Some groups use a bad plan.
They ask for money to join. Then you must find new people. This makes a shape like a pyramid. Soon, there are no more people left. Most people lose their money. Can you see why this is not fair?
Some groups use a bad plan to get money.
They ask you to pay to join. Then, you must find new people to join too. This makes a shape like a pyramid.
As more people join, the group grows fast. But soon, there are no new people left. This makes the plan fail.
Most people at the bottom lose their money. Only the people at the very top make money. Because of this, many lands say these plans are illegal.
It is not a fair way to do business.
A pyramid scheme is a bad way to make money.
In these schemes, people pay money to join. The group promises to pay them back. But you only get money by finding new members. You do not sell real goods or services. This is why they are often called scams.
These plans grow very fast. Each new person must find more people. This creates a shape like a pyramid. The top has a few people. The bottom has many people. Most people stay at the bottom. These people lose their money when the plan fails. Only the people at the top make a profit.
Some schemes use different names to hide. One is called the "Airplane Game."
It uses names like "captain" and "crew." Another is the "Blessing Loom."
It uses a circle shape to look different. Some schemes even use a waiting list. This is called a matrix scheme. Most countries have laws against these plans. They are illegal because they are not fair.
Most members will not make any money at all.
A pyramid scheme is a business model that does not work like a normal shop. In a real business, people earn money by selling products or services to customers. In a pyramid scheme, the main way to earn money is by recruiting new members. These new members must pay a fee to join the group. The group promises that these people will get a share of the money from future recruits. Because the money comes from new members rather than sales, these schemes are often called scams.
These schemes follow a mathematical pattern called exponential growth. This means the number of people needed grows very quickly at every level. For example, one person might recruit two others, and then those two each recruit two more. This creates a shape that gets much wider at the bottom. Eventually, the scheme runs out of new people to join. When this happens, the whole system collapses. Most people end up in the bottom layers where they lose their money.
Many different names are used to hide how these schemes actually work. One version is called the "Airplane Game." In this model, people use ranks like "captain," "co-pilot," "crew," and "passenger." Another version is called the "Blessing Loom," which uses a circle shape to look different. Some groups even use names from nature, like "seed" and "sapling" in the Living Workshop. Others use names like "Fire" and "Water" in the Abundance Fractal. These different names try to make the scheme seem like a fun club or a gifting circle.
There are other ways people try to run these dishonest plans. A "matrix scheme" uses a waiting list for a product like a game console. People pay to join the list, but most will never actually get the item. The FBI also calls some versions "franchise fraud." This happens when people are sold a business that only makes money by selling more franchises. Even the "Blessing Loom" has been ruled illegal in many US cities. These schemes are tricky because they often pretend to be something else.
It is important to know the difference between these scams and real businesses. Some companies use multi-level marketing, which is called MLM. Legitimate MLMs make money by selling real products to the public. However, some MLMs act like pyramid schemes by focusing on recruiting new people. The U.S. Federal Trade Commission warns that if your money comes from recruiting, it is likely a pyramid scheme. Understanding these rules helps people stay safe from losing their money. Most countries have laws to stop these unfair practices from continuing.
A pyramid scheme is a fraudulent business model designed to generate profit through recruitment rather than legitimate commerce. In a healthy economy, businesses earn revenue by selling products or services to end consumers. In contrast, a pyramid scheme compels new members to make a payment to join an organization. In exchange, the organization promises these members a share of the money collected from every additional person they recruit. The directors at the top of the structure also receive a portion of these payments. Because no actual goods or services of value are created, the only revenue streams are new memberships or additional solicitations for money.
These schemes rely on the mathematical principle of exponential growth, also known as geometric progression. In this model, each level of the pyramid must be significantly larger than the level above it to sustain the flow of money. For example, if every member must recruit two new people, the number of participants doubles at every stage. This creates a structure where the number of people required grows at an unsustainable rate. Eventually, the scheme inevitably runs out of new recruits to join. When this happens, the system lacks other sources of revenue and collapses entirely.
Because of this geometric progression, the vast majority of participants are always located at the bottom layers. The people at the very top typically profit, while those in the lower levels usually lose their initial investment. When the collapse occurs, the newest members are left with no opportunity to recoup their money. This characteristic of a few people making large sums while most participants lose money is why these schemes are classified as scams. The mathematical impossibility of infinite expansion ensures that most people will fail to make a profit.
Many schemes use specific models to make recruitment seem easier or more organized. One such model is the "eight-ball" model, which can be represented by a geometric progression like 1 + 2 + 4 + 8 = 15. A common version of this is the "Airplane Game," which uses hierarchical titles such as "captain," "co-pilot," "crew," and "passenger." Other variants use different themes to hide their true nature. The "Original Dinner Party" uses meal terms like "dessert" and "appetizer," while the "Abundance Fractal" uses the four elements: "Fire," "Air," "Earth," and "Water." Even more recent versions, like the "Living Workshop," use plant names such as "seed," "sapling," "blossom," and "lotus."
To avoid detection, organizers often use euphemisms to describe their activities. Some refer to themselves as "gifting circles" or "sharing circles" to make the process sound charitable. Others use educational themes centered around "abundance" to divert attention from the unsustainable structure. One example is a group called "Women Empowering Women." Another variation is the "Blessing Loom," which uses a circular diagram to obscure the underlying pyramid shape. This scheme often claims to turn a small amount of money, such as $100, into a much larger sum like $800. This circular structure is designed to trick investors into thinking they are moving toward a center, but it follows the same rules of recruitment.
There are several other specialized types of fraudulent schemes. The FBI identifies "franchise fraud" or "chain referral schemes," where profit comes from selling new distributorships rather than products. There are also "matrix schemes," which operate like a queue for a desirable product. Participants pay to join a waiting list for items like game consoles or televisions. However, the organizer profits because the money from new joiners far exceeds the cost of the item given to the person at the front. These schemes often act like a lottery, and many countries have ruled them illegal because they are fundamentally unsustainable.
It is important to distinguish these scams from legitimate multi-level marketing (MLM) companies. While some MLMs may operate as pyramid schemes, the U.S. Federal Trade Commission (FTC) provides a way to tell them apart. In a legitimate MLM, participants make money primarily from selling products to the public. In a pyramid scheme, the money is based on the number of people recruited and the sales made to those recruits. While some commentators argue that all MLMs are just legalized pyramid schemes, regulators focus on whether the primary revenue comes from external customers or internal recruitment. Because of their destructive nature, most countries have outlawed pyramid schemes as a form of fraud.
Where will your curiosity go next?
🖼️ Images & Media (4)
More to explore
✨ What else?
Related topics you might enjoy
🪜 Step back
Simpler topics to build understanding
What is Nepedia?
A free, ad-free encyclopedia for children. Every article is written at five reading levels, so the same page works for a five-year-old and a fifteen-year-old — use the level switcher above to see this one change. No account needed to read.