7 Reasons why Onecoin is a Ponzi scheme and cryptos are not

OneCoin (OC) has often been dubbed as a pyramid scheme and a Ponzi scheme and now faces a penalty of 2.5 mln Euros payable to the Italian authorities. More fines will most likely follow for the self proclaimed cryptocurrency often described as the scam of the century. In this article we will explore why Onecoin is considered a Ponzi scheme and what sets it apart from the typical cryptos the reader may have invested in currently

So what are Ponzi and Pyramid schemes?
Ponzi and Pyramid investors receive their investment return by contributions of other (new) investors. Investopedia adds:

"In contrast to a regular investment, these types of schemes can offer consistent "profits" only as long as the number of investors continues to increase. Ponzi and pyramid schemes are self sustaining as long as cash outflows can be matched by monetary inflows."

The difference between the two schemes comes from the fact that Ponzi scheme investors think they receive their returns based on their own investment while pyramid scheme participants know that their returns are coming from other investors who join the fray. OneCoin is considered both as there are numerous investors who knew and those who didn't know about its reward structure.

What makes OC different than any other cryptocurrency? Are other cryptos in danger of being called a Ponzi scheme too?

By answering the first question, I think we can safely answer the second question as well.

OneCoin is different than any other currency for a wide array of attributes. Note that other cryptocurrencies may have one of the below attributes in common, but that is where the similarities would (or should) stop.

1. It is not a blockchain. You cannot view transactions or blocks. Blocks are not even created.
2. It is a closed system and closed source, there is no information available on the underlying technology.
3. It is a centralized currency and uses a centralized server. When this server breaks down, all coins are lost, regardless if your 'wallet' on your computer is working fine.
4. There is no public exchange to trade the currency on. OC can only be traded on the internal exchange maintained by OneCoin.
5. Selling of coins is de-incentivized in many ways. Only a limited amount of coins can be sold per given time period and high interest rates are promised without an explanation where the interest rewards is being paid from,
6. Lack of clarity around the periodic doubling of investors' tokens over a period of time via 'splits'. Again it is not clear where the new tokens are coming from, which is crucial to the concept of cryptocurrencies.
7. Mining is done via closed loop. Typcial PoW mining is therefore not possible as it requires open loop to enable competition. interesting fact is that all 'blocks' are solved in 10 min with very little variation. Typically in PoW mining, the actual solving of the puzzle can vary with a greater margin.

These are just 7 main reasons why governments are clamping down on OneCoin and its founders and why investors should probably steer clear of this so-called crypto. If the reader has a suggestion to add, please do leave a comment below.

It is safe to say that although OneCoin is considered a Ponzi and is deemed illegal in many countries now, regular cryptos are not in danger of following the same fate. On the contrary, cryptos seem better positioned than ever, but more of that in one of my next posts.

Until then, stay safe and stay tuned!

References:
https://en.wikipedia.org/wiki/Pyramid_scheme
https://en.wikipedia.org/wiki/Ponzi_scheme
https://cointelegraph.com/news/one-coin-much-scam-italy-brands-onecoin-ponzi-issues-25-mln-fine
https://www.quora.com/What-is-OneCoin-and-is-it-legitimate
http://www.investopedia.com/ask/answers/09/ponzi-vs-pyramid.asp
Images:
https://plus.google.com/100224792478870576264