Bitcoin Ponzi Scheme
A Bitcoin Ponzi scheme is an illegal investment scam where early investors are paid with the funds of later investors, rather than through legitimate profits. This type of fraud has been around since at least 1920 but has become more prevalent in recent years due to the rise of cryptocurrencies like bitcoin.
In a typical example, an individual or organization creates a website that promises high returns on investments made using bitcoin. Investors make deposits into this account and then receive periodic payments from the site’s operators in return for their initial deposit – these payments come not from actual profits generated by investing activities but instead out of money deposited by subsequent investors. In some cases there may be additional incentives such as referral programs which allow those who have already invested to earn additional rewards when they encourage others to join in too – however, regardless of what incentive structures are put in place all participants will eventually lose out because ultimately there isn’t enough new capital entering the system to cover all existing obligations.
It should also be noted that while most examples involve only two parties (the organizer/operator and investor) it is possible for multiple layers or tiers within a single ponzi scheme setup – meaning one party might invest directly into another party’s account before receiving any payouts themselves; although this does not necessarily mean everyone involved was partaking knowingly as each layer could simply believe they were dealing with genuine profit-making opportunities without understanding how deep down things really went wrong once everything came crashing down!
One way people can protect themselves against falling prey to such scams is by doing thorough research before investing their hard earned money anywhere online – always look up reviews about different websites offering cryptocurrency services, read up on past experiences shared publicly (such as forums), check if anyone else you know had experience with them previously etcetera. Additionally it would never hurt double checking whether companies claiming huge returns comply with local laws & regulations governing financial service providers; if something seems too good to be true chances are it probably is!
