Disclaimer: Please don't invest in MLM Systems, you won't get your invested money back. In the following topic is explained why:
How to detect MLM SystemsWhen you are searching for good investment opportunities, you might come over a business model called MLM. MLM means Multi-Level-Marketing and is often used to attract new customers. Multi-Level means that existing users are recruiting new customers. For each recruited customer, the existing customer receives a commission of a predefined percentage of the deposit from his referral.
Often there are several levels, where commissions are paid:
When your referral advertises and gets a new member in, you’ll also get a small percentage bonus of his deposit.
That sounds profitable at first, that you get a bonus by recruiting another customer, but if you look further it isn’t very useful and it's a better decision to stay away and don't invest in Multi-Level-Marketing systems.
MLM-Structure of BitConnect Ponzi-Scam. Recruiting new users was awarded with a small bonus depending on how much your referral deposited.
Another promise of such shady projects is to multiply your invested crypto in a short period of time. Some MLM projects will also have a special bonus if you invest more money, to offer you faster and bigger returns:
MLM is very popular in the crypto space because crypto offers high returns and inexperienced “when moon” people are the main target group of MLM. During the hype in late 2017, many Ponzi MLMs used the “when moon” atmosphere to raise money, no matter if the business model was lending or mining, in most cases it was just an empty promise to get people in.
Furthermore, Bitcoin and cryptocurrencies are very complex for new users, and it is quite easy for scammers to fool such people and sell them fake business models as supposedly realistic.
An MLM can be recognized by a pyramid-like structure, if you have several levels of referral bonus and mostly huge returns per day or per month. Well known MLM systems were BitConnect and BitClub for example.
After BitConnect crashed, their coin lost almost its entire value.
To sum it up, here are the general disadvantages of MLM systems why you should avoid investments in any case:
1. MLM and Scam match togetherMLM does not necessarily mean that a project is a scam, but in most cases it is. This is mainly because MLM is suitable for operators to get many new customers recruited by the existing customers when they advertise for the service. It’s very beneficial for the owner of the platform, since the advertising is made by the customers and also funded by the deposits of new members. So, the owner of the MLM system has zero risk and no expenses for marketing.
If enough funds are collected later, the owners will close the platform and no customer is able to withdraw his money anymore – a so-called "Exit-Scam".
A Ponzi will always come to that point, when not enough new customers make new deposits because the current users are paid out from new deposits of new customers. It’s only a redistribution of money because no profits are generated.
But even if an MLM generates real profits, there are a few things to keep in mind.
2. MLM causes significant costsIf there are profits generated, a business based on MLM will have to spend a significant part of their profits on the commissions that have to be paid for MLM-expenses. Depending on the number of levels and the amount of the individual commissions, this can make up a large part of the profits.
In addition, the profits that have to be spent are no longer available for normal investments, which has a negative impact on earnings for customers. The customers are paying for the marketing here.
Therefore, a legit business model won’t use MLM in most cases because it’s just not profitable for a good development of the company.
3. Only the people who invest early and get many people in will benefit from the MLM As a result of the affiliate structure, the people who invested early (mostly the founders) and those who referred the most people will benefit the most. These referral commissions are directly financed by the customers who are below them in their downline.
And of course, the owners are always making a profit in MLM systems, otherwise they wouldn’t run them.
Another important point is that the people advertising their projects are very biased when they present the business model. They will advertise the product in a way where it is likely that they’ll get more referrals (and a bigger bonus) due to the affiliate structure. The result is a dangerous dynamic that gives a very biased impression of the product often called “shilled project”.
4. There is no transparency in MLMsLegitimate projects are always interested in making their business model transparent as a reason that people invest, like how are profits generated, which team is behind the project and how the revenue is split (team / expenses / profits for investors). However, in most cases such projects do not have a multi-level marketing system.
Often there is no transparent structure of the company in MLM projects, in which the operators are unknown or only barely known and the marketing is done by the customers itself. A perfect strategy for the owners to hide themselves but get a huge marketing.
Especially inexperienced people are the target of this marketing strategy by promising them "a new Bitcoin", "Lambo or Moon" or other unrealistic returns.
If the business model a good one, an MLM with clear commissions can be a viable and legitimate marketing measure, but the past has shown the opposite.
Finally, multi-level marketing systems are
generally discouraged because there is a very high risk of a scam and even if it’s not a scam, the structure is very unfavorable for customers and only enriching the founders.
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