A Ponzi scheme is a fraudulent enterprise that finances its activities and pays old investors by collecting money from new investors instead of engaging in legitimate business activities. While details of various cryptocurrency Ponzi schemes can be different, they typically have one thing in common: they will want to you send them your coins and in return they will promise that they will generate profits that significantly beat market averages, typically over a span of several weeks. In most scenarios, cryptocurrency Ponzi schemes also add an element of multi-level network marketing and try to have their users recruit friends and acquaintances. This is why you won’t see random people talking about an exchange and won’t see a lot of posts on open forums going a while back. Instead, you will have someone who invested recently trying to recruit you or have an exchange asking you to bring your friends to the exchange as soon as possible. If you see this kind of activity and hear something that sounds too good to be true, it probably is. Check the forums and ask around before you invest.
Mining pool scams
An Ethereum mining pool is a group of people or entities that bring their resources together in order to mine Ether currency and perform operations on the Ethereum network. Some legitimate providers services at an attractive price because they are able to buy equipment in bulk, rent space for hardware at an attractive price and have access to inexpensive energy. Some legitimate mining pools and companies also do have investors. When you invest in such pools, you get shares just like you would get shares of a company if you were to invest in a regular stock. Once the pool becomes operational, you start getting your returns according to the agreement that you make with the pool.
Once a legitimate pool collects the funds, it then uses the funds to scale its infrastructure and buy equipment at attractive bulk prices to increase the number of blocks that the pool is mining successfully and getting paid for in Ether rewards.
One of the difficulties with fraudulent mining pools is that they may look just like legitimate pools. Scammers will tell you about their plans to scale, explain how and where they are going to get and install the equipment or lease hardware. They may also be able to show you pictures, send you updates on the progress of the venture and even start sending you returns once the pool is supposed to be working. On the surface, everything may look great and legitimate.
However, no Ponzi scheme can last forever. Eventually, the returns will start decreasing or stop altogether. Paying attention to the return rates and asking for more information if and when you see rates going down are some of the steps you should take if you start noticing irregular activity occurring with the mining pool.
Because telling a legitimate mining pool from a fake one can be hard, one the first thing you want to do is check the reputation of people behind the pool.
When considering your options, ask mining pool creators about details such as what blockchain cluster they plan to use to mine blocks and hash rates stats. Legitimate pools with always have limitations because buying, installing and maintaining hardware is a complex process. Fake services are likely to get confused when providing you with technical data. It is also possible that they will start making claims about having no limits.
Another great way to check the legitimacy of a pool is to actually call hardware vendors and real estate landlords that pool owners claim to use. A legitimate pool is likely to place a big order for expensive hardware and the vendor will be able to tell you if the purchase has actually occurred. If your pool is claiming to be renting space for the servers at a certain data center, you can call the center and ask them about the pool being one of their customers.
Many of the legitimate pools with have information about their hardware, location and endorsements right on the website. If they don’t have it on the website, you should not run into any issues when you ask them for the information because such requests are absolutely reasonable.