In the cryptocurrency world, pyramid schemes/Ponzi schemes are nothing new. Cryptocurrencies like Bitcoin, Litecoin, Ethereum and others are becoming more and more popular, so it comes as no surprise that dubious online projects and businesses begin to emerge, which misuse this current phenomenon. In this article you learn in particular about the difference between legitimate electronic currencies, like Bitcoin, Litecoin and others, and pyramid (scam) crypto coins, like Coinspace or Onecoin, and what these pyramid systems have in common.
What Is a Ponzi Scheme/Pyramid Scheme?
I find it important to introduce you to one of the most common forms of “business” used by scammers that was (and still is) used as the basis for many digital pyramid currencies (this goes not only for cryptocurrencies, but many other areas as well), including Onecoin and Coinspace. It is the so-called Ponzi scheme.
The Ponzi scheme term describes fraudulent investment operations, in which the company gets money from investors to “double or triple” it. But there is no multiplication of this money. The company does not work with the payments of investors. It means that the only source of company income, working on the principle of Ponzi scheme, is money from investors and later out of this budget the interest is paid out.
Usually, these are investors that were among the first to invest. It represents the basis of the Ponzi scheme/pyramid scheme, and this is linked to the term pyramid cryptocurrency. More information about pyramid schemes and how they work in real life, check the article Basic Characteristics of Pyramid Schemes. I will add that doing “business” using a Ponzi scheme is considered a crime worldwide.
What Are Cryptocurrencies?
Before we get to the differences between the digital currencies based on the pyramid principle and legitimate virtual currencies, let me define in short what a cryptocurrency is. A cryptocurrency is a currency which is created by someone and which is mined by someone else and that person can then make profit of it.
Practically anyone can create this cryptocurrency. However, for the Internet currency to work in the real world, it is necessary to spread it among the people and follow some rules at the same time.
The main advantage of this virtual currency is the fact that it is not managed by any bank. However, this also entails some risks, especially due to the instability of the exchange rate. Today, you can buy one Bitcoin (BTC) for $5,000 and tomorrow you can sell it for $7,000 to make a huge profit, but sometimes the opposite is true.
Differences Between the Pyramid and Legitimate Cryptocurrencies
The main argument of the creators and especially the promoters of pyramid cryptocurrencies is: “But look at Bitcoin, don’t you see how well it is doing? Recently, one Bitcoin (BTC) was selling for 18 000 Dollars. And that’s where our virtual currency will get as well, and you can be part of this business. You can buy one S-Coin (the cryptocoin of the Coinspace project) for 1 USD and within a couple of months, when its value will rise to staggering heights; you can sell it for a huge profit”.
Here are a couple of reasons why this will never happen.
1. What Determines the Value of the Cryptocurrency?
While the exchange rate of crypto coins like Bitcoin, Litecoin and other real currencies is determined by the market based on demand and supply (in other words, the greater the demand for Bitcoin, the more expensive it is and vice-versa), the value of scam cryptocurrencies like Onecoin, Capricoin or Swisscoin is determined by their owner, based on the number of investors, who have registered in the pyramid scheme/Ponzi scheme.
The value of any cryptocurrency is not set by the person managing this type of currency (as is the case with Onecoin, Capricoin and others), but it is determined by the market.
2. Universal Currency vs. Worthless Virtual Junk
While cryptocurrencies like Bitcoin and others have a real value and can be used as universal currencies, pyramid virtual currencies are completely worthless. They do have a certain value, but only within its closed pyramid; their value outside of it is zero.
You can use Bitcoin, a worldwide recognized cryptocurrency, to pay in online stores and you can trade with it on the stock exchange or exchange it for Euros, Dollars…
However, none of this applies to pyramid crypto coins. You can exchange mined units (numbers, which will never have real value) for real money only by using their internal stock exchange, i.e. other ignorant people, who will register in the system and invest.
Never expect any real money from a financial institution/stock exchange for these pseudo cryptocurrencies.
3. Decentralized vs. Centralized Crypto coins
Internet currencies like Ethereum, Bitcoin, and others are anonymous and mainly decentralized. Banks do not support them and their exchange rates are not regulated.
Pyramid cryptocurrencies often have a centralized exchange office (internal stock exchange owned by the owner of the pyramid). This means that the issuer of the cryptocurrency (the company that created the pyramid) enters the value of its currency in its own internal spreadsheets and subsequently sells it (but only within its own system – pyramid) to registered people, who know nothing about cryptocurrencies and are easy to manipulate and deceive.
4. Serious Cryptocurrencies Use Blockchain Technology
Cryptocurrencies, such as the most famous Bitcoin, work using Blockchain technology. It is a kind of public database that shows every transaction that occurred in the Bitcoin network. Each user can find out what amount of Bitcoins belongs to a specific address thanks to this database.
You won’t find such database with digital currencies based on the pyramid or the Ponzi scheme.
5. A Cryptocurrency Isn’t Created All by Itself, It Has to Be Mined
Mining virtual currencies like Bitcoin, Dogecoin or Namecoin is done using very complicated calculations. High-performance computers and servers capable of handling these big calculations are needed. However, it is not possible to verify how this mining works for Onecoin, Coinspace and other pyramid cryptocurrencies, because as already mentioned, the system is centralized and the company itself is the only one which can mine it.
Hopefully I won’t be considered a conspiracy-theoretic, if I dare to say that in the majority of cases, if not in all of them, no currency is being mined and it’s just smoke and mirrors to mask the illegal nature of the financial game (pyramid scheme/Ponzi scheme).
6. Many Technical Shortcomings
The owner who created the pyramid based Internet currency, as well as the investors, who attract users into these fraudulent businesses for the purpose of their own enrichment, are often not able to answer even the most basic technical questions about how their system and currency work (or they answer complete gibberish, as if they wouldn’t even know what cryptocurrencies are).
7. Pyramid Cryptocurrencies Lure with Easy Money without Work
Electronic currencies like Octacoin, Coinspace and Onecoin lure people with quick profit without work and many even guarantee a profit! For example, Coinspace guarantees a 50% profit to their investors.
Bitcoin and other legit cryptocurrencies don’t need any recruiters. There is no one, who would get commission for attracting new investors.
A guarantee is a red flag to any normal investor, because it is impossible to predict market behavior. And the uncertainty is even greater with cryptocurrencies.
Let’s take a quick look at the differences between real digital currencies and pseudo currencies.
|Real cryptocurrency (Bitcoin, Litecoin, Ethereum...)||Pseudo cryptocurrency (Capricoin, Onecoin, Coinspace, Swisscoin...)|
|It is completely decentralized. A complete Blockchain can run on your home PC.||It is completely under the control of the pyramid company and what they call Blockchain is just an ordinary MySQL table.|
|Blockchain is a type of Peer-to-Peer technology. If you turn it off on your PC, it won’t affect anything, it will run on other tens, hundreds and thousands of PCs.||Their declared Blockchain (a.k.a. MySQL table) runs on a computer somewhere in the server room and if someone turns it off, their whole pseudo currency is finished.|
|Its market value is created and regulated by the holders of the virtual currency using stock exchanges (Kraken, Poloniex, Bittrex, Bitfinex, Yumbi, Bitstamp…), its value = demand/supply.||Its market value is determined by the company itself, without any economic basis (there is no demand/supply).|
|Backed by a development team or a community that doesn’t hide its identity.||There is no development team. The leadership either hides its identity or uses paid people to be the faces of the company.|
|Has its source code, which is usually open-source for the trustworthiness and control by the users.||There is no mention of a source code of given electronic currency.|
|The success of given Internet currency is backed up by the technological progress and use in practice. (Blockchain as a technology for Smart Contracts – Ethereum, as a blogging platform – Steemit, etc.)||Unfortunately, there is no technological progress behind the success of the pseudo-cryptocurrency. It is only a camouflage for people, who don’t know how real digital currencies work. It is only promoted as a business opportunity, where the success of the company is based on starter packages.|
Common Characteristics of Pyramid Cryptocurrencies
All of these systems have one thing in common. You have to invest your own money and buy a starter package. The price of the package starts at hundreds of Dollars and ends at thousands. Coinspace offers a starter package for ten thousand and the Octapartners Project for eighty thousand USD! You will get the opportunity to lease the “mining power” or part of the computing power from the company (you buy “tokens” in the case of Onecoin) for your investment and with it the opportunity to profit from the mining of cryptocoins without the need for own hardware.
These currencies don’t exist in the real world (and they probably never will), but all of these pyramid companies promise that in time their digital currency will enter the circulation, it’s value will increase astronomically and you will be able to make a huge profit by selling it, as was the case with Bitcoin, where some people actually became millionaires.
Onecoin took the promising and juggling so far that it called itself the most transparent cryptocoin in the world. Allegedly, this company was able to eliminate Bitcoin’s mistakes and technologically overtake it.
So all you need to do is to purchase a starter package and then just watch how your pseudo cryptocurrency increases in value at some centralized pseudo stock exchange, which of course is in the ownership of the same people, who created the pyramid.
There are many fraudulent companies that promise that they will enter the stock exchange within a couple of months and then everyone will be able to sell their mined cryptocurrencies at several times of their original value. However, all of these were just empty promises and lies, thanks to which they robbed thousands of people.
You could be interested in:
7 Ways to Recognize Legitimate Investment Companies from Financial Scams – in this article you can read about 7 basic differences between transparent investment companies and pyramid/financial games.
As mentioned in the introduction of this article, cryptocurrencies are currencies created by someone, which are “mined” by someone else, and this person gets the profit out of them. You also can profit out of this, as long as it’s not Swisscoin, Onecoin, Capricoin, and other pyramid cryptocurrencies.
No matter how huge profits the authors of similar scam businesses promise you, this will never happen. I’m lying now. You can profit from any pyramid/Ponzi scheme. The problem is that the money you make comes from other unfortunate people (investors), who were tricked into these deceitful businesses with the promise of a better future. Pyramid scam brings profit for 5 – 10 % of registered people, the rest will lose their money.
This form of business is built on profit from starter packages and the redistribution of the money in the pyramid. As I already mentioned, the rest of it is just smoke and mirrors to cover the fraud.
I also recommend reading a discussion forum you may find additional interesting information on the topic.
If you already have some experience with cryptocurrencies share it and write to the discussion. Any opinion I appreciate, it can be inspiration or motivation for other readers.
Did you find interesting information in this review that you consider to be useful? Then share it with your acquaintances and maybe you might help someone. Just share or like the article. I certainly recommend joining my Facebook group, where I keep posting news about remote work from home, doing business via the Internet and making money online. Click on “Like” and in notifications set “receive all posts.“ Do you prefer tweeting? Then follow my articles and offers on my Twitter account.
My name is George and I currently work from home as a freelancer for a PR agency selling advertising. I also freelance as an online marketer for an e-shop, and I am actively involved in creating this website. I am always looking for interesting opportunities on how to make money online. I share my findings with my readers on this website. I consider this to be my hobby. I hope, that you can find some legitimate work from home, or perhaps you might be able to earn a little extra money.