Bitcoin Ponzi Scheme

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Context (IE): The Enforcement Directorate (ED) has arrested a Delhi resident concerning a Bitcoin-based Ponzi scheme.
In this case, bitcoins were invested instead of money. This case also questioned crypto exchanges as they converted bitcoins to Indian currency without any accounting trail.

Ponzi schemes

Ponzi schemes are fraudulent investment schemes promising high rates of return without much risk to investors.
Fraudulent schemes run by Charles Ponzi in the US in 1882 led to the popular term ” Ponzi Scheme”.
It works like a multi-level pyramid scheme.
A Ponzi scheme pays existing investors with funds collected from new investors.
As the flow of fresh investments runs out, the scheme falls apart.
However, multi-level marketing itself is not illegal in India if a product is being sold.
However, direct marketing companies cannot promote pyramid or money circulation schemes.

Non-clear jurisdiction of regulatory bodies on Ponzi schemes led to their popularity.
Prize Chit and Money Circulation (Banning) Act, 1978, bans Ponzi schemes in India.
It empowers state governments to enforce the law.
The Enforcement Directorate under the Prevention of Money Laundering Act, 2002 also investigates similar cases.
The Banning of Unregulated Deposit Schemes Act 2019 has been enacted to prevent fraudulent schemes.