Cryptocurrency has opened new possibilities for financial freedom, decentralization, and innovation.
But alongside the opportunity, a darker trend persists: scams hiding behind the promise of fast profits. Among the most dangerous and persistent are Ponzi and Pyramid Schemes.
Though they’ve existed for over a century, these scams have adapted to crypto, becoming harder to detect and more global in scope.
This guide will equip you with the essential knowledge to identify how crypto Ponzi schemes and pyramid scams operate in crypto, understand how they intersect, learn from real-world examples, protect yourself from potential fraud, and take swift, informed action if you ever become a victim.
Understanding Crypto Ponzi Schemes in Crypto
A Ponzi scheme is a fraudulent investment operation where returns to earlier investors are paid using the capital of newer investors, rather than legitimate profits. The scam depends on a steady stream of new money.
Once new investments slow down or stop, the scheme collapses, leaving most participants with losses.
In crypto, Ponzi schemes often take the form of fake staking platforms, lending protocols, or investment funds that promise high returns.
The technology may be real, but the returns are not. Some even use fabricated dashboards, AI-generated activity, or phony smart contracts to appear authentic.
Red Flags of a Crypto Ponzi Scheme
- Guaranteed, high, or fixed returns
- No clear explanation of how profits are generated
- Difficulty withdrawing funds
- Centralized control over wallets or smart contracts
- Overuse of buzzwords like “AI trading bot,” “automated profits,” or “next-gen finance”
Pyramid Schemes in the Crypto Space
A pyramid scheme focuses on recruitment rather than investing. Participants must pay to join and earn rewards primarily by recruiting others, who also pay.
Each layer of recruits feeds money to the level above, forming a literal pyramid of contributors.
In crypto, pyramid schemes often appear as token sales or platforms where users earn more by inviting others.
They sometimes offer a “product,” like a trading bot or education package, but the real money comes from referral bonuses.
Red Flags of a Crypto Pyramid Scheme
- Emphasis on recruiting rather than the product
- Commissions or rewards based on your network size
- Upfront payments required to join
- No independent utility or value of the token/project
- Often lacks a real, functioning blockchain
Where Crypto Ponzi Schemes and Pyramid Models Collide
The line between Ponzi and pyramid schemes often blurs. Many crypto scams combine both models to maximize reach and appeal:
- A Ponzi core (fake investment returns)
- A pyramid wrapper (referral bonuses and recruitment incentives)
How Crypto Ponzi and Pyramid Schemes Work
Many fraudulent crypto projects operate as hybrids, combining elements of both Ponzi and pyramid schemes to appear more legitimate and spread faster.
For instance, users may be promised daily returns for staking tokens—a classic Ponzi tactic where early participants are paid with funds from new ones.
At the same time, these platforms often offer referral bonuses or commissions for inviting others, mimicking the recruitment-based structure of pyramid schemes.
This dual approach creates the illusion of a thriving ecosystem. As more users join, early participants appear to earn rewards, reinforcing trust.
But behind the scenes, no real value is being created—just the redistribution of funds. Once new investments slow down, the system inevitably collapses, leaving the majority of users with losses.
To add credibility, these hybrid crypto Ponzi schemes often disguise themselves as legitimate ventures:
- Referral networks are branded as “affiliate programs” or “ambassador rewards.”
- Marketing focuses on “passive income” and “automated gains” to attract beginners.
- Influencers and fabricated testimonials boost visibility and trust across social media.
Because they blend technical jargon with polished interfaces and community hype, these scams can seem indistinguishable from real projects, until it’s too late.
Real World Examples of Infamous Crypto Ponzi Schemes
Let’s break down some of the most infamous schemes that rocked the crypto world.
1. BitConnect
BitConnect, launched in 2016, was a cryptocurrency platform that promised investors daily returns through a so-called “trading bot.”
The platform required users to lock up their Bitcoin and purchase BitConnect Coin (BCC), combining elements of both Ponzi and pyramid schemes. Early investors were paid from funds brought in by newer participants.
In January 2018, BitConnect shut down after regulatory warnings from authorities in Texas and North Carolina. Its token crashed by over 90%, wiping out investor funds.
Multiple lawsuits and arrests followed. In September 2021, the U.S. Securities and Exchange Commission (SEC) sued BitConnect, its founder Satish Kumbhani, and promoter Glenn Arcaro, alleging that BitConnect defrauded U.S. investors of a total of $2.4 billion.
Arcaro pleaded guilty to criminal charges and was ordered to pay $17 million in restitution to approximately 800 victims. BitConnect is now a case study in cryptocurrency Ponzi schemes.
2. OneCoin
Founded in 2014 by Ruja Ignatova, OneCoin was pitched as a groundbreaking cryptocurrency but turned out to be a global fraud.
It had no actual blockchain, and the tokens were entirely fictional. Investors purchased packages and were incentivized to recruit others, forming a massive Ponzi structure.
The scheme used aggressive marketing, high-profile conferences, and psychological manipulation to lure over 3 million people and generate more than $4 billion in illicit funds.
Ruja disappeared in 2017 and remains at large, while her brother and other associates have been convicted or face charges. The case gained widespread media attention and was the subject of documentaries and podcasts, such as BBC’s “The Missing Cryptoqueen”, which investigates Ruja’s disappearance and the inner workings of the scam.
OneCoin remains one of the most infamous scams in crypto history.
3. PlusToken
A Chinese-based wallet service, PlusToken promised users high returns through a so-called arbitrage trading algorithm.
Between 2018 and 2019, it attracted billions in deposits. When the operators vanished, an estimated $2 to $2.9 billion had been stolen.
Authorities arrested several individuals, but most funds were never recovered.
PlusToken withdrawals had actually been payouts to earlier users—classic crypto Ponzi scheme behavior masked with a shiny app.
4. Mirror Trading International (MTI)
Operating out of South Africa, MTI claimed to use AI-driven Bitcoin trading to deliver consistent returns. It gained global attention and thousands of members.
But in 2020, its CEO disappeared, and investigations revealed it was a Ponzi scheme. Losses were estimated at over $500 million.
He was later located and arrested in Brazil in December 2021 on an INTERPOL warrant. In April 2023, a U.S. federal court ordered Steynberg to pay over $3.4 billion in restitution and penalties, marking the largest civil monetary penalty ever imposed by the Commodity Futures Trading Commission (CFTC).
Steynberg remains in Brazil, awaiting extradition to South Africa, where he faces multiple charges related to the MTI fraud
5. USI Tech
USI Tech, launched as a forex and crypto investment platform, promised daily returns through Bitcoin packages and offered an aggressive referral program.
Operating under a multi-level marketing (MLM) model, it attracted thousands of users globally, particularly in Brazil, Germany, and South Africa.
Despite claims of using automated trading software, the company never provided verifiable proof of actual trading activity.
In late 2017, regulators in the U.S. and Canada issued warnings, and by early 2018, the platform collapsed—freezing user withdrawals and triggering massive losses.
Investigations later revealed that returns were paid using new investor funds, not trading profits—marking it as a classic Ponzi scheme.
Today, USI Tech serves as a warning about the dangers of unregulated crypto investments wrapped in promises of passive income.
6. QuadrigaCX
Gerald Cotten, founder of QuadrigaCX, committed fraud by creating fake accounts with non-existent balances to simulate trades and used new user deposits to pay out earlier ones—typical of a Ponzi scheme.
He transferred customer funds to personal accounts, spending lavishly, and was the only person with access to the company’s wallets, with no internal oversight.
The Ontario Securities Commission (OSC) concluded that QuadrigaCX operated as a Ponzi scheme, with Cotten’s fraudulent activities leading to the loss of at least $169 million from 76,000 investors.
The case has been widely covered in media, including the Netflix documentary Trust No One: The Hunt for the Crypto King, which delves into the mysterious circumstances surrounding Cotten’s death and the missing funds.
7. GainBitcoin (Amit Bhardwaj)
Amit Bhardwaj, an Indian entrepreneur, founded GainBitcoin in 2015, promoting it as a cloud mining platform that promised investors a 10% monthly return over 18 months.
The scheme operated through a multi-level marketing (MLM) model, with Bhardwaj at the top, followed by his “Seven Stars” who recruited investors across India and abroad.
Initially, payouts were made in Bitcoin, but as the scheme’s sustainability waned, investors were compensated with a less valuable cryptocurrency called MCAP.
In April 2018, Bhardwaj was arrested in Bangkok and extradited to India, facing charges related to a $300 million Ponzi scheme. Investigations revealed that he and his associates had amassed over 82,000 Bitcoins and operated more than 84,000 user IDs.
Despite his arrest, the case’s complexity led to its transfer to the Central Bureau of Investigation (CBI) by the Supreme Court in December 2023.
Bhardwaj passed away from cardiac arrest in January 2022 at the age of 38. The GainBitcoin scam is considered one of India’s largest cryptocurrency frauds, with losses potentially exceeding ₹1 lakh crore (approximately $13 billion), affecting over 100,000 victims.
8. Forsage
Forsage marketed itself as a decentralized smart contract platform on Ethereum and later Binance Smart Chain.
It operated as a classic pyramid scheme under the guise of DeFi. The U.S. SEC charged its founders in 2022, alleging they defrauded investors of over $300 million.
Forsage is now widely recognized as one of the most aggressive crypto Ponzi schemes tied to smart contracts.
Why Crypto Ponzi Schemes Thrive
- Anonymity: Scammers can operate without revealing identities.
- Lack of regulation: In many regions, crypto operates in legal gray areas.
- Hype and FOMO: Many people rush in without understanding what they’re buying.
- Technical confusion: Scammers often use jargon like “staking,” “arbitrage bots,” and “smart contracts” to sound credible.
- Global reach: Borderless technology allows fraud to scale quickly across countries.
- Social media virality: Telegram, Discord, and X (Twitter) allow fast propagation of crypto Ponzi schemes.
Is Crypto a Pyramid Scheme?
No, crypto is not a pyramid scheme. It’s a technology—blockchains, digital tokens, smart contracts—that enables decentralized applications and peer-to-peer transactions.
However, scammers have used crypto to run actual pyramids and Ponzi schemes disguised as investments, staking platforms, or tokens.
These scams often:
- Require recruitment to earn rewards
- Promise unrealistic or guaranteed returns
- Collapse when new users stop joining
Because of this, some mistakenly assume crypto itself is a scam. But the technology is neutral and its healthy use depends on the people behind it.
Is Bitcoin a Ponzi Scheme?
No, Bitcoin is not a Ponzi scheme. Ponzi schemes pay early investors with money from newer ones and eventually collapse. They usually have:
- A central operator
- Promised returns
- No real economic activity
Bitcoin doesn’t fit this model. It’s:
- Decentralized (no single entity in control)
- Transparent (anyone can see transactions on the blockchain)
- Voluntary (no one is promised profits or required to recruit others)
While its speculative and early adopters did benefit more, that also applies to things like tech stocks or gold. Bitcoin is a tool—not a scam.
How to Protect Yourself from Crypto Ponzi Schemes
- Verify the product: Is there real utility, or is it just a promise?
- Understand the returns: Anything over 10–20% annually should be questioned.
- Check the team: Are the founders verifiable and active?
- Read the smart contract (or ask a developer). DYOR
- Be skeptical of referral-based models.
- Avoid pressure tactics: Any urgency or countdowns to invest are red flags.
- Follow regulators: Check for any alerts from the SEC, FCA, or your country’s watchdog.
- Stay informed: Use community forums like Reddit or crypto Twitter to see if others have flagged the project.
- Research the blockchain: If there’s no real ledger, it’s likely a crypto Ponzi scheme in disguise.
Use Reliable Tools for Extra Due Diligence
To strengthen your research and detect possible red flags, consider using the following resources:
- Etherscan, KleverScan, BscScan, or other explorers to verify smart contract activity and token distribution.
- DappRadar to check if the dApp is active, popular, or gaining traction.
- GitHub repositories to analyze the development activity—stale or inactive projects may signal abandonment or lack of transparency.
- Third-party audits like CertiK, Hacken, or Quantstamp can provide insights into code security.
- DeFiSafety or RugDoc to review safety scores, code ratings, and community feedback—especially for DeFi-related platforms.
These tools don’t guarantee a project is legitimate, but they greatly increase your chances of spotting risks early and avoiding scams.
What to Do If You Fall Victim to a Ponzi or Pyramid Scheme
Discovering you’ve been caught in a Ponzi or pyramid scheme can be overwhelming.
Whether the loss is financial, emotional, or both, it’s important to act quickly and strategically.
Here’s a step-by-step guide on how to respond if you’ve been targeted by such a scam, particularly in the context of crypto.
1. Cease All Payments and Communication
The first step is to stop sending any more money or digital assets.
Many scammers attempt to extract additional funds by promising higher returns or offering to “unlock” your original investment.
This is often part of the fraud cycle. Immediately disengage and avoid further interaction.
2. Preserve All Evidence
Gather and securely store any documentation related to the scheme. This includes:
- Transaction records and wallet addresses
- Email exchanges and chat logs
- Screenshots of the platform or dashboard
- Names, usernames, or aliases of people involved
These materials will be essential for reporting the scam and may support future legal action.
3. Report the Incident
Reporting the fraud helps authorities track larger networks and may assist others in avoiding similar schemes. Depending on your location, consider the following channels:
- Local law enforcement or cybercrime divisions
- National fraud agencies (e.g., FTC in the United States, Action Fraud in the United Kingdom)
- Financial regulatory bodies (e.g., SEC, CVM)
- The exchange or platform used in the transaction
You can also submit complaints to international organizations, such as:
- IC3.gov – FBI’s Internet Crime Complaint Center (U.S.)
- Europol – European Union’s criminal intelligence agency
4. Alert the Community
Once you’ve reported the scam, consider warning others to prevent further damage.
Post detailed, factual warnings on forums like Reddit, crypto communities, and review sites.
Be mindful not to defame, but focus on sharing your experience constructively.
5. Be Wary of Recovery Scams
Unfortunately, many scammers target victims twice.
They pose as “recovery specialists” who claim they can retrieve your lost funds—for an upfront fee.
These are almost always fraudulent. Avoid any service that promises guaranteed recovery or demands payment in advance.
6. Monitor and Protect Your Accounts
If you provided personal data to the scammers, such as copies of ID, passwords, or private keys, take immediate steps to secure your digital identity:
- Change passwords to your email, wallets, and accounts
- Monitor for unauthorized transactions or activity
- Consider transferring remaining funds to new, secure wallets
7. Consider Professional Legal or Technical Support
Depending on the amount lost and the complexity of the scam, consulting with a legal expert or crypto forensic analyst may be worthwhile.
Some specialized services can track transactions on-chain, identify where assets went, and assist law enforcement in investigations.
8. Learn from the Experience
As painful as the situation may be, use it as a learning opportunity. Understanding how these schemes operate can help you recognize warning signs in the future.
Familiarize yourself with common tactics such as:
- Promises of guaranteed or unrealistic returns
- Referral or commission-based incentives
- Lack of transparency or unclear business models
Urgency to “act now” or limited-time offers
Staying Vigilant, Stay Safe from Crypto Ponzi Schemes
Crypto is not the problem—bad actors are.
While blockchain offers transparency and decentralization, scammers exploit the excitement around new technology to repeat old tricks.
Crypto Ponzi schemes and pyramid scams may look high-tech, but at their core, they follow the same deceptive formulas.
Education, skepticism, and due diligence are your best tools. If something sounds too good to be true, especially in crypto, it probably is.
Quick Checklist to Avoid Crypto Ponzi Schemes
- Are high or guaranteed returns being promised? That’s a major red flag.
- Does the project require you to recruit others to earn? It likely follows a pyramid structure.
- Is there no real product or useful service behind the project? Be cautious — it may lack substance.
Are you facing difficulties withdrawing your funds? This is a serious warning sign. - Does it offer unusually high affiliate commissions? Investigate how the system sustains itself.
- Is the team anonymous or unverified? Always research the people behind the project.
- Is the smart contract closed-source or unclear? Ask a developer to review it.
- Is there pressure to invest quickly or “limited-time” offers? Avoid acting under urgency.
- Does the project lack a verifiable blockchain? That’s a strong indicator of fraud.
Has someone offered to recover your funds for a fee? This is often a scam layered on top of another.
Stay Safe, Be Klever
As crypto adoption grows, so do the schemes that aim to exploit it. Ponzi and pyramid scams are not relics of the past — they’ve evolved, becoming more sophisticated, more global, and harder to detect.
But no matter how advanced the interface or persuasive the pitch, these schemes rely on the same foundation: false promises, manufactured trust, and the hope that you won’t ask too many questions. Protecting yourself starts with knowledge.
By staying informed, questioning unrealistic returns, and doing your own research, you can engage with the crypto space confidently and responsibly. In an industry built on innovation, vigilance is not just a precaution — it’s a necessity.
And when it comes to protecting your assets, you can count on Klever Wallet to secure your funds—both online and offline—with industry-grade encryption, cold storage support, and total control in your hands.
