A Ponzi scheme is a type of investment fraud where returns to earlier investors are paid using the capital of new investors, rather than from legitimate business profits. The scheme relies on a constant influx of new funds to continue paying returns, giving the illusion of a profitable business. Eventually, when it becomes difficult to recruit new investors or too many investors demand their money back, the scheme collapses, resulting in significant financial losses for most participants. Ponzi schemes are illegal and often promoted with promises of high, consistent returns and little risk.