Pyramid schemes come in many variations. The earliest schemes involved a chain letter distributed with a list of 5–10 names and addresses on it.

The recipient was told to send a specified small sum of money (typically $1 to $5) to the first person of the list. The recipient was then to remove this first person from the list, move all of the remaining names up one place, and to add his own name and maybe more names to the bottom of the list. Then he was to copy the letter with new name list to the individuals listed. And hopefully this procedure was to be repeated and passed on and then he would be moved to the top of the list and receive money from the others.

Success in such ventures rested solely on the exponential growth of new members. Hence the name "pyramid", indicating the increasing population at each successive layer. Unfortunately, simple analysis will reveal that within a few iterations the entire global population would need to subscribe in order for pre-existing members to earn any income. This is impossible, and the mathematics of such schemes guarantees that the vast majority of people who participate in these schemes will lose their invested money.

Very large scale pyramid schemes were initiated in post-Soviet states, where people had little familiarity with the stock market and were led to believe that returns in excess of 1000% are feasible. Particularly notorious were the MMM Pyramid schemes in Russia and pyramid schemes in Albania. In the latter case they nearly caused a popular uprising.

Though not a pyramid scheme in the strictest sense, the infamous Ponzi Scheme of Charles Ponzi deserves mention here, due to some similarities.