The Ponzis around us.

With all the advancements in technology coming year after year, it’s just as important to stay on your toes, and be able to recognize older scams and cons repackaged in a shiny new coat of paint. Today I’d like to talk about Ponzi Schemes, and a relatively recent example of one. Celsius.

But first, what is a Ponzi Scheme? Ponzi schemes, also known as a Robbing Peter to Pay Paul scam, is a kind of fraud where a conman claims to have some revolutionary investment opportunity of one kind or another, that provides some incredible interest rate. People invest, and for a while things look good. The conman pays out on time, and even does full withdrawals for people. But once the income slows down, when people stop joining enmasse, what it truly is becomes clear. The interest payouts of older customers were financed by the ‘investments’ of newer customers, while the conman pocketed some of the money off the top. Once there aren’t enough new customers to sustain the payouts, the scheme collapses, and the conman runs off with the bag. A Ponzi Scheme can be identified by its trademark high payouts, and unclear profit method. Even when there is a clear method, the operation will be understaffed, and the supposed company will not actually operate their supposed services, and even when they do, they generally lose money doing so, and thus only do it as a front. Charles Ponzi, after who the scheme is named, claimed to offer a service wherein tons of profit could be made off buying International Reply postage stamps, and exchanging them in the US for more valuable postage. He of course attracted a lot of investors, and had thousands of dollars moving through him a day. While in fact he never bought or exchanged a single piece of postage. This is the trademark example of a Ponzi Scheme.

Celsius was a cryptocurrency company that claimed to allow its users to ‘unbank’ themselves. It claimed to give its customers interest rates all the way up to 17% APR. Far more than the few percentages at best offered by a bank. How? They claimed it was just by cutting out the middleman. Celsius said that Banks actually made this much on your money, and just pocketed it, whilst they claimed to give it all back, hence the high interest rates. There was just one problem though. Their interest was paid out in the Celsius cryptocurrency token, which the company had full control over. So they just printed and distributed more of it to pay their customers, which worked as long as money kept coming in. But when Bitcoin dipped, people pulled their money out, and Celsius went bust. It was just a Ponzi Scheme, dressed up in the gilded visage of innovation and technology.

This is not a unique occurrence either. Cryptocurrency, NFTs, AI software, all of these ‘innovative’ industries are plagued by scams of all kinds. This only makes it twice as important to keep yourself safe, and stay vigilant when interacting with fields on the cutting edge of technology, as people will try to make a buck off the public’s ignorance of a technology’s workings, while also being willing to invest in it in spite of that.