Why do Ponzi scams persist for over a century? Lessons from Madoff to PlusToken scams

When it comes to financial scams, Ponzi schemes are always an unavoidable topic. They are like a ghost, appearing in different eras with different faces—sometimes dressed as stockbrokers, sometimes cloaked in the new attire of blockchain. What exactly makes this century-old scam still so alluring, and how many have fallen victim to the dream of “getting rich overnight”?

The True Face of Ponzi Schemes: A Game of Covering the Walls

The name “Ponzi scheme” comes from an Italian-American con artist named Charles Ponzi. In 1919, the aftermath of World War I left a chaotic global economy. Ponzi seized this opportunity, claiming to have a complex arbitrage scheme involving European postal reply coupons that could generate astonishing investment returns in a short period.

The core logic of this plan is actually simple—using new investors’ money to pay promised returns to old investors. Ponzi promised a 50% return within 45 days, a figure that was enough to drive ordinary people crazy at the time. In just about a year, around 40,000 Boston residents were attracted to participate, most of whom were low-income individuals with little financial knowledge, each investing hundreds of dollars.

As the initial investors tasted success and began to promote, subsequent investors flocked in like blind sheep. Ponzi himself kept defending himself in newspapers, suppressing opposition voices. Until August 1920, the entire scam collapsed when new funds dried up. Ponzi was sentenced to five years in prison, and his name forever became synonymous with financial fraud.

How Ponzi Schemes Evolved into Modern Monsters

Madoff Case: A 20-Year Carefully Crafted Performance

If Ponzi was the founder of Ponzi schemes, then Bernard Madoff was the master who perfected it. This former NASDAQ chairman spent 20 years enacting the largest scam in American history.

Madoff’s methods were even more covert and sophisticated. He infiltrated elite Jewish clubs, leveraging trust and personal networks to develop investors. He promised clients a steady 10% annual return, confidently claiming “profits can be easily made whether in a bull or bear market”—a phrase that should have been a huge red flag, as it defied basic financial logic.

Ultimately, Madoff attracted $17.5 billion into his meticulously crafted scam. Investors watched their accounts grow continuously, unaware that these gains came from others’ principal. It wasn’t until the 2008 global financial crisis that a wave of withdrawals totaling about $7 billion caused the scam to collapse. Post-investigation revealed the actual fraud amount reached $64.8 billion. Madoff was sentenced to 150 years in prison—equivalent to a life sentence without parole.

PlusToken Case: The Crypto Variant of Ponzi Schemes

Entering the blockchain era, Ponzi schemes found a new stage. The PlusToken wallet is a prime example—labeled by security firm Chainalysis as “the third-largest Ponzi scheme in history.”

PlusToken, under the banner of blockchain technology, promoted in China, Southeast Asia, and other regions, promising users monthly returns of 6%-18%. The project claimed these returns came from crypto trading arbitrage. But in reality, when users tried to withdraw, they found—withdrawal functions failed, customer service disappeared, and smart contracts turned into iron gates.

According to on-chain data, this scam defrauded about $2 billion worth of cryptocurrencies in less than two years, with $185 million already transferred and sold off. Thousands of “investors” with limited blockchain knowledge lost everything. The story of PlusToken perfectly illustrates how Ponzi schemes have taken on new faces in the modern era—technical jargon becomes a better smokescreen, making it harder for victims to see the truth.

Why Even Smart People Can Be Enchanted by Ponzi Schemes

The reason Ponzi schemes have persisted for over a century is that they attack the most difficult human weakness—greed. No matter how times change or how scammers package their schemes, these three elements remain constant:

First, promises of returns far exceeding market averages. Normal market investment returns are around 8%-12%. Ponzi schemes dare to promise 30%, 50%, or even higher. These figures ignite investors’ speculative desires, temporarily overriding rationality.

Second, creating false proof of success. Early investors do receive returns—this is not the generosity of scammers but a key part of the deception. Once someone successfully withdraws, they become a living advertisement, attracting more people. This forms a “success trap.”

Third, complexity and mystification. Scammers deliberately describe their strategies as extremely complicated and obscure, making it impossible for ordinary people to understand. Coupled with the “genius aura” of founders, this further weakens investors’ suspicions.

10 Essential Tips for Investors to Avoid Scams

Since Ponzi schemes cannot be completely eradicated, investors can only improve their ability to identify them. Here are key points to remember:

Cognitive Level (Points 1-3)

• Maintain skepticism toward “low risk, high return.” All investments carry risks; promises of 100% safety are lies.
• Be wary of claims of “risk-free guaranteed profits.” Market fluctuations are real; no investment can promise consistent yields.
• Demand understanding of the investment strategy. If the project manager cannot explain the logic simply, it’s a red flag.

Due Diligence (Points 4-6)

• Require complete transparency of project information. If the project team dodges questions or makes excuses, walk away immediately.
• Verify the project’s legal registration through business registration systems. Unregistered investment projects are highly likely to be illegal.
• Observe withdrawal difficulty. High withdrawal fees, sudden changes in withdrawal rules, or obstacles to cash-out are typical Ponzi scheme features.

Structural Level (Points 7-9)

• Beware of “pyramid” style recruitment schemes. If you’re encouraged to develop “downlines” for commissions, it’s a classic Ponzi + multi-level marketing hybrid.
• Consult professional advisors. When unsure, paying for expert advice is more cost-effective than being scammed.
• Investigate the background of the project initiator. Those overly glorified or portrayed as “geniuses” or “heroes” are often the best deceivers.

Psychological Level (Point 10)

• Constantly remind yourself: no free lunch exists. Ponzi schemes thrive on exploiting greed. Suppress irrational desires and stick to your investment principles for the best protection.

The Ultimate Warning of Ponzi Schemes

From 1920 to today, Ponzi schemes have operated for over a century, from stock markets to virtual currencies, from individual scammers to institutional frauds. Their essence has never changed—they all create an illusory wealth illusion.

Madoff accumulated a scam scale of $64.8 billion over 20 years, while PlusToken stole $2 billion in just over a year. Behind these numbers are hundreds of thousands of shattered investment dreams.

Always remember the iron law of investing: risk is proportional to return. Any promise deviating from this rule should be approached with caution. Stay alert, control your greed, and choose your investments carefully—you are already on the path to avoiding Ponzi trap pitfalls.