Is Pi Network a Pyramid Scheme or Legitimate Crypto Project?

Jan 25, 2025

Pi Network has garnered significant attention within the cryptocurrency world, amassing over 60 million users globally. Its unique approach to mining cryptocurrency through a mobile app has intrigued many, aiming to make cryptocurrency more accessible to the masses.

However, questions about its legitimacy persist, especially since the platform has remained in its pre-mainnet phase for years. While the project emphasizes principles like meritocracy, scarcity, and equitable token distribution, critics highlight concerns regarding its reliance on ad revenue, token utility delays, and referral-based structure.

This article examines Pi Network's framework, controversies, and criticisms to determine whether it is 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 its native cryptocurrency, Pi tokens, through smartphones. It employs the Stellar Consensus Protocol (SCP), a form of Federated Byzantine Agreement (FBA), which establishes trust using "security circles."

These interconnected circles create a global trust graph that helps identify trustworthy actors and prevent fraudulent transactions. Unlike traditional proof-of-work (PoW) mining, which requires extensive computational power, Pi Network’s system is designed to be lightweight and energy-efficient.

The primary goal of Pi Network is to make cryptocurrency mining accessible to everyone 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. Its focus is on accessibility, minimal energy consumption, and fostering a community-based trust system. Here’s how it works:

User Participation and Mining Process

Users can start mining Pi tokens by downloading the Pi Network mobile app and registering an account. Mining involves simply pressing a button on the app to activate a 24-hour mining session. This process is designed to have minimal impact on battery life and data usage, making it accessible even on basic smartphones.

Know Your Customer (KYC) Verification

To migrate Pi tokens to the mainnet, users must complete a KYC process to confirm that each account belongs to a real individual. This involves submitting a government-issued ID (e.g., passport, driver’s license, or national ID card) and performing a liveness check, such as taking a selfie.

Initially, Pi Network used Yoti, a third-party KYC provider, but has since transitioned to its proprietary solution. This shift was intended to address scalability challenges and enhance data privacy standards. Despite these measures, concerns remain about entrusting sensitive personal information to an app that generates revenue through advertisements.

Security Circles and Referral System

Pi Network’s security model uses “security circles,” where users invite others to join the platform and form a trust network. This referral-based system rewards users with additional Pi tokens for adding members to their security circles.

While this approach strengthens the trust graph, critics argue that the referral-based growth strategy resembles a pyramid scheme. The system incentivizes recruitment rather than immediate token utility, benefiting early adopters and users with extensive networks disproportionately.

Although Pi Network does not require financial investments, it monetizes user attention by generating ad revenue. This raises questions about the platform’s transparency and whether it is leveraging its user base as a means of indirect monetization.

Pi Network’s Current Stage

Pi Network is currently in its enclosed mainnet phase. During this phase, the network operates within a closed ecosystem, restricting transactions to its blockchain and preventing access to public exchanges or fiat currency conversions.

Enclosed Mainnet: Progress and Criticisms

The enclosed mainnet allows the Pi Core Team to test blockchain infrastructure, ensure scalability, and develop utilities such as the Pi Browser and Pi Apps. By January 2025, over 8 million users had migrated their Pi tokens to the mainnet.

The Mainnet Migration Grace Period was extended to January 31, 2025, to accommodate delays in the KYC process. However, critics argue that repeated extensions reflect poor planning and raise doubts about the project’s commitment to launching an open mainnet.

Lockup and Migration Challenges

To migrate Pi tokens, users must configure a lockup, where they agree to lock a portion of their tokens for a specified period to boost future mining rates. While this incentivizes long-term participation, it has been criticized for disproportionately benefiting early adopters and users who can quickly complete the migration process.

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. Critics view this policy as unfair to users who face technical or verification challenges during the KYC process.

Is Pi Network a Scam?

Pi Network has polarized opinions within the cryptocurrency community. While some see it as an innovative project with potential, others consider it a questionable venture.

Concerns About Pi Network

Lack of Utility: Pi tokens currently lack real-world use cases and cannot be exchanged for cryptocurrencies or fiat money.
Transparency Issues: The absence of detailed technical documentation or a clear roadmap raises concerns about the project’s direction.
Centralization: Despite claims of decentralization, the core team retains significant control over the network.
Referral-Based Model: The heavy emphasis on recruiting new users mirrors characteristics of pyramid schemes.
Data Privacy Risks: Collecting sensitive personal information for KYC verification raises fears about potential misuse.
Symbolic Mining: The mobile mining process does not involve blockchain validation, leading some to question its authenticity.
Mainnet Delays: Repeated postponements of the open mainnet launch cast doubt on the project’s long-term viability.
Aggressive Marketing: Pi Network’s promotional tactics create hype but promise unrealistic outcomes.

Arguments Supporting Pi Network’s Legitimacy

Active Development: The Pi Core Team continues to update the app and make progress toward a mainnet launch.
Large Community: Pi Network boasts a user base of over 60 million, which some view as a sign of its potential.
Accessibility: The platform promotes cryptocurrency mining for anyone with a smartphone, lowering barriers to entry.
No Direct Financial Loss: Unlike scams that solicit financial investments, Pi Network primarily asks for users’ time and attention.
Academic Background: The project is led by researchers from Stanford University, lending it some credibility.

Conclusion

Pi Network has positioned itself as a mobile-first, energy-efficient alternative to traditional cryptocurrency mining. While it has built a substantial user base and introduced innovative concepts like security circles, its reliance on a referral-based growth strategy and prolonged enclosed mainnet phase have raised concerns about its legitimacy.

The lack of immediate token utility, repeated delays, and monetization of user attention continue to be sources of skepticism. For Pi Network to prove itself as a legitimate cryptocurrency project, it must transition to an open mainnet, establish real-world use cases, and demonstrate its commitment to decentralization.

Only time will tell if Pi Network fulfills its promises or remains an ambitious yet flawed experiment in the world of cryptocurrency.