Cryptocurrency-based financial pyramids in China: How to recognise and avoid cheating
Cryptocurrencies are becoming more popular each year, and along with this is a growing number of fraudulent schemes, such as financial pyramids, using cryptocurrency assets to attract investment. In China, such schemes are becoming especially common, attracting a huge number of investors, many of whom do not understand the risks and mechanisms of these fraudulent schemes. In this article, we look at what cryptocurrency-based financial pyramids are, how they operate in China and how their traps can be avoided.
1. What are cryptocurrency-based financial pyramids?
The Pyramid Scheme is a fraudulent scheme based on raising money from new entrants to pay income to previous investors. Unlike real business structures, which generate profits on the basis of work and goods or services, the financial pyramid has no sustainable source of income and simply redistributes funds from new participants to old ones.
In the case of cryptocurrencies, pyramids can use promises of high returns from investments in cryptocurrencies, mining or decentralized financial applications (DeFi). Fraudsters create the appearance of profitable projects, promising stable income from investments in digital assets, but in fact the money only goes to payments to old participants in the scheme.
2. How do cryptocurrency-based financial pyramids work in China?
2.1. Attracting investors with promises of high returns
The main goal of the financial pyramids is to attract as many new investors as possible, promising them high returns that significantly exceed market rates. In China, where many people are looking for opportunities to increase capital quickly, such offers look particularly attractive. Fraudsters often promise up to 300% per annum or even more, which is a clear sign of fraud.
In order to attract attention, fraudsters can use popular cryptocurrency terms and blockchain technologies, claiming that their projects are based on new innovative solutions, such as cryptocurrency mining platforms, DeFi protocols or NFT assets.
2.2. Building a Pyramid and Reallocating Funds
As in classic financial pyramids, new entrants contribute money that goes towards payments to earlier investors. Externally, the scheme can look like a legitimate business, with professionally designed sites and actively promoted advertising. However, real profits are generated not through investments in cryptocurrencies, but by attracting new participants whose funds go to pay income to previous users.
Often, such schemes are successful during the first months or even years, which makes them attractive to beginners. However, as soon as the number of new entrants begins to decline or the first signs of financial problems appear, the scheme collapses and most investors lose their money.
2.3. Signs of financial pyramids in the crypto industry
1. Promises of unrealistic earnings. If a project promises guaranteed profits of 100% or more in a short time, that's a clear signal for caution. The cryptocurrency market is highly volatile, and no one can guarantee a stable profit.
2. Lack of transparency. In financial pyramids, there is usually no clear information about exactly how a project makes money. All investments are simply redistributed, and the scheme often hides or misrepresents information about its activities.
3. Raising funds through personal recommendations. If a project actively uses marketing based on referrals and invitations from friends to receive bonuses, it can also be a sign of a financial pyramid. In most cases, such schemes encourage participants to attract new investors.
4. Failed attempts to withdraw money. If members face difficulty trying to withdraw their funds or face huge fees or delays, it could be a sign that the scheme is on the verge of collapse.
3. How to avoid falling into the trap of financial pyramids?
3.1. Verifying Project Information
Before investing in any cryptocurrency project, always conduct a deep check. Look at feedback from independent experts, read cryptocurrency-related forums and look for information about the project team. It is also recommended that you check the project creation history and its legal status.
3.2. Profitability and Risk Assessment
Do not believe in the promises of a guaranteed income. In the cryptocurrency sphere, high risks are always associated with the possibility of large losses. If the returns seem too good to be true, it's most likely a scam scheme.
3.3. Using Proven Platforms
It is worth investing only on proven cryptocurrency exchanges with a good reputation and a history of work, such as Binance, Huobi, OKEx and other large sites. They provide sufficient security measures and undergo regular audits.
3.4. Beware of using personal recommendations
Fraudsters often use referral links and bonuses for attracting new participants. If the project actively encourages attracting new people to receive bonuses or additional rewards, be on your guard and avoid such offers.
4. Conclusion
Cryptocurrency-based financial pyramids continue to attract large numbers of people in China, promising them quick and easy income. However, most such schemes are scams that will sooner or later collapse, leaving investors without money. To avoid falling into such traps, it is important to scrutinize projects, not believe in unrealistic promises of returns and use only proven investment platforms. Knowing the main signs of fraud and being attentive to detail will help protect your funds from loss.
Cryptocurrencies are becoming more popular each year, and along with this is a growing number of fraudulent schemes, such as financial pyramids, using cryptocurrency assets to attract investment. In China, such schemes are becoming especially common, attracting a huge number of investors, many of whom do not understand the risks and mechanisms of these fraudulent schemes. In this article, we look at what cryptocurrency-based financial pyramids are, how they operate in China and how their traps can be avoided.
1. What are cryptocurrency-based financial pyramids?
The Pyramid Scheme is a fraudulent scheme based on raising money from new entrants to pay income to previous investors. Unlike real business structures, which generate profits on the basis of work and goods or services, the financial pyramid has no sustainable source of income and simply redistributes funds from new participants to old ones.
In the case of cryptocurrencies, pyramids can use promises of high returns from investments in cryptocurrencies, mining or decentralized financial applications (DeFi). Fraudsters create the appearance of profitable projects, promising stable income from investments in digital assets, but in fact the money only goes to payments to old participants in the scheme.
2. How do cryptocurrency-based financial pyramids work in China?
2.1. Attracting investors with promises of high returns
The main goal of the financial pyramids is to attract as many new investors as possible, promising them high returns that significantly exceed market rates. In China, where many people are looking for opportunities to increase capital quickly, such offers look particularly attractive. Fraudsters often promise up to 300% per annum or even more, which is a clear sign of fraud.
In order to attract attention, fraudsters can use popular cryptocurrency terms and blockchain technologies, claiming that their projects are based on new innovative solutions, such as cryptocurrency mining platforms, DeFi protocols or NFT assets.
2.2. Building a Pyramid and Reallocating Funds
As in classic financial pyramids, new entrants contribute money that goes towards payments to earlier investors. Externally, the scheme can look like a legitimate business, with professionally designed sites and actively promoted advertising. However, real profits are generated not through investments in cryptocurrencies, but by attracting new participants whose funds go to pay income to previous users.
Often, such schemes are successful during the first months or even years, which makes them attractive to beginners. However, as soon as the number of new entrants begins to decline or the first signs of financial problems appear, the scheme collapses and most investors lose their money.
2.3. Signs of financial pyramids in the crypto industry
1. Promises of unrealistic earnings. If a project promises guaranteed profits of 100% or more in a short time, that's a clear signal for caution. The cryptocurrency market is highly volatile, and no one can guarantee a stable profit.
2. Lack of transparency. In financial pyramids, there is usually no clear information about exactly how a project makes money. All investments are simply redistributed, and the scheme often hides or misrepresents information about its activities.
3. Raising funds through personal recommendations. If a project actively uses marketing based on referrals and invitations from friends to receive bonuses, it can also be a sign of a financial pyramid. In most cases, such schemes encourage participants to attract new investors.
4. Failed attempts to withdraw money. If members face difficulty trying to withdraw their funds or face huge fees or delays, it could be a sign that the scheme is on the verge of collapse.
3. How to avoid falling into the trap of financial pyramids?
3.1. Verifying Project Information
Before investing in any cryptocurrency project, always conduct a deep check. Look at feedback from independent experts, read cryptocurrency-related forums and look for information about the project team. It is also recommended that you check the project creation history and its legal status.
3.2. Profitability and Risk Assessment
Do not believe in the promises of a guaranteed income. In the cryptocurrency sphere, high risks are always associated with the possibility of large losses. If the returns seem too good to be true, it's most likely a scam scheme.
3.3. Using Proven Platforms
It is worth investing only on proven cryptocurrency exchanges with a good reputation and a history of work, such as Binance, Huobi, OKEx and other large sites. They provide sufficient security measures and undergo regular audits.
3.4. Beware of using personal recommendations
Fraudsters often use referral links and bonuses for attracting new participants. If the project actively encourages attracting new people to receive bonuses or additional rewards, be on your guard and avoid such offers.
4. Conclusion
Cryptocurrency-based financial pyramids continue to attract large numbers of people in China, promising them quick and easy income. However, most such schemes are scams that will sooner or later collapse, leaving investors without money. To avoid falling into such traps, it is important to scrutinize projects, not believe in unrealistic promises of returns and use only proven investment platforms. Knowing the main signs of fraud and being attentive to detail will help protect your funds from loss.