Be vigilant! Domestic virtual currency crime is becoming increasingly serious

In the development of the digital economy, the field of virtual currency based on blockchain technology has a strong momentum of development. Virtual currency does not rely on physical properties such as gold, belongs to the category of decentralized issuance, and its value depends entirely on the use, the consensus of holders and the market situation.

In terms of the function of means of payment, virtual currency has the advantages of durability, convenience, security, anonymity, etc. However, it is precisely because of its decentralization, easy cross-border transfer, anonymity and other characteristics that the tracking and supervision of virtual currency is more difficult. More and more criminals are beginning to use this new thing to carry out illegal and criminal activities such as money laundering, fraud, theft, illegal fundraising, terrorism, etc. In this regard, we must recognize the situation, strengthen our awareness of prevention, and be vigilant against being caught in such cases.

Overview of Virtual Currency Crime

Currently, virtual currency-related crimes are on the rise worldwide. From the perspective of crime research in related fields, the main categories, characteristics and core issues of crimes involving virtual currency are shown in the figure below.

Virtual currency crimes are becoming increasingly rampant

According to statistics from the China Judgments Online website, in 2018, there were as many as 166 virtual currency pyramid scheme cases in my country, 94 in 2017, 46 in 2016, 10 in 2015, and only 5 in 2014. The average annual growth rate of cases in recent years has exceeded 100%.

In 2019, the United States accounted for the largest number of virtual currency crime cases worldwide, accounting for 28%, followed by Europe at 24%, and China at 18%. At the same time, there were more than 10,000 virtual currency hacking incidents worldwide, and more than 1,000 virtual currency-related criminal cases in my country, with the main means of crime being capital flight and hacker attacks.

According to the "2019 Internet Fraud Trend Research Report", fraud caused by virtual currency has become the mainstream of financial fraud, causing per capita losses of more than 130,000 yuan.

Overall, in recent years, virtual currency-related criminal cases in various parts of my country have shown an upward trend in terms of type, number, and amount involved.

Typical features

From June 2020 to the time of writing, cases of virtual currency crimes uncovered by police in various parts of China have been frequently disclosed by the media. According to incomplete statistics, the total number of cases is nearly 20. After statistics and analysis of 15 of the more typical major cases, it was found that there are four characteristics: wide geographical distribution of crimes, diversified types of virtual currencies, diversified criminal methods, and huge span of the amount involved.

1. Crime is widely distributed

In these criminal cases, whether they are committed or solved, their regional characteristics have shown the characteristics of being distributed in many provinces and cities across the country, including Beijing, Shanghai, Jiangsu, Zhejiang, Guangdong, Hunan, Shaanxi, Anhui, Henan, Gansu, Heilongjiang, and Hong Kong. Although these are only the relevant crime locations in the recent period, the severe situation of "evil flowers blooming everywhere" is already quite obvious.

2. Diversification of virtual currencies

From the perspective of the virtual currency market, Bitcoin has firmly taken the role of "leader". As of press time, the value of one Bitcoin is about RMB 104,000. In cases targeting Bitcoin, criminals engage in illegal activities to obtain Bitcoin by creating ransomware, hacking, selling citizens' personal information on the dark web, and exploiting loopholes in Bitcoin ATMs. However, more and more cases involve not only Bitcoin, but various "copycat coins" have become new targets for criminals due to their huge market value base and investment enthusiasm.

Typical Case 1

In August, the Anning Branch of the Lanzhou Public Security Bureau successfully cracked down on a gang that used a fake financial management platform to commit telecommunications network fraud. The victim, Mao, reported that he was defrauded of more than 416,000 yuan after purchasing the digital currency product "Libra" under the "guidance" of a fraudster who called himself "Manager Chen".

Typical Case 2

In September, the Xi'an High-tech Zone Public Security Bureau arrested suspects involved in a virtual currency fraud case. The gang had previously posted false information about the virtual currency BRTR online to lure people into buying it, and the amount of fraud was as high as more than 5 million yuan in just one month.

3. The methods of committing crimes are becoming more diverse

Statistics show that in such virtual currency cases, the most common method used by criminals is fraud, including investment fraud, telecommunications fraud, phishing fraud, etc. Recently, as the market for DeFi (decentralized finance) smart contracts has become popular, fraud cases involving smart contracts have also been prominently listed.

In addition, there are other criminal methods such as hacker attacks, pyramid schemes, money laundering, and illegal activities on the dark web. It is worth noting that the "first" criminal cases surrounding virtual currency have begun to emerge. Among the cracked cases, there are many such as "the first Bitcoin ransomware case", "the first virtual currency hacker attack", "the first virtual currency network pyramid scheme", "the first smart contract crime", etc., showing a "blowout" trend.

Typical Case 1

In July, the police in Ouhai, Wenzhou, Zhejiang, cracked the country's first criminal case using blockchain "smart contracts". Since 2019, the gang has used fake HT "smart contracts" to illegally obtain tens of thousands of ETH from victims, with the amount involved reaching more than 100 million yuan.

Typical Case 2

In October, the public security organs of Nantong and Qidong in Jiangsu jointly cracked a major case supervised by the Ministry of Public Security, which involved the production and use of ransomware to damage computer information systems and implement cyber extortion. As the first Bitcoin ransomware case in China, by the time of the incident, the suspect Ju had committed more than 200 crimes, illegally earning more than 5 million yuan in Bitcoin, and the victims were spread all over the country.

4. The amount involved is huge

Among the cases cracked by the police, the most astonishing thing is the huge amount of money involved in virtual currency crimes. According to statistics, the amount ranges from hundreds of thousands to hundreds of billions of yuan. Among them, the amount involved in most cases is more than 5 million yuan.

Typical Case 1

In July, the public security organs filed a case to investigate the "Plus Token platform" online pyramid scheme, and arrested all 27 major criminal suspects who had fled abroad and 82 core members of the case, completely destroying this large-scale transnational online pyramid scheme that has been entrenched at home and abroad. This case is the first online pyramid scheme case cracked by the public security organs that uses virtual currencies such as Bitcoin as a trading medium. It involves more than 2 million participants, more than 3,000 levels of hierarchical relationships, and the total value of virtual currencies involved exceeds 40 billion yuan.

Typical Case 2

In August, the Suzhou Public Security Bureau of Jiangsu Province cracked a hacker crime case targeting virtual currency and arrested several suspects. The suspects used hacking methods to steal account passwords and virtual currency, and contacted professional money laundering and selling gangs through the dark web to cash in the stolen money. The amount involved in the case was more than 30 million yuan.

Fighting crime: the call of "law" and "technology"

At present, my country's regulatory authorities have a resolute attitude towards virtual currencies, and have characterized their issuance as unauthorized illegal public financing. In December 2013, the central bank and five other ministries and commissions jointly issued the "Notice on Preventing Bitcoin Risks", which was the first time that my country expressed its regulatory attitude towards virtual currencies, and the macro anti-money laundering framework for virtual currencies, led by Bitcoin, began to take shape.

In September 2017, the central bank and seven ministries jointly issued the "Notice on Preventing Risks of Token Issuance and Financing", requiring the prohibition of various virtual currency issuance and exchange activities. In August 2018, the China Banking and Insurance Regulatory Commission, the Central Cyberspace Affairs Commission, the Ministry of Public Security, etc. also issued risk warnings, reminding the public to guard against illegal fundraising in the name of "virtual currency" and "blockchain".

However, as public awareness and concept popularization increase, criminal activities involving virtual currencies are expanding in number and scale. The reasons are not difficult to find:

The solidity and comprehensiveness of China's legal regulatory system for virtual currencies still needs to be strengthened and expanded.

l The existing regulatory documents do not involve specific definitions of the various aspects of virtual currency, and the relevant interpretations of virtual currency have not formed an effective correspondence in the existing legal system, and its differentiated characteristics are not fully reflected.

lThe technical means of combating and detecting virtual currency crimes are still in the early stages. Faced with the new criminal situation, innovative technologies that can effectively assist in the detection of such cases, especially in investigation and evidence collection, are not yet mature.

In fact, Japan is at the forefront in the legislation and supervision of virtual currencies. On April 1, 2017, Japan's "Virtual Currency Law", namely the "Amendment to the Funds Settlement Law", was officially implemented. In conjunction with it, relevant laws and regulations such as the "Funds Settlement Law Implementation Order" and the "Cabinet Office Order on Virtual Currency Exchange Operators" also came into effect. At the same time, the Japanese Financial Services Agency also issued a number of guidelines and interpretations to support the implementation of these laws. In addition, the application of virtual currencies has also been extended to other legal aspects, such as the "Financial Instruments and Exchange Act" and the "Banking Act".

Since virtual currency runs on the blockchain network, it has the characteristics of decentralization and encryption, which puts forward higher investigative technical requirements for public security organs in terms of investigation, tracking, and evidence collection in terms of on-chain fund tracing analysis, address monitoring and early warning, and visualization of fund flows. Such a situation also poses new challenges to the research and development capabilities of blockchain security industry supervision technology.

Therefore, it is particularly important and urgent for my country to build a legal system related to virtual currency and form an effective regulatory mechanism; it is particularly important and urgent for relevant industries to introduce technical means that can effectively combat virtual currency crimes through technological research and development, assist in the detection of various types of cases, and curb the spread of criminal activities.

In addition, facing the current situation, investors should strengthen their awareness of prevention, be vigilant, not believe in false propaganda such as "getting rich overnight" and "high returns", look at the value of virtual currency rationally, stay away from various virtual currency frauds, illegal fundraising, pyramid schemes and other illegal activities, and avoid economic losses.