, new members for the cause. Each person who enters and participates in such a model, becomes in turn victim and executioner, sometimes without even realizing it.

A Ponzi scheme, by definition, requires the constant entry of new members in order to survive. Source: adobe.stock.

Apparently this was the case with Arbistar, a purported Ponzi of Spanish origin who (with a supposed trading bot as a front) introduced a referral system to motivate the recruitment of new members. In September 2020, the company froze the accounts of its investors, claiming a computer failure. The case is under judicial investigation and it is presumed that the collapse of the pyramid scheme is the cause of the stoppage of payments.

3) “Don’t check, believe”

An often repeated phrase in the Bitcoin and cryptocurrency ecosystem is “don’t believe, verify”. For example, on Decentralized Finance (DeFi) platforms, smart contracts are public and anyone with knowledge of the code can see how returns are generated, if any.

Instead, pyramid systems, they are often founded on faith, according to the biblical definition of the term: “conviction in what is not seen”. This blind trust, which can be useful for spiritual or metaphysical matters, is not useful when it comes to finances.

A company that develops a Ponzi scheme is unlikely to state clearly and verifiably where its income comes from and the returns it offers. Members have no choice but to believe the word or the promises of their leaders.

If a company, for example, says its returns come from unverifiable “trading robots” or a team of specialists who – privately and in secret – make investments … it could be a ploy. fraudulent.

4) Sale of products and services at exorbitant prices

As mentioned above, there are pyramid systems which do not hide their condition at all (this is the case of the abundance loom). On the other hand, there are others more elaborate, which hide it under the facade of the sale of a product or a service.

In that sense, they are a bit like multi-level marketing (MLM) companies. The difference is that in Ponzi schemes, the product or service offered is insignificant and / or is generally sold at an exorbitant price which does not correspond to its market value. What really matters is the financial investment.

For example, imagine a business that sells a webmail service that costs $ 1,000 and has a referral system that makes huge profits for new customers. Isn’t it suspicious that someone is paying such a large amount of money for something that many companies are offering for free or at a considerably lower price?

Or imagine a business that sells trading, coaching, personal development, or whatever, for thousands of dollars. Also imagine that this company promises the customer that he will get back the money paid (and even earn more money) through a system of “scholarships” and, in addition, the customers are encouraged to offer “subscriptions”. educational ”to other people. Everything suggests that it is very likely a pyramid scheme.

Some Ponzi schemes disguise themselves as educational institutions (or any other type of business) to disguise their fraudulent status. Source: adobe.stock.

The day new investors stop entering these businesses, the Ponzi scheme will inevitably collapse. As has happened many times throughout history (starting with Carlo Ponzi’s own business in the early 20th century), Those who put money on these platforms will not be able to get it back after the implosion.to.

The remedy: don’t trust, verify

That said, it’s up to the reader to take control of their financial decisions. Before making any type of investment, it is healthy to assess the risks, benefits, the company’s reputation, what is being said about the company, who its leaders are, etc.

The aforementioned maximum bitcoiner is applicable in this case: “don’t trust, verify”. Exercising the ability to doubt, question, investigate, investigate and even suspect is essential before investing any money in an investment offering.

About Geraldine Higgins

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