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Ponzi schemes are rife in the digital asset world. If one has to look at the history of ponzi schemes, you would find that most of them involve promises of financial investment, and higher than average returns. And with digital assets and cryptocurrencies seemingly set to become the future financial backbone of society, it is no wonder the scammers are in full force to jump on the bandwagon and utilize its promising narrative to con people out of their hard earned money.

But no matter what the scheme is, whether it is an all out cyclical ponzi scheme, or a complicated network of multi-level-marketing (mlm), there are common signs in each one that users should look out for before parting with their money and their trust. And if you’re unsure, we invite you to join one of our chat channels on Whatsapp or Telegram and ask any one of our experienced blockchain enthusiasts for their perspective.

As we like to say in this industry: Don’t trust, verify.

Below are 12 warning signs, “red flags” if you will, to look out for when a company promises “passive income” and high returns on investment. They are ordered by priority as most important warning signs:

1- Payouts are only accessible inside the company’s own dashboard.

2- Because of this closed ecosystem, there is no way to verify how many users are on board, how much money has been invested, and how much mining power there should be in relation to those users.
Whereas with all things related to blockchain, anything and everything can be transparently verified on the blockchain of the specific digital asset being mined – ie. how many miners are online etc.

3- The actual details of the mining hardware are never disclosed.
ie. you seldom (if ever) know what kind of mining rig you have, whether it is an ASIC or GPU miner, which model, how many Graphics Cards, what type are they, what is their daily rate of mining, what is the electrical power cost, where are the mining rigs hosted, etc.

4- Free to attend events are held regularly, which are used to hype the public into signing up.

5- Marketing materials promise financial freedom and use flashy imagery.

6- There is an elaborate referral programme.

7- Returns are (almost) guaranteed – and used constantly in marketing materials.

8- These returns are above normal earnings rates – or don’t match actual mining hash rates.

9- New members are assigned “leaders” & “experts” above them, to answer questions.

10- These members tote themselves as cryptoasset “experts”.

11- When you ask serious questions, answers become vague, or don’t get answered at all.

12- Other members defend the network vociferously, often with little logical reason.

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That’s all we can think of for now. We have come across dozens of multi level marketing schemes and outright ponzis in South Africa alone, let alone globally, in our many years of being blockchain enthusiasts, and they all share at least half of the above points – with displaying all 12.

There is a difference between a multi level marketing scheme and a ponzi. A ponzi scheme technically does not have a product at all, and is purely cycling the last user’s money to pay the first users in a constant loop – until it all pops – with no real product being used or sold. Whereas multi level marketing often uses similar tactics, but integrates a real product – be it Property Investment, Stock Broking, Holiday Timeshare, or Digital Assets like Bitcoin. But they too quickly reach saturation point, and either need to pivot their business model, or shut down and start again. That is: If the government & auditors don’t get to them.

We’d encourage you to check out this article by Fin24.com about the mathematical likelihood of ponzis and mlms collapsing.

This article by MSN about the largest ponzi schemes in history is also enlightening because it goes to show that all ponzis promise high rates of investment returns. That should be your first warning sign.

It is extremely unfortunate that so many scammers, fraudsters and scheming entrepreneurs have flooded the blockchain scene, as they are giving this exciting and worldchanging technology a bad reputation. But giving blockchain a bad reputation because of the scammers is like giving diamonds a bad reputation because of smugglers.

Just like the Gold Rush of the 1800s, where the Wild West was filled with scammers, thieves and crooks, we’re seeing the same thing in the digital asset space. But just like the Wild West, the thieves and crooks didn’t change the fact that there was real Gold to be mined and accessed. There was a real economy around a real commodity.

In the same way: Don’t let scams in the digital asset industry cause you to write off the industry as a whole. We are dealing with worldchanging technology, based on real, encrypted, hard-coded digital assets – there is a lot to be excited about.

And remember, if ever you need assistance, guidance or advice in your blockchain journey, SA Crypto is freely available to help. Join one of our many Whatsapp or Telegram channels, and feel free to ask away. If you still don’t feel comfortable with the information, you can email our team on info (at) sacrypto (dot) co (dot) za.

Stay safe out there. And remember… don’t trust. Verify.