Ethereum Smart Contract Ponzi Schemes
A New Frontier For The Notorious Pyramid Scheme
Published in
4 min readFeb 13, 2020
What Is A Ponzi Scheme
“A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for early investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn’t enough money to go around. At that point, the schemes unravel.” — Investopedia
Why Smart Contracts
Smart Contracts enable a perfect breeding ground for a new wave of fraudsters. Where traditional financial scammers have the law, 3rd party institutions and their public image to worry about, smart contracts don’t have the same issue:
- Schemes can be deployed by any Ethereum address, ensuring (almost) complete anonymity.
- No central authority can shut the smart contract down.
- Due to the immutability of smart contracts, investors may develop a false sense of trust.
