Fraud is not always a criminal act — sometimes it begins as a simple misunderstanding. History shows that deception emerged together with trade, yet only in the 21st century did fraud acquire a new form: a scientific and technological disguise.
Complex algorithms, mathematical formulas, “fixed-supply” monetary models, charts and pseudo-technological jargon have become modern tools of manipulation. Today, the most dangerous fraudsters are no longer primitive counterfeiters, but those who manage to imitate the appearance of science and skillfully use it to deceive.
Why do people fall for it?
The answer lies in complexity. A complicated model looks authoritative, and people — unwilling to appear uneducated — often trust explanations they cannot understand.
Unintentional Fraud: When an Error Turns Into Deception
Not all forms of deception begin with malicious intent. In economics, a phenomenon described by the Financial Saturation Theory (FST) is known as the “natural Ponzi effect.” It is not a criminal scheme — but rather a structural pattern caused by resonance or quasi-resonance in saturated markets. It appears when:
- investment cycles become frequent and rhythmic,
- the market is already saturated with capital,
- positive feedback begins to dominate,
- and returns start rising hyperbolically.
In such cases, a bubble emerges on its own, without any fraudsters behind it — though it remains short-lived. The paradox is that even honest companies may temporarily operate like a Ponzi scheme simply because they expect the market cycle to bounce back. Executives often attribute temporary improvement to their “skill,” while the subsequent collapse remains a mystery to them. This happened to many companies that fell during the DotCom crash of 2000–2001.
This type of unintentional deception is particularly dangerous because it stems not from greed but from illusion and misunderstanding. The famous Madoff case began in much the same way.
The Madoff Phenomenon: From Natural Ponzi to a Real Pyramid
Bernard Madoff is known as one of the most infamous financial fraudsters, but his story is far from a simple criminal narrative. From an FPT perspective, it was a dramatic two-stage process:
Stage 1: The Natural Ponzi Phase
For decades, Madoff operated honestly. He earned a strong reputation, had influential clients, and was one of the pioneers of electronic trading at NASDAQ. But the 1987 stock market crash and later financial bubbles trapped his business in a structural paradox: returns looked excellent because everything was rising. He unknowingly entered the rhythm of the bubble, failing to see that the entire system was already in the saturation zone, resonating beyond stability.
Stage 2: The Conscious Fraud Phase
When the bubble burst, Madoff still hoped to recover. But as it became clear that markets had fundamentally adjusted and the growth cycle would not return, he could no longer stop. His reputation, social pressure and psychological denial pushed him into active deception.
Paradoxically, experts agree: had Madoff been an ordinary greedy criminal, he would have stolen far more. His actions resemble a natural Ponzi transforming into a deliberate fraud, when actors initially do not realize they are deceiving.
Thus, the Madoff case is not only a criminal file — it is an excellent illustration of saturation paradoxes. And such paradoxes are widespread today.
Cryptocurrencies: The Mask of Scientific Language and the Double-Bubble Mechanism
Today the largest arena of scientific-looking fraud is the world of cryptocurrencies.
Their creators — talented mathematicians and programmers — truly believed that limited supply equals value. But they misunderstood a basic economic principle: the quantity of money in circulation is not a guarantee of value. Value is created by the market — by demand, supply, and actual economic flows. A functioning economy requires money in proportion to the goods and services (in value terms) circulating inside it.
A fixed emission rule does not ensure stability — it ensures scarcity. And scarcity naturally creates positive feedback. Thus, cryptocurrencies contain a double bubble mechanism:
1) The Emission-Deficit Bubble
“Only 21 million bitcoins will ever exist” sounds like a scientific axiom — but it is merely a technical rule that undermines the currency’s purpose. Scarcity inflates its price, depriving money of its role as a unit of account and turning it into a gambling token.
2) The Resonant Investment Bubble in the Saturation Phase
Once the market becomes saturated, FST shows that the feedback loop suddenly switches to positive (a bifurcation point): returns skyrocket hyperbolically, and prices begin feeding on themselves.
The crypto-market is extremely sensitive to social noise — a single social-media post can trigger investment resonance.
Therefore, cryptocurrency “value” is not an economic magnitude.
Cryptocurrencies possess only the demand–supply component.
Thus, their “value” is merely a distorted tomorrow’s price — the amount a new buyer hopes to pay. This is the logic of gambling, not economics.
Why Not Only Investors but Also Central Banks Fall for Pseudoscience
Surprisingly, some pseudoscientific financial ideas occasionally mislead not only individuals, but also entire states and their central banks. This does not imply incompetence — rather, it reveals a structural gap in global economics.
- Traditional economic theory still lacks a unified model explaining saturation limits, market capacity and resonant cycles.
- Central banks rely on rule-based frameworks (Taylor rule, neutral interest rate, inflation targets) which often ignore saturation effects.
- Many deficit markets — real estate, technology assets, even commodities — are still treated as behavioral anomalies, not as physical systems governed by feedback dynamics.
This is why some countries have flirted with legalizing cryptocurrencies as reserve assets or even official tender — most famously El Salvador. While portrayed as innovation, it demonstrates unfamiliarity with saturation paradoxes that FST has identified for more than two decades.
Why the Crypto Pyramid Will Be Larger Than the Madoff Fraud
Madoff’s scheme involved around USD 64 billion — once considered unimaginably large.
But the crypto-market today is fundamentally different: its capitalization exceeds trillions. This is not the difference between two scandals — it is the difference between two epochs.
- Madoff’s pyramid had a single center: Madoff himself.
- The crypto-ecosystem has no center — it is a self-energizing Ponzi, driven by belief, hype, and positive feedback.
- Madoff’s scheme could be halted simply by shutting it down.
- The crypto-market cannot be stopped — it is global, anonymous, decentralized and infinitely replicable.
In future textbooks, the Madoff case may appear as a footnote next to the massive structure historians may call “The Great Crypto-Era Pyramid.”
As economist Nouriel Roubini famously remarked:
“Cryptocurrencies are the mother and father of all frauds and bubbles.”
Gambling and Fraud: Inseparable Companions of Crypto Markets
Where no real economic value is created, gambling inevitably emerges.
And gambling always invites fraud.
The crypto-space demonstrates this daily — not occasionally, but structurally:
- pump-and-dump operations,
- rug-pull exits,
- falsified or rewritten whitepapers,
- manipulated trading volumes,
- celebrity-endorsed speculative tokens,
- meme-coins with no content, function or real project.
These are not accidents.
They are direct consequences of the FPT framework: saturation → positive feedback → bubble → collapse.
In a market where price expectations replace economic fundamentals, fraud becomes not an anomaly but a systemic state.
Conclusion: Science Must Be a Tool — Not a Bait or a Mask
Today we clearly see how easily complexity can be turned into a weapon of deception. Mathematical formulas, algorithms and technological jargon can all appear scientific even when the underlying substance is nothing more than the absence of value.
Cryptocurrencies were created with good intentions, but lacking economic literacy, they quickly ended up where all utopias and financial illusions converge — in the saturation zone, governed by bubbles, feedback loops and resonance. FPT describes this logic clearly:
saturation → positive feedback → bubble → collapse.
Until society, regulators and even central banks internalize these principles, pseudoscientific ideas will continue to flourish. Compared to the trillion-dollar “Great Crypto-Era Pyramid,” the Madoff scandal may indeed appear as a modest rehearsal before the main performance of the 21st-century financial system.
Science must be a tool for understanding truth, limits and risks, not a bait for the naïve nor a mask to hide dangers.
Acknowledgement
This article was prepared with the assistance of an artificial intelligence tool (ChatGPT) for idea clarification, argument structuring, and editorial refinement. All interpretations and conclusions are the sole responsibility of the authors.
Prof. Stasys Girdzijauskas (Vilnius University)
Darius Karaša (Lithuanian Energy Institute)