As cryptocurrencies like Bitcoin become more and more popular, discerning investors must be on the alert for scams in the industry. Pyramid schemes have been around for decades, but they are now increasingly targeting Bitcoin investors. We’ll talk about how to avoid falling for these scams and maintain your vigilance in the always-changing world of cryptocurrency in this blog post.

Understanding Pyramid Schemes

A pyramid scheme is an illegal business model that relies on the recruitment of new members rather than generating income through a business venture or the sale of products or services. These illegal pyramid schemes promise high returns and lucrative rewards for those who join, but they ultimately collapse when it becomes impossible for pyramid scheme promoters to recruit enough new members to sustain the payouts.

The Anatomy of a Pyramid Scheme

Pyramid schemes differ from multi-level marketing (MLM) companies in several ways:

  1. New recruits: The lifeblood of a pyramid scheme lies in the constant recruitment of new members, who are usually required to make an initial investment or purchase expensive inventory.
  2. Compensation structure: Participants are promised financial rewards based on the number of new recruits they bring in, as well as the recruits brought in by their referrals. This creates a multi-tiered hierarchy that resembles a pyramid.
  3. Unsustainable growth: Pyramid schemes eventually collapse under their own weight when there are not enough new members to support the financial obligations of earlier investors. When this happens, most participants lose their money.
  4. Product or service: Legitimate MLMs have real products or services to sell, while pyramid schemes rely on the recruitment of new participants to generate income.

Ponzi Schemes vs. Pyramid Schemes

Although often confused, Ponzi schemes are distinct from pyramid schemes. In a Ponzi scheme, the operator recruits investors and promises high returns on their investments. Instead of generating returns through legitimate investments, the operator pays returns to earlier investors using new investors’ capital, creating a cycle of deception.

How Pyramid Schemes Infiltrate the Cryptocurrency Space

Pyramid schemes have found fertile ground in the world of cryptocurrencies, as the volatile market, the promise of high returns, and the relative anonymity of transactions make it easy for scammers to prey on naive investors. Here are some common ways that pyramid schemes infiltrate the crypto space:

Fraudulent Investment Clubs

Some pyramid schemes are disguised as “investment clubs” that promise participants access to exclusive crypto trading opportunities and high returns on their investments. However, these clubs are often nothing more than thinly-veiled pyramid schemes that rely on new members’ contributions to pay off earlier investors.

Crypto Gifting Circles

Gifting circles are another type of pyramid scheme that has emerged in the cryptocurrency world. These pyramid schemes rely often on target women and claim to be empowering “sisterhoods” that reward members for giving and receiving gifts in the form of cryptocurrencies. However, just like traditional pyramid schemes, these gifting circles ultimately collapse when there are no longer enough new participants to support the payouts.

Airplane Game and Other Crypto-Based Variants

The “Airplane Game” is a classic pyramid scheme that has been adapted for the crypto world. In this illegal pyramid scheme, however, participants are placed in an airplane-shaped hierarchy with multiple tiers, and they are required to recruit new members to advance to the next level. Participants are promised substantial crypto payouts once they reach the top of the pyramid tier, but most never make it that far.

How to Identify Pyramid Schemes

As a crypto investor, it’s crucial to be vigilant and aware of the warning signs of a pyramid scheme. The following tips will help you identify a warning sign and avoid these scams:

Look for Red Flags

  1. Promises of high returns: Be wary of any investment opportunity that promises unusually high returns or guarantees that you’ll make money. Crypto markets are volatile, and no legitimate investment can guarantee profits.
  2. Pressure to recruit: If an opportunity places a heavy emphasis on recruiting new members rather than selling products or services, it’s likely a pyramid scheme.
  3. Lack of transparency: Pyramid schemes often have vague or convoluted business models that are difficult to understand. Be cautious of any opportunity that doesn’t clearly explain how it generates revenue.
  4. Lack of demonstrated revenue: If a company or investment opportunity cannot provide concrete evidence of its revenue streams or financial performance, be skeptical. Legitimate businesses should be able to demonstrate their earnings and financial stability.
  5. High-pressure sales tactics: Scammers often use aggressive tactics to convince you to invest, such as limited-time offers or urgent messages.
  6. Vague or non-existent product or service: Be cautious if the company has no clear product or service, or if it seems irrelevant to the compensation plan.
  7. Complicated compensation structure: Pyramid schemes often have convoluted and hard-to-understand compensation plans, making it difficult to grasp how money is earned.

Protecting Yourself from Crypto Pyramid Schemes

  1. Research the company: Before investing in any opportunity, take the time to research the company’s track record and reputation. To determine the reliability of a company, look for impartial reviews, recommendations, and news pieces.
  2. Consult with experts: Consult with financial consultants, CPAs, or other experts who are familiar with the cryptocurrency sector and can help you determine whether an investment opportunity is legitimate.
  3. Verify regulatory compliance: Check to see if the business is registered with the relevant regulatory agencies, such as the Securities and Exchange Commission (SEC) or Federal Trade Commission (FTC). Compliance with these agencies can indicate that a company is operating within the bounds of the law.
  4. Be realistic: Cryptocurrency investments carry inherent risks, and it’s essential to be realistic about the potential for both gains and losses. Don’t be swayed by promises of easy money or get-rich-quick schemes.
  5. Diversify your investments: As with any investment, it’s wise to diversify your crypto portfolio to mitigate risks. Avoid putting all your money into a single opportunity or asset.
  6. Stay informed: Keep up-to-date with the latest news and developments in the cryptocurrency world to protect yourself from emerging threats and scams.
  7. Learn from others: Join online forums, social media groups, and other communities where experienced crypto investors share their knowledge and experiences. Learning from others can help you make informed decisions and avoid common pitfalls.

Legitimate Alternatives to Pyramid Schemes

While it’s crucial to steer clear of pyramid schemes, there are many legitimate business alternatives that offer the potential for growth and profit in the crypto space. These include:

Legitimate Multi-Level Marketing (MLM) Programs

MLM programs, also known as network marketing or referral marketing, are legal business models that reward participants for selling products or services and recruiting new members. Unlike pyramid schemes, legitimate MLM programs have a clear focus on product sales and a sustainable compensation structure. Be sure to research the MLM company and its products thoroughly to ensure its legitimacy.

Passive Income Opportunities

There are various ways to earn passive income in the crypto world, such as staking, lending, or participating in decentralized finance (DeFi) platforms. These opportunities can provide a steady stream of income, but it’s important to research each option carefully and understand the associated risks. Keep in mind that crypto is highly volatile and how value of your investment can go up it can as easily go down to zero, therefore it’s important to be well informed on risks involved.


Differentiating Legitimate MLMs from Pyramid Schemes

It’s essential to differentiate between legitimate MLMs and illegal pyramid schemes. Here are some factors to consider when evaluating a potential investment:

  1. Product or service focus: Legitimate MLMs emphasize selling products or services, while pyramid schemes focus on recruitment.
  2. Compensation structure: In a legitimate MLM, compensation is primarily based on sales to customers, not on the number of recruits.
  3. Training and support: Legitimate MLMs offer training and support to help distributors succeed in selling products, while pyramid schemes often provide minimal support.
  4. Retail sales: Legitimate MLMs generate revenue through retail sales, not  recruitment.
  5. Buyback policy: Legitimate MLMs often have policies that allow distributors to return unsold inventory, reducing the risk of loss.
  6. Company track record: Research the company’s history, including its reputation, financial performance, and legal history.


As a crypto investor, it’s vital to be vigilant and informed to protect yourself and lose money from pyramid schemes and other scams targeting the cryptocurrency market. By identifying the warning signs of such schemes, conducting thorough research, and staying informed about the latest trends and developments, you can minimize the risks and make more informed investment decisions. Always check local regulations, ensure that any action you are taking or activity you are participating in, is in compliance with all laws, regulations, and recommendations. Remember that in the world of crypto investing, knowledge is power, and staying educated is the best way to safeguard your assets.


How can I tell if a cryptocurrency investment is a pyramid scheme?

Look for common red flags, such as guaranteed high returns, aggressive recruitment tactics, and an unclear or convoluted business model. Research, research, research! 

What should I do if I think I’ve encountered a pyramid scheme?

Report your concerns to the appropriate authorities, such as the FTC, SEC, or local law enforcement.

Why are pyramid schemes attracted to the Bitcoin market?

Bitcoin’s decentralized nature, lack of regulation, and the anonymity provided by digital currencies make it easier for scammers to operate.

How can I protect myself from cryptocurrency scams?

Conduct thorough research on new investors, consult with experts, diversify your investments, and stay informed about industry regulations. There are often publications by government agencies that can help you stay informed. 

Will pyramid schemes targeting Bitcoin investors ever go away?

As long as cryptocurrencies continue to grow in popularity, scams, and fraudulent schemes will likely persist. However, increased regulation and public awareness can help reduce their prevalence.

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