system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: What is a Ponzi scheme?
gpt
Jill has 2 dollars. Jack tells Jill if she gives him the 2 dollars, he'll be able to give her 3 dollars back later. Jack does so and makes sure Jill tells all her friends what a wonderful deal Jack is offering.

One of Jill's friends now wants to lend money to Jack. Jack takes this money and waits for another one of Jill's friends to lend him some money. With the second friend's money, Jack is able to pay back the first friend with the higher return while pocketing some for himself. Now the first friend will tell his own friends what a wonderful deal this is. As more people lend Jack money, he is able to pay back the people whom he borrowed from earlier, pocketing a bit each time.

The problem is that this money doesn't just appear out of nowhere. The only money coming into the system is the money from Jack's lenders. Meanwhile, money is going out through higher pay outs to earlier lenders and money that Jack has been pocketing and spending. Eventually, there won't be anyone left to lend their money to Jack. Earlier lenders now want their money with interest back. Suddenly, there is more money going out of the system than into it. Eventually, Jack decides to just disappear with what is left, leaving a lot of his later lenders with nothing.