Pi Network: A safe cryptocurrency or a marketing scam to get your data?

We all have received this message from one of our friends which said the following “Pi is a new digital currency developed by Standford Ph.D., with over 3.5 million members worldwide. to claim your Pi follow this link..” then the confusion starts and you ask them what is this? then they will reply look this is a new digital currency that is in its early stages and will be great in the future like bitcoin let's start mining now! you get excited and you start mining through your phone. I'm saying this not to assume that you think in this way but because I have heard this story a thousand times which motivated me to investigate Pi and see why a free product is being placed in our hands while there isn’t a clear form of return. When you see such a product always remember this statement “when a product is free then you are the product”. Research on the subject is well needed as this phenomena is spreading across the globe as millions are gaining acess to the app as it sounds easy and benefitical, This article will explain how the Pi Network works and will try to answer the question of whether it is a scam or not.

“The famous let’s mine Pi message”

Introducing Pi-Network

“ Pi Network founders from left to right: Vince McPhilip, Chengdiao Fan, and Nicolas Kokkalis”

Pi Network was founded on March 14, 2019, by four Standford graduates anthropologist Chengdiao Fan, computer scientists Nicolas Kokkalis and Aurélien Schiltz, and business major Vince McPhillip. The creation of the app came in an effort to get into the cryptocurrency market but within a whole different method in which they aim to decentralize and disintermediate finance in order to reach a wider audience through basing the currencies mining in smartphones and make it easily accessible by just downloading the app and pressing a few clicks to start mining while securing it through “security circles” which forms a ledger validation mechanism. The smartphone cryptocurrency’s referral system is necessary since mining can’t progress unless successful referrals are made. The easy access to mining and the referral system allowed the app to jump from 1 million users in November 2019 to over 12 million users in February 2021. Even though the app became popular and has many users there are many who are failing to understand what makes its value, how it really works, and whether its referral system isn’t like another pyramid scheme.

How Pi-works

In order to get the full picture of how Pi works one must check the Pi-white paper, it has a lot of technicalities therefore this section will only go over the main points and try to summarize them, as it is essential to fully understand the reason behind this crypto, its structure, and its functionality. Also please note that Some parts of this section are taken completely from the Pi-white paper as they are since some parts are technical and need to be presented as they are in order to prevent confusion.

The Pi-white paper is hyperlinked in case you want to go more in-depth.

The process of mining Pi:

  • It all starts by downloading the application and login in daily and pressing the mine button daily so the mining process to start.
  • The mining process is directly related to referrals as you level up by inviting more users to the platform. This makes them gain more digital currency per day. if you don’t do any referrals from time to time you will stay in your place as the process will be very slow.
  • Pi uses a consensus of algorithms that are based on the SCP (Stellar Consensus Protocol) along with the FBA (Federated Byzantine Agreement) algorithm. These algorithms don’t utilize energy however they require exchanging many network messages in order for the nodes to reach a “consensus” on what the next block should be. Every node can determine the validity of a transaction independently and check if it's authorized or under double-spending through using a cryptographic signature and transaction history. However for transactions to work and be recorded they need to message each other and have multiple rounds of voting to come to a consensus. Instead of having the SCP for companies and organizations, Pi transferred to all its users to make it simple.

Pi applies SCP through these roles:

Pioneer. A user of the Pi mobile app who is simply confirming that they are not a “robot” on a daily basis. This user validates their presence every time they sign in to the app. They can also open the app to request transactions (e.g. make a payment in Pi to another Pioneer)

Contributor. A user of the Pi mobile app who is contributing by providing a list of pioneers he or she knows and trusts. In aggregate, Pi contributors will build a global trust graph.

Ambassador. A user of the Pi mobile app who is introducing other users into the Pi network.

Node. A user who is a pioneer, a contributor using the Pi mobile app, and is also running the Pi node software on their desktop or laptop computer. The Pi node software is the software that runs the core SCP algorithm, taking into account the trust graph information provided by the Contributors.

All of these roles are of miners and they progress as they bring in more Pi users through referrals.

Pi economic model: balancing scarcity and access

Pi tries to create a sense of balance between scarcity and availability for everyone as they think that Bitcoin isn’t accessible by everyone and is hard to mine therefore a few would hold it for themselves.

Pi’s economic model design requirements:

  • Simple: Build an intuitive and transparent model
  • Fair distribution: Give a critical mass of the world’s population access to Pi
  • Scarcity: Create a sense of scarcity to sustain Pi’s price over time
  • Meritocratic earning: Reward contributions to build and sustain the network

Pi token supply formula is the following

Total Max Supply = M (Minning supply) + R (Referral supply) + D (Developer reward supply)

Utilizing the time online

  • Pi views our time online as a valuable untapped base of resources that should be utilized and people should capture value from these resources.
  • large corporations with large data banks like Google, Amazon, Facebook have immense leverage against individual consumers. This means they have a large share of the pie. Therefore Pi wants to level the playing fields by allowing its members to pool their collective resources and share the value they create.

Crypto-governance for the people

  • Pi has a two-phase plan the first is Provisional Governance Model (< 5M Members) and the second is Pi’s “Constitutional Convention” (> 5M Members).
  • In simple terms, it would allow Pi users to have a say on what the Pi-network should work on and would be able to contribute to the development of the network in other terms it is a form of liquid democracy.

Pi’s development plan

Phase 1 — Design, Distribution, Trust Graph Bootstrap.

The Pi server is operating as a faucet emulating the behavior of the decentralized system as it will function once its live. During this phase improvements in the user experience and behavior are possible and relatively easy to make compared to the stable phase of the main net. All minting of coins to users will be migrated to the live net once it launches. In other words, the livenet will pre-mint in its genesis block all account holder balances generated during Phase 1, and continue operating just like the current system but fully decentralized. Pi is not listed on exchanges during this phase and it is impossible to “buy” Pi with any other currency.

Phase 2 — Testnet

Before we launch the main net, the Node software will be deployed on a test net. The test net will use the same exact trust graph as the main net but on a testing Pi coin. Pi core team will host several nodes on the test net, but will encourage more Pioneers to start their own nodes on the testnet. In fact, in order for any node to join the main net, they are advised to begin on the testnet. The test net will be run in parallel to the Pi emulator in phase one, and periodically, e.g. daily, the results from both systems will be compared to catch the gaps and misses of the test net, which will allow Pi developers to propose and implement fixes. After a thorough concurrent run of both systems, testnet will reach a state where its results consistently match the emulator’s. At that time when the community feels its ready, Pi will migrate to the next phase.

Phase 3 — Mainnet

When the community feels the software is ready for production, and it has been thoroughly tested on the testnet, the official mainnet of the Pi network will be launched. An important detail is that, in the transition into the mainnet, only accounts validated to belong to distinct real individuals will be honored. After this point, the faucet and Pi network emulator of Phase 1 will be shut down and the system will continue on its own forever. Future updates to the protocol will be contributed by the Pi developer community and Pi’s core team, and will be proposed by the committee. Their implementation and deployment will depend on nodes updating the mining software just like any other blockchains. No central authority will be controlling the currency and it will be fully decentralized. Balances of fake users or duplicate users will be discarded. This is the phase when Pi can be connected to exchanges and be exchanged for other currencies.

“Pi Network celebrating the sucess of their referall system whenever they reach a new record number”

Why Pi-Network is a fragile cryptocurrency.

  • The way the cyrptocurrency is promoted in shows how much it is a failing project, as the first thing they say while marketing Pi is that it is made by Stanford graduates and that it has millions of users which basically isn’t a sign of strong currency at all as it doesn’t show any of it strong points as a medium of exchange. As a matter of fact, many sucessful entrepreneurs such as Jeff Bezos, Elon Musk, and Warren Buffet never pointed on their educational background and people never really had to notice especially that they even had their education in reputable Ivy league universities as the result of their work was the mark of their success but not only a university degree.
  • Pi networks referral system look really similar to what Herbalife and other companies were doing which is Multi level Marketing or what is also known has the Pyramid scheme. This is a system in which a company’s sales system works in a referral system in which each seller recruits other sales agents and gets a commision from their sales upon recruiting and the pyramid starts from the new low ranking salesman to the company owner where the profits are transferable. Even though in Pi network nothing is sold however in this case your time and data are being used and you can see that on the app’s on Play Store page.
  • Until now it is unlikely that the currency will bring any value in the future as it has limited value and only focuses on information being trasnmitted into the app which wouldn’t benefit anyone from the large user base.
  • Most importantly there isn’t any clear idea on the technology and the blockchain strucute of the currency and there aren’t any codes released to the open source like other blockchain apps.
  • The KYC system used by the app in which passport inforamtion and other data are required for the ID system would prove valuable information for Pi networks founders.
  • Pi network doesnt consider all the factors that create a healthy monetary structure (Stong physical structure, Limited availability, value, and ease of transfer) for a medium of exchange and it basically focuses only on the ease of use and peoples perception which both can’t guarantee the currencies success at all and shows how those behind the application have poor knowledge in sound economics.
  • Some journalists have been trying to look more into the company’s structure and looked into its employee base on linked in, and found out that most of the employees have the title such as “Cryptocurrency trader” which don’t show any seriousness in the cryptocurrency strucutre and security as other titles and skills are required to ensure its development and progress.

Don’t invest in the worlds sneakiest direct data collecting scam.

“Data is one of the most important resources in the world”

Before concluding, i urge you to do your own research on Pi network and cyrptocurrencies in general to have a full understanding how how they work and have your own opinion on the matter.

After completing my research on the Pi network, and relying on what i know about Cyrptocurrencies and the economics of medium of exchange i have reached the conclusion that Pi network isn’t purely a cryptocurrency. As a matter of fact everything shows that they are trying to collect data just like any large corporation and utilize it on their own for their own benefits and create a funding system for the projects they will sponsor. What makes it differnt than other investments is that instead of putting money into the investement you are giving you data to this world wide network it reminds me of socialist systems however this is in the form of data in which your data is given to the benefit of a specific party while you get scraps of the benefits in reutrn. From the refferal system to the structure that is solely based on the cryptocurrencies popularity and finally to the data collecting scheme we are infront a bizzarre form of currency that has been never seen in history. The real test infront of Pi’s core team is when the cyptocurrency will be relased in its mainnet phase in which we can have our last and final opinion on wether it will be sucessful or not in order to be fair.

The end.

Bitcoin until today is the best cyrptocurrency and is dominating the market for a reason.

In order to get an idea on how it is different than bitcoin check my article on bitcoin in which i explain why it is sucessful: Bitcoin resistance: How the Lebanese people are using bitcoin to overcome the economic crisis.

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Writing about Geo-politics, Society, Culture, History, and Economics.

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Michael Maalouf

Michael Maalouf

Writing about Geo-politics, Society, Culture, History, and Economics.

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