Pyramid schemes have been around for at least a century and while a few people have benefited from them, majority have lost significant amounts of money to them.
The concept behind pyramid schemes is simple and easy to identify. However, they are often presented to potential investors in the most disguised manner.
They are structured just like the name suggests; a pyramid, with one person, the initial recruiter, at the top. This person recruits a second person who is required to invest a certain amount of money. This money is paid to the initial recruiter. To recover your money, the new recruit must recruit more people under him or her, each of whom will have to invest the same amount of money. If the recruit gets ten more people to invest, this person will make 10 times what he initially invested. The 10 new people become recruits and each one is in turn required to enlist an additional 10 people, resulting in a total of 100 more people. The process continues until the base of the pyramid is no longer strong enough to support the upper structure, i.e there are no more recruits.
The problem associated with pyramid scheme is the fact that it cannot go on forever because there is no infinite number of people who can join the scheme, even if all the people in the world joined. It is only the people at the top of the pyramid who benefit while a majority who are at the bottom end up getting swindled. It is estimated that 90% of people who join a pyramid scheme lose their money. The pyramid cannot sustain itself, so people will lose their money somewhere down the line. Those who are most vulnerable are those at the bottom of the pyramid where it becomes impossible to recruit the people required to pay off the previous layer of recruiters.
To gain credibility, most pyramid schemes involve none-cash valuable payment, equipped with fake referrals, testimonies and information. They all have one common feature: promising participants payment of services primarily for enrolling other people into the scheme.