What is the difference between network marketing and a pyramid scheme

[mehadihasan123456]

In search of ways to start their own company or new opportunities to increase sales and develop an existing business, entrepreneurs are increasingly turning their attention to the prospects of network marketing (MLM). However, this concept also raises concerns due to its associations with financial pyramids. Is MLM really a risky business model? Let's find out.

What are financial pyramids?

A financial pyramid is an illegal business model that relies on the turnover of investments from attracted participants, rather than on the sale of real goods or services. It is based on the Ponzi scheme, invented by Italian Charles instagram data Ponzi back in 1919.

Charles founded the Securities Exchange project, where investors invested $1,000, and after 90 days the company promised to pay $1,500. Where could 50% of the profit in 3 months come from? In fact, Ponzi did not conclude any real deals, and the profit to existing investors was paid from the deposits of new participants in the scheme. A year later, the pyramid collapsed, but Charles managed to get rich by $20 million.

The number of financial pyramids has increased significantly in recent years. According to Ponzitracker, 66 such fraudulent schemes have been exposed in 2023, which is 20% more than in 2022.