Grassroot Crypto Education | Series 2 Volume 7 - Scams in the Crypto Ecosystem (Part 1)- Ponzi and Pyramid Schemes | (#burnsteem25)
Introduction
Our grassroot crypto education has entered the 7th week in Series 2, thanks to everyone who has been part of the progress so far, your efforts/resources are well appreciated. The contest we organized last week has ended and we have a few winners, their rewards would be distributed sooner.
Time for the business of the day, you have been entering the crypto-financial realm gradually and I am here to guide you through a few things you need to pay attention to as you journey through the crypto ecosystem and this brings us to the topic, Scams in the crypto ecosystem. Let's roll on this together.
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Scams in the Crypto Ecosystem
In its literal meaning, a scam means a fraudulent scheme projected to dishonestly take away resources from someone, for example, from an investor. Scams can exist in different sectors, for example, a buyer can claim to have made payment for some goods, forging a receipt which might tend to force the seller to release the goods only to realize it's fake, at that time, the scammer is long gone.
There are many forms of scam and as technology keeps advancing, the activities of the scammers are widening as well and it is also existing in the crypto ecosystem as such you have to be very careful. Today, we are looking at two methods of investment scams that are presented to be true but are not true (false), utilized in the crypto ecosystem, these are Ponzi and Pyramid Schemes. Let's take a look at these two.
Ponzi Schemes
Ponzi schemes are one of the methods utilized in the crypto ecosystem to defraud users, this scheme has not just started, it has been existing as far as the 1920s when a popular scammer enjoyed a spree of defrauding investors, the name of this individual is Charles Ponzi, that's exactly where the name was derived from. Now, it has entered the crypto ecosystem.
Ponzi schemes are illegal investment schemes to defraud users in the long, that fact is unknown to the investors in most cases. In Ponzi schemes, the operators make it look like an investment where you invest funds for a certain period and get interests on your initial investment.
This type of scam is not actually too hard to detect, only the greedy ones get trapped or the ones that perfectly understand what's going on and have the purpose to earn some money before it crashes. A Ponzi scheme may offer you 20% weekly interest on your investment, sounds too good to be true? Absolutely it's false.
For example, a Ponzi scheme with the name Doubler Investment offers A 20% weekly investment on its 500 USD investment which means investor stands to earn 100 USD every week and in just 5 weeks, his/her capital would have returned while he makes profits afterward, how long do you think that would continue? Let's run a simple code in python, for your weekly earnings.
investment = int(input())returns = investment*(20/100)print(returns)The simple code above can be utilized to generate your returns depending on the amount you had put into the investment (input) and the percentage returns. Basically, Ponzi schemes get other investors, B, C, D, E, F, G, H... to invest, and old investors are paid with new funds invested which means no actual investment is going on, it's all manipulation and it crashes over time.
Ponzi scheme is now rampart in the crypto ecosystem, for instance, a project may request that you invest maybe 200 USDT, remember (USDT is a stablecoin) and earn 5% - 10% on it daily, other crypto assets are used too. When you see such as this without a clear investment brochure, know that it's a Ponzi scheme, don't fall a victim.
Pyramid Schemes
Pryamid schemes are another form of scam in the crypto ecosystem where users are also attracted with some huge returns on investment, it also works like Ponzi but also has some differences. Pyramid works more with networking where users invest, get others to invest, and earn from the new users.
Consider Pyramid schemes a license to sell shares in a company where the initial investment is the license fee, from there users get the license to sell shares of the same company to others and earns basically from that based on percentages, the more you invite, the more your earnings.
For example, if a user registered on a Pyramid scheme with 500 USDT for a 50/50 share on new investments through him/her, which means each time the user gets new investors to buy the so-called license too, he/she earns 50% of the share where the remaining is passed to the upper pyramids. As such, for the same license type, a user would recover his/her initial investment by inviting just 2 investors while the earning continues with more networking.
This is also a common scheme in the crypto ecosystem and I have a personal experience about two years ago, where I utilized my BTC asset for participation and you know what, it would crash as long as no new users join, continuous registration keeps Pyramid schemes working.
Similarities/Differences between Ponzi and Pyramid Schemes
In this section, we would take a look at the similarities and differences between Ponzi and Pyramid Schemes.
- Ponzi and Pyramid schemes are both set up to defraud investors and also, solely rely on the adoption of new users for continued operation.
- The return on investment offered by both schemes always sound too good to be true, which gives experienced investors doubts from the onset.
- The difference is that Ponzi schemes present their business as a legit one which portrays that the investors' capital is working for them, for example, mining tokens daily with the capital but in reality, it's fake. While Pyramid schemes depend on networking with no attempt of a fake/good investment-tied service or no special or standard service rendered.
Recommendation
As you are growing into the crypto ecosystem, you should beware of these types of scams we have discussed in the article today as they can be so disastrous to rake away your capital. If you want to generate passive income with your cryptocurrency, consider for example, staking as an option.
You can stake into different LP pools on the Tron network utilizing platforms like JustSwap, JustLend, and so on and/or utilizing the PancakeSwap DEX built on BSC to stake, provide liquidity, and yield farming, these are legit ways to earn passive income in the crypto ecosystem. There are more on the aforementioned networks and other other networks too, we would talk more about them in the subsequent lectures.
Conclusion
In conclusion, it's important to be familiar with some of the investment schemes in the crypto ecosystem which tend to take advantage of innocent/greedy investors and the result is not palatable to all, the early adopters may profit from such schemes while larger percentage lose a lot in the process.
Ponzi scheme is one of such investment types that presents itself as a legit investment (fake) with huge returns but crashes along the line and also Pyramid scheme is another one that leveraged networking to reward investors, and both crashes when there is no inflow of funds from new users. This is the first part of the Scams in the crypto ecosystem, watch out for the next ones. Thanks for reading this far and I look forward to your participation.
Homework Task
- What is your understanding of Ponzi and Pyramid Schemes in the Crypto Ecosystem.
- State the Similarities/Difference between both Schemes. How would you react to them, Adopt or Stay away? Explain.
Guidelines
- Write an article of at least 300 words. Keep your explanation as simple as possible.
- Include the tag #grassroot-educations2v7, #fintech, #steemexclusive, and your club status among the first 4 tags. Also, tag me @fredquantum in your homework entry.
- The participation in this lecture/homework task is open to everybody but only entries made by verified kids would be reviewed.
- I will check your articles and drop comments on the entries submitted now till 11:59 pm UTC, 29/05/2022.
Cc:-
@steemkidss
Hello @fredquantum thanks for this well informed post, both our kids and kid's lovers will definitely benefit. We appreciate your Activities in our community, keep it up!
REMARKS;
Thanks for the verification, @goodybest.
Hi, @david-o, @leyxi209, @junst, and @kishwarsumbal, you all occupied the first 4 positions respectively in the Steemkidss contest. I have sent your rewards for being winners in the last contest. Congratulations!
Thank you so much 🌸
Thanks sir for your support
You have done well
@fredquantum thanks for all you do for us sir 🙏 but you made a mistake and sent the reward to another user 🥺.
Oops. I will make it up sooner.
Thanks a lot sir.
I am very much grateful and I appreciate.
I have sent you another reward, @david-o.
@fredquantum I am very much grateful.
Thanks a lot sir.
Thank you so much! ✨
How can I be a verified kid ?, Or is it meant for just kids ??, Because in these lessons, I'm as good as a kid o, I don't know it too
If you are still within the age of the kids, you can get verified through the admin of @steemkidss. If otherwise, then you can read this lecture, and attend the homework task by making a post on it, I may not be able to grade you but will surely leave a comment on your entry to encourage you. Thank you.
Hi @luckydrums, please, check out our verification post and see what you need to do. Once you are done, you will be verified
https://steemit.com/hive-139765/@steemkidss/2qc9uu-our-new-kids-identification-verification-system-continues-or-or-get-your-label-kids-verified-kid-or-or-see-how-you-can-be
This is quite interesting and mind indulging class will definitely try to write the homework according to the given guideline thank you so much teacher @frequantum
I look forward to see your entry. Thank you.
i follow you !
Thanks a lot for yet another wonderful lesson and homework tasks. We appreciate all you do for steemkids community
I'm glad I am doing this to impact crypto knowledge to the kids in the community, especially the very new ones in the ecosystem. And I look forward to doing more. Thank you, @steemkidss.
My entry
https://steemit.com/hive-139765/@junst/grassroot-crypto-education-or-series-2-volume-7-scams-in-the-crypto-ecosystem-part-1-ponzi-and-pyramid-schemes-by-junst
Greetings dear friend, I am glad that you are teaching children very well about the Cryptographic world, very good post! I did not know about these types of scams, we must certainly be vigilant! Good luck to you and everyone.
Thank you, @carlaisl. I'm glad that you have been able to learn a few things from the lecture. Yes, we have to be vigilant so that we don't fall a victim to these types of investment scams. I appreciate your visit, dear friend.
Hello, @fredquantum. Your article has been supported using the @steemcurator05 account.
Here is my entry sir:
https://steemit.com/hive-139765/@david-o/grassroot-crypto-education-or-series-2-volume-7-scams-in-the-crypto-ecosystem-by-david-o