Generation Zoe is not the first nor will it be the last of this type: With the arrival of cryptocurrencies, NFTs, digital assets and more options to generate money online, these schemes increasingly take advantage of the unwary who believe they are not, supported, in addition, by social networks.
As Ualá published on his blog, A Ponzi scheme is a fraudulent form of investment that consists of “attracting investors and paying profits to older investors with funds from new investors. The victims, for their part, believe that their profits come from legitimate investments.”
“A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as the majority of investors do not demand full repayment. and continue to believe in the non-existent assets that they supposedly possess”, explained the financial institution.
In this sense, Ualá remarked that, although similar, a Ponzi scheme and a pyramid scheme are not the same. Pyramid fraud or pyramid scheme “is a crime that violates articles 309 and 310 of the Penal Code, which punishes the crime of unauthorized financial intermediation. In a pyramid system, lThe initial participants bring more people into the scheme with the aim that the new members generate benefits (earnings) to those who started. For it to work, it is necessary that the number of new participants is greater than that of the initial ones and that is why it is given the name of pyramid”.
How does it work? The person who starts the scam must achieve, depending on the system variant, between 2 and 6 people who put money. “Let’s suppose a pyramid scheme where the first person who initiates it gets 6 people to make contributions of $1,000 each. Once the contributions are made, that person withdraws from the pyramid and these 6 new members go up to the next level”, explained Ualá.
A pyramid scheme is unfeasible: if it starts with 6 participants, after 13 rounds it would take more people than the total population of the planet. Therefore, it is impossible for the system to work regardless of the number of initial participants.
In a Ponzi scheme, the role of the operator is key, since it is the contact and recruiter of the victims, while in the pyramid scheme it is the victims who recruit other victims. On the other hand, the Ponzi scheme makes fraudulent investments and is justified with inside information, while the pyramid scheme informs from the beginning about the need to attract new investors to get the payment.
Finally, the Ponzi scheme can survive a long time, as Bernie Madoff’s did, if the participants “reinvest” their money. In contrast, the pyramid scheme cannot last: the need to constantly attract new investors causes it to collapse in a short time.
Source: Ambito
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