Locking a certain amount for some predefined time and getting back in return +20%, +50%, +100% or sometimes +200% of what you invested, how is it possible?!! Do not make elusion, most of the time there is no project behind, just a Ponzi Scheme.
What Is a Ponzi Scheme?
The Ponzi Scheme, or also called by some people the Ponzi Pyramid, was one of the first famous scams promising high rates of return on investment, sometimes saying to apply trading strategies or sometimes without saying explicitly how it worked. You can find a lot of Ponzi investments all over new projects of investment in particularly in the crypto world.
How Does The Ponzi Scheme Work?
This scam is kind of based on a pyramid scheme. The first investors come inside the pyramid, placed on top of the pyramid, and provides their investments. The scammer takes a percentage of these investments and does not touch the rest of the investments until the minimum locking time predefined. Other investors come inside the pyramid, below the previous ones, provide their investments and the scammer takes his percentage on it. If some older investors have reached their payback time, he gives the investments of the newcomers to the previous investors according to the rate predefined. This system works as long as new investors join the pyramid scheme because the money given to investors always comes from the balance from all the investors who joined the scheme and particularly the newcomers.
For instance, imagine the following Ponzi Scheme. Invest 1,000$ and after 1 year you will have 50% back in the form of interest on your investment. You are the first one to invest this amount, you give the Ponzi Scheme initiator these 1,000$ and he takes 25% for himself. There are 750$ available in the pyramid balance. After 2 months, another investor joins the pyramid. He invests 1,000$, the Ponzi initiator takes his 25%, and put the rest in the pyramid balance. There are now 1,500$ available in the pool. If no one comes in the pyramid anymore, he is able to payback interest 2 times to you (end of the year and one year later) and 1 time to the second investor (end of the year), then the Ponzi Scheme collapses. On the other hand, if more investors come inside the pyramid, the Ponzi Scheme keeps on paying to investors until no more newcomers join the pyramid to provide funds into the pyramid pool. So, the first investors may be in profits rather than the newcomers may be in loss.
Famous Ponzi Scheme Initiators
Charles Ponzi
In 1920 at Boston, Charles Ponzi, created this scheme. He promised up to 50% rate of return on investment in about 45 days (between 30 to 90 days, I am not sure) without explaining clearly how this rate would be reached. In fact, Ponzi used the funds provided by the newcomers to payback the interest rate of the older investors. He attracted a lot of investors with this method until the system collapsed because of not enough newcomers.
Bernard Madoff
This Ponzi Scheme is more of my generation. Madoff, American financier, offered a lower interest rate than Charles Ponzi, between 10% - 20%, which could be a "real" interest rate, provided by a real project. But even if his investing strategy, based on a split-strike conversion, looked real, it was not! Madoff also initiated a Ponzi Pyramid with this credible interest rate, enabling him to have a project looking credible and a better range of time to payback his investors. It worked well for almost 8 years. During that period, investors were having their interest back and were also able to pull all their investments from the pyramid scheme thanks to newcomers always joining the process. However, in 2008 a lot of investors wanted to retrieve their investments and in addition to that, newcomers were rare. Madoff was finally arrested in December of that year, after a bunch of investigations, by the F.B.I., having his company perpetrating nearly 65 billions $ of Ponzi scheme.
The parole is yours
So, did you already know this about the Ponzi Scheme? Have you ever been involved in one Ponzi Pyramid in/without purpose? Feel free to share your thoughts and any other feedbacks in the commentary section!
