What is Ponzi? Why are so many Crypto investors still falling into the Ponzi trap?
What is Ponzi? How does the Ponzi scheme work? Why have been warned but many Crypto investors still fall into the Ponzi trap?
Cryptocurrency is a highly liquid market, the legality is still unclear in some geographies, making it an attractive market for criminals.
In this article, we will learn about one of the most popular cryptocurrency scams in the Cryptocurrency market – what is a Ponzi scheme?
What is Ponzi?
The Ponzi scheme is named after Charles Ponzi, an Italian scammer living in North America who became very famous after inventing the Ponzi scheme.
In the early 1920s, Ponzi with his model fraudulently appropriated the assets of hundreds of victims. Essentially, a Ponzi scheme is a form of investment scam that works by taking money from a latecomer and paying it back to a first comer.
The crux of this model is that those who come last often get nothing. Therefore, this is also known as the Ponzi pyramid.
How does the Ponzi scheme work?
A Ponzi scheme will typically work in the following way:
There will be the first member of the initiative to advertise an investment opportunity, in which participants must contribute $10,000, for example.
This person promises the participant to receive the entire initial investment back, along with 10% of the profit after a certain investment cycle (3 months for example).
Let’s say this investor calls for 2 more investors to join before the 90 day period ends.
At that time, the initiator will deduct $11,000 from the $20,000 collected from the 2nd and 3rd person to return it to the 1st person. At this point, the first investor will be attractive and likely to reinvest another $10,000.
By taking money from new investors, the scammer will be financially able to pay early investors, and convince them to reinvest along with calling many others to join. .
As the system has grown, the initiator is forced to find new investors to join the model in order to maintain the ability to pay the promised interest.
Eventually when the system reaches the point where it can no longer be maintained, the initiator will either be arrested, or will disappear along with the proceeds from the investors.
How the Ponzi scheme works
Why do many investors still fall into the Ponzi trap?
- The first is ROI (Return of Investment), aka the rate of return, which represents the amount of profit they can get from their initial investment.
- Second, the risk ratio of making that investment. When the risk ratio is too high, investors may lose part or all of their investment, then the ROI will be negative.
In essence, any investment carries a certain amount of risk.
However, this rate for investments in Ponzi schemes is much higher than expected. But because the promised ROI is so attractive, many investors are easily blinded by the returns and often overlook the issue of risk.
How to Protect Yourself Against Ponzi Scams
You need to beware of opportunities falling from the sky. Always be cautious, especially before God’s invitation to long-term investment opportunities, especially in the Crypto market.
Always ask questions. Any investment opportunity that promises high, easy, risk-free returns is indicative of dishonesty. The principle of high risk – high return holds true in almost all markets.
Understand the nature of the investment. Never invest in something you don’t know. Make the most of possible resources and be cautious with “secret” investments.
Thus, they have learned what the Ponzi scheme is, how it works and how to protect themselves against Ponzi scams. If you have other questions related to the above topic, please comment below for Idolmeta.net to support right away!