Cloud Mining Ponzi Scheme

Ponzi scheme

A Ponzi scheme pays returns to its early investors from new capital paid by new investors. Ponzi schemes attract new investors by offering higher returns than other investments. The returns are generally abnormally high or unusually consistent.

Characteristics Ponzi Scheme

New opportunities with limited knowledge
The company sells shares to investors by taking advantage of a lack of investor knowledge or competence. By doing this, the company can claim the investment strategy must be kept secret to ensure a competitive edge.
Initial high investments
Initially, the promoting company will pay out high returns to attract reinvestments and more investors. When other investors begin to deposit it will lead to a cascade effect. The returns to the early investors are paid out by the investments of the new investors and not out of profits.
High returns
Early investors often reinvest their money because of the high returns.The result of that means the promoting company does not have to pay out much to the investors. This maintains the deception that the scheme is a legit company with high returns.
New offers for reinvestments
The promoting companies also try to minimize withdrawals by offering new plans to investors. Typically, the promoter asks for more money and the money is frozen for a longer time in exchange for higher returns. The withdrawal request is usually promptly solved to give the investors an illusion that the funds are solvent.
Long time investments
Usually, the companies ask for long term investments to secure the capital from sudden withdrawals.
Consistent payments
Fluctuations in the return on the investments raise questions from investors. Since Ponzi schemes and fraudulent companies would like to have as few questions as possible from investors payouts are usually abnormally consistency.

The end of Ponzi
A Ponzi scheme sooner or later falls for on of the following reasons.

The company decides to stop the investment plan for any reason. Could be fro authorities or any other reason.
There are too many withdrawals at once and the company can´t handle all the withdrawals.
The flow of new investors money slows down compare to the increasing withdrawals. This cloud turn in a long shut down period with consistent lower payouts for a time.

Cloud mining Ponzi scheme

Why is cryptocurrency cloud mining perfect business for Ponzi schemes? We will go through the typical characteristics of a classic Ponzi scheme and explain why it´s perfect for cloud mining.

New opportunities with limited knowledge
Cloud mining is a new investment opportunity and the general knowledge about cryptocurrency mining is relatively low.
Initial high investments
The initial investments are not very high in cloud mining. However, almost all companies have a minimal investment of a few dollars which could theoretically be lower with Bitcoin deposits.
High returns
With cloud mining, you can offer returns on investment in any range from 8%- 300%. Because it´s a new investment opportunity and the public have little knowledge about a realistic return it´s possible to offer unrealistic high returns without being suspect.
New offers for reinvestments
It´s very easy to send new offers to current investors by email and online advertisement.
Long time investments
Usually, the contracts are bought for a lifetime and therefore it´s easy for a scam to also offer lifetime contracts to investors.
Consistent payments
Payments could be consistent. However, in cryptocurrency, the payouts shouldn´t be since the price changes a lot. Also, the mining difficulty also changes all the time dependant on competitors and bitcoin inflation.