HomeReviewsPonzi scheme vs pyramid scheme

social mediaIn the 21st century, internet has become a huge part of our lives at home, work, and even our social lives. It’s only been the last few years that social media platforms like facebook, twitter, pinterest, and instagram have become so popular.

With our heavily reliance on the internet, no wonder there are so many internet home business scams circulating online.

Illegal schemes such as ponzi and pyramid schemes are some of those scams that you will find online.These can also operate offline too especially when those members start looking for new participants to join these schemes under them.

But do you know the difference between the two types of schemes?

Ponzi Schemes

Ponzi schemes are illegal investment operations where the fraudster promises extraordinarily high returns for your original investment. But in reality, there is no real investment at all!

The suspiciously high rate of return is a redflag. it is a sign of a ponzi scheme.

How this scheme works is that the fraudster will use money from their current investors to pay you an unusually high dividend in a short-time to gain your trust and encourage you to invest more into their unlawful investment scheme.

The very high returns will make investors spread the word to their family and friends and recruit more people to participate in this scheme. So really, there is this cascade effect where the “return” to the initial investors is paid out of the investments of new investors, and not out of profits.

This type of scheme eventually collapses when money is paid out too quickly or there’s not enough investors putting in more money into this scheme.

An example of a ponzi scheme is Banners Broker. You can read about this scam here. CLICK HERE!

Pyramid Schemes

pyramid schemePyramid schemes are also illegal operations similar to ponzi schemes, but there are slight difference between the two.

In a ponzi scheme, the fraudster interacts with all participants directly.

In a pyramid scheme, members who recruit more people under them will benefit directly. If they don’t recruit, they get nothing in return.

Pyramid schemes also collapses quicker then ponzi schemes as they rely on new recruits to sustain it.

But ponzi schemes continue to survive by encouraging their existing pool of investors to reinvest into the scheme. They don’t need a large amount of new members to sustain their operation.

Conclusion

Both ponzi and pyramid schemes are illegal operations that people must avoid. Once these operations fall apart and the fraudsters run away with people’s life savings, it’s GONE!

Many victims would be devastated and try to find where their money had gone. It’s not a good situation to be in.

If you have found this article helpful, please leave a comment below.


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