Ponzi Games vs Ponzi Schemes

What is a Ponzi Game?

A Ponzi Game is a method of generating wealth by efficiently allocating money to create goods and services of real value. This is how a Player would play a Ponzi Game:

• Collect money from Actor 1 with the promise of greater returns before a certain payback deadline.

• Use money to create goods and services that result in a profits.

• Collect money from Actor 2 to Actor n with the same promise and with further payback deadlines.

• If payback deadline for any Actor is reached before profitability is hit, pay them back with the money of later Actors.

• Generate enough profits and pay all Actors’ principal + promised returns before the last payback deadline.

• All excess profits can be kept by the Player.

• The Ponzi Game ends here, however the Player can choose to continue playing the game in hopes of greater profits for themselves and further Actors.

A Ponzi Game will be rational as long as:

• there are unlimited Actors over time that will continue depositing money into the game;

• there are limited Actors over time that will deposit money into the game but the required profits are generated before the the last pay back deadline.

What is a Ponzi Scheme?

A Ponzi Scheme is a method of maliciously stealing money from Actors. The Player of a Ponzi Scheme promises to play a Ponzi Game but has no intention of actually generating profits. The Player eventually runs out of Actors that will participate in the scheme and then disappears with the money because no profits are generated to pay back the promised amounts to all Actors.

Note: If the Player has the genuine intention of generating the required profits but is not able to do so due to external circumstances, it is not considered a Ponzi Scheme but rather an irrational Ponzi Game.