counter_cache_test.rb

begin
  require 'bundler/inline'
rescue LoadError => e
  $stderr.puts 'Bundler version 1.10 or later is required. Please update your Bundler'
  raise e
end

gemfile(true) do
  source 'https://rubygems.org'
  gem 'rails', github: 'rails/rails'
  gem 'arel', github: 'rails/arel'
  gem 'rack', github: 'rack/rack'
  gem 'sqlite3'
end

require 'active_record'
require 'minitest/autorun'
require 'logger'

# This connection will do for database-independent bug reports.
ActiveRecord::Base.establish_connection(adapter: 'sqlite3', database: ':memory:')
ActiveRecord::Base.logger = Logger.new(STDOUT)

ActiveRecord::Schema.define do
  create_table :users, force: true  do |t|
    #this is my referral code that i can hand out to people
    t.integer :referral_code, null: false

    #this is who referred me. i can only be referred by 1 person
    t.integer :referred_by_id, null: true

    #this is how many people i have referred
    t.integer :referral_count, null: false, default: 0
  end
end

class User < ActiveRecord::Base
  belongs_to :referred_by, class_name: 'User', foreign_key: :referred_by_id, counter_cache: :referral_count, primary_key: :referral_code
end

class BugTest < Minitest::Test
  def test_counter_cache
    u1 = User.create!(referral_code: 3)
    u2 = User.create!(referral_code: 2)
    u3 = User.create!(referral_code: 1)

    u1.referred_by = u2
    u2.referred_by = u3
    u3.referred_by = u1

    u1.save!
    u2.save!
    u3.save!

    u1.reload
    u2.reload
    u3.reload

    assert_equal 1, u1.referral_count
    assert_equal 1, u2.referral_count
    assert_equal 1, u3.referral_count
  end
end

This is a bit confusing because you have 1,2,3 as referral codes which will also be id's. Easier to use some weird unique referral codes which will not overlap with ids.