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Is Pi Network a Pyramid Scheme or Legitimate Crypto Project?

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Lorena Nessi
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Key Takeaways

  • Pi Network operates within an enclosed mainnet, keeping transactions within its ecosystem and blocking trading on public exchanges.
  • Pi Network rewards users with Pi tokens for inviting new members. Critics compare this system to pyramid schemes.
  • The KYC process, initially managed by a third-party provider, has raised concerns about data privacy, particularly given the app’s reliance on advertisements for revenue.
  • The lockup feature requires users to lock some Pi tokens to boost future mining rates. 

Pi Network has gained attention in cryptocurrency, boasting over 60 million users globally. 

The project allows individuals to mine Pi tokens through a mobile app to make cryptocurrency accessible to more people. 

With 13 million users completing Know Your Customer (KYC) verification, Pi Network has validated their identities and collected sensitive data. However, the platform has stayed in its pre-mainnet phase for years, raising questions about its legitimacy.

Stanford University researchers Dr. Nicolas Kokkalis and Dr. Chengdiao Fan led the project. Kokkalis specializes in computer science, while Fan focuses on computational anthropology. Pi Network highlights principles like meritocracy, scarcity, and fair token distribution. 

Critics, however, point to its reliance on ad revenue, token utility delays, and overall structure as sources of concern. 

This article examines its framework and controversies to determine whether Pi Network operates as a legitimate cryptocurrency project or a cleverly marketed scheme.

What Is Pi Network?

Pi Network is a decentralized blockchain platform that enables users to mine Pi tokens through their smartphones. It uses a consensus mechanism based on the Stellar Consensus Protocol (SCP), a form of Federated Byzantine Agreement.

This system establishes trust through ‘security circles.’ These interconnected circles form a global trust graph that contributes to the network’s security by helping to identify trustworthy actors and prevent fraudulent transactions, reducing the reliance on computationally intensive processes like traditional proof-of-work (PoW)  mining.

The platform aims to make cryptocurrency mining accessible by eliminating the need for expensive hardware or energy-intensive processes.

How Does Pi Network Work?

Pi Network operates differently from traditional cryptocurrencies like Bitcoin by focusing on accessibility, minimal energy consumption, and community-based trust. This is how it works:

User Participation and Mining Process

Users begin participating in Pi Network by downloading the mobile application and registering an account. Once registered, they activate a mining session by pressing a button within the app, earning Pi tokens over a 24-hour period. The process aims to have minimal impact on battery life and data usage, making it accessible even on basic smartphones.

Know Your Customer (KYC) Verification

Migrating Pi tokens to the mainnet requires completing the KYC process, ensuring each account belongs to a real individual.

Users provide a government-issued ID, such as a passport, driver’s license, or national ID card. A liveness check, such as taking a selfie, is also necessary to confirm their identity.

Pi Network initially used Yoti, a third-party provider, to manage its KYC process, aiming to enhance platform integrity by preventing fraudulent accounts and supporting regulatory compliance. The platform has since transitioned to its proprietary KYC solution to better handle the verification of its growing user base.

This shift addresses scalability challenges while aiming to uphold data privacy and security standards. Despite these measures, concerns remain about entrusting sensitive personal information within an app that displays advertisements, underscoring the importance of transparency and robust data protection protocols.

Security Circles and Pyramidal Schemes

Pi Network’s security model incentivizes referrals by rewarding users with Pi tokens for inviting others and adding them to their circles.

While user relationships strengthen the trust graph, nodes running the SCP on the mainnet handle the core security and transaction validation. However, the referral-based growth system has drawn comparisons to a pyramid scheme due to its strong emphasis on recruitment over immediate token utility.

The similarity lies in how the platform’s growth strategy focuses on adding new participants rather than offering a tangible product or service. Critics argue that this approach disproportionately benefits early adopters and users with more extensive networks, potentially creating centralization within the ecosystem.

Although Pi Network does not require direct financial contributions, it relies on users’ time and attention. In the attention economy, this has considerable value, as increased app usage can generate ad revenue and provide opportunities for data collection. 

Critics view this as an indirect form of monetizing user participation, raising questions about this model’s transparency and sustainability.

While the referral system helps expand the network, its overall effectiveness in enhancing the platform’s structure remains debated. Concerns about potential centralization and monetization of user attention highlight Pi Network’s nuanced challenges in balancing growth and legitimacy.

Understanding Pi Network’s Current Stage

This timeline provides a structured overview of Pi Network’s progression, showcasing its evolution in terms of user base, platform features, and technological development as it moved through various phases toward its current enclosed mainnet status.

Event Date Milestone Key Features
Pi Network beta launch December 2018 Initial beta phase released Daily check-in for mining
Official Pi Mining app launch March 14, 2019 App launched officially Mining functionality established
Reached 1,000 Pioneers April 2019 Initial growth milestone Focused on network engagement
Reached 10 million Pioneers December 2020 Major growth milestone Enhanced engagement incentives
Mainnet checklist launched December 2021 Enclosed Mainnet period began Pi Lockup interface introduced
Reached 55 million Pioneers June 2023 Significant Pioneer milestone Continuous app enhancements

Pi Network’s Enclosed Mainnet: Current Status and Criticisms

Pi Network positions itself as an accessible and user-friendly alternative to traditional cryptocurrencies, but its methods and structure have drawn criticism. Its so-called mobile mining approach and focus on user engagement have gained attention, yet concerns about centralization and limited token usability persist.

The network operates within an enclosed mainnet, isolating its blockchain from the broader cryptocurrency ecosystem. Transactions remain restricted to the Pi Network, preventing access to public exchanges or conversion into other cryptocurrencies or fiat

This phase allows the Pi Core Team to test the blockchain infrastructure, ensure its scalability and security, develop utilities like the Pi Browser and Pi Apps, and grow its community.

By January 2025, over 8 million users have migrated their Pi to the mainnet. The team extended the Mainnet Migration Grace Period to January 31, 2025, to address delays in the KYC process. 

However, repeated extensions have raised concerns about the project’s pace and long-term goals, particularly regarding potential delays in transitioning to an open mainnet and the eventual listing of the Pi token on exchanges.

Critics argue that the forfeiture policy, even with the extension, penalizes users who face genuine difficulties with the KYC process, including technical issues or document verification delays.

Migration also requires users to configure a lockup, allowing them to lock a portion of their Pi for a specified period to boost future mining rates. While this mechanism incentivizes long-term participation, it has drawn criticism for disproportionately benefiting early adopters and users able to migrate quickly.

Users who fail to migrate by the deadline forfeit most of their previously mined Pi, retaining only the tokens earned in the past six months. While the policy encourages timely action, it has been criticized for unfairly impacting users struggling with the KYC process.

Pi Network’s current phase reflects both progress and challenges. Its enclosed ecosystem allows for controlled development but raises questions about the project’s overall trajectory and commitment to the fair treatment of all users.

Is Pi Network a Scam?

The Pi Network has divided opinions within the cryptocurrency community. While some users view it as a groundbreaking innovation, others express skepticism about its legitimacy.

Concerns About Pi Network as a Scam

Due to its various claims, Pi has raised several red flags that warrant caution within the community.

 

  • No real utility or value: Pi tokens lack real-world use cases and cannot be exchanged for cryptocurrencies or fiat money.
  • Limited transparency: The absence of detailed technical documentation or a clear roadmap makes it challenging to assess the project.
  • Centralized control: The core team retains significant control, contradicting claims of decentralization.
  • Referral incentives: Heavy emphasis on recruiting new members mirrors some pyramid scheme-like structures.
  • Data privacy concerns: Users must provide personal information, raising fears about potential misuse.
  • Illusion of mining: The “mining” process on phones is symbolic and does not involve blockchain validation.
  • Mainnet delays: Repeated postponements in launching the mainnet raise doubts about the project’s viability.
  • Marketing tactics: Aggressive promotional efforts create hype but promise unrealistic outcomes.

Pi Network operates in an uncertain space, with significant risks tied to its lack of delivery and questionable practices.

Could Pi Network Not Be a Scam?

Pi Network may not be a scam according to some other arguments:

Active development: The Pi Network team claims to be actively working on the project, with updates to the app and progress toward a mainnet launch. While progress appears slow and unclear, some effort is evident.

  • Large community: Pi Network has built a substantial user base, which some view as a sign of genuine interest and potential future adoption.
  • Focus on accessibility: Pi Network promotes cryptocurrency mining for anyone with a smartphone, aiming to lower barriers to entry. This goal has contributed to its widespread appeal.
  • No direct financial loss: Unlike traditional scams that take users’ money, Pi Network has not directly solicited financial investments. Users primarily ‘invest’ time and data.
  • Potential for future utility: Proponents suggest Pi could gain utility if a mainnet is launched and an ecosystem develops. However, this remains speculative.
  • Academic background of the core team: The core team includes members with academic credentials, which some see as lending credibility. However, academic qualifications alone do not guarantee legitimacy or success.

Conclusion

Pi Network has attracted substantial attention in the cryptocurrency world by introducing a mobile-first, energy-efficient approach to mining. The platform has built a significant user base. Its emphasis on accessibility and decentralization through security circles and a referral-based growth model sets it apart from traditional cryptocurrencies.

The platform’s referral system has drawn comparisons to pyramid schemes due to its heavy reliance on user recruitment over immediate token utility and its mechanism. 

Critics argue that this structure disproportionately benefits early adopters while raising concerns about centralization and monetizing user attention.

While the extended migration grace period provides more time for users to complete KYC and migrate their Pi, it has also drawn criticism. 

Pi Network’s success depends on its ability to transition to a fully functional open mainnet and establish real-world use cases for the Pi token. 

The extended enclosed mainnet phase, absence of exchange listings, and lack of tangible value beyond the Pi ecosystem raise serious questions about the project’s long-term viability and legitimacy as a cryptocurrency initiative.

Only time will reveal whether Pi Network will deliver on its ambitious promises or if it is simply a ‘Pi in the sky.’

FAQs

Does Pi Network generate revenue from advertisements?

Yes, Pi Network earns revenue by displaying ads in its app. Critics argue that this model prioritizes ad revenue over building a functional cryptocurrency ecosystem.

Will Pi tokens have monetary value in the future?

Pi’s value depends on successfully transitioning to an open mainnet, real-world utility, and market adoption. Pi has no value outside its ecosystem, and future value remains uncertain.

How does Pi Network plan to address concerns about centralization?

Pi Network plans to decentralize by transitioning to an open mainnet with community-run nodes. However, the project remains centralized during its enclosed mainnet phase, which has drawn criticism.

Are there any regulations governing Pi Network’s operations?

Pi Network follows data privacy regulations like GDPR for its KYC process. Once it transitions to an open mainnet and gets listed on exchanges, it will likely fall under cryptocurrency regulations in various jurisdictions.




Disclaimer: The information provided in this article is for informational purposes only. It is not intended to be, nor should it be construed as, financial advice. We do not make any warranties regarding the completeness, reliability, or accuracy of this information. All investments involve risk, and past performance does not guarantee future results. We recommend consulting a financial advisor before making any investment decisions.
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Lorena Nessi

Lorena Nessi is an award-winning journalist and media and technology expert. She is based in Oxfordshire, UK, and holds a PhD in Communication, Sociology, and Digital Cultures, as well as a Master’s degree in Globalization, Identity, and Technology. Lorena has lectured at prestigious institutions, including Fairleigh Dickinson University, Nottingham Trent University, and the University of Oxford. Her journalism career includes working for the BBC in London and producing television content in Mexico and Japan. She has published extensively on digital cultures, social media, technology, and capitalism. Lorena is interested in exploring how digital innovation impacts cultural and social dynamics and has a keen interest in blockchain technology. In her free time, Lorena enjoys science fiction books and films, board games, and thrilling adventures that get her heart racing. A perfect day for her includes a spa session and a good family meal.
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