- The regulation of cryptocurrencies is still a hot topic among experts.
- Interest in regulating the crypto market is growing among local and national governments.
- However, the parties are often perplexed by the vast ecosystem and complexities in regulating certain decentralized market aspects.
Ponzi schemes have been around for a long time and usually involve someone promising high returns on investment but using money from new investors to pay off old investors. Some people compare cryptocurrencies to Ponzi schemes because they also promise high returns on investment. According to BanklessTimes.com, a third of the American population believe digital assets are Ponzi Schemes.
According to BanklessTimes CEO Jonathan Merry,
BanklessTimes CEO, Jonathan MerryA Ponzi scheme is only sustainable as long as enough new investors are coming in to keep the scheme going. When that stops, the whole thing collapses. Bitcoin is not a Ponzi scheme because it does not rely on new investors to keep it going. Instead, Bitcoin relies on its own technology and network effects to maintain its value.
Difference Between Crypto and Ponzi Schemes
Cryptocurrencies do have some similarities to Ponzi schemes, but there are also some key differences. Both promise high returns, but while a Ponzi scheme is not sustainable, cryptocurrencies are built to last. Cryptocurrencies also differ from Ponzi schemes because they are decentralized and not controlled by any person or organization. This makes them much more resistant to collapse than Ponzi schemes, which rely on new investors to keep them going.
Many Ponzi schemes share common characteristics. Some red flags that may indicate a Ponzi scheme include; Promises of high returns with little or no risk, unregistered investments, overly consistent returns, secretive or complex strategies, and pressure to invest quickly.
On the other hand, cryptocurrencies are transparent, and their code is open source. This allows anyone to audit their code and verify that they are not being manipulated. Cryptocurrencies also have a large and growing community of developers and users who can help keep them secure and improve their functionality over time.
Fraudsters Targeting Virtual assets
Despite the clear difference between cryptocurrencies and Ponzi schemes, some fraudsters continue to try to use virtual currencies to perpetrate their crimes. Cryptocurrency users tout the improved privacy and fewer regulatory hassles as benefits over traditional currency transactions.
However, investment securities in the US remain subject to the SEC’s jurisdiction regardless of whether the investment is in USD or crypto. Investment professionals, such as stockbrokers and financial advisers, must be licensed by the federal or state government.
