It’s amazing, nowadays, how everyone seems so generous on the likes of Twitter and Facebook. Check the replies to a tweet with high engagement, and you’ll no doubt see that one of your favourite crypto companies or influencers is doing a giveaway. If you send them just 1 BNB/BTC/ETH, they promise to send you back 10x that amount! It seems too good to be true, doesn’t it? Unfortunately, that’s because it is. This is a pretty good rule of thumb to apply to many of these scams.

It’s incredibly unlikely that someone is hosting a legitimate giveaway that requires you to first send your own money. On social media, you should be VERY wary of these kinds of messages. They might come from accounts that might look identical to the ones you know and love, but this is part of the trick. As for the dozens of replies thanking said account for their generosity – they’re just fake accounts or bots deployed as part of the giveaway scam.

You should just ignore these. Simple. If you’re really convinced they are legit, take a closer look at the profiles and you’ll see the differences. You will soon realize that the Twitter handle or the Facebook profile are fake.

In today’s world, your cryptocurrency is an incredibly valuable asset to criminals. It’s liquid, highly portable and, once a transaction has been made, it’s almost impossible to revert it. As a result, a wave of scams (both decades-old classics and cryptocurrency-specific swindles) has flooded the digital realm. And even if Binance or any other entity decides to host a giveaway, the legitimate ones will never ask you to send funds first.

Pyramid and Ponzi schemes are slightly different, but we’re placing them into the same category here because of their similarities. In both cases, the scam relies on a participant bringing new members with the promise of incredible returns.

Ponzi schemes

In a Ponzi scheme, you might hear about an investment opportunity with ‘guaranteed’ profits (this is your first red flag!). Commonly, you’ll see this scheme disguised as a portfolio management service. In reality, there’s no magical formula at work here – the “returns” received are just other investors’ money. The organizer will take an investor’s money and add it to a pool. The only inflow of cash into the pool comes from new entrants. Older investors are paid off with newer investors’ money, a cycle that can continue as more newcomers join. The scam unravels when there isn’t any more cash coming in – they are unable to sustain payouts to older investors, and so the scheme collapses.

Consider, for instance, a service that promises 10% returns in a month. You could contribute $100. The organizer then ropes in another ‘client’, who also invests $100. Using this newly-acquired money, he can pay you $110 at the end of the month. He would then need to entice yet another client to join, in order to pay the second one. The cycle continues until it inevitably implodes.

Pyramid schemes

In a pyramid scheme, there’s a bit more work required by those involved. At the top of the pyramid is the organiser. They’ll recruit a certain number of people to work on the level beneath them, and each of those people will recruit their own number of people, etc. As a result, you end up with a massive structure that grows exponentially and ramifies as new levels are created (hence the term Pyramid).

So far, we’ve only described what could be a chart for a very large (legitimate) business. But a pyramid scheme is distinct in the way it promises revenue for recruiting new members. Let’s take an example where the organiser gives Alice and Bob the right to enlist new members for $100 each, and takes a 50% cut on their subsequent revenue. Alice and Bob can offer the same deal to those they recruit (they’ll need at least two recruits to recover their initial investment).

For instance, if Alice sells memberships to both Carol and Dan (at $100 each), she’ll be left with $100 because half of her revenue must be passed onto the level above her. If Carol goes on to sell memberships, then we’ll see rewards trickle upwards – Alice gets half of Carol’s revenue, and the organiser gets half of Alice’s half. And so on and so forth…

As the pyramid scheme grows, the older members earn an increasing stream of revenue as the distribution costs are passed from the lower to the upper levels. But because of the exponential growth, the model is not sustainable for long.

Sometimes, participants are paying for the rights to sell a product or service. You might have heard of certain multi-level marketing (MLM) companies accused of running pyramid schemes in this manner.

In the context of blockchain and cryptocurrencies, controversial projects like OneCoin, Bitconnect, and PlusToken have come under fire, with users taking legal action against them for allegedly operating pyramid schemes. In the trading scene, IML (iMarkets Live), now known as IM Academy, is another infamous culprit.