The Plus Side of Pyramid Schemes
Does anybody remember chain letters from the pre-email days? When I was ten, I received a chain letter from my friend. It implored me to send it along to four other people, and promised luck and good fortune to me if I did.
I never did rewrite the letter and pass it along (copy paste is one of man’s greatest inventions, even if it is abused constantly), but it was my first (and most memorable) experience with pyramid schemes.
Most pyramid schemes encountered in the US today are fraudulent and therefore illegal. Numerous MLM companies have used pyramid recruitment to enrich the early adopters through the hard work of the suckers lower on the pyramid. Techniques of recruitment include a focus on independence (employees are labeled Independent Consultants), wealth, lifestyle, and focus on millionaires made through the program. These companies are so depressing I won’t write any more about them.
There are some legal pyramid schemes. Social Security is a legal pyramid scheme that features people paying into a fund and being paid back by those who come later. Its government sponsorship may give it the legal cover to operate, but it meets the definition of a pyramid scheme.
As decentralized money takes off, thanks to the trustless blockchain invented by Satoshi Nakamoto, we are bound to find pyramid schemes of new natures.
It turns out these are really good for ways to find bugs in programmable money.
There are many advantages to cryptocurrency. One of the biggest advantages of crypto over traditional currency is the idea of programmable money. This concept has deep implications that we are just beginning to learn. If we are comparing the blockchain revolution to the internet revolution, we are just learning to send an email.
Programmable money has mostly been helpful by allowing multi signature wallets, as well as making escrow easier to accomplish. Two (or more) parties can put conditions on a currency that must be met before it can be transferred.
Enter the pyramid. Both Bitcoin and Ethereum enthusiasts, eager to learn how to program money, have been creating honest pyramid schemes. These programs are called pyramid schemes outright, and they are advertised exactly as such. They appeal to both programmers and speculators: both have a high interest in making these contracts work properly.
The side effect of this should be obvious: rather than having people robbed of hard earned money by deception, people are voluntarily engaging in contracts-and even non participants are reaping the benefits. So far, pyramid schemes have uncovered software bugs that are extremely important to find while cryptocurrency is still new. Since the contracts remain in the blockchain forever, we have to ensure that when they are written, they are written well and that the blockchain acts as expected.
The chain letters of old were useless, but cryptocurrency has given us the opportunity to vigorously test programming money using the same concepts. Score one huge win for the free market’s ability to surprise us and solve problems.