What is a Pyramid scheme and how is it different from a Ponzi scheme?

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A Pyramid scheme is a type of occupation that is not sustainable. In a Pyramid scheme, members earn money due to network growth or membership. Designers of this trick create a sham company and encourage the uninformed to join the group for a fee. These members must encourage other people to join the company as their affiliates. More senior people can earn new membership fees, and the more customers they have, the more profitable they will be. Some types of Pyramid schemes also pay their members for joining the group. But in most of these schemes, a person must nominate at least two people directly to enter the company.
In the Pyramid scheme, operators and designers earn huge incomes by taking advantage of the marketing network’s exponential growth. They take money from one group and give some to another group. Read more about cryptocurrency frauds and ways to prevent them in the following.
Here is a list of sections in this article:

Why do we call this trick a Pyramid scheme?

Members in the network structure of a Pyramid scheme increase at low levels, so the network members are like a pyramid. The simplest type of this network is the binary type. If the layout in binary type begins with one member and each member introduces two others. After ten levels, network members will reach more than a thousand people.
The number of group members grows to the point where new members can’t join due to the restriction of the enthusiasts in membership but haven’t joined.
pyramid scheme

What is a Pyramid structure? How is it different from a Pyramid scheme?

Most valid organizations and companies have a Pyramid structure that is different from the Pyramid scheme. The CEO of a company is at the top of the pyramid organization. This person has a direct relationship with the senior managers. Senior managers communicate with central managers. Central managers communicate with department heads, and they communicate with their department members. As we get closer to the bottom of the pyramid, the number of company personnel increases to the point where the most ordinary personnel will place at the bottom.
So as you can see, the largest and most reputable companies and organizations also have a pyramid in which the CEO is at the top. Other members of the organization are at the lower levels of the pyramid. So the lowest level of the pyramid has the most members.
It is safe to say that the basis of any country’s stability depends on the strength of that country’s Pyramid scheme. The more powerful the Pyramid scheme in the country’s fundamental organs like government institutions, businesses, and educational centers is, the more stable and prosperous the government will be. According to the above review, we realize that the appearance of a structure should not be the basis for judgment. You noticed that most business and social organizations should have a Pyramid scheme.
We see similarities in the difference between Pyramid structures in organizations and Pyramid schemes, but the most significant difference between them is in their application and operational area. It means That the method of earning money is different in these two structures. It is best to ask the following questions to determine if a company’s performance is genuine and whether it is a Pyramid scheme or not:

  • What is the way of earning money for the organization’s employees? Does it make money just by recruiting?
  • Is the result of the company’s activity, the sale of actual products or services to the lower level of the pyramid, and the ultimate consumers?
  • Do participants have to pay a high membership expense to participate in this business?
  • If someone wants to quit the business, is there a clause in the agreement that allows them to recoup their expenses?
pyramid structor

How does a Pyramid scheme work?

A simple example explains the concept of a Pyramid scheme of the Pyramid trick type. Consider that a company receives $100 from one person. If this person persuades two new members to join the company, the first person earns $150. Imagine that this company receives $200 from the two new people and pays the first person $150. In the end, he earned $50 without doing anything useful.
In a Pyramid scheme, over 50% of the members pay only $100 as a membership fee. As the network expands, the number of people increases until the network pyramid fully grows.
So the way the Pyramid scheme works is that the network grows with the addition of new members, so because of this, previous members who entered earlier earn money without selling a product or a particular service to new members.
ponzi scheme

What is a Ponzi scheme? How does it work?

Along with Pyramid schemes, there is another type of network scheme called the Ponzi scheme. The Ponzi scheme designers need the money of new and unaware people who enter the project to advance their goals, but investors do not know that their income is through the membership fee of new people.
The Ponzi network tells people that their investment is legal. Some Ponzi network designers have been managing their designs for years. They convince the project members that the profit from their investment is through business, but in reality, previous members get new members’ money for their activities.

Tron Ponzi Scheme

Many Ponzi companies use the Tron network in cryptocurrencies; because the fee for this network is small and close to zero. Although these Ponzi projects have different strategies and plans, they all have common features without exception; Low risk, high profit, and stability.

What is the difference between a pyramid scheme and a Ponzi scheme?

The Ponzi scheme and the Pyramid scheme have many similarities in subscriber fraud, and in some cases, ordinary people consider the two tricks to be the same. These days, the Pyramid scheme and Ponzi scheme have entered the field of cryptocurrencies and blockchain. Usually, any investment may involve risk, but it is more important whether the amount of risk is high or low. So risk-free investing doesn’t make sense, but if a person inadvertently enters a Pyramid or a Ponzi scheme, his funds will be at risk. Most countries of the world consider these schemes illegal. However, these two schemes are not the same, and some of their features distinguish between these two scams. To understand the differences, we get acquainted with the features of the Pyramid scheme.

What are the specifications of a Pyramid scheme?

The Pyramid scheme, asks individuals to introduce new members to the system, and if any new members join, they will earn a large amount of money. In a Pyramid scheme, they sell a set of products or services that a new member must purchase so that they can make a profit on the primary members. Notice the example below to understand better the workflow of a Pyramid scheme.
A clever Pyramid scheme hustler has some ordinary cosmetics. He falsely claims that these cosmetics have healing effects and eliminate pimples if used. That’s why it puts a higher price on its cosmetics. He finds an uninformed person like X and advises him to buy these products by paying one hundred thousand Tomans. But this is just the beginning.
The pyramid hustler promises X that he can get rich by participating in this scheme. He only needs to recommend buying these cosmetics to his relatives. If his friends purchase from him, he will get a profit. If X’s friends also suggest their relatives to buy from this plan, and they also make a purchase, then it can be profitable in a pyramid and up to several levels.
In this example, the scammer could easily sell his regular products up to several times the market price. If someone does not buy, there is no need to pay interest. The pyramid scammer used X as an advertising tool to sell his ordinary and even worthless product and received a guaranteed profit from these advertisements.
how to recognize a pyramid scheme

What is the future of the pyramid scheme?

Two destinies are imaginable for the future of this scheme:

  • As long as new members participate in the scheme, it continues. Also, the scammer continues to give profits to people because he has been able to sell his low-priced goods at a higher price and, on the other hand, attract customers by giving profits.
  • After a while, the Pyramid scheme designer can escape without giving the product or information with the funds she has taken from the people and has reached a large amount.

What are the similarities and differences between Ponzi and Pyramid schemes?

Similarities between these two schemes are as follows:

  • The designers of these tricks take a large amount of money from unaware people by promising astronomical profits.
  • For both projects to continue their activities, they must constantly attract new members.
  • Usually, these schemes are not the products or services they claim to offer. If a product or service is offered in certain circumstances, it is only an excuse to divert the minds of the people involved in the scheme from the reality of the Pyramid or the Ponzi scheme.
  • The Pyramid scheme, like the Ponzi scheme, will eventually fail because both need more and more members to keep up.

Some of the differences between Ponzi and Pyramid schemes are as follows:

  • The Panzi designer claims to invest money in financial markets, but in the Pyramid scheme, we face selling products or providing low-value services.
  • The Ponzi scheme may not be networked, but the Pyramid scheme must be networked. It works in such a way that the first members invite other members to the scheme and the hierarchy that emerges forms the Pyramid network.
  • In a Pyramid scheme based on inviting new members, each participant receives a commission before seeing themselves at the top of the pyramid.
  • Pyramid schemes work on network marketing, and subscribers must enroll other people in the scheme to earn money. So each subscriber receives a commission before transferring money to the top of the pyramid.
  • The Ponzi scheme is absolutely a fraud and is legally problematic, but the Pyramid scheme structure, while problematic, can also be legally acceptable. Of course, the unsustainable development of Pyramid schemes increases the chance of becoming illegal.
pyramid scheme vs ponzi scheme

What about Pyramid schemes based on cryptocurrency?

Some Pyramid schemes use cryptocurrencies to achieve their fraudulent purposes. The Double Way Ethereum scheme is a Pyramid scheme. Its stages are:

  • To enter the scheme and join it, you must enter an identifier code.
  • At the beginning of the activity, it is necessary to send 0.08 Ethereum to the address of the announced smart contract. On May 29, 2021, the price of ETH reached 2682 $, which is about 215 $.
  • Now it is the turn of recruiting members. To earn money, you must include at least another person in the scheme and he will announce you as his identifier.
  • To receive a profit, you must add at least two people to your subset. Each person submits 0.08 Ethereum for the design. The total amount, 0.16 Ethereum, will now be credited to your digital wallet.
  • At this stage, to earn more profit, you must increase your account in the scheme by paying 0.16 ETH to the second level, or you can not work at higher levels.

This method is quite indicative of a Pyramid or Ponzi scheme, but still, some people are deceived by these tricks and continue to work.

  • If your affiliate members can attract 2 people each and a total of 4 people, another 0.32 ETH will be added to the plan, which will reach 0.16 Ethereum per person divided among your affiliate members.
  • Now, the people attracted through you who have become members of the plan must raise their account by depositing 0.16 Ethereum, to level two. In total, by collecting this money, another 0.32 Ethereum will be credited to your account.
  • So far you have seen from the way the system works that no added value has been obtained and the activity of this project has been just taking money from one pocket and putting it in another pocket. That is the money that comes from new members joining and is distributed among senior members.
  • Finally, the designer of the Pyramid scheme, which is a branch of the Double Way Ethereum group, makes good money. When the inventory of the designer’s three wallet addresses was checked, we determine that he gained 300 Ethereum.
cryptocurrency based pyramid scheme

Is the King Money Cloud Mining Pool a Pyramid scheme?

Some believe that King Money is another method of the Pyramid scheme hustle. The reasons are as follows:

  • The currency website claims that this cryptocurrency was created to transfer assets in the network marketing industry. According to White Paper King Money, the focus of this cryptocurrency is on network marketing and network marketing companies support the project. The network marketing method is a Pyramid scheme method. It is further stated that it is possible to mine KIM cryptocurrency through the SHA-256 algorithm, which is the same method of bitcoin mining.
  • In the roadmap section, there is no talk about the future actions of this project and the future of the scheme is the most significant part of a project, which is the main difference between the Ponzi scheme and the Pyramid scheme with legal and commercial projects since they are unsustainable projects.
  • Another ambiguity about King Money is the uncertainty of its development team. The current situation is different from 2008 when an anonymous person nicknamed Satoshi Nakamoto released Bitcoin. At the moment, people do not trust the currency released by the Anonymous team. They want to make sure that this project is not among the Ponzi and Pyramid schemes in the form of cryptocurrencies.

The current rating of this cryptocurrency on the CoinMarketCap website on May 29, 2021, is 4309 and the price of each unit with the symbol KIM is equal to $ 306. This new currency was released in 2018.
Of course, the inclusion of King Money in the CoinMarketCap website’s list of currencies does not mean that it is valid. Although the market volume information and the KIM coin volume in circulation are available on the CoinMarketCap website, it is better to research sufficiently if you want to invest in this currency.

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