What is a Ponzi scheme in cryptocurrencies?
Ponzi scheme is a special kind of fraud. It is based on a fake investment that one schemer or group of schemers, get other people money.
In Ponzi schemes, the schemer basically says, I found a great way to make money fast. The more you give me, the more I can invest in that cause, and the more I can earn for us all. But a Ponzi scheme doesn't actually "earn money".
All of the scheme's money comes from the investor. Once a Ponzi scheme gets too many investors, the system will always crash.
These schemes always stop one of three ways:
- The schemer runs away with the money they got.
- They will be unable to promise money back right away.
- Authorities find out about the scheme and stop it.