Bitcoin, Dogecoin, XRP—these are just a few of the many cryptocurrency options available online. But what do you know about this virtual coin, really?
While cryptocurrency is a legitimate alternative to the cold, hard cash we know and love, cryptocurrency crimes are on the rise.
How can you tell the difference between cryptocurrency and a cryptocurrency pyramid scheme? Let’s talk about it!
What Is Cryptocurrency?
According to the Merriam-Webster dictionary, cryptocurrency is defined as follows:
Any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions.
Cryptocurrency is digital currency protected by encryption. (Encryption converts information into code, making the information difficult to access without appropriate authorization.) Unlike the American Dollar, cryptocurrency is neither centralized nor regulated; instead, cryptocurrency’s value is maintained virtually.
While cryptocurrency can be used to purchase tangible items and services, cryptocurrency is treated more commonly as an investment. Just like you would if you were interested in buying stocks or bonds, you can contact a broker to invest in cryptocurrency.
What Is a Pyramid Scheme?
In many industries, it’s only a matter of time before fraudsters and scammers develop new ways to steal money from unsuspecting people hoping to make millions.
For example, cosmetics and hair care products have been around for ages. But in more recent years, numerous multi-level marketing companies and pyramid schemes have popped up in both industries. Some of these operations may offer the products they claim to, but they’ll often come at an abnormally high cost—and the representatives of these operations make more of their money from recruiting others than selling products.
What is a pyramid scheme? A pyramid scheme is an illegal scam that thrives on fraudulent investment. Those on top of the pyramid recruit people, those people recruit people, and so on. Each recruit is persuaded to “join” under the guise of obtaining a life-changing fortune or getting rich quickly and told they must pay to “get in” on the opportunity. That payment is then distributed upward, going to those in higher ranks.
Pyramid schemes rely on recruitment, not sales. Many pyramid schemes do not offer products or services at all, while others’ products and services are poor quality or must be purchased in surplus.
If pyramid schemes seem confusing or convoluted, that’s because they are. Participants are purposely vague and misleading while recruiting in order to manipulate others into joining.
Signs of a Pyramid Scheme
If you’re approached by someone in a pyramid scheme, they’ll likely attempt to recruit you. This can happen either in person or online.
When this happens, remember these signs of a pyramid scheme:
- You would receive more money from membership or recruitment fees than you would from sales. In a pyramid scheme, the emphasis is on recruiting more than anything else; otherwise, the pyramid would cease to exist.
- The product(s) sold offer little to no value. Many pyramid schemes “sell” virtual products like electronic books or online advertising services that turn out to be a sham.
- There is no evidence of the company’s sales or the financial records seem fishy. If you can’t find any financial records for the company, or the financial records indicate that income is primarily generated through recruiting, the company is probably a pyramid scheme. In general, if compensation isn’t clear—or you need to pay to get started—the opportunity is one you should avoid.
- If the opportunity sounds too good to be true, it is. Those in pyramid schemes target your vulnerabilities, especially financial vulnerabilities. Promises of early retirement or earning a high income for minimal work are attractive selling points; unfortunately, they’re not true. Remember to be realistic. You can’t get something for nothing!
When a “business opportunity” arises, dig for more details and ask specific questions. Keep an eye out for avoided questions and murky answers.
Is Cryptocurrency Safe?
Cryptocurrency remains a fairly new form of currency. The first cryptocurrency, Bitcoin, has only been around since 2009—and it didn’t gain widespread awareness until just a few years ago.
When authentic, cryptocurrency can be a valuable asset. It’s best to consult with an experienced broker if you’re interested in cryptocurrency. A broker will supply you with helpful information about your investment, as well as provide you a way to purchase cryptocurrency safely.
That said, cryptocurrency can come with risk because it’s not centralized or regulated. It’s important to investigate cryptocurrency exchanges before investing to keep yourself safe.
Watch out for these popular cryptocurrency pyramid schemes and scams:
- Bogus websites with excessive cryptocurrency jargon, fake testimonials, guarantees of return on your investment, and promises of unbelievable wealth.
- False celebrity endorsements through unverified social media accounts.
- Messages from strangers on social media about cryptocurrency investment.
- Cryptocurrency conversations on dating apps and websites.
- Fraudulent pitches to invest cryptocurrency into retirement accounts.
- Promises to invest your money and maximize return with minimal risk.
Cryptocurrency criminals often target impressionable people struggling with their finances. While plenty of adults fall into that category, children can be even more at risk of succumbing to these sorts of scams. Thankfully, your child won’t fall prey to a scammer’s tactics with Troomi. Troomi phones keep unknown callers and texters away, only allowing contacts approved by you to connect with your child. This SafeListing™ feature also applies to the Internet, keeping your kids safe from fraudulent and harmful websites.
So, is cryptocurrency safe? Or is cryptocurrency a scheme? Well, both. When legitimate, cryptocurrency can be used to shop or invest. But when purchased under false pretenses, cryptocurrency can drain your bank account. Always speak with a knowledgeable broker to avoid risks, schemes, and scams when considering cryptocurrency. Soon enough, you’ll be on your way to financial success!