How to create a successful bitcoin Ponzi scam according to science

Andrew Munro 13 March 2018 NEWS

Successful and unsuccessful cryptocurrency Ponzi schemes do things very differently.

So, you want to be a scammer?

Disclaimer: Don't.

Researchers went to bitcointalk.org and managed to pick out 1,780 distinct scams without too much trouble. And those were just the obvious ones – and just the Ponzi schemes. So the first thing an aspiring scammer might want to note is that it's a pretty competitive industry.

The survival of a Ponzi schemes depends on continuous growth. You take traders' money by promising high returns, and then just pay them back with money from new traders while skimming as much as possible for yourself. It's obviously not sustainable, and they eventually just collapse in on themselves with an empty void where money should be. Smart scammers know to make as much money as possible and then escape to somewhere with all the funds before it collapses. It's a crime, so the ideal escape route should take you somewhere without extradition agreements.

The second thing to know is that these scams can be divided into two broad categories. There are those that get shut down and die almost immediately, and those that manage to survive and sometimes pull in a lot of money over the course of months or even years in rare cases.

Most scams aren't so fortunate. Like any other creature that spawns in large numbers, the majority of bitcoin Ponzi schemes don't survive into adulthood. More than half will die almost immediately, picked off in their first hours by natural predators like forum moderators. Survival rates continue to drop sharply each day.

Only about 10% manage to survive for a month, and the odds of a scam surviving until its first birthday are almost zero. Only the hardiest of scams will survive past this, and might go on to live for another year or two after that.

One such scam was Bitcoin Savings & Trust. It was a classic Ponzi scheme which ran from 2011 to 2013, eventually evolving into a historical footnote as the first federal securities fraud case to involve bitcoin. Its creator was sentenced to 18 months and a lifetime of debt. Its survival might be attributable to its realistic-sounding cover story.

Its founder claimed to have a secret network of rich bitcoin buyers who had an insatiable appetite for bitcoin at premium prices. Unfortunately, he didn't have enough volume to satisfy them. But the community could help by giving their bitcoin to him, so he could then sell them to the secret buyers.

Any aspiring Ponzi schemer needs a satisfactory cover story to explain why victims should give you money, and how you can magically turn it into even more money. Invent a story to adequately hit these two points and you're off to a good start.

How to scam effectively

An effective Ponzi scheme will live for as long as possible, taking in as much money as possible. One of the main tips might be that chatty scammers last longer.


A chatty scammer's a good scammer

If you're planning on launching a bitcoin Ponzi scheme, you probably don't have a job. This is good because you'll need to devote a lot of time to the scam.

The above chart shows how survival rates are affected by posting about the scam and engaging with your victims. Failure to do so will almost certainly doom a scam fast. Scam threads where a quarter of the posts in the main thread were from the scammer were more likely to survive longer. Threads where more than half the comments were by the scammer were even more likely to survive.

As you can see, there's really no such thing as too much. You see diminishing returns with more engagement, but there's no harm in just going all out.

"We find that more scammer posting helped enliven the scam – whereas an average scam lasted about a week, the average scam where the scammer posted at least half of the posts lasted about three weeks," the researchers noted.

As a rule of thumb, you probably want to engage with every single comment. Don't leave anything unanswered, especially not accusations of being a scam. Your explanation doesn't have to make sense, it just needs to sound good. You're going for the low hanging fruit, so don't sweat the details too much. When in doubt, just lie hard and use a lot of nonsensical technical terms. With any luck, people won't call you out for fear of looking stupid.

Use shills

If you create a brand new account on the same day of a scam, your chances of survival past 24 hours are slim to none. You'll want to create an account and personality in advance and build a reputation around the site. This goes a long way to making you seem reliable. Post all over the site, even in unrelated areas. For a sense of realness, remember to maintain your usual posting habits even after the scam has begun.

If you're in a rush and don't mind some initial outlay, you might try buying an established account instead. Just remember that it will probably be permanently linked to a failed scam attempt, and the account will be toasted, so don't spend too much. Your scam account should be just as disposable as your dignity.

In addition to your main scam account, you're also going to need some shills. You can either do this yourself, taking care to use a different IP address for each, or enlist some reliable cronies. The shills need to post about the scam as well. Their job is to help drum up interest in order to hit the quick growth that's needed and to reassure other users that your scam is not a scam. You'll want some of them to pretend that it has actually worked for them and they're making money.

Note that if you grow quickly enough and manage to get enough new victims to pay back old victims, you might get some free shills without needing to do anything. This is good because optimal results are achieved by letting the shills take over some of the chattiness volume for you.

The perfect Ponzi ecosystem is one where your victims are defending the scam, raking in more victims and generally taking over for you. That not only gives you more time to kick back and spend their money, but also produces higher scam survival rates.


"Scams where more than 10% of the posts are from shills last longer than those where more than 10% of the posts are from scammers. Furthermore, more shill posts seems to be more effective than the combined strategy [scammer + shill posting], considering both shill posts and scam posts to contribute to the lifetime. Running a survival curve differences test, the effect of the differing shill interaction percentages on the lifetime of a scam are statistically significantly different at the p=0.1 level," the researchers discovered.

Make a graceful exit

By now you should be raking in a stupid amount of money, occasionally paying some out to victims in order to keep the scam cooking along and growing, and your victims are firmly nestled in the warm and comforting embrace of the Stockholm syndrome.

But now's not the time to relax. The larger the Ponzi scheme gets, the more growth is needed to sustain it. Now you're playing a game of chicken with fate. The longer you keep going, the more money you make, but also the harsher the eventual criminal penalties and the more likely you are to see the scam crumble around you.

The trick is to make a graceful exit before it all falls down. Play your cards right and you can even pull in another couple of waves of goodbye money from your loyal victims. You might want to try practising the following phrases until you can say them with a straight face.

  • "We're having technical difficulties. Just make one more payment and then you can get all your profits." This was the excuse used by Blockchain Forest Decentralised Application right before disgruntled traders turned on them.
  • "Those darn banks are so slow. They're holding you back from getting your profits. By way of apology I'd like to offer you a new and exclusive investment opportunity." This was one of the many stories weaved by The Entrepreneurs Headquarters.
  • "The byzantine blockchain crypto-cipher fault tolerance network is forking. That means free money. Just give me a downpayment and I'll get you in on it." This is slightly more coherent than anything to come out of Bitconnect.

Along the way, you can also count on cognitive biases helping you out. The sunk cost fallacy, for example, will see people latch onto those last goodbye hooks in the desperate hope of actually getting something back, rather than accepting that their money's already gone.

Meanwhile, friendly little critters like confirmation bias, the bandwagon effect and the availability heuristic will also help your work go down more easily and magnify the efforts of you and your shills.

You might be pleasantly surprised how well it all works. And unpleasantly surprised by how harsh the eventual criminal penalties are. By the numbers, Ponzi schemes either die quickly or live long enough to wish they had.


Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, SALT, BTC and XRB.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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Picture: Shutterstock, Analyzing the Bitcoin Ponzi Scheme Ecosystem

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