Is Bitcoin a financial pyramid? People who have never heard about cryptocurrency market ask this question very often. In this article we will explain what a financial pyramid is and dispel all doubts about Bitcoin. So let's get started!
The most important information:
- Members of the financial pyramids profit from the contribution of those who decide to join such a scheme. This type of business has no product, and its life span is not eternal.
- Bitcoin is not a financial pyramid, however, there are many fraudsters on the cryptocurrencies market who try to extort funds from users on the pretext of investing in BTC or other coin, offering high unrealistic profits in a short time through their pseudo platforms
What is a financial pyramid?
The members of the different levels of the financial pyramids benefit from the funds obtained from people underneath. Usually they operate under the cover of multi-level marketing, but the difference is that they have no product or it is completely worthless.
For example, fraudsters create a business environment by offering other people so-called packages that will guarantee them high profits - often excessive amounts. Investors who become members of the financial pyramid put their capital into the pyramid and then take a certain amount of money from the people underneath - of course all this works well for some time... However, such schemes are not eternal, as new people cannot be recruited forever.
When a financial pyramid falls, those who are at the end of its tail are the worst affected, because they cannot recover their money in any way. The important thing is that the profits generated do not come from any external source, but only from the deposits of other people. The founders of the pyramid and tricksters are often lost without a trace of the money they have managed to collect.
Read also: How Does Bitcoin Mining Work?
Is Bitcoin a financial pyramid?
No! Bitcoin is a cryptocurrency that has several different functions. Through it, users can make peer-to-peer transactions. It allows you to transfer funds from one wallet to another without intermediaries such as banks or financial institutions with low transaction fees.
By some investors, Bitcoin, just like gold, is seen as a store of value or alternative asset. Many people diversify their investment portfolio in order to keep as few funds as possible in an inflationary fiduciary currency.
Others point to the speculative nature of Bitcoin. Bitcoin is a very volatile asset. Its fluctuations are frequent and strong, which is why traders try to make money from price increases. However, certain movements are unpredictable, people who do not take into account the high investment risk often lose their savings by making rash and ill-considered decisions.
Why do some people claim that Bitcoin and other cryptocurrencies are pyramids?
This is mainly due to ignorance. Both in the cryptocurrencies market and in the traditional market there are scammers who try to take advantage of the ignorance of beginner investors. Large price movements on Bitcoin are an ideal opportunity for them to convince certain people that it is possible to make good money on it. The consequences in such cases are lamentable, as pyramiders and scammers strive to fill their own wallets with other people's money.
There are many pseudo-projects, insisting that the coin they offer will become a second Bitcoin. Their creators are focused mainly on aggressive marketing and acquiring as many new users as possible. The promise of high profit in a short period of time becomes an incentive for people who are not aware of anything. Fraudsters often make false recommendations, and after some time, members of the various levels receiving remuneration (obtained from people from lower levels) tell others that this is a "legal business" where you can earn a lot of money.
An example of a huge financial pyramid that appeared in the cryptocurrencies industry was OneCoin - of course, it had little in common with cryptocurrencies like Bitcoin or Ether. In fact, the project did not deliver any value to the market, based solely on multi-level marketing - but without a product. Although blinded by financial freedom users supported this financial pyramid for several years, it eventually collapsed - and over the period of its operation, it scammed around $4.4 billion from investors around the world.
Although Bitcoin itself is not a financial pyramid, there are a number of projects on the market that claim to multiply your capital by investing in this crypto or providing you with new coin.