Some crypto businesses see no harm in the use of network marketing as a strategy for hastening adoption of the fintech even though the approach is also commonly used by bad actors. Indeed network marketing is a legitimate business practice that has been employed by some businesses for decades.
Ponzi or Pyramid schemes on the other hand, are essentially fraud schemes packaged to appear like a legitimate network marketing business. Even ‘smart’ people will not be able tell the difference between a scam and a legitimate one, the line is very thin. Such fraud schemes are common in poor countries as well as in emerging markets where consumer protection laws are not that robust. Victims are usually lured by the promise of huge earnings in the shortest period possible time or by a passive income that promises a healthy lifestyle.
Usually with such schemes, the emphasis is on getting more members to join than the marketing of the actual product. Apparently the core business is getting new members to join but this is never said upfront. Victims usually realize they have been conned when they have already joined or paid but the schemers are confident that only a few will take action to recover lost funds.
The fraudsters often gamble that the rest of the victims will be in on the con because; firstly they want to recover their own ‘investment’ and secondly they can also profit by luring their own victims. Indeed, those joining such an elaborate scheme much earlier, will realize substantial revenues that are mainly extracted from fees paid by later recruits.
Successful members/investors are then used as testimonies to lend credibility to the grand scheme. This maybe the reason why some defend Ponzi schemes, the earnings are real for the early investors. Indeed, even Bernie Madoff’s multi-billion grand theft might have duped many investors in the end but those who joined early earned handsome rewards.
Regrettably, all Ponzi network marketing schemes often collapse as it will become mathematically impossible to continue getting new investors or referrals as they commonly known. When that point is reached, such a scheme collapses like a deck of cards and the last members to join often lose out. There is neither compensation nor relevant laws that provide cover while consumer watchdogs only react when the schemers are already gone.
For example, controversial organizations like OneCoin, MMM and RRR Link conned unsuspecting people into parting with millions of dollars by employing similar tactics. Arrests have been made but masterminds might not even serve time!
As the old adage goes, once bitten twice shy, some in African countries where Ponzi schemers regularly strike now view with suspicion any organization using any such marketing methods.
Sadly when a legitimate business attempts to employ the same tactics in a market that has seen its fair share of Ponzi schemes, such a business will see their image getting tainted by this association. That also goes for Blockchain or crypto businesses, distrustful potential users will steer clear of crypto-currencies when a suspicious referral system is brought into the picture.
Blockchain is real and its utility has been proven countless time but this association with such unpopular schemes will only slow down the embrace of the innovation. Already some crypto businesses on the continent constantly have to bat away accusations that they are running pyramid schemes. This does not augur well for cryptos in a market that represent the best user case scenario.
One Bitcoin mining company is using such an approach as it attempts to recruit more miners to its pool and its officials believe they are conducting a legitimate and genuine operation.
Potential miners are told of enticing but surreal income projections, which are dependent on the number of successful referrals. After attending one of their regular investor meetings, one gets a feeling that the organization is running a pyramid scheme but using its association with Bitcoin to claim legitimacy.
For opponents of Bitcoin, this particular case is manna from heaven, they are quick to seize on this by warning the public to avoid this ‘latest’ Ponzi scheme in reference to Bitcoin and not the said organization. Such an attack is at best disingenuous but it sticks if the targeted audience has had previous encounters with actual Ponzi/Pyramid schemes.
MMM was grand scheme that left hundreds of thousands counting losses across the African continent. Crypto opponents on the continent are able to weep up emotions by invoking these memories when they attack crypto-currencies and they may have a ready audience in the form of ignorant government officials. A few years ago, Nigeria and Uganda lawmakers were both reportedly contemplating tougher regulation for cryptos, which authorities are repeatedly linking with the growing problem of Ponzi and Pyramid schemes.
Therefore crypto businesses must avoid falling into this trap by choosing marketing methods that make the task of marketing tokens easy. Perceptions are stronger and difficult to alter though the passage of time will. It does not matter that a crypto company believes that it is running a legitimate operation, what matters are the potential users’ perceptions. If the perceptions about network marketing are currently negative and they cannot be changed immediately, the best course of action would be to avoid relying on this referrals business as strategy of driving up numbers.
It is best to only resort to that method when the air has been cleared that crypto-currencies are not scams but are real solutions to the continent’s problem of inaccessible banking services.