A Ponzi scheme is a type of investment scam where returns are paid to earlier investors using the capital from newer investors, rather than from profit earned by the operation of a legitimate business. This creates the illusion of a profitable enterprise, attracting more participants. As more people invest, the scheme requires an ever-increasing number of new investors to sustain payouts. Eventually, the scheme collapses when it becomes difficult to recruit enough new investors or when the organizer takes the remaining funds. This results in significant financial losses for most participants.