The Ponzi model is named after Charles Ponzi, an Italian fraudster who has become famous for many successful fraud projects based on the formula of the latter paying the former. So is there a Ponzi model in the cryptocurrency market? Through the article below, coinviet.net will help you learn about the Ponzi model and how to recognize Ponzi projects in the cryptocurrency market.
Overview of the Ponzi model
What is Ponzi?
The Ponzi model appeared in the 1920s, named after fraud expert Charles Ponzi - an Italian fraudster living in the US. This Ponzi scheme was created for the purpose of defrauding property, it has had hundreds of thousands of victims and is still going on today.
The Ponzi scheme will commit fraud by luring victims into investing in business activities in a way that takes money from latercomers to pay earliercomers.
The important thing about this model is that latecomers do not realize it and are lured by the great immediate profits. Therefore, this model has a pyramid shape with the person at the top being the project owner and benefiting from the money of those who come later.
Ponzi operating model
There is always an initial member who will be responsible for initiating the project first by promoting the investment opportunity or business product of the project. When joining, members must contribute a certain amount such as $10,000 USD.
The initiators will promise members to receive many benefits based on the initial investment such as profits after a certain investment cycle such as 1 month, 3 months...
These members were introduced that when calling for 2 more investors to participate in 90 days, the initiator will deduct $11,000 from the $20,000 revenue from the members who called. With this, the first member will be attracted and more likely to reinvest another $10,000.
Fraudsters will rely on the proceeds from those who come later and have enough financial capacity to pay previous members and convince them to reinvest with more people joining.
When the network is too large, the number of members is large and there are no more new participants, the model will no longer have capital to maintain. This leads to the end and the scammer will end the pattern and take the money with them.
The reason the Ponzi model is still operating today
Investors participate in the cryptocurrency market to seek profits. They can invest in assets such as coins/tokens, NFTs, IEOs, ICOs... and are interested in 2 issues:
ROI (Return of Investment) is the rate of return, representing the recovery time from the initial investment to calculate subsequent profits.
Risk rate when participating in that investment. When the risk ratio increases, investors will lose part or all of their investment, leading to negative ROI and difficulty or no capital recovery.
In fact, any form of investment carries a certain rate of risk. And this ratio for investments in Ponzi schemes is much higher than expected. However, the promised ROI with Ponzi models is so attractive that many investors are attracted to profits and often forget about risk management, leading to losses.
How to protect yourself from participating in a Ponzi scheme
Investors need to be cautious about investment opportunities "falling from the sky" and especially before "oh my god" invitations to long-term investment opportunities in the cryptocurrency market.
We need to be alert and always question any investment opportunity that promises high, easy and risk-free profits, which will show signs of not being transparent and honest. Always remember the principle of "high risk - high return" to manage risks and have a protection plan.
Once you clearly understand the nature of the investment. You will never invest in what you do not understand. Take advantage of all possible resources and be careful with "sky-falling" investments and possess high ROI.
summary
Through the above article, Trading Insight has introduced you to the Ponzi model and how it works.
Hope the above knowledge is useful to you. Wishing you successful investments!
If you have any questions, please comment below the article to discuss with Trading Insight.
