Financial pyramid: how to understand the scheme?
The name "financial pyramid" is aptly chosen. Humanity in general loves pyramids very much. And our history is the main witness to this. Otherwise, why did the people of the ancient world spend time, energy and even their lives on them? Pyramids stand in Egypt, Latin America, China and Italy. They stand because the figure itself is very stable. No wonder it is used not only in architecture. The pyramid served as a symbol for the accumulation of spiritual energy. What about Maslow’s pyramid of needs? Her form perfectly showed the scale from physical need to the need to fulfill herself. And even a dollar bill is decorated with a pyramid! Coincidence? We don’t think.
New time could not refuse the favorite symbol of their ancestors. Now we are building financial pyramids. Most often – on the Internet.
Financial pyramid: what is it?
As we have already said, the pyramid is a very stable figure. And in the business world, it is not always negative. Only some of its types pose a threat. So, the term "financial pyramid" from the very beginning was not negative. Many successful organizations with clear hierarchies have been compared to a pyramid scheme. After all, the distribution of income from the top down is a stable model of development. Everyone works together to create a product, and then share the profits. But if the income is contributions from each person, then the top simply “feeds" on the lower participants. And this is an alarming symptom for the depositor.
A financial pyramid is a scheme for making a profit, in which the income of participants is possible due to the attraction of money from new investors. In other words, the people who first entered the pyramid are paid the money of newcomers. And so on until the structure closes.
And such structures are closed very often. After all, the state oh how does not like financial pyramids. And carefully removes them. So, according to statistics, in 2018 the Central Bank discovered 168 financial pyramids. Interestingly, a special program was developed to search for them. The robot reports a potential threat, and people analyze its legality. The new law allows the Central Bank to block a threat site within a couple of days. What happens to depositors’ money? As you can imagine, nothing good.
However, do not think that the problem is only in the state. The scheme of the financial pyramid is dangerous in itself. Practice shows that all pyramids close quickly. And leave half of the depositors at a loss. Let’s look at the most famous financial pyramid for the CIS countries – "MMM" by Sergei Mavrodi. Some blame the state for its ruin. Others say that Mavrodi’s scheme was immediately doomed to failure. Its founder used the conflict with the government to shift the blame to the authorities. The truth is that finding the truth is almost impossible. People just believe in one thing or another. And a greater percentage of trust in this story is on the side of the state.
Signs of a financial pyramid
Fortunately, calculating a financial pyramid is quite simple. The history of this type of earnings is so rich that economists have long identified the main features of the pyramid. Forewarned is forearmed.
A real product is a key feature of any company. If it is not there, no one will tell you directly about it. After all, investing in a business is a completely working and profitable scheme. So the organizers are always hiding behind something. You need to worry even when the product looks strange. For example, it is sold at too high a price or has no value.
The story of Wang Feng’s ant farm is well known. At the heart of his business were ants with supposedly healing qualities. He offered investors these insects at 32% of the amount paid per year. But the ants were not healing. There was no real use for them. The scam was exposed, and Wang Feng was sentenced to death.
So, we are talking about getting money by attracting other people. Those who entered the pyramid earlier receive their income from the contribution of those who entered after them. Therefore, the scheme works only as long as there are more entrants than entrants. Many confuse this phenomenon with network marketing or a pyramid scheme. Next, we will explain to you what the difference is.
Yes, they can promise and explain a lot to you. But no one will show the documents that will confirm the words. Of course, for good reasons. Like a financial secret. However, a person with the knowledge of a lawyer will immediately understand that there are no legal grounds. In addition, pay attention to the registration of the company. Foreign design is not an indicator of prestige. And an indicator of problems with local law.
They promise a very high percentage
Just the case when more does not mean better. The money has to come from somewhere. And they need time to do it! Were you promised huge interest almost immediately? A knowledgeable person will be seriously wary.
The financial pyramid always creates a stir around itself. After all, it works only when its members continuously grow in its ranks. Often show business stars are also attracted for advertising. At the same time, the organizers are stubbornly silent about any risks. And endlessly give guarantees for success. And they urge people to get involved. If you hear stories about “Just here” and “Just now”, slow down and think 10 times.
The indispensable condition of the pyramid is your inaction. Please note that bringing 10 people with you is not a job. People are promised money without any work. And they get thousands of new participants in the scam.
A pyramid scheme is a model for making a profit by attracting new participants. But after all, the financial pyramid brings income in the same way? That is why these two concepts are often confused. Let’s explain the difference. The organizers of the financial pyramid say that you will earn on your investments. In fact, the money will come from those who joined after you. The pyramid scheme immediately declares that your income depends only on other participants. And actively encourages everyone to invite new clients, giving a little money only for beginners.
Feel where the catch is? To provide money for all depositors, the number of people must be infinite! Sooner or later, the influx of new members ends. When the whole scheme collapses, the really big money is left only at the “top”.
Financial pyramid VS network marketing: learning to see the difference
First of all, network marketing is distinguished by the presence of a real product. A network of distributors is just a way to sell it. Those who are in business receive income from the sale of goods, and not from the investments of other participants. Therefore, everyone really earns. And even with these differences, the network business is often suspected of fraud. So, Amway had to prove in court for several years that their organization is not a financial pyramid.
So, network marketing is a legal and not dangerous scheme. And such firms pay taxes and can show financial reports. Therefore, the state has no claims against them.
Financial pyramid on the Internet
With the improvement of information technology, financial pyramids have moved to the Internet. And they operate there along with real ways to earn money. As we have already said, the real ones are those where you still need to work. At least minimally.
China and the United Arab Emirates are not limited to fines and prison terms. In these countries, the organization of a financial pyramid can be sentenced to death.
Why the Internet? Firstly, it is very difficult to find and call to account the organizer of the Internet pyramid. Secondly, the advertising necessary to attract participants is relatively cheap. Thirdly, the coverage of users is expanding: the borders of countries are losing their meaning. At the same time, the type of financial pyramid can be radically different from the usual one. It lures even the most sophisticated person into the net. Take, for example, online games for making money. In fact, these are the same financial pyramids. And the problem is that you can’t guess in advance how long the game will last. Those who enter at the beginning can actually earn. Those who deposit money later run the risk of being fooled.
HYIP is a program for investing money. HYIP projects promise investors a huge income and are built on the principles of a financial pyramid. Unlike venture investments, which are also very risky, HYIP does not invest in real projects. Their essence is the collection of money, most of which will remain with the organizer. If you are given a money back guarantee, don’t be fooled by big words. Yes, some will make money. But the losers in this lottery will be left with nothing.
The most interesting thing is that almost all investors understand that the project is a fake. Then why do they keep investing? On the Internet, articles flash about how to make money on HYIPs. Their authors “reveal” all the pitfalls and teach how to invest money correctly. To do this, it is recommended to choose the “right” HYIP projects. They are looking for the “correctness” of HYIPs both in the script, and in online support, and even in the design of the site. Everyone strives to bypass the system, but only a few succeed.
Who is the financial pyramid for?
Here they earn at the expense of those who want quick money. "Who doesn’t want them?" – you ask. Indeed, everyone needs a good income. But it takes a lot of work for it. Those who believe in a million a year are at risk of becoming a victim of scammers. Especially if you think that you can not get up from the couch to earn money. At one time, Sergei Mavrodi very accurately painted the image of a contributor to MMM. We invite you to watch his advertisement in order to better understand what we are talking about.
This is due to laziness and lack of financial literacy. By the way, it can be improved by reading our materials.
How to get out of the water dry?
Say what you like, but you can earn big money on a financial pyramid. First of all – its organizer. Therefore, the request “How to create your own financial pyramid” gives a real briefing. Editorial opinion: the game is not worth the candle. After all, we offer our readers only proven and safe ways to make money. We remind you that after the story with Sergei Mavrodi and his “MMM”, the authorities even blow on the water. For example, they close companies that look like a pyramid scheme. Although in reality they are not. So the security that the authors of such articles promise is very doubtful.
If you still hope for a high return on your investments, remember a few rules. Firstly, only people with a cool head can participate in the scheme. If you are captivated by advertising, like Sergei Mavrodi, it is better not to risk it. There is every chance of burning out.
Secondly, the pyramid is not a lottery. You can’t just jump in and hope you get lucky. Do it smart. So, we wrote that those who entered the business at the very start receive large sums. So keep an eye on the age of the organization. This is exactly the case when a long life does not speak of success. The longer it works, the less likely it is to reach a worthwhile income. And more – to give money to more efficient participants.
Thirdly, keep in mind that the contribution amount may never be returned to you. Treat an investment like a bet in a game of chance. Don’t give more than you’re willing to lose. Waiting for a large sum to run up is also stupid. Take profit as soon as it appears. Otherwise, the scheme may fall before you see the promised millions.
The conclusion is this: you can make money on a financial pyramid. But do you need it?