A Ponzi scheme is a fraudulent financial structure in which returns paid to early investors do not come from real profits but from the capital of new participants.
The organizer promises high and stable returns, attracts an increasing number of investors, and uses their funds to pay earlier participants. As long as new money continues to flow in, the scheme may appear successful. However, since there is no real source of profit, it inevitably collapses when the inflow of new participants slows down. At that point, most investors lose their money.
The name comes from Charles Ponzi, an Italian financier who organized one of the most famous schemes of this kind in 1920.
Example: a scammer says, “Invest $1,000 and you will receive $1,500 in one month. Guaranteed!” You invest the money. A month later, you indeed receive $1,500. You are satisfied and tell your friends. They also invest. The payments to your friends are made from the money of new participants. As long as new investors keep joining, the scheme works. But once the inflow stops, everything collapses. The scammer disappears with the money, and most participants are left with losses.
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