crypto pyramid scheme featured image of presenter building multilevel marketing team

Last updated 21/02/2022

A Crypto pyramid scheme or cryptocurrency network marketing opportunity is a “business” that recruits participants through a promise of payments or services for enrolling others into the scheme. This is in contrast to supplying investments or selling products. The more recruitment the smaller the market. Then, most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.

What is a Crypto Pyramid Scheme?

In a pyramid scheme, a group compels a person who wants to join the group to make a payment. The members of the group receive a portion of the revenue earned from each member they recruit to join the group. For the ones who joined at the beginning and “those on top”,  the scheme can be very lucrative. It doesn’t matter if they do any work at all. The incentive is still there for the downlines to recruit, which results in more funds funnelling to the top.

… the Math

It simply doesn’t work. With almost all of these schemes, there will be hypothetical calculations for future earnings. In addition, the will be a matrix of tables where you can see projected rewards. All of this is smoke and mirrors. As soon you get to a point where you make life-changing money, you would already have signed up half the world’s population.

They tend to use this type of logic in many parts of their operations not to mention products. A notable example is a “video over blockchain product”, where the whitepaper stated the cost of using the service in a disingenuous manner. The result of this was that most people thought the product was expensive but costs would come down. If you give them the correct facts in context they would have known it was a scam due to the preposterous costs. (In this instance it was a figure north of $50k to transfer a few minutes of video.)

Pyramid schemes run out of people that can be recruited and then collapse. This is what always happens and will always happen.

Who are the People Involved in Pyramid Schemes?

There are thousands of people peddling MLM schemes(legitimately and otherwise). Furthermore, there are thousands of MLM operators… and 99% of them “cross-recruit“. No honour amongst thieves as they say.

The majority of people involved in operating a pyramid scheme have many similar personality traits. Not only do they have a distinct sense of self-worth they often see themselves as saviours. If not the cult leader, then at least the main disciples. This is why these entities usually have a leadership council or executive committee. They are usually not part of any legal entity but rather function as a “support collective”.

There is a fine line between Multi-Level Marketing and Pyramid Marketing in the legal sense. In reality, they are much more aligned to be the same thing, as the results are usually identical.

Not all multi-level marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s probably not. It could be a pyramid scheme.

The Kings & Queens

These are typically flamboyant larger than life characters. They wear elaborate fashion from instantly recognisable brands. They love to show off expensive cars(often rentals) and private jets. Champagne breakfasts and Michelin star dinner parties. All in a bid to be seen as successful & wealthy. Whenever they attend events they act like rock stars and make sure that everyone knows it. Psychologists would label these individuals as A1 narcists.

The rest of us mostly class them as A1 assholes.

Be that as it may, they live off of the attention and admiration of others. Their inflated egos mean that they immediately try to destroy anyone casting the slightest bit of criticism their way. (A very Stalin, Mao, Hitler, Saddam type of thing to do.)

In the context of their crypto pyramid schemes, they will regularly make bold claims about new partnerships, sales funnels, never before seen technologies and revolutionary products. They back this up with large flashy events, mostly attended by the leadership councils and large investors, hoping to help drive the business so they can get their investment back.

Sometimes they will throw in a B(or worse) -list celebrity at the event. This is not because they are not able to get, or cannot afford an A-list celebrity. It is usually because the top leaders of these schemes see themselves as celebrities and hate to share the spotlight.

Rooks, Bishops & Knights

Sometimes referred to as the executive council, leadership council, corporate, decision circle and many more. It always refers to individuals who already have an audience or “downline”. They have a group of network marketers who are in deep enough to help build out a new scheme, yet distant enough to claim plausible deniability of any wrongdoing. It will usually be a serial MLM professional. They are seasoned in the industry. Most of them started with more legitimate enterprises(which doesn’t mean they aren’t morally corrupt) like Herbalife, Mannatech and Avon.

The reason they move on to more profitable pyramid schemes is that they recognise the value is in the recruitment sales process and not the actual products or services. They then find themselves in a position where they think they can solve a problem no one else can. It is at this point that the delusion takes hold and there is no turning back. You now have a motivated talented salesman that will apply the “process” to any product or service with complete disregard for the whole supply chain except the recruitment component.

… be careful …

You should also note that successful MLM promotors usually present a strong religious background. It is very common to find that they are former(or still active) clergy. Some of them are very outspoken about their need to help others(love thy neighbour) or enable financial freedom(salvation). This is very easy to spot. and extremely evident in their presentations, pitches and debates.

The Pawns

Victims are often too embarrassed to come forward. They usually let any proof of their involvement with a crypto pyramid scheme die down quietly. This is mostly because I think we all have a sense of right and wrong and many people put the financial loss down to school fees. Some people are so desperate that they have no alternative but to keep believing. They are so far down the rabbit hole they can not get out.

The ideal mark for a pyramid marketeer is one of two groups. The first group are young and ambitious. They are from a middle-class background with general education. Something like a diploma or commercial degree in marketing or maybe even theology. These individuals need to make money as they are not likely to get a leg up via friends and family. They usually look for sales or marketing jobs advertised in the classifieds or marketed through direct mail/social media. It is quite normal to find they read self-help books and love self-improvement gurus like Tony Robinson or Robert Kiyosaki.

… the vulnerable …

The second group are a lot more vulnerable. The majority of them tend to be older(55+) and retired or near retirement age. Many of them had average jobs and have less pension provision than what they had envisaged. They now flock to schemes allowing them to work from home or earn a second income with very little investment. This group unfortunately also have a disproportionally representation amongst church congregation members and other religious groups. This may be a coincidence but the anomaly is too large to be discounted.

Technicalities of a Crypto Pyramid Scheme

Many MLM opportunities skirt around the law and manage to stay in a grey enough area to make it uneconomical for authorities to pursue. They tend to have their operations structured in such a way that they are technically legal. Being morally corrupt is not a crime, the application of your corruption is. Although, it is very hard to prove and sometimes impossible.

Different Types of Pyramid Schemes

There are many types of schemes requiring multiple levels of recruitment, however, they all have one thing in common. There comes a point where the deck of cards collapses. Always has, always will.

8 Ball

We also know this method as the Airplane Game. Pyramid schemes can become very complex. This approach recognizes that recruiting a large number of people can be difficult, so they use a seemingly simpler model. The way it works is that each person must recruit 2 other people. These two recruits must then go out and recruit two each and so on. The problem is that it sounds easy and achievable in theory but in reality, the ease is offset. This is a result of the increasing depth required to recoup the money. Like all good pyramid schemes, the math only works until you add some realistic assumptions.

The Blessing Loom

This is a simple twist on the 8 ball model. This scheme flattens the pyramid into a circle, hence the “Loom” in the name. Each person needs to recruit two people to simply gift them a set amount. They provide no service or product. It is digital begging, with a bonus of earning from other beggars. The scam went viral during the COVID-19 pandemic in 2020.

Work from home | Own your Own Business | Franchise Fraud

We also refer to such a pyramid scheme as a chain referral scheme. Simply put, the scheme will offer a franchise or some sort of distributorship to a particular market for a certain product. However, the real cash is made by the sale of new distributorships and not the products. Also, they highly overprice the products. As a result of the emphasis being placed on selling franchises rather than products, it eventually leads to exhaustion in the supply of potential investors. It then … you guessed it … collapses.

Matrix – Red or Blue Pill? Rather Get a Headache Pill!

These schemes always have a layer crossing over another layer with a top leader and a bottom follower. The goal here is to add to the bottom to reward the top. In other words, the person at the top can’t get his or her reward(anything really, but mostly prizes like iPhones, Laptops or uniquely branded Items or experiences), until there is a new joiner at the bottom. Furthermore, these layers/levels have many parameters which need to be met to achieve a certain goal or reward.

You will hear left arm, right leg, level this and layer that. These schemes are effectively the raw calculation engines of many video games which are then applied to network marketing/recruitment. This results in a gamified platform, but the only game in town is one of recruitment.

How to Avoid Pyramid Marketing Programs

Whenever someone tells you they have an opportunity that will change your life, the odds are against you, and for good reason. Let us analyse this with an example. You work for 30years and have a retirement fund of $100k. Someone comes along and offers you an opportunity to invest $10k and have an extra $100k in 12 months. You are so blinded by the crazy returns that you stop questioning the numbers and jump straight in.

Many of you have been approached without even realising it. Have you ever seen ads with headlines like “Are you are retired or do you have a professional job and need a second income? Has a friend or colleague approached you about the opportunity of a lifetime? These are usually pyramid schemes. But just take a minute to think about it. Why would anyone want to help you be rich? What is in it for them?

Without YOU, they are the losers, to the people that recruited them.

Do You Know Someone Involved in a Crypto MLM Scheme?

Has anyone shared a “life-changing” opportunity with you on Instagram? Have any of your old school friends or co-workers reached out on Facebook recently? You have not spoken to or heard from them in years and all of a sudden they can help you gain financial freedom?

If you know someone who you think may be involved with a Ponzi or pyramid scheme, go ahead and share this article with them now. Go on. Do it now!

Crypto Pyramid Schemes Versus Crypto Ponzi Schemes

A crypto Pyramid scheme and a crypto Ponzi scheme are not the same things. There are distinct differences. People confuse the words and end up using them interchangeably. This however is wrong. There are practical and legal differences. In the crypto world, however, Hybrid Crypto Pyramid Ponzi schemes have become very popular. In a hybrid scheme, not only are the new investments used to pay the older investors, they recruit new investors via multilevel marketing experts and their teams.

Read our explanation of Pyramid Schemes vs Ponzi schemes in this post: Crypto Ponzi schemes vs Pyramid schemes

The 3 Most Notable Crypto Pyramid Schemes

  • OneCoin – Experts estimate the total loss between 4 and 15 billion euros. The founders engaged in the emission themselves. Critics and regulators in different countries warned people that the project had all the signs of a financial pyramid. The founder of the project, Ruja Ignatova, suddenly disappeared after 4 years and is still on the wanted list.
  • PlusToken – Those in the industry claimed losses of up to $3 billion. The Chinese pyramid attracted investors with 30% income per month and bonuses for referring friends. Authorities convicted and sentenced six organizers to long terms of imprisonment. In addition, the company failed to return the money stored in cryptocurrency wallets.
  • BitConnect – With a total financial loss of more than $1 billion. The company promoted the allegedly decentralized peer-to-peer coin BCC. The scheme promised investors 90% annual returns with a $10,000 deposit. Users initially had access to a referral payment system. This made it clear that this was a classic pyramid.

Have your say below. Tell us what you think of people who get involved with multi-level marketing? 

***This article is intended to educate and should in no way be seen as investment advice or an enticement to use any specific platform or service. Cryptocurrency markets are highly volatile with big profit opportunities but you should also remember that you could lose part or all of your investment whenever you take part in any high risk investment. Crypto trading is not a regulated industry in most jurisdictions, which in itself carries additional risks. IF YOU ARE NOT AN ASTUTE TRADER, SEEK INDEPENDENT FINANCIAL ADVICE BEFORE MAKING ANY INVESTMENTS.***

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