Are NFTs a Pyramid Scheme? 4 Reasons Why it Feels Like it

You may have heard that NFTs are pyramid scheme and holders want to sell you for their own benefits. On the other side of the argument, you will find a technical guy trying to explain it to you from A to Z and why it is not.

As a quick answer to your question, NFTs main purpose is not to be a pyramid scheme. But certain projects can structured to be.

Before we start, here is a link to an article from the Verge if you want to have an idea about what are NFTs (non-fungible tokens). Also to see examples check out Opensea website (disclaimer: do not do any purchase from the link I posted, please access Opensea directly)

 

 

In this post we will discuss 4 reasons why NFT feels like pyramid scheme and why some holders pressure you to buy them.

 

1. FOMO is Real

Fear of Missing Out (FOMO) is a strong factor in this industry. There are people who made a lot of money jumping in projects early. For example, a profile picture project (PFP) Cryptopunks average sale price back in 2017 was around 0.1 eth ($400) and today in 2021 it is around 160 eth ($650,000). that is huge return of 1600x in 3 years (ignoring the growth of ethereum value).

That is for sure life changing returns!

 

When you keep this in mind FOMO will naturally kick in to whoever found a very interesting project.

 

2. Easy Quick Profits (for now)

NFT market is still inefficient, the number of users joining are large, and the total valuation of the projects are relatively small if you compare them with public equities market capitalisation.

For example, in stocks a trader may have one in thousands chances to find a 100x returns stock. in NFTs this get narrowed to only few hundred chances. And trust me, whoever made few successful exits would push people to join this space the way a pyramid scheme representative does.

Of course the profitability will start changing once larger players join the market and more eyes are overseeing the projects available where it is hard to do the quick flips for profit anymore.

 

3. Each NFT is one of a Kind 

The date it was minted, the creator, the properties and rarities are traits that drive collectors excitement.

A collector owning an NFT would want to brag about their collection the same way they brag about their physical collections like Trading Cards.

For example, imagine owning the next Micky Mouse with an ID no. 1 as an NFT. At the beginning because it is not known it would not be valuable, but after few years it may become one of the most unique and expensive NFTs ever.

 

4. Early Adopters get Generously Rewarded

Whoever adopted the concept early have been rewarded handsomely. Again back to our Cryptopunks example, whoever was early in the project is now secured large sum of gains that a regular individual may not achieve in his/her entire lifetime.

It is not just about the fear of missing out,  it is also about the market as a whole where multiple brands and influencers are just joining in which create strong incentive to their early adopters. For example, a utility based NFT called founder’s key run by a well know business owner and influencer Tom Bilyeu provides it holders access for all their upcoming media ventures that are done by the parent company Impact Theory.

 

Note: If you like NFT and do not think there are a pyramid scheme!  I would recommend you to check out Ledger. A hardware wallet that adds extra layer of security for your assets in comparison to regular online wallets,  Personally, I use Ledger Nano S as it does the job i need and it is affordable. 

 

Final Thoughts

NFT projects can easily be structured as a pyramid scheme. But at the end of the day they are not. The nature of holding an NFT is the same feeling of holding an investment/collection while being part of a community.

This type of attachment will usually make the whoever have an NFT to invite his close friends and family members to be part of the program. That continuous push make it feel like it is a pyramid scheme.

Related Posts:

• Cryptocurrency for Dummies – Everything I learned About it
• 3 Types of Financial Statements Explained
• Common Components of Income Statements Explained

 

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