Overview of Cryptocurrency Ponzi Schemes: A Decade of Deception

The chapter provides an extensive overview of cryptocurrency Ponzi schemes over the past decade, shedding light on their evolution and the tactics employed by scammers. Key points include:

  1. Introduction:
    • Ponzi schemes existed before Charles Ponzi in 1919, with the first recorded investment fraud in the U.S. dating back to 1872.
    • Cryptocurrency Ponzi schemes share characteristics with traditional Ponzi schemes, often promising high returns with little risk.
  2. Cryptocurrency Market:
    • The cryptocurrency market, based on encrypted peer-to-peer networks, witnessed a dramatic rise, exceeding $575 billion in market capitalization by November 2020.
    • Cryptocurrency Ponzi schemes often start with “Smart” Ponzi schemes that use computer programs lacking credible backing.
  3. Case Studies of Cryptocurrency Ponzi Schemes:
    • OneCoin Ponzi Scheme: Led by Ruja Ignatova, the scheme defrauded investors of $4 billion worldwide through a multi-billion-dollar pyramid scheme.
    • BitClub: Estimated to have embezzled $722 million, offering naive investors shares in mining pools.
    • MMM Bitcoin Ponzi Scheme: Resurfaced in 2011 as MMM Global, involving Bitcoin with an estimated daily generation of up to $150 million.
    • Ponzi Schemes on Ethereum: Exploitation of Ethereum’s smart contract platforms for various Ponzi schemes.
  4. Notable Ponzi Schemes:
    • CoinUp: A South Korean exchange defrauded investors of $384 million.
    • PlusToken: A Chinese Ponzi scheme that defrauded investors of $6 billion, involving a fake meeting between Prince Charles and the founder.
    • Cryptocurrency Exchange Scams: Highlighting various exchange platform embezzlements from 2011 to 2017, including the infamous Mt. Gox case.
  5. Demographics of Scammed Investors:
    • Majority of crypto users are in the 21-30 age group, aligning with the risk tolerance of younger cohorts.
    • Younger investors with regular income streams are more inclined toward risky investments in cryptocurrencies.
  6. Concluding Comments:
    • Scammers manipulate novice investors’ risk-seeking behaviors through multi-level marketing schemes.
    • Lack of monitoring and government regulations amplifies these schemes, emphasizing the need for investor education.
    • Limitations include a lack of in-depth discussion on blockchain flaws, contagion effects on other markets, energy consumption, legal aspects, and a statistical analysis of crypto-based Ponzi schemes.

The chapter concludes by recognizing the continued threat of Ponzi schemes in cryptocurrency markets and the importance of addressing these challenges through education and regulation.


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