How does Pi Network work?
It is an app where users
- login every day and click a button to get digital currency. There is no proof of work being performed, they just login and click a button. This currency is not traded yet so currently holds no value.
- level up by inviting more users to the platform. This makes them gain more digital currency per day. This is a common model in Pyramid Schemes and Multi level marketing.
Key things that make a blockchain and cryptocurrency useful
- the ability to cash out or trade it
Can you do any of the above? No.
Users are currently putting value in the app without any (except maybe psychological) benefits:
- The app does not provide any utility to its users. There is nothing to do in the app . Users hold on to it with the hope that they will sometime convert their virtual coins to actual value
- The app works like a direct selling or affiliate marketing system, promising future rewards to users for bringing in new users. Some users put in additional time and effort to attract new users, such as numerous users adding their codes as comments to this article. We find it similar to Multi Level Marketing since it includes direct selling and provides increased potential benefits to early users (i.e. earlier users mine at an increased rate), however affiliate or direct selling are possibly better analogies.
- Users are putting value into the app. There are hundreds of posts online saying PI Network can not be a scam because you do not put any money it. Users’ time and data are valuable to those users and they are spending these on the app. You can see the data collected by the app on its Play Store page
We find it unlikely for the app to create value in the future unlike its claims:
- The app creates limited value. Users create no value except for providing their information to the mobile app. The value of such data is unlikely to generate significant wealth for the large user base.
- There is no visibility on its technology or blockchain. Most blockchain companies publish their code as open source so it can be validated which is not the case here. Currently it is no different than any mobile app in terms of the transparency it provides on its technology.
Some of its current practices are also used in scams:
- Founders are already benefitting from the app. They launched optional video ads at launch to monetize the active user base. The app also has a KYC process of collecting passport information. Binding this to mobile IDs can be valuable information for the founders
- Their marketing emphasizes the academic credentials of their users. Very similarly, a blockchain scam without blockchain infrastructure, OneCoin, relied on the McKinsey experience of its founder in its marketing.
Could Pi Networks’ currency be valuable in the future?
Of course. We have done an evidence based analysis here and there are also evidence that show that PI Networks is at least attempting to build something of value:
- They have published a high level whitepaper outlining their ambitions without providing technical details on how their Pi Stack would work. One of their aims is to have others build apps on PI network to benefit from PI network users’ attention. This reminded us of the pay to surf models of the dot com boom where companies installed software on user devices and acted as middleman between users and advertisers without generating substantial benefit to either party.
- According to their Linkedin page, they have 70 employees as of 2021. However, many of the people that list themselves as working there are app users with titles like “Cryptocurrency Trader”. We haven’t analyzed each profile but there seems to be a group of people working towards building something there. It could be the next version of the app or the blockchain network, that is hard to verify from outside the company
- Its founders were educated at and worked at Stanford. Though this is certainly a good thing, people rarely notice that Warren Buffet, Jeff Bezos, the writer of this article and numerous business founders were educated at reputable universities (e.g. Ivy League universities for these examples). This is because their companies rarely use these facts. Based on our observations, business success is far more important and a better predictor of successful enterprises than academic credentials. And successful companies tend to speak about their business success rather than their founders’ academic credentials.
- They have had significant growth. They have ±170k reviews and a good rating on Google Play Store. However, models similar to MLM tend to generate fast growth.
For us, the bigger question is why they don’t already launch the blockchain and the exchange. These are trivial engineering tasks. They may be waiting for the user base to reach enough scale so they can generate value for advertisers. However, we are sceptical that large advertisers will show ads in a network where users login to make money by seeing ads. It is more valuable to advertise in websites which are used since they provide some value to users (e.g. information, connecting with friends etc.).