Ponzi schemes promise returns generated from the money of future investors, while in pyramid schemes, income flows up through recruitment.
Ponzi vs. pyramid schemes
Both schemes defraud investors by making alluring but false promises, and the majority of participants ultimately suffer large financial losses.
Individuals can protect themselves from these fraudulent schemes by understanding their differences. Here are key differences between both schemes:
The legal implications of participating in Ponzi schemes include possible fraud, embezzlement and securities fraud accusations. If found guilty, a prison sentence may follow; the length of the penalty depends on the scope of the crime.
Victims may receive restitution in the form of criminal fines, and law enforcement may seize property and vehicles that were obtained through deception. The courts may also compensate victims to make up for their monetary losses.
In a pyramid scheme fraud, victims have the option to file civil actions in an effort to recover damages and hold the scheme’s promoters accountable. To safeguard customers and uphold market integrity, regulatory bodies continuously monitor and look into pyramid schemes. Still, investors should exercise caution and conduct due diligence before making any investment decisions
Pyramid schemes in crypto
Sadly, pyramid schemes have entered the cryptocurrency field, preying on the allure of rapid wealth in this emerging market.
Pyramid schemes frequently raise red flags because they promise extraordinarily high returns and place an inordinate emphasis on recruiting new participants rather than providing real goods or services. The perpetrators of cryptocurrency pyramid schemes frequently give only general or ambiguous details regarding their methods of return generation or investing plans. However, due to the inherent volatility of digital assets, there are no assurances in the world of cryptocurrencies. Any investment that promises profits should be avoided.
There are frequently no genuine products or services offered in pyramid scams. Instead of actual business operations, recruitment and investments make up the majority of the scheme’s revenue. Furthermore, pyramid schemes may offer complicated compensation plans that are challenging to comprehend. If one cannot understand how the strategy generates profits, they should proceed with caution.
A well-known example of a mix of Ponzi and pyramid schemes is OneCoin, which ran from 2014 to 2017. It was marketed as a cutting-edge digital currency that used advanced blockchain technology. However, it was opaque and lacked true blockchain capabilities. The scheme’s main objective was to attract new participants by offering significant rewards to those who made OneCoin package investments and brought in new participants.