What Are Crypto Pyramid Schemes?

What Are Crypto Pyramid Schemes

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A crypto pyramid scheme is a fraudulent investment scheme where returns are paid to existing investors from funds contributed by new investors. It’s called a “pyramid” because it typically has many new entrants at the bottom, with each layer representing fewer investors.

Example: John starts a pyramid scheme and invites five friends to invest 1 Bitcoin each. John promises to return 2 Bitcoins to each participant in a month. John needs 10 Bitcoins to fulfill his promise, so he invites five more people to invest. This creates the second layer of the pyramid, with five more people each investing 1 Bitcoin.

John can now pay the first layer 2 Bitcoins each, but he still needs 10. So he invites five more people, creating the third layer, and so on. This cycle continues until it becomes impossible to find new investors, and the scheme collapses, with most investors losing their money.

Crypto pyramid schemes are illegal and inherently unsustainable; avoid investing in such schemes as it’s likely to result in a loss of funds.

How to Spot Crypto Pyramid Schemes

Here are some red flags to watch out for when identifying a crypto pyramid scheme:

  1. Unsustainable returns: Guaranteed high returns with little risk should raise suspicion.
  2. Recruitment focus: Emphasis on recruiting new investors rather than generating profits through legitimate business activities.
  3. Pressure to invest: High-pressure sales tactics, such as limited-time offers or urgency to act quickly.
  4. Lack of transparency: No clear information on the company’s ownership, products or services offered, or how profits are generated.
  5. Complex structure: Complicated commission structures, multiple levels of recruitment, or unclear compensation plan.
  6. No verifiable information: No clear and verifiable information about the company’s history, background, or regulatory compliance.
  7. Ponzi scheme: A Ponzi scheme is a pyramid scheme where returns are paid to existing investors from funds contributed by new investors without any underlying business generating profits.

If it sounds too good to be true, it probably isn’t. So always research and verify the legitimacy of an investment opportunity before investing your money.

Pyramid Schemes vs. Ponzi Schemes

Pyramid and Ponzi schemes are similar fraudulent investment schemes but have some key differences.


  1. Both illegal investment schemes promise high returns with little to no risk.
  2. Both schemes rely on the constant influx of new investors to generate returns for existing investors.
  3. Both eventually collapse when it becomes difficult to attract new investors, and existing investors lose their funds.


  1. Structure: A pyramid scheme has a multi-level structure, with investors at the top earning profits from the investments made by those beneath them. A Ponzi scheme has a single level, where the operator pays returns to exist investors from funds contributed by new investors.
  2. Business activities: A pyramid scheme does not have any legitimate business activities; the only way for investors to earn a return is by recruiting new investors. A Ponzi scheme often pretends to have a legitimate business activity, but the returns are generated from new investors’ contributions.
  3. Complexity: Pyramid schemes tend to have a more complex structure, with multiple levels and a focus on recruitment. Ponzi schemes are often simpler and focused on attracting new investments.
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In conclusion, pyramid schemes and Ponzi schemes are forms of fraud that promise high returns and require a constant influx of new investors to sustain themselves. However, they differ in structure and the way they generate returns. Therefore, be wary of any investment opportunity that promises high returns with low risk, and do your due diligence before investing.

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