Is Linkwheel a software or a service? or is it just a methodology of performing off page activities for your websites?
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it is a kind of linking building.many other sites link to your goal site,and the other sites link to each other,thus making them like a wheel.
but if one of these sites got killed,the other will be punished more or less.
While its true that linkwheel are often considered blackhat, it is interesting that you mention that it violates Google's TOS because it manipulates link building.
All link building is technically against Google's TOS whether its you posting a link to a new post on your blog on Twitter, or posting your homepage on a forum profile. In fact the only natural organic method of website promotion would be to set up your site and hope (pray) someone stumble across it then decides to link to you.
Link wheel is generally made my in combination of websites and social bookmarking sites. In this each post contains two links in which the one link is directed towards your site and the other one is directed towards to some site. In this way the sites linked to each other and also pointed towards your site.