The greatest Ponzi schemes in the history of cryptography have won billions of dollars in investor money. According to the latest Chainalysis report, 2019 was the year of the Ponzi scheme.
As the report shows, around $ 4.3 billion has been lost to the hands of Ponzi cryptocurrency crooks. This is more than triple the amount compared to the previous year, which was around $ 1.7 billion. In this article, the main instant cryptocurrency exchange service ChangeNOW examines the biggest Ponzi schemes and their mechanisms - and explains how to make the crypto market a safer space.
What is a Ponzi scheme?
Generally, a Ponzi scheme (or a Pyramid scheme) is a form of investment - but in reality, financial fraud - which attracts unsuspecting investors by promising them a massive ROI in the shortest possible time.
The overall concept of a Ponzi scheme is to generate investment interest for the first investors as new investors join the system. This means that Ponzi schemes are driven by the constant flow of new investors into the system by collecting larger payments from them to pay the first investors. The plan then collapses when new investors dry up.
Let's examine some common features of a Ponzi scheme:
- There is no real product
- Promises of high returns guaranteed with little or no risk
- Too constant return on investment
- Organizers are often unregulated and unlicensed
- Difficulty receiving payments
As with many other types of fraud, Ponzi scheme organizers generally rely on the latest technology or products to attract potential investors to join the pool.
The decentralized and semi-anonymous nature of cryptocurrency makes it an attractive gateway for scammers to distribute massive profits to unsuspecting investors. However, the idea behind the decentralization of crypto allows you to view each transaction made on the general ledger.
If so, how was it still possible for fraudsters to defraud people on their cryptocurrency assets? Let's take a look at their tactics.
How does a Ponzi scheme in crypto work?
Crypto's Ponzi schemes follow a pattern similar to traditional Ponzi schemes. It basically works by appealing to people's desire to make quick profits, promising them a high return on their investment. Usually the first group of investors is paid, which invariably attracts other people to join the gold rush.
Some Ponzi crypto scams use sophisticated and complex processes, even going so far as to develop their own cryptocurrency exchanges to achieve their goal. Other Ponzi scams use automated software to interact with people. A typical case is the iCenter Bitcoin and Litecoin investment saga . iCenter used a pyramid style reference system to keep the system running. It worked via a Telegram group chat and a bot to trick investors with false percentages of investment growth.
The company has promised a return profit of 1.2% per day for 99 or 120 days due - the period in which you are eligible to receive your capital and the resulting profit. Investors were also encouraged to share their referral codes with others to earn more through their referrals.
Out of pure excitement, most investors would post videos and blogs on social media to invite more people to join. This model ensures that a flow of people moves continuously through the system to keep it active.
Some Ponzi schemes cause people to lose money, even unintentionally. Recently, three transactions on the Ethereum network were sent with huge fees, including 10,668 ETH for a transaction of 0.55 ETH (!). It turns out that a South Korean P2P Good Cycle crypto exchange that appears to be a Ponzi scheme has been hacked. The holes in their safety have been fairly obvious:
However, it remains unclear who hacked the exchange and supported the potential blackmail.
Biggest crypto-ponzi schemes - in numbers
According to Chainalysis data, on the vast majority of crypto scams, Ponzi schemes represented 92% of the total money defrauded. This is how great it is!
In the table below, Chainalysis has combined all of the cryptography scams in one place. As you can see, the year 2019 drew the largest number of Ponzi cryptocurrency scams, scratching huge cash from millions of unsuspecting investors.
According to Chainalysis, of the vast majority of crypto scams, Ponzi scheme scams accounted for 92% of the total money scammed
In addition, Chainalysis investigated the fact that more than 2.4 million individual transfers were made in just six different Ponzi crypto systems in 2019. In addition, about $ 1,676 in crypto assets were transferred on average.
Some of the biggest Ponzi Crypto patterns by names
As the adoption of cryptocurrency continues, the organizers of the Ponzi scheme have wasted no time in tackling people's ignorance and their quest for financial fortune. Let's take a look at some of the biggest names in Ponzi crypto systems.
BitConnect
BitConnect was one of the first Ponzi crypto systems that cleverly lured many investors into its trap. Like many other scams, BitConnect looked promising at the outset. The company started in 2016 with an initial parts offer (ICO) for the public. Consistently, it has become the best performing crypto on CoinMarketCap with more than 2.5 billion market capitalization.
All of these exploits seemed to keep investors comfortable, even if critics and experts such as Ethereum co-founder Vitalik Buterin and Litecoin founder Charlie Lee were not fooled by BitConnect's dubious business model .
But like all of Ponzi's other schemes, BitConnect closed its lending and exchange services two years later, taking in $ 2.5 billion to $ 3.5 billion in investor money.
OneCoin
Onecoin also pulled out one of the biggest crypto scams of the century with its fictitious blockchain and cryptocurrency technology. The organizers of the scam have claimed that OneCoin works like any other cryptocurrency, where the pieces are extracted and can be used for global payments. They even compared to Bitcoin and have then started to distribute items to investors. It then turned out to be just a trick.
After its collapse, the OneCoin Ponzi program raised a large sum of $ 4 billion from people around the world.
MoreToken
PlusToken was a China-based company that presented itself as one of the best cryptocurrency wallets. Thanks to its sophisticated, legitimate and sophisticated marketing strategies , the organizers were able to attract more than 3 million investors, mainly from China, Japan, Korea, Canada and Germany.
The company has promised to reward those with high returns if they invest in the “Plus” token - the crypto asset associated with the portfolio. Investors could buy Plus tokens using BTC or Ethereum cryptographic assets . PlusToken said the profits would be generated by "foreign exchange profits, mining revenues and referral benefits".
According to Chainalysis, PlusToken scammed its investors for around $ 2 billion in cryptocurrency assets.
GainBitcoin
Thousands of investors in India have had to count their losses after being wrenched from their hard-earned money by GainBitcoin. The brainbox behind this scam, Amit Bhardwaj, has promised investors 10x of their money invested each month. Although it seemed too good to be true, involuntary investors were willing to deposit their money. In the end, they had only a troubled future after the project won $ 300 million.
MMM BSC
Another major Ponzi scheme is gaining momentum right now - in mid-June 2020, MMM BSC transactions significantly overload the Ethereum network , taking at least 8.7% of all gas. This pushed gas prices above 20 Gwei - up from 3 Gwei in January. According to reports, over 55% of all PAX stable transactions are linked to MMM today. Here is the list of the main gas consumers on the Ethereum network . As you can see, MMM is in the Top-4 with a total value of $ 780,000:
The MMM BSC website promises 30% monthly income in a "not high risk investment project". “It's a community where ordinary people help each other generously. It is a global mutual aid fund. ” We believe that it is only a matter of time when this "aid fund" will be exposed and pushed to collapse. And how much money will people lose from this "selfless help" is still a big question.
ChangeNOW: Making Cryptography a Safer Industry
What can be done to prevent such "success" of the Ponzi scheme fraudsters? ChangeNOW believes that this can be achieved through the joint effort of the crypto community by exposing all kinds of suspicious activity and stopping it as much as possible. This is exactly what we are trying to do on our side - and not limited to Ponzi schemes only.
In June 2019, 2.5 million XRPs from pirated encrypted wallets were sent to us because the fraudsters wanted to cash. Thanks to the quick and coordinated actions of our team, we have managed to keep more than 500,000 XRP . These funds were frozen and later returned to the portfolio service.
Earlier that year, a South Korean exchange of Bithumb cryptocurrency was hacked with $ 13 million in EOS and $ 20 million in XRP . Funds worth more than half a million USD ended up on ChangeNOW. This time, we managed to keep all the stolen foreign exchange deposits - we froze them and stored them in a secure cold wallet until an official request from the police.
Today, we are working on improving our risk management system, establishing closer ties with the community and those responsible for cryptographic investigations to react faster and more clearly. We believe these actions by the community will make the crypto market more clear of fraud, including Ponzi schemes.
To wrap up
As you may have observed, the greatest Ponzi schemes in the history of cryptography have all followed a similar scheme. Ponzi crypto scammers generally lure investors through aggressive promotion on social media and elsewhere, while promising an outrageous return on investment.
As a result, more crypto scams would likely continue to evolve as new technologies and sophisticated software are developed. However, as crypto regulators, law enforcement, cryptocurrency firms, and blockchain analytics companies continue to work together to tackle and make Ponzi a secure industry, it is likely to see a massive drop in crypto-ponzi schemes in the near future.
