For investors who are interested in Bitcoin or other cryptocurrencies, they typically pay attention to two things. First, the Return of Investment (ROI) of the investment, which indicates the profits made from the investment, should be high. Secondly, the risk of the investment should not be too high, as this would likely result in a negative ROI. In this article, we will explain what Pyramid Schemes are, as well as give a Pyramid Scheme example.
What is a Pyramid Scheme?
A pyramid scheme is a fraudulent model that promises payments or rewards for members that only join the scheme but also manage to enrol new members. This frequently happens in the business sector.
A Pyramid Scheme Example
For instance, a fraudulent promoter offers Person A and B the opportunity to buy distributorship rights in a company for $1000 each. So now they have the right to sell distributorships themselves, earning a share from every additional member they manage to recruit. The $1000 collected from their own sales of distributorships is then shared with the promoter at a 50/50 split.
As a result, to break even, A and B would have to sell two distributorships, earning a total of $1000 in total. As a result, the subsequent customers who bought the distributorships would have to sell their distributorships to more customers. From this, more and more customers have to enrol and buy distributorships. Ultimately, the scheme falls apart, since there is no limit to the number of customers needed to enrol.
As a result, pyramid schemes are illegal. There are some companies who provide legitimate goods and services that make use of pyramid schemes as a marketing tool. We therefore need to be very wary of such companies
What should you do?
Now that I have given you a Pyramid Scheme example, you may wonder what you can do to protect yourself from Pyramid Schemes.
Firstly, you should be sceptical of investment opportunities that are too good to be true. An opportunity that promises suspiciously quick or high returns, with minimal investment, is more often than not dishonest.
Next, you should investigate the seller and understand the investment before committing to anything. Do your research first.
In Conclusion
In this article, I have given a Pyramid Scheme example, and I hope that you learn that Pyramid Schemes are illegal forms of investments that you should be wary of when making investments.
