Pi - new hope for crypto beginners or another scam?

A project about which I received a lot of questions in the previous months, mostly in the context of "does this make sense" and "can I earn something here". I have to say that, since I heard about Pi exclusively from people who are either relatively new or entering the world of cryptocurrencies for the first time, my first impression was that something was suspicious, because if the project was unequivocally good I would have heard about it earlier through channels that follow leading cryptocurrencies. But before we draw any conclusions, let's see what it's all about.

"What is Pi"? "What is written on their website and in the white paper, and does what it says make sense?"

One good starting point for analyzing a project, especially if you have some previous experience in early investing in crypto-projects, is their site. Home page - at first glance, everything looks great, especially with messages that say that Pi is a process of mining, ie. mining "easy" and that "revolutionary technology allows you to mine on your phone without draining the battery". At the very beginning, we see information that should be our first line flag if we approach investing in crypto in a responsible way, for the following reasons:

The process of mining, ie. mining, at least for the currently leading cryptocurrencies on the market such as Bitcoin (BTC) , is extremely energy demanding, primarily because the process is heavier in proportion to the number of participants in the mining process, who compete with their computers. mining machines in solving a mathematical problem on a blockchain on which miners. This means that the mining reward depends solely on the work invested (in the case of Bitcoin), and a participant in a system with more hardware power in its mining machine will complete the process of creating a new block of transactions faster, thus increasing its chances of being first and foremost. take the reward for creating a new blockchain block. In the case of the Pi network, the team promises "battery-free mining" which is not theoretically possible, as this would mean that the application does not participate in the standard mining process that serves to confirm, execute and write transactions between network participants because they do not exist. processes that would use the phone's processing power and consequently drain the battery. On the other hand, if you download the app to your phone and start "mining", you will start getting Pi coins on your digital wallet. How is this possible if there is actually no mining?

Pi coins were created in advance by the founders of the Pi network, ie. the team developing the project itself. Unlike Bitcoin, where new coins are created only when one of the miners invests a certain amount of work in order to process a certain amount of transactions on the network and create a new block, on the Pi network the coins are "mined", ie. created before the network itself was actually launched. With a little research - primarily Reddit and Quora in addition to the site and the white paper of the project itself - we can see that users are asked to open the application once every 24 hours and press a button to "confirm that they are human and not (ro) bot" - and that that is, the user allegedly "miners" Pi coins. In fact, every time the user presses a button, the Pi network takes the predicted amount from the pile of already existing Pi coins and assigns it to the user. Pi also does not currently have a blockchain implemented, but only a mobile application in which users click a button and receive Pi coins that are currently worthless and cannot be classified as a cryptocurrency. The development team - if we can call them that, since not much is written on this page about the project that has existed since 2019 - promises that one day they will actually implement Pi on the blockchain, specifically as a variant, that is. the so-called fork of Stellar XLM, and that it will then really assign users real Pi coins that would then really be a cryptocurrency in relation to how many "Pi coins" users have in the mobile application at that time.

The app itself serves commercials, and the entire Pi ecosystem currently looks like this: A large number of users who probably think they have a Pi cryptocurrency that may one day have some value, when in fact they have virtual Pi coins in a mobile app. A large number of advertisements that are served to a large number of users at least once a day when they open the application to click the required "mining button". Revenue from serving advertisements to users that completely goes into the hands of the owner, ie "Development team" and is not shared in any way among users. On the other hand, legitimate decentralized systems that are currently successful in the market mainly share the network's earnings with the participants, ie. primarily to miners, at least in a certain percentage, since they actually process and execute transactions, and thus create value for other users and the entire network, and in return are adequately rewarded.

There are no transactions because there is no need for transactions because Pi coins, in addition to not actually existing yet, cannot be used for anything, nor is there any form of real or any other value for the user - except the promise that one day the Pi network get out of the test phase and launch the main net on which it is then possible to create Pi coins as a cryptocurrency that really exists, but the big question is whether and how much it will be worth when / if it really happens. And of course, there is no "breakthrough tech (which) allows you to mine on your phone without draining the battery" because we see that nothing happens in the process of "mining" that does not exist.

If we go a step further on the site and look at the business plan of the Pi project, which in the world of cryptocurrency is initially presented as a whitepaper or white paper under the newly adopted Law on Digital Property and should present the project in as much detail as possible, , primarily because of the way they form the narrative. It is also important to know that the Pi project does not appear practically anywhere in credible publications, portals, news, etc. from the world of cryptocurrencies, which in combination with my personal experience that I was mostly asked about Pi by people who do not have (too much) experience with crypto but have a desire to become part of that world shows that Pi mostly targets its marketing activities of people who are either completely inexperienced or have only recently been in the world of cryptocurrencies, because they can create a narrative that sounds very tempting but is essentially incomprehensible to someone who has little experience with cryptocurrencies and investing in cryptocurrencies. The idea that it is possible to become a part of the crypto-revolution without any cost to someone who does not know much but has a great desire to become a part and learn more about cryptocurrencies, this narrative of the Pi network sounds very tempting, and yet difficult to verify.

We don't even have to delve too much into Pi white paper - if you want it here - and we see at the beginning that the mission and vision of the project are poorly defined, that is. undefined, to use explanations with terms that sound very convincing to inexperienced users without any or with insufficient explanations, as well as quoting completely incorrect statements that support the Pi narrative - the best example of this is stating the fact that, since the total number of bitcoins is limited to 21,000,000 , there is not enough bitcoin for all people on the planet (~ 7,500,000,000) so due to that lack of supply one bitcoin is worth as much as it is worth. It is true that the limited amount of bitcoin is an important factor in shaping its price as well as its mining process, but the statement "there is not enough Bitcoin to go around" is extremely misleading because bitcoin is divisible to its eighth decimal, which means that the smallest part of bitcoin that someone can own 0.00000001 BTC or 1 Satoshi, and we clearly see that there is more than enough bitcoin for all the people on the planet if they want to buy all or part of bitcoin. To someone who doesn't know about the divisibility of bitcoin, this statement sounds a bit scary and further reinforces the well-known FOMO (fear of missing out) in the crypto-world. the feeling that they have to become a part of something as soon as possible because soon that opportunity (for potentially big profit with little or no work) will pass - in such a situation people invest their money, time or other resources in projects based on emotions and not rational thinking and preferably thorough analysis, and then the biggest mistakes and losses are made in investing in cryptocurrencies.

Another worrying factor of the Pi project is their referral system, ie. a way to expand the community and bring in new users. Namely, as far as I can see, the only way to become a part of the Pi network is to receive an invitation from one of the "verified" users, which means to log in to the network via a link from someone who is already a user. Although there is a strong emphasis in the narrative on the fact that "Pi's mission is to be inclusive as possible", it is unusual to restrict access to the application to users in this way. So, new users are forced to become part of another user's network, which is again part of another user's network because that's the only way he could get access to the application, and Pi looks more and more like one of the variants of the Ponzi / MLM / Pyramid scheme.

It is also important to note that this, as expected, reminded me of one of the most famous scams in the world of cryptocurrencies, which turned out to be an MLM scheme - One Coin, and on Reddit I came across a thread that discusses Pi and mentions it. a project that is relatively similar to the Pi network with a very similar working principle (and a different topic that is inherently dear to humans - bees) - Bee Network on bee.com.

To make everything a little clearer let’s take a look at Bee.com for a moment

The problem is that the bee.com application collected, stored and sent data from users who installed it on their devices back to China, where the team that developed the Bee "network" is located. This includes information such as the user's GPS location, data that uniquely identifies the device, lists of all applications installed on the device, and other sensitive device and user data. To make matters worse, this information is sent via sockets with inadequate cryptography, which in practical terms means that it is very easy to intercept and read such data while traveling on the Internet. To make matters worse, the Bee app would do all this even if the user just installed it and never used it, or doesn't use it on a regular basis. A detailed report on the application's functionalities can be found here. This probably means that all this user data has been sold several times so far to various companies or groups of people around the world, without any consent or compensation of the users for their data, some of which are extremely sensitive.

Now that we know all this, what does it mean for the Pi network? Without investing in a direct comparison of the Pi and Bee platforms, the potential - and probably realistic and already existing - risks of using the Pi network and application are as follows:

- In the best case, the Pi network and application are currently a project without a clear goal, and it really doesn't cost you anything to try, maybe one day Pi Coin will really be worth something. It is not impossible for Pi, even if it is a kind of fraud at the moment, to one day become a "legitimate" project, at least to a certain extent. In this sense, “legitimate” would mean that the platform actually has to offer some value (product or service) to users, as it does not currently exist as we have concluded.

- In order to become a "verified" user on the Pi network, as they say, and have access to inviting more people, higher rewards for "mining" and the like, it is necessary to go through a process called know your customer, ie. KYC - this usually involves sending documents (passport or ID card) in combination with a photo or video call to the service we use so that the service knows who we are, so that in the event of the arrival of a regulatory body in the country where the service is located they know who their users are, and are obliged to submit the same data on certain users at the valid request of regulatory bodies if there is a justifiable reason supported by the legal framework, such as the Law on Prevention of Money Laundering and Terrorist Financing. This is a practice that is analogous to identification when opening a bank account, and is a normal practice for all legitimate crypto exchange offices and stock exchanges - i this process is called personal user verification. And that process makes sense because the crypto exchange or stock exchange is to a certain extent responsible for the services it offers to its users, that is. which users it offers, such as the bank and the standard FIAT exchange office on the street. And that is fine if the platform that performs such verification can offer the user several or many services that have a real value for him, which justifies the time spent for verification and providing sensitive personal data.

In the case of the Pi network, the user receives practically nothing (except for now fictitious Pi coins), and in return gives the company behind the Pi network a large amount of sensitive personal data, ie. everything that can be found in your passport or ID card. This kind of information is very valuable to different companies in different markets (white, gray, black and everyone in between) - of course, provided they really do, since we still don't have a report from a legitimate source as in the case of Bee Network, but red flags definitely exist. Even if this is not the case, the fact that the Pi network offers the user nothing but promises and requests personal data in return should be enough for most rational users to at least wait and see how the Pi network will develop before they become part of it, but it's hard when you feel like you're missing out on a potentially big profit in a short time doing practically nothing. Unfortunately, this is not the end of the data story, as personal data of this type can be even more valuable in combination with some other information, as in the case of the Bee network.

- We have seen what an application similar to the Pi network does on the device on which it is installed (Bee network). For now, there is no news that Pi is doing the same or something similar, but when it would work, why is it important for you as potential users? The amount and type of information collected in this way, continuously or periodically - your location, other applications you have on your phone, sensitive data such as your bank account or card stored in applications that another application can access (there are ways), unique identifier of your device and potentially much more - combined with your personal passport data they give an incredibly accurate picture of you as a consumer of various products and services, your habits and patterns of behavior that you may not be aware of and that affect your daily decision the question of where, how and when you will spend your money.

The information was literally (digital) gold worth to a large number of companies from around the world. Coincidentally, through its marketing activities (not through any value it actually offers on the market), Pi has become a project that is globally present, and thus potentially has such data packages for groups of people in countries around the world. The fact that the Bee network paid its bee.com domain $ 2.5M to make it look more credible is probably negligible compared to the earnings they made by selling their users ’data god ask who. Is this violation of privacy and trust of users, in addition to enriching the owners of the platform and sharing not the slightest part of the profit with users who are the only ones actually creating some value in the whole system and getting nothing in return worth promising that cryptocurrency may one day be worth something? Judge for yourself. In the case of the Pi network we don’t know if this is really happening, but even then I wouldn’t recommend using the app, at least until the project really proves itself in the market with a clear goal and starts creating real value for its users or at least until we have more transparent information about what is happening in the application and confirmation of whether the application collects any data that it should not.

The conclusion of this story

Finally, the current situation is this - you as users create value for the Pi network, the Pi network creates value for various companies that need behavioral and other data on user behavior in order to better sell them more products or services, and you as a user currently you get absolutely nothing but undefined promises about the future of Pi cryptocurrency. I personally did not install the app because for me who have decent experience investing in crypto and the ecosystem in general this is a very dubious story, and there are plenty of other coins and tokens that are legitimate and have the potential for rapid and / or great growth. Of course, they also carry their own risks, but these are the expected and real risks of cryptocurrency trading, and not the risks of various types of crypto fraud. On the other hand, maybe Pi as a project will one day find its way, create some value for users, actually legitimize itself in some way and then Pi as a cryptocurrency could actually be worth something - it is extremely unlikely that something like this will happen, but and weirder things were happening in the world of cryptocurrencies. If Pi turns out to be some kind of fraud, the biggest "loser" will be only the cryptocurrency market and the pace of mass acceptance of decentralized technologies such as blockchain, because one part of the new wave of people who wanted to really become part of the crypto revolution will have a bitter feeling. in the mouth, without actually entering the crypto world - because Pi, at least for now, is not a cryptocurrency.