Cryptocurrency is used for anonymous financial transactions. The goal is the desire of the creators to hide from the investigation. And the main harm of HYIPs is to reduce the reputation of Blockchain technology. Because of such projects, incorrect beliefs about digital coins are formed.
In marketing, a similar term means deception to get attention. HYIP projects are a kind of financial pyramid scheme. The purpose of existence is to enrich the creators at the expense of new investors. The history of the pyramids began in the last century and now affects cryptocurrencies.

Start of HYIP projects

HYIP projects: the beginning. Photo: by Evisa Kasaj / pexels.comHYIP projects: the beginning. Photo: by Evisa Kasaj / pexels.com

 

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fact, the pyramid scheme was created by Charles Ponzi, not Sergei Mavrodi. In 1919, the American founded The Securities of Exchange Company. The firm was allegedly engaged in the resale of postal coupons from Europe.

Ponzi suggested that investors buy a high-yielding security in a few months. As a result, the founder repaid obligations to old investors at the expense of new buyers of the bill. Coupons were not actually bought.

The result was the collapse of the company. The Post Magazine exposed the scam’s strategy. The number of coupons would not be enough all over the world to close the obligations. As a result, the residents lost confidence in the founder of the idea. The company lost the ability to pay debts due to the outflow of investors. A trial for fraud began – the founder of the company was convicted.

“HYIP-projects” by Sergey Mavrodi

The most famous follower of the idea was Sergei Mavrodi. The entrepreneur founded the MMM company in 1989. The first years the company sold equipment and was no different from other startups. Five years later, the joint-stock company of the same name issued securities. The idea was to sell coupons with a gradual increase in their value.

In just six months, the price for them has increased by more than 100 times. By that time, the number of depositors was almost 10% of the population of Russia. People believed that it was possible to double the capital every month. The founder received tremendous support from the residents.

In 1997, the MMM bubble burst, and Sergei Mavrodi was put on the wanted list for non-payment of debts. The fraudster managed to hide from the investigation for six years. But in the end, he was convicted twice – in 2003 and 2007. In 2011–2012 the swindler organized rebranding and set his sights on other countries. Created the Mavro cryptocurrency.

How HYIP projects work

 

Hype was described as a kind of pyramid of Mavrodi’s followers. Approximately according to the same schemes, scammers worked in the past. Now we need to determine the principle of operation of such projects.

Any financial pyramid and HYIP project live a short life cycle. The reasons are the nature of funding:

  1. A website and a well-established advertising scheme with promises of high profitability are being created.
    A referral program is being introduced into the system. The founders keep part of the amount of deposits for themselves, the rest is paid for the referrals they brought at the promised rate.
  2. New depositors attract other users to the system with similar conditions and payouts. The fresh proceeds are used to pay off debts.
    The cycle continues as long as contributors are registered. Usually the project lives from three to nine months.
  3. There comes a time when the number of investments decreases for various reasons. The phenomenon is called a project scam. The system can no longer pay out money and closes.

It all depends on the ultimate goals of the project creator. It should be noted that the main task of the fund administration is personal profit. The latest arrivals in the pyramid completely lose their invested money.

HYIP projects: signs

 

HYIP projects have distinctive features from reliable investment instruments. There are a number of characteristics of a fraudulent organization:

  1. The advertising campaign promises high returns. Trust is bribed with bonuses upon registration. A short payback period is mentioned. It’s about a few months. The official site of the project usually has a nice design.
  2. False intentions to reinvest funds. The developers of the HYIP project claim to use the money of investors. For example, in a profitable resale of real estate. The fact that the money is simply distributed among the participants is usually hushed up.
  3. Problems with legal information. HYIP projects are prohibited by the laws of almost all countries. Managers will not be able to register the company officially. The site may lack contacts, address and documentation. Let’s say a variant with false information, or the use of offshore companies. For example, official registration in the island states.
  4. Use of difficult-to-understand language. With the help of terminology, the creators mislead users. It is required for users to “trust the professionals”. To increase the number of participants, they create advertising texts with loud slogans.
  5. Cryptocurrencies are used as a means of payment. Creators can design their own coin or use existing ones. Digital money is provided for the anonymity of the administration.

 

The developers of the HYIP project use all possible methods of advertising on the Internet. Internet platforms are fighting and banning such organizations. For example, Telegram moderation marks project conversations with the inscription “Scam”.

HYIP projects: types

HYIP projects are divided into five types according to the type of structure:

  • doublers. HYIPs with high percentage returns. Promised up to 150% per day;
  • matrices. Income depends on the number of attracted customers. Affiliate program in priority;
  • MLM. The project directly declares its own intentions. Affiliate programs and contributions from other participants are used;
    piggy banks. One of the most risky types. Projects in which withdrawal of funds is available at any time. Because of this, the organization may suddenly run out of money and close the program;
  • games. Entertainment applications are used as a pretext for investments. The structure is similar to other HYIP projects.

The project can directly declare its intentions. Usually creators mask the cash flow structure.

Conclusion: why it is better not to invest in HYIP projects

Let’s summarize briefly. Often, users hope to profit from pyramid schemes. Users can know in advance that they are investing in HYIP. However, doing so is not beneficial. Review the reasons before making a final decision:

  1. It is not known if withdrawal is available. Some creators provide only replenishment of the balance. This kind of scam is common.
  2. High risk. A HYIP project can close at any time. The administration does not return the money.
  3. Anonymity. Developers use cryptocurrency to avoid punishment. Plus, you will not return the invested funds – the recipient is unknown.
  4. No added value. It all depends on the popularity of the project. Administrators do not pay dividend yield. From an investment point of view, the system is not attractive.

You can act at your own risk. HYIP projects cannot become a source of permanent income. Success in this area is an accident or a one-time lucky count. Check out more reliable tools