Cryptocurrencies are Ponzi chit-fund scams in the making

look at how easy it is for your cryptocurrency investment to vanish into thin air if you accidentally fall prey to a Ponzi chit-fund scam in the guise of a cyptocurrency purchase.

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The latest buzzword in India regarding investments is ‘cryptocurrency’. Ever since Bitcoin and Ethereum made a significant jump in their monetary value, people have been investing their money into blockchain-based currencies that are purely anonymous and are hard to track by governments.

No wonder that our Finance Ministry has started a crackdown on people who are evading income tax by investing money into currencies like Bitcoin (BTC), Ethereum (ETH), Monero (XMR) , Ripple (XRP), Zcash (ZZEC), Litecoin (LTC), etc. to make money on investments that are currently way higher than the value of a rupee!

The downside, however, is that these currencies are susceptible to hackers and coin miners who process and verify these transactions. This is why we are terming it a Ponzi scheme or chit-fund scam where people can simply steal away your life-saving in a second if they can hack the encryption code and leave you bankrupt!

What is a cryptocurrency?

It is a form of a digital currency developed by Satoshi Nakamoto (the unknown inventor of Bitcoin and first ever cryptocurrency holder in the world) which uses AES-256-CBC encryption format to generate units of currency, verify transfer of funds and keep things anonymous from both ends (the payer and the payee).

Unlike a central bank, where you can track whereabouts of an investor and investment exchange with account details, everything here works with a passcode and in encrypted blocks that store transaction history. No one can track anyone if the payment was made via anonymous channels.

How is it unsafe?

  • Extreme volatility – The currency runs on market speculation. It can jump up or dive in seconds or stay stagnant at a horrifically lower value compared to your investment for months!
  • Not Legal in India – It is still not being granted the status of legal, tradeable currency in India simply because it is anonymous and will act like a tax haven for black-money hoarders who instead of storing physical currency can simply hide money in virtual blockchains.
  • Unregulated – Since it is encrypted and is not regulated by any government body like SEBI, you have zero chance of grievance redressal apart from the coin exchange you actually bought the coins from.

What are Ponzi Schemes and Chit Fund Scams?

Chit-funds are savings-cum-borrowing schemes where subscribers invest money every month by pooling funds together called a pot (corpus) which is held by a foreman. If someone wants to withdraw money during an emergency, he has to offer the lowest possible bid to win this pot. There is no guarantee of fixed returns here and there is a huge chance of fraud if the foreman or if any other subscriber defaults on a monthly payment.

In India, many chit funds are run by the government (Nidhi companies and NBFCs) which are safe, however, many shell companies run chit funds illegally which eventually turn out to be Ponzi schemes where the organizer of the fund runs away with the corpus and duping every one of their money. Ponzi schemes are basic pyramid schemes which operate on the simple idea of “rob Rahul to pay Ramesh” principle. Many such schemes in India have turned out to be bogus when people started complaining about their lost money.

Some infamous chit-fund scams in India

  • The Rose Valley Ponzi scam of West Bengal; Rs 15,000 crore
  • Basil International Limited chit fund scam; Rs 3500 crore
  • Saradha Group chit fund scam; Rs 580 crore
  • Sea Shore Group chit fund scam; Rs 580 crore
  • Artha Tattva Group chit fund scam (part of Saradha scam)

As you can see, millions of subscribers lost their money trying to win big sums of money. These scams have now turned digital. Similarly, cryptocurrency holdings are also being targeted in the same way via many fraudulent coin exchanges who offer coins for sale via ICOs (initial coin offerings) and also by hacking into your subscribed blockchain or coin exchange and stealing your entire blockchain.

Cryptocurrency Offerings that turned/may turn into Chit-Fund Scams

  • Onecoin: A Ponzi scheme which raised and stole more than $50 USD million thanks to a cleverly crafted Facebook marketing strategy. It sold educational packages to buyers in exchange for onecoin and it spread from Bulgaria to Hong Kong.
  • Centurion Coin: A website called Truffacoin operated a charity foundation where a multi-level marketing (MLM) scheme duped investors of their money.
  • LCF Coins – These coins promote themselves in China via Google forms claiming to sell e-commerce Rothschild & Co (financial advisory firm) advised people to avoid this currency.
  • The US Commodity Futures Trading Commission (CFTC) claims to have charged three different bitcoin cryptocurrency operators for setting up Ponzi schemes and defrauding customers.
  • Bitconnect, a coin lending and exchange platform is shutting down. It has been suspected to be a Ponzi scheme in the crypto community.
  • Hackers stole rupee 95 lakh Ethereum via a fake crypto sale (ICO) of Experty.

These are just a few examples. There are also other ways in which your cryptocurrency can be lost: For example:

  • A lot of Japanese coin exchanges are being targeted via continuous DDoS attacks to mine and steal blockchains where people can lose access to their block forever.
  • Many coin exchange owners are being kidnapped in exchange for ransom in coins.
  • The Indian government might order you to seize trading or surrender your coins since they do are not included under taxable income as of now.


So, you can now make an informed decision if you wish to invest in a cryptocurrency or not. There have been heightened fear and outcries globally which question the future of cryptocurrency, its legality and its impact on the global financial system.

We would suggest you invest elsewhere or you just might unknowingly fall into a Ponzi scheme!


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