How does a ponzi scheme or scam work

How to recognize a pyramid/ponzi scheme.
1. You are asked to recruit new members under you and get payment when they join and pay the joining fees.
2. There is no real product sales that earn you income.

How does it work?
1. I start a scheme, that says we are marketing XYZ product, and if you “invest” R 1000.00 you will earn 3% per day on your investment. If you re-invest your 3% also in stead of withdraw, you even earn faster and more. However, you can only withdraw your full investment and interest after, say 120 days.
2. You take the step and pays over R 1000.00 to me.
3. I smile, now I can go buy jam for my bread. I give you a login, where you can see with your own eyes how your R 1000.00 grows each day.
4. Because you see how it grows, you cannot wait to tell someone else of how rich you gonna be and give them your referral link to also sign up.
5. Now your friend signs up and pay me R 1000.00 also.
6. I now have R 2000.00
7. I immediately give you R 100.00 into your virtual account for signing up this friend under you.
8. I now have R 1900.00 to buy jam, 5 minutes ago, I only had R 1000.00.
9. Your friend does the same, and signs up their friend.
10. I now have R 3000.00, and give your friend R 100.00 and you another R 20.00 leaving what I now have at R 2780.00.
11. And so it goes on and on.
12. After 120 days, you decide to withdraw at least your R 1000.00 to “test” if it is legit.
13. I gladly pay you out, because at this time, I have many R 1000.00 available.
14. You think, wow! it works, it is legit, and you even recruit more and more people, and so does your friends.
15. After 6 months, or 1 year, or even in some cases 2 years, this whole thing folds, because there are no new members joining so much anymore, and there are no product XYZ that was suppose to generate the actual income.
16. I empty the bank accounts, close down the website, and disappears, leaving you and your friends high and dry, especially the ones that came in last, who lost all their money.
17. I am untraceable, because you never ever even bothered to check if I really exists.
18. All you and your friends did, was to give me money for nothing.