Pyramid Scheme Isn't Always Synonymous with Scam, Or Is It?

EanB...n5vb
17 Aug 2025
77


Mentioning the word PYRAMIDAL in almost any context puts everyone on guard. Yes, the pyramid shape is scary because of what it reminds us of—scams, quick promises, feuding friends. However, what many people (investors) don't fully understand is that "the shape isn't the crime", what matters is "how the money comes in".


When we say "pyramid", we're talking about a hierarchy: a few at the top, many at the bottom. You see this in governments, in businesses, in the food chain—there's nothing illegal about having a pyramid shape. The problem arises when that shape is used to make money exclusively by recruiting people instead of selling something of real value.

Basic Differences (without too much technical jargon)

  • Pyramid (shape): It's just the structure. Nothing more.
  • Pyramid scheme (fraudulent business): If the majority of the money comes from people paying to join and not from actual sales, IT'S DANGEROUS.
  • Ponzi (another fraud): They promise you'll invest and then pay you with the money of those who join later; THERE'S NO REAL BUSINESS BEHIND IT.
  • MLM (multi-level marketing): It can be legal if sales to real consumers sustain the business; if not, BE CAREFUL.


Note: Be careful, this doesn't mean that everything with a "Referral Program" is a scam. On the contrary, it's a functional and inexpensive form of marketing to expand any business.


So why are people so confused?

  • Because "pyramid" sounds ugly, and we've already swallowed many frauds (myself included 😭).
  • Because both legal businesses and scams can "look" the same on the outside (similar structure).
  • Because people rely on friends and family, and social pressure clouds the issue (a mistake I won't make again).
  • Because no one explained the difference to us properly, and there's a lot of misinformation about the topic.


The questions you need to ask yourself (and that no one tells you) to distinguish them:

  • Where does the money really come from? From sales to regular customers or from new members' fees?
  • Is the product/service in demand outside the network? Would anyone who isn't a "distributor" buy it?
  • Do they ask for a large down payment (kits, courses, packs) to start charging?
  • Do they promise quick and "guaranteed" profits?
  • Are there invoices, returns, records, and transparency?
  • Does the structure require recruiting to make a lot of money?


If there are more "YES" answers in the recruitment column than in the actual sales column, then RED FLAG.


RED FLAGS are those warning signs that we invariably have to "print and paste" into our consciousness so they're always present:

  • Promises of high and guaranteed profits.
  • High pay to join ("kit", "course", "license").
  • More talk of "bring 3" than "sell this".
  • They don't show invoices or out-of-network clients.
  • Pressure to bring in acquaintances: "Join today or you're out of the loop".
  • Commissions that only pay well to those already at the top.


The math that doesn't lie and kills. How does a pyramid collapse? I'll illustrate it with numbers to make it a little clearer. Let's assume a scheme where each person has to recruit two new people for the scheme to continue paying. Let's also assume that each new person pays $100 upon joining.

  • Level 0 (the one who started): 1 person.
  • Level 1: 2 people (each recruits 2).
  • Level 2: 4 people.
  • Level 3: 8 people.
  • ... and so on.


The total number of people up to level "N" is the sum: 2^0 + 2^1 + 2^2 + ... + 2^N = 2^{N+1} − 1. Let's do the math step by step for N = 10 (10 levels is already quite a lot):


2^1 = 2
2^2 = 4
2^3 = 8
2^4 = 16
2^5 = 32
2^6 = 64
2^7 = 128
2^8 = 256
2^9 = 512
2^10 = 1024
2^11 = 2048 ➡️ Now we subtract 1 ➡️ 2^{10+1} − 1 = 2048 − 1 = 2047 people in total up to level 10.


If each person contributed $100 Upon entry, the money raised would be: 2047 × 100 = $204,700. Sounds big, right? Now look at how many people are needed at the next level to keep it running: at level 11, there would be 2^{11} = 2048 new people who would need to enter; where do they come from? In practice, it's impossible to sustain that growth for long: the need for recruits grows exponentially. It's mathematically unsustainable.


Short, fictional examples to better understand:

  • FitLife.sa (red) - Sells supplements, but 80% of its sales are kits for new distributors. People buy more to "qualify" than because they consume the products. Dependence on recruitment: pyramid scheme in practice.
  • BoxGreen.sa (green) - Subscribers buy monthly boxes of products; there are real direct sales; distributors are paid per sale. It doesn't depend on recruitment: a network-based business, but a sustainable one.
  • RentEasy.sa (deep red) - Promises 10% monthly, no visible assets, pays with money from new investors: Ponzi (script).


In my personal experience, I've seen and experienced that unwittingly entering into one of these scams sometimes has dire consequences:

  • You lose money directly (those below you lose everything).
  • You can lose relationships (family/friends pressured to enter or who placed their trust in you).
  • Legal or reputational risk.
  • The worst part is when you're alone with your thoughts, with your head resting on the pillow, and you're left with the feeling that "YOU WERE THE FOOL OF THE NEIGHBORHOOD" (and sometimes that takes years to recover).


The pyramid scheme isn't bad in and of itself; let's not demonize it. The bad thing is using it to MAKE MONEY WITHOUT CREATING REAL VALUE. Before labeling something a "scam" because of how it looks, ask yourself: where is the money coming from? Is it a real product or just quotas and recruitment? If the first is true, perfect; If it is the second, BE CAREFUL.



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