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Pyramid scheme

society Maturity 11-13 Next article →

A pyramid scheme is a business model that does not work like a normal shop. In a real business, people earn money by selling products or services to customers. In a pyramid scheme, the main way to earn money is by recruiting new members. These new members must pay a fee to join the group. The group promises that these people will get a share of the money from future recruits. Because the money comes from new members rather than sales, these schemes are often called scams.

Pyramid scheme diagram
Pyramid scheme diagram

These schemes follow a mathematical pattern called exponential growth. This means the number of people needed grows very quickly at every level. For example, one person might recruit two others, and then those two each recruit two more. This creates a shape that gets much wider at the bottom. Eventually, the scheme runs out of new people to join. When this happens, the whole system collapses. Most people end up in the bottom layers where they lose their money.

Small Pyramid Schemes Still Lose Money
Small Pyramid Schemes Still Lose Money

Many different names are used to hide how these schemes actually work. One version is called the "Airplane Game." In this model, people use ranks like "captain," "co-pilot," "crew," and "passenger." Another version is called the "Blessing Loom," which uses a circle shape to look different. Some groups even use names from nature, like "seed" and "sapling" in the Living Workshop. Others use names like "Fire" and "Water" in the Abundance Fractal. These different names try to make the scheme seem like a fun club or a gifting circle.

Airplane game
Airplane game

There are other ways people try to run these dishonest plans. A "matrix scheme" uses a waiting list for a product like a game console. People pay to join the list, but most will never actually get the item. The FBI also calls some versions "franchise fraud." This happens when people are sold a business that only makes money by selling more franchises. Even the "Blessing Loom" has been ruled illegal in many US cities. These schemes are tricky because they often pretend to be something else.

Blessing Loom and 8-Ball Pyramid Schemes
Blessing Loom and 8-Ball Pyramid Schemes

It is important to know the difference between these scams and real businesses. Some companies use multi-level marketing, which is called MLM. Legitimate MLMs make money by selling real products to the public. However, some MLMs act like pyramid schemes by focusing on recruiting new people. The U.S. Federal Trade Commission warns that if your money comes from recruiting, it is likely a pyramid scheme. Understanding these rules helps people stay safe from losing their money. Most countries have laws to stop these unfair practices from continuing.

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🖼️ Images & Media (4)
File:Pyramid scheme diagram.svg
Pyramid scheme diagram.svg
File:Airplane game.svg
Airplane game.svg
File:Small Pyramid Schemes Still Lose Money.svg
Small Pyramid Schemes Still Lose Money.svg
File:Blessing Loom and 8-Ball Pyramid Schemes.svg
Blessing Loom and 8-Ball Pyramid Schemes.svg
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