Ponzi Schemes, Bernie Madoff AND HYIP’S

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In the exciting new world of cryptocurrencies it seems there is always money to be made, with Bitcoin rising 627% in the past year (23/09/16 – 23/09/17) it may seem the triple and even quadruple yearly interest is just part in parcel of the crypto sphere but it is important to scrutinize every investment that you make to the fullest extent, this brings us onto the topic of this article: ponzi schemes!

A ponzi scheme is built upon a simple premise, the idea that money is invested and used to pay out interest to investors whilst not actually being invested, this may sound doomed to fail although that doesn’t take into account that ponzi schemes rely on rapid growth. If there is constantly a stream of investors paying into the scheme there will always be money to pay old investors, especially if they don’t withdraw larger initial investments but only collect the interest.

One man whose name has become almost synonymous with ponzi schemes is Bernie Madoff, his ponzi scheme ran to the tune of 64.8 billion USD. His scheme relied on getting investors and slowly paying out the money they invested as “interest”. The scheme collapsed as a result of the 2008 financial crisis when investors became worried about their money and wanted to all withdraw at once, Bernie was unable to pay and the scheme came to an end but it was the biggest ponzi scheme ever operated and made Bernie a billionaire.

Ponzi schemes in the crypto world operate on a similar premise but with a slightly different modus operandi, they rely on large numbers of smaller investors then eventually “exit” where they simply disappear and run away with the money that was invested. The internet age also allows for faster growth, with almost all ponzi schemes running referral schemes to exponentially increase growth and promising “guaranteed interest” to draw in investors. We can see the recent example of “Control Finance, where the investment scheme that promised 1% interest per day (and 10% of each referrals profit) simply disappeared one day running away with approximately 120 million USD.

These help me form my list of “red flags” that should hopefully make you think twice about investing in a scheme:

“Guaranteed interest”, the idea is a staple of ponzi schemes and is used to draw people in under the false belief that their investment is secure. Even the biggest Wall St. investment firms do not guarantee interest as investing in currencies/stocks/bonds is inherently risky and unpredictable.
“HYIP”, the acronym meaning “high yield investment program” is essentially synonymous with ponzi/pyramid scheme and if a site says they are a “HYIP”, you should avoid using them at all costs.
“Ridiculous referral schemes”, whilst there are many legitimate investment programs with referral schemes, any schemes promising unreal things such as “50% commission” or “0.1 BTC per use” should be avoided as it is a big red flag.
“1000% interest!”, whenever an investment scheme promises anything over 30% interest they should essentially be dismissed as a scam.
Hopefully those tips help you avoid any overt ponzi schemes.