Often people think that Pyramid Schemes and Ponzi Schemes are one and the same thing. But this is not true. Yes, its true that both do seem to be very similar and have same traits but yet they do have some difference.
If you have think about the methodology behind Ponzi Schemes then you will notice that it has a triangular structure that is there is a center hub which is responsible for all the further communication. Means every investor in Ponzi scheme communicates directly with that single hub that is Schemer. Schemer use to communicate with every other participant of the scheme.
Whereas in Pyramid scheme each new participant communicates with its immediate ancestor. Means with the one who has recruited him in the scheme below. There is no single person who has to communicate with every other participant. Ponzi scheme is not only a fraud but actually its illegal but Pyramid schemes are not illegal, but yes they are also a form of fraudulent schemes. You can read How Pyramid Schemes Work.
The essential difference between Ponzi scheme and pyramid scheme is that in Ponzi scheme the schemer only asks you to invest your money and nothing else rest on you. All headache is of the schemer. In this, schemer has to be a mastermind who is always shuffling money from one place to another.
On the other hand, in Pyramid scheme the schemer, offers you an opportunity to make money by yourself. He asks you to make an initial investment to be a part of the scheme and you have to buy the right to start franchise and recruit other members in the scheme just like you. The more people you recruit under you, the more profit you earn.
In Pyramid schemes somehow, some or the other products sale, and profit making is involved but in Ponzi scheme its entirely fraud. There is no product or service that is sold. In it, the schemer attracts new customers by showing them great returns in a very short span of time on their investment. He simply makes more and more people involved in the scheme showing them returns that are either abnormally high or unusually consistent.
In Ponzi Schemes the schemer every time tries to get more and more new customer involved in his scheme as when he gets money from them he shows the older investors that they had earned profit. At that time they can either get their profit or they are again be-fooled by the schemer by some other stupid schemes that shows on investing their money back they will earn more profit.
This is how people simply use to invest their money again and again and at last when investor is left with no more money or no new investor the scheme simply collapses and all the investors loose their money. Still many use Pyramid scheme and Ponzi scheme interchangeably due to the reason that at the end no investor gets their money back.
If you have think about the methodology behind Ponzi Schemes then you will notice that it has a triangular structure that is there is a center hub which is responsible for all the further communication. Means every investor in Ponzi scheme communicates directly with that single hub that is Schemer. Schemer use to communicate with every other participant of the scheme.
Whereas in Pyramid scheme each new participant communicates with its immediate ancestor. Means with the one who has recruited him in the scheme below. There is no single person who has to communicate with every other participant. Ponzi scheme is not only a fraud but actually its illegal but Pyramid schemes are not illegal, but yes they are also a form of fraudulent schemes. You can read How Pyramid Schemes Work.
The essential difference between Ponzi scheme and pyramid scheme is that in Ponzi scheme the schemer only asks you to invest your money and nothing else rest on you. All headache is of the schemer. In this, schemer has to be a mastermind who is always shuffling money from one place to another.
On the other hand, in Pyramid scheme the schemer, offers you an opportunity to make money by yourself. He asks you to make an initial investment to be a part of the scheme and you have to buy the right to start franchise and recruit other members in the scheme just like you. The more people you recruit under you, the more profit you earn.
In Ponzi Schemes the schemer every time tries to get more and more new customer involved in his scheme as when he gets money from them he shows the older investors that they had earned profit. At that time they can either get their profit or they are again be-fooled by the schemer by some other stupid schemes that shows on investing their money back they will earn more profit.
This is how people simply use to invest their money again and again and at last when investor is left with no more money or no new investor the scheme simply collapses and all the investors loose their money. Still many use Pyramid scheme and Ponzi scheme interchangeably due to the reason that at the end no investor gets their money back.
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