Beware of Ponzi schemes: The evolution of scams from the "stamp arbitrage dream" to the "cryptocurrency nightmare"

In the world of investing, there is a scam that keeps repeating itself—under the guise of rapid wealth, it attracts ordinary people with illusory high returns, only to leave victims with nothing. This is the notorious Ponzi scheme.

From the stamp business a hundred years ago to today’s crypto traps

The name Ponzi scheme comes from an Italian-American named Charles Ponzi. This guy sneaked into the United States in 1903, worked as a painter, mover, and did all kinds of hard labor, even serving time in Canada for forgery. Until one day, he discovered that the financial market was a quick way to make money.

In 1919, just after World War I ended, the global economy was in chaos. Ponzi took advantage of the turmoil to claim he had a clever way to make money: buy European postal notes and resell them in the U.S. for a profit. He designed a seemingly professional and complex investment plan to sell to the people of Boston. In just over a year, about 40,000 people fell for it, most of whom were impoverished individuals hoping to turn their lives around, each investing a few hundred dollars on average.

Although newspapers exposed his scam, Ponzi countered with an even more tempting promise: a 50% return in 45 days. Early “investors” who tasted the benefits spread the word, and more and more people flocked in. Until August 1920, when the funds ran dry, and the entire plan collapsed. He was ultimately sentenced to five years in prison.

Since then, “Ponzi scheme” has become a classic term in the scam world—using the money from new investors to pay earlier ones, forming a rolling pyramid until no new funds can be obtained.

How crazy are modern “Ponzi schemes”?

Madoff’s record-breaking scam

If Ponzi was just small-scale, then the legendary figure in American finance, Bernard Madoff, was a true master of fraud. This former NASDAQ chairman orchestrated a scam that operated on Wall Street for a full 20 years.

Madoff infiltrated high-end Jewish social circles, expanding his network through friends, family, and business contacts, ultimately attracting $17.5 billion in investments. He claimed to achieve a steady 10% annual return and boasted that he could make money regardless of market ups and downs. But what was the truth? Those astonishing returns were actually just using new investors’ principal to pay “illusory profits” to old investors.

This scam was only exposed during the 2008 global financial crisis—when investors demanded to withdraw about $7 billion, but the vault was empty. Madoff was sentenced to 150 years in prison, with total fraud amounting to $64.8 billion, setting the record for the largest single financial fraud in U.S. history.

PlusToken wallet—the “black hand” in crypto

In the cryptocurrency realm, a project called PlusToken is considered the “third-largest Ponzi scheme.” These scammers used blockchain technology as a cover to operate wildly in China and Southeast Asia, promising monthly returns of 6%-18%, claiming profits came from crypto trading arbitrage.

What’s the truth? PlusToken was a pyramid scheme disguised as a blockchain project. Operating for over a year, it scammed countless investors who had only a superficial understanding of “blockchain.” By June 2019, when withdrawals were blocked and customer service disappeared, victims finally realized they had lost everything. According to data from blockchain analysis firm Chainalysis, this scam stole about $2 billion in crypto assets, with $185 million already cashed out.

Why do these scams always succeed?—Unveiling the operation mechanism of “Ponzi schemes”

The sweet trap of low risk and high returns

All investments carry risks, but the first trick of Ponzi schemes is to ignore this rule. They claim to offer “zero risk” or “extremely low risk” investment opportunities with high returns, such as daily 1% or monthly 30%. Normal investment principles tell us that high returns must come with high risks, and these promises are inherently contradictory.

The fund chain game of “borrowing from Peter to pay Paul”

They have no real investment channels or profit models. The so-called “investment returns” are entirely derived from the principal invested by subsequent investors. As long as new funds keep flowing in, the game can continue; once new investors slow down or large withdrawals occur, the entire plan will reveal its true nature.

Complex and mysterious “black technology” packaging

Scammers love to make their strategies and products extremely complicated and vague, creating an illusion that “ordinary people cannot understand.” They claim to possess some secret knowledge, boast that the project initiator is a genius or hero, to build blind trust among investors.

10 tips to avoid falling into scams: How to identify and steer clear of “Ponzi schemes”

1. Be wary of “get rich quick” schemes

Scammers exploit human greed. Before investing any money, ask yourself: does this return violate common sense? If the answer is “yes,” then ring the alarm.

2. Understand the essence of investment risks

There is no such thing as a guaranteed profit with zero risk. If a project claims guaranteed profits, zero risk, and never losing money, it is 100% a scam. Real investments are always affected by economic cycles and market fluctuations.

3. Have a basic understanding of the project’s investment strategy and products

If the investment advisor’s explanation is incomprehensible, it’s not because you’re too stupid; it’s likely they’re deliberately creating confusion. Legitimate projects should be able to explain clearly and simply.

4. Beware of pyramid-like recruitment schemes

When friends or colleagues suddenly invite you enthusiastically to join a project and hint that “referring others earns commissions,” it’s a typical sign of multi-level marketing. Genuine investments do not require you to recruit others.

5. Pay attention to transparency of information

If, when asking for details, you only get vague answers or excuses, be cautious. Legitimate projects should be willing to answer any investor questions in detail.

6. Check the legal registration of the project

Use public channels like business registration systems to verify the company’s license, registered capital, and basic info. Unregistered investment projects pose significant risks.

7. Watch out for withdrawal difficulties

A major feature of Ponzi schemes is setting up various withdrawal obstacles—such as high fees, changing withdrawal rules at will, or delaying fund arrival. If investors face constant withdrawal problems, it’s a red flag.

8. Research the background of the initiator

Don’t be fooled by superficial titles. Scammers often portray themselves as “genius investors” or “industry leaders.” Before investing, thoroughly investigate their background, past projects, and whether they have any blemishes.

9. Seek advice from professionals

If unsure, consult independent financial advisors or investment experts. Letting professionals review your options is much wiser than blindly investing alone.

10. Remember the fundamental rule: “Risk and reward are proportional”

This is the most basic principle of investing. Whenever you see a project that violates this rule, skip it immediately. Never believe anyone or any project that claims to break this law.

Summary: Stay alert, stay away from scams

Ponzi schemes have evolved from the stamp business over a hundred years ago to today’s virtual currency projects. The form changes, but the essence remains the same—using high returns to create illusions, then using the funds of later investors to pay “profits” promised to earlier ones, ultimately disappearing when the funds run out.

No matter how cleverly scammers package and mutate these schemes, they all share a few common features: exaggerated promised returns, vague investment strategies, complex organizational structures, and difficult withdrawal processes.

The key to avoiding being scammed is: maintain a rational skepticism, refuse to be blinded by greed, and always remember the simplest truth of financial markets—the world offers no free lunch; high returns always come with high risks. When you can do this, even the most sophisticated Ponzi scheme cannot harm you.