How to Recognize a Bitcoin Ponzi Scheme

Ponzi schemes recently enjoyed renewed public attention with the 2008 financial crisis and the Bernie Madoff scandal, but they first gained notoriety from their namesake, Mr. Charles Ponzi.

So, what is a Ponzi scheme?

Simply put, a Ponzi scheme pays high returns to investors, which don’t come from business activities. The scheme simply uses new investor money to pay existing investors. Once it stops attracting new investors, those running the scheme make off with whatever funds are left and it all collapses. Since the funds have all been paid to past investors (or to the scammers running it) there is often no recourse to recoup any losses.

Why do scammers promote Bitcoin for Ponzi schemes?

There’s a lot of legitimate excitement around cryptocurrencies (Bitcoin and Ethereum in particular). Many scammers have jumped on this opportunity alongside the buzzwords of “exciting new technology”, the same way that scammers sold bogus products when online shopping was first seen as exciting and new.

Bitcoin can also be seen as a digital equivalent of cash (or gold). Once you hand it over to someone, it’s gone. Which, from a scammer’s point of view, is a good thing.

There’s no consumer protection (like what you get with credit cards and most banks), it’s pseudo-anonymous (you can’t call anyone to see who the owner of a Bitcoin wallet is) and it is truly international (meaning there’s a larger amount of people, good and bad, that can use it, for good or bad).

How do I know if an investment scheme is a scam?

If something sounds too good to be true, it usually is.

If that’s not clear enough for you, here are some flags to look out for:

High or Guaranteed Returns

Scams often offer a fixed, unrealistically high return to investors (“grow your capital by 3% per day”). Unlike all other markets, Ponzi schemes usually show that they only go up in value, unlike all other investments and commodity speculation which go through normal market cycles: upward and downward movements.

Little Verifiable Information

There might be a lot of info on the founders, managers, staff, mining equipment, company address, incorporation, audits, and other information on the website. If you’re unable to verify this information, it’s probably a scam.

You can look up company incorporation in most countries, look for staff members on LinkedIn or other social channels, request phone calls, ask for recent photos (or live webcam hangouts) of mining equipment, look up addresses on Google Maps Street View, and more.

Social Effects

Most Ponzi schemes rely on current investors to introduce other investors to the scheme. Investors get special referral links and codes (like that pay unrealistically high commission rewards, usually a percentage of that person’s future investments.

They also tend to have lots of social followers on their social media accounts. Upon inspection of a reasonable sample, you’ll quickly notice many of them are fake/bot accounts. And the rest are just people posting their social referral links.

Recency and Urgency

All Ponzi schemes eventually run out of money even though it may take many years in some cases. They are very new (“an exciting new opportunity”!). They could also have a strong sense of urgency (“invest now, deadline tomorrow”!).


There are many Ponzi schemes that have very slick websites that build trust. But oftentimes scammers hastily put up these websites, full of grammatical errors, spelling mistakes, and visual clutter.

“But I’ve been paid by them, it can’t be a scam”

This is the saddest and frustrating response, by far. It’s worth repeating: Ponzi schemes DO payout to build confidence. That’s where the word “con man” comes from confident men. They build confidence by paying out and getting your trust.

It’s just that they pay out money from other (often vulnerable) investors, not from legitimate business activities. If not from a legal point of view, from an ethical point of view, it’s very problematic and worth further thought.

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