I have been bombarded (so I feel) on Twitter recently with tweets from people calling different crypto projects for Ponzi schemes. Well, are they really ponzi schemes? In order to answer that question, we have to understand what a ponzi scheme really is. So, let us take a look at the actual definition of a ponzi scheme.
What is a Ponzi scheme?
A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. ... Instead, they use it to pay those who invested earlier and may keep some for themselves.
The concept is named after Charles Ponzi, an Italian many who in the 1920s tricked thousands of people in the USA. What did he do?
He made people invest money, and depending on whether they stayed in the project for 45 days or 90 days, he promised the either 50% profit or 100% profit. What did he claim to do? He claimed to buy postal reply coupons (like a post gift card) in other countries at a lower price, and then he sold them in the USA at a higher price. The price difference was used to pay his investors.
In a more modern example, he bought Amazon gift cards elsewhere in the world valued $10 (but he only paid $5), then he took them to the USA and sold them at $10 each and paid invesetors with the difference.
The only problem was... there were no gift cards, nor postal reply coupons. All he did was to pay old investors with the money invested by the new investors.
And yes, that is the core of a ponzi scheme. It doesn't really do anything. It might be hiding behind a shell of doing something for real, but in reality, it is just paying old investors with the money of the new investors.
Very well explained , but the masses think Cryptos are Ponzi Schemes because the sources of the value ( coins) is NOT connected to REAL services and or physical commodities .
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