A Ponzi scheme is a fraudulent investment scheme that relies on constantly recruiting new investors to generate returns for older investors.
The scheme is named after Charles Ponzi, an Italian who became famous for his fraudulent schemes in the 1920s. The basic principle behind a Ponzi scheme is that the operator collects money from new investors and uses it to pay returns to older investors, giving the impression of a legitimate investment.
In reality, the operator does not invest the money but uses it to enrich himself or herself.
As long as new investors are constantly joining, the scheme can continue for some time. Still, eventually, it collapses when the operator cannot pay returns to investors or when too many people want to withdraw their money at once.
Ponzi schemes are illegal and can result in significant financial losses for investors.