How To Protect Yourself From Ponzi Schemes And Other Scams

in #cryptocurrencies8 months ago (edited)

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Every time a new crypto project pops up that sounds interesting at first glance, it's important to do your research to find out whether it could be legit or a potential scam.

I often see questions like this:

“A lot of people in my facebook group share links from a company that trades your bitcoin for you and takes a 20% cut. Could this be legit or is this a pyramid scheme?"


It can be hard to tell whether something is legit, when it's still super new. But it's easy to spot red flags by asking a series of questions. I'll share a list of questions below that I would ask, if someone tried to sell a project to me.

One thing upfront:

When you see lots of people sharing links in a Facebook group it’s probably because they get money for referring new customers. In the best case they just earn a little affiliate commission when you sign up through their link. There is nothing wrong with that (I earn a little commission too from most of the links on my free crypto page).

In the worst case they are recruiting you for a pyramid scheme.

You won't know unless you ask a lot of questions:

  • Will I keep the private keys for my funds? (Highly unlikely, and this would be a dealbreaker for me.)
  • Is there a minimum amount or can I test this with as little as $50?
  • What do you get for recommending this to me? What’s in it for you?
  • Why do you love this service so much? What has been your experience (wins, losses) so far? How long have you participated?
  • What are the general results other customers have gotten (over a time period that covers both a bull market and a bear market)
  • What are the fees I can expect to pay for all this?
  • How much can I realistically make in x amount of time?
  • Where do the profits come from? (If they come from recruiting others rather than from an actual product or service, then you know it's a Ponzi scheme.)
  • How fast can I get my money out if I want to stop? Are there any fees or penalties involved?
  • If it’s a platform with a login and password - what if that website gets hacked or disappears? How will I access my funds? How will I be able to contact you? Are you insured so you can reimburse my money?
  • Who is behind that service/company? Do they have a proper business registration number, etc?
  • You say you charge 20% - of what exactly? 20% of profits might sound like a fair deal. But what about the losses? (Did you know that even professional traders win only 40% of their trades? So the profit of those 40% needs to make up for the losses of the other 60% of trades..)

Do you want to invest or gamble?

Either one is OK, as long as you're aware of what you're doing.

There are two famous sayings in the investment and trading world:

  • Never invest in something you don't understand
  • Never invest more than you can afford to lose
  • Let me add a third one: Guaranteed returns do not exist. Don't believe anyone who promises you specific trading profits.

If you want to put money in something you don't fully understand, that's fine. I do that sometimes, too. However I don't call it investment in those cases, but gambling, because that's what it is. As long as you are clear whether you're investing or gambling, and adjust your amount accordingly, there's nothing wrong with that.

I have tested quite a few services with that gambling approach and I can tell you that many of them are not around anymore, no matter how amazing they sounded at the time (of course, the more amazing they sound, the higher the chance that they are too good to be true). They were either shut down due to fraud or simply disappeared with their customers' money.

Don't lose your head when you're presented with yet another "biggest opportunity of your lifetime". Don't let FOMO get the better of you.

A rational list of questions will help prevent you from following the herd down the next cliff.

Stay safe in the crypto space!



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About the author:

Anja Schuetz helps absolute beginners to become confident crypto investors. She is the author of How To Stay Safe in the Crypto Space and offers Free Bitcoin Education For Beginners on her website.How to stay safe in the crypto space Ebook mini.png
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