From past 3-4 years, there is a hike in Cryptocurrency based MLM schemes.
Personally I feel, combining MLM (Direct Selling) a controversial business model with different speculative and volatile cryptocurrencies creates greater dispute.
Here we will discuss why cryptocurrency-based MLM schemes are in trend, what are their consequences, and do these schemes are safe to invest in?
Rise of Cryptocurrency and MLM
Bitcoin is first well-known cryptocurrency, it was started in the year 2009.
Cryptocurrencies are digital currency use different cryptographic techniques with decentralized system which makes them a secure mode of transaction.
There is a fixed number of tokens or we can say coins available in each cryptocurrency.
Like stocks, price of cryptocurrency increase with demand and there are different exchange for the trading of cryptocurrency.
Many claim cryptocurrency is future money, but being a mode of transaction it requires to be stable which crypto is not, and there is a trust issue with crypto as a tremendous number of scams happened due to crypto in recent years.
Press release of FTC conveys that, every year there is a 10 times increment in cryptocurrency-related frauds.
Next, MLM is an alternative to traditional distribution and marketing methods. Even after a century of establishment, there is a blurred vision of people towards MLM.
Started with promoting health and wellness products, now numerous different products and services are promoted using MLM.
We can classify MLM into two types.
- Product-Based MLM Company: These companies sell tangible products and encourage distributors to generate more sales of these products. Wellness and cosmetics product range is widely used by product-based MLM companies as they are high margin products.
- Service-Based MLM Company: Service-based MLM companies promote any services or business, it can be online education courses, holiday packages, insurance, gift vouchers, e-wallet service, etc. Most pyramid scheme scams are held by service-based MLM companies.
Pyramid schemes are declared illegal in most countries including USA. But they still operate by pretending as an MLM company. For this pyramid scheme companies uses dummy products.
It is relatively easy to identify product-based pyramid schemes compare to a service-based pyramid scheme.
We can compare tangible products with the market products in terms of quality and price. But in service-based, there is no rigid way of comparison available and companies decide cost of their services which can be anything, like100$ for Microsoft Office Course.
Every member needs to purchase these services only one time, pyramid scheme companies get enough money from first purchase of each member to circulate in network. Older members indeed get decent commission, so more people start involving and it leads to a massive scam.
After looting people by using different services, crypto is a new opportunity for pyramid scheme companies to fool people.
Crypto based MLM: How it works
Crypto-based MLM can be seen in 2 cases. When a company wants to promote own cryptocurrency or to operate a pyramid scheme.
To Promote Own Cryptocurrency
Some new cryptocurrency owner companies want to increase demand for their coin.
Hence they find MLM an easy way. MLM is a business of people and companies need more people to buy their coin and pump price.
To join such crypto-based MLM, members need to purchase coins of a certain amount and by recruiting new members they get incentives in that cryptocurrency.
Companies may allow exchanging crypto with real money after a while but companies’ goal is to make people hold their crypto, hence they try to lure them.
XYZ crypto will be the next Bitcoin after few years, hold as much as you can.
As member numbers grow in the company, price of crypto actually goes up and old member even gets incentive coins on recruitment, so people start trusting the company.
It seems legitimate, but most frequently crypto-based MLMs are scams. Cryptocurrencies are volatile, so when price of coin falls all members lose their earning.
Some crypto-based MLM fakes that their coins are secure cryptocurrency which is not.
Onecoin has done $4 billion scam. They were selling some courses by using MLM business modal. With that, they have Onecoin token, claimed to be secure crypto, that was given to members as a reward for recruitment. They created OneExchange for trading of OneCoin after some year exchange stopped working and all onecoin was on hold.
Later it found that, OneCoin is not a cryptocurrency, it was working on SQL databased entries.
Using Popular Crypto
If companies don’t have their own crypto and they are using other popular cryptocurrencies then there might be chance of a pyramid scheme.
Companies attract members to buy a cryptocurrency via them and design a compensation plan which offer reward in crypto when a new member is recruited in downline.
The same money-circulation is performed but by using a virtual currency. As cryptocurrency is in trend, unaware newcomers and authorities consider it as a legitimate opportunity. But scam is a scam, whatever currency is used.
Forsage is an example of it, which use ethereum for money-circulation scheme. Philippines Securities and Exchange Commission (SEC) already issued a warning against forsage for being a scam.
Why Such Trend
Actually, fraud pyramid schemes grow faster than ordinary MLMs and same scenario is with crypto-based MLM which are equivalent to pyramid schemes.
False claims made by companies attract more people to invest in crypto-based MLMs.
There is a large group of people who want to start investing in cryptocurrency and then a company comes with a lucrative compensation plan with high return promise, make them invest in fraud schemes.
Safe or not
Before investing in cryptocurrency or participating in an MLM Company, it is compulsory to do proper research.
There is no known international governing law or guidelines which we can refer and prevent from scams.
Therefore understanding the concept of MLM and Cryptocurrency is vital. People should be able to differentiate between ponzi schemes, pyramid schemes, crypto, other affiliate scams from genuine earning opportunities.
No doubt most crypto-based MLM companies are operating pyramid schemes, so on any day, they are not safe to invest or participate in.
Cryptocurrency may become future money but there is a sharp need of strict regulations. MLM is already disfigured and pyramid schemes are contributing more to it.
MLM is only good when some genuine products are promoted and products are reasonable to price, otherwise, your friend’s recommended company can be the next million-dollar scam.