Ponzi, pyramid schemes and scam coins. You often hear these words together, but what do they actually mean?
The cryptocurrency landscape should still be considered quite “untamed” and that scams and cons remain plenty. There are over 500+ “cryptocurrencies” listed on coinmarketcap now, things such as “Ripple” are listed among the top. But depending on your definition of “cryptocurrency” or even of the word “currency”, then some of those listed at the top of coinmarketcap do not belong there.
Understanding what a Ponzi or pyramid scheme is in the first place will help you avoid them when you are exploring the cryptocurrency world.
Bitconnect, for example, was a recent very obvious ponzi scam, whereby older investors were paid back with newer investors money, all the while the ones running the show taking a slice. But within the crypto-world, such a scam is heightened by orders of magnitude. As the ones pulling the strings were also holders of BCC (Bitconnect) and when they exited the market they burned it down behind them as they left.
And there are other scams within the market, such as Pyramid schemes, these are illegal in most countries and for good reason. If a crypto”currency” has no utility, no use, and if the earlier investors are only getting rich because they are selling when new people are buying in, then this is the classification of a Pyramid Scheme.
If a cryptocurrency fails, if its blockchain dies for some reason, people and businesses abandon it, and it even becomes useless for day traders. If it becomes simply numbers on a screen. Then it is by definition a Pyramid Scheme.
And what an interesting way it would be to shut down a cryptocurrency experiment, by destroying its utility so that it because just numbers on a screen, the only way to profit from it being from others buying in so you could sell out. The next question you ask might be something along the lines of “what effect would this have on the ecosystem?”
What this means is that it is illegal for respective businesses to sell something like a “sell scheme”, unless the “promoter” (creator/controller) was identified. For Satoshi Nakamoto and BTC, this might be a problem. Governments can, and will, order businesses that are promoting or selling such “schemes” to close down, and legal actions might ensue.
Utility, Bad Actors and Vapourware
Making sure a coin has utility beyond “buying in to get rich as others buy in” is very important. It means not only has the coin has a long-term chance, but that it won’t also get shut down as an illegal operation with the high likelihood of you losing out whatever you invested.
Vapourware is the promise of something that doesn’t exist, and in most cases will never exist, history is littered with cases like this. In a lot of these cases the people proposing the vapourware (such as “teleportation coin”) know full well that their technology can’t ever work, they are just in it for the investment money and once that money dries up they tend to happily abandon such projects and move onto the next.
So beware of vapourware, but not all is bad, sometimes “vapourware” comes to fruition, it is the ones that constantly push back the dates and keep trying to pull more money in that you should be wary of and do your due diligence.
Buying cryptocurrency, any type, is an investment. If you cannot spend the time, or you have not developed enough understanding of the cryptocurrency that you plan to invest in, then you should ask the advice of someone who has made the time and has the understanding.
This is not the best solution, but this is what financial advisors are for, and the good advisors will be able to explain it to you in layman’s terms as to “why” they are advising you to invest in xyz cryptocurrency. Ryan X.Charles has some good points you should consider when investing in any Cryptocurrency.
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