1. How it starts
Let’s try to figure out how this all begins. A pyramid scheme or as some people call it a scam, starts with a single person or a small group. They are the ones who initiate the scheme and are at the top. This individual or group convinces others to join by promising a high return on their investments. They often try to perform appealing pitches that highlight the potential for quick and substantial profits.
The initiating work by these people is done by leveraging their personal relationships, social networks, and persuasive tactics to bring in the first wave of participants. These participants are required to make an upfront payment or some sort of investment to become a part of this scheme.
2. How it works
Once a person joins, they are encouraged to recruit more participants which will be beneath them in the pyramid. This forms the second level of the pyramid. These newcomers are handed over the task of recruiting even more people, forming subsequent levels. Likewise, each level that comes beneath one, becomes larger and larger, promising increased profits as you move up.
Participants are often enticed by the idea that they will receive a portion of the money invested by those they recruit. In some cases, this might be addressed as “commissions”. The more recruits someone brings in, the higher they ascend in the pyramid, and the closer they get to the supposed “big payouts.”
3. How it spreads
As this pyramid scheme spreads, the number of participants multiplies rapidly. This is because each person is encouraged to bring in multiple new members, which expands the base of the pyramid further with each and every level.
Let’s try a simple calculation up to 5 levels: Imagine A is the person starting the scheme which means he is the first level. He shares it with 5 people and they join him which makes those 5 people the second level. Next, these 5 people are given the task of recruiting at least 5 people each for the subsequent level which totals up to 25 more recruits (5 x 5) and makes the layer 3. Followed by each of them bringing in another 5 people each, which totals the number to 125 (25 x 5) people which makes the fourth layer. The next layer which is layer 5, will bring a whopping 625 people into this pyramid scheme.
If we just try to add the total number of people in the scheme, the number comes to 780 plus the one at the top (initiator). Now, we all can get a good idea of why these schemes come in fast and soon disappear. We did this calculation just for bringing in 5 people each and at just 5 levels, but these schemes recruit hundreds of people at times just via one person.
Why? Because the more recruits someone brings in, the higher they ascend in the pyramid, and the close they get to the supposed “big payouts”.
4. Destruction begins!
The endgame or the destructive aspect of pyramid schemes becomes evident as they continue to expand. Recruiting new participants becomes extremely challenging, as the pool of potential recruits diminishes. At a certain point, the scheme reaches a saturation point where there are not enough new individuals to sustain the growth required for the promised payouts.
As a result. participants at the bottom levels of the pyramid find it challenging to recruit new members and they become stuck and unable to fulfill their obligations to recruit, which leads to frustration and financial losses. These losses mark the beginning of the downfall of the scheme.
5. How it ends
The pyramid scheme’s inevitable collapse is triggered by the inability to sustain its exponential growth. When those at the bottom struggle to recruit new people, the structure becomes unstable because the scheme relies on continuous recruitment to generate the required funds. This lack of new recruits makes the pyramid crumble.
As the pyramid collapses, the majority of participants, especially those at the bottom, lose their investments. Only those who managed to join early and recruit successfully, often the initial instigators and a few early participants, make substantial profits. The vast majority of people involved end up losing their money.
Who loses Money?
Image by pikisuperstar on Freepik
The individuals who suffer financial losses in a pyramid scheme are primarily those who exist at the lower levels of the pyramid. These individuals often invest a significant amount of money based on promises of high returns, only to find themselves unable to recruit enough people to recoup their investment. The important thing to note here is that you will never know what level you are in if you are not the individual or group member who initiated the scheme.
How do people make money?
In a pyramid scheme, the profits of those who manage to make money come from the investments made by those below them. Those at higher levels benefit from the funds brought in by recruits at lower levels. The scheme relies on the constant flow of new money from participants to sustain payouts to those higher up the pyramid.
It’s important to note that pyramid schemes are illegal in many jurisdictions due to their fraudulent nature. They prey on people’s desire for quick and easy wealth and ultimately lead to financial devastation for the majority involved. Always exercise caution and due diligence when evaluating any investment opportunity.
Check out my other blog article on 5 Ways to Become a Better UX Designer.
Check out my other blog articles on Why You Fail at UX Jobs.
My portfolio site: maneeshas.com
About Maneesha
Self-motivated and disciplined with a hunger for UI/UX projects to turn my ideas into classy and elegant products. Exploring the world of technology, assimilating and applying new knowledge to creating products that help make life simpler and better for people. I’m a keen team worker with a mind that, is always open to challenges, loves traveling and camping, and finds pleasure in photography and photo editing.
