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Recently, Shenzhen City issued a "Risk Warning on Preventing Illegal Activities of 'Virtual Currency'", stating that with the recent promotion of blockchain technology, virtual currency speculation has increased, and some illegal activities have shown signs of resurgence. The Shenzhen Internet Financial Risk and Other Special Rectification Leading Group Office will conduct an investigation and collect evidence on the above-mentioned illegal activities. Once discovered, they will be dealt with seriously in accordance with the requirements of the "Announcement on Preventing the Risks of Token Issuance and Financing".
In addition to Shenzhen, Beijing, Shanghai and other places have also issued announcements to conduct a comprehensive survey and investigation of virtual currency trading activities within their jurisdictions and severely crack down on virtual currency trading activities.
What risks does "virtual currency" pose? Why is the hype of virtual currency on the rise in the name of blockchain? What are the current regulatory regulations in this regard? A reporter from Legal Daily conducted an investigation on this.
Virtual currency has become a gimmick, and the purpose of raising funds is unclear. The Shanghai Financial Stability Joint Conference Office and the Shanghai Headquarters of the People's Bank of China recently stated that they will increase regulatory and prevention efforts to crack down on virtual currency transactions. In the next step, they will continue to monitor virtual currency business activities within their jurisdiction, and immediately deal with them once they are discovered, so as to prevent them from happening in the first place. At the same time, investors are reminded not to confuse blockchain technology with virtual currency. There are multiple risks in the issuance, financing and trading of virtual currency, including the risk of false assets, the risk of business failure, and the risk of investment speculation. Investors should be careful not to be deceived.
As early as September 4, 2017, the People's Bank of China and seven other ministries and commissions issued the "Announcement on Preventing Risks of Token Issuance and Financing". Not long ago, there were market rumors that the "94 ban has been lifted". The announcement from the Shanghai headquarters of the People's Bank of China mainly targets this rumor.
In the near future, the Beijing Local Financial Regulatory Bureau and the People's Bank of China Business Management Department will crack down on illegal financial activities such as virtual currency transactions, adhere to the principle of "strike as soon as they appear", and continue to maintain a high-pressure regulatory stance.
In recent years, there have been a number of scams using the name of virtual currency.
In 2017, a major online pyramid scheme in the name of the online virtual currency "Asia-Europe Coin" attracted widespread attention. The high rebate and high returns were used as gimmicks to attract investors. The amount involved in the case was as high as 4.06 billion yuan, and more than 47,000 investors fell into the trap.
In May this year, the digital currency wallet Token Store announced that due to a hacker attack, the system would be fully upgraded and maintained for 10 days. However, 10 days later, its App could no longer perform operations such as transfers and transactions.
In July this year, following Token Store, Plus Token, which claimed to be the world's second largest digital currency wallet, also collapsed and ran away, leaving millions of people around the world penniless, with the amount involved reaching hundreds of billions of yuan.
As blockchain continues to attract public attention, some criminals have recently begun to make moves.
Not long ago, the Taiyuan Anti-Fraud Center issued an urgent reminder: "Blockchain fraud" has occurred in Taiyuan City, and some people have been deceived and suffered heavy property losses. According to reports, criminals disguised themselves as blockchain investment experts and internal personnel of "digital currency", "blockchain" and "financial innovation" projects, relying on the Internet, through chat tools, dating platforms and leisure forums, they promoted illegal financial assets such as virtual currency and virtual assets, inciting investors to seize the opportunity and participate in virtual currency transactions.
Taiyuan police reminded that blockchain fraud has the following routines: first, claiming technologies such as "blockchain", "decentralization" and "open source code" as the technical structure of their own virtual currency; second, making up stories and designing patterns to attract investors' attention; third, the characteristics of mass fraud are obvious, and it has multiple illegal and criminal characteristics; fourth, the trading platform server is placed overseas, fraud is carried out domestically, and money is counted overseas, in preparation for running away in advance.
Liu Shaojun, a professor at China University of Political Science and Law, told the Legal Daily that the reason why virtual currency is being hyped again with the help of blockchain is that blockchain was first known to people in the form of Bitcoin.
"The original intention of designing Bitcoin was to make it a currency, but it is impossible and has not actually become a real currency. As a currency, it needs to meet several basic conditions. First, the value must be stable, second, it must be widely accepted, and third, it must serve the circulation field. The current Bitcoin does not meet these conditions as a currency at all, so Bitcoin is not a currency at all." Liu Shaojun said.
"These virtual currencies are actually an act of publicly raising funds from the public. This act is equivalent to issuing stocks. For example, the virtual currencies we are talking about now generally release a white paper first, claiming that there is a project and calling on people to invest in this project. It is not an investment in the form of buying stocks, but through the purchase of virtual currencies. Organizations or institutions issue virtual currencies and then let investors buy these virtual currencies, but the money from selling virtual currencies may have been taken away, and then the buyers are allowed to buy and sell from each other." Liu Shaojun said.
Liu Shaojun believes that this behavior is an illegal public offering of securities, which is likely to constitute illegal fundraising, fundraising fraud and other illegal or criminal activities. "The people who issue these virtual currencies are not using the money invested by the public to do real business or engage in normal production and business activities. It is not certain what they have done with the public's investment money."
Virtual currency does not live up to its name and cannot perform monetary functions. The "Announcement on Preventing the Risks of Token Issuance and Financing" points out that the tokens or "virtual currency" used in token issuance and financing are not issued by monetary authorities, do not have monetary attributes such as legal tender and compulsory nature, do not have the same legal status as currency, and cannot and should not be circulated and used as currency in the market.
Liu Shaojun believes that some virtual currencies currently promoted under the name of blockchain are not real virtual currencies. "The legal term for virtual currencies mainly refers to game coins in online games, including currencies such as Q coins, which are virtual currencies. Some of the so-called virtual currencies that are being hyped up now should be more accurately called 'digital currencies', but they are not real digital currencies, they are just under the banner of digital currencies, or they can be called illegal 'digital currencies'."
Li Aijun, dean of the Internet Finance Law Research Institute of China University of Political Science and Law, said that currency must have five functions: a measure of value, a means of circulation, a means of storage, a means of payment and a world currency.
"The most basic functions are the measure of value and means of circulation. According to Article 16 of the People's Bank Law of the People's Republic of China, the legal currency of the People's Republic of China is the renminbi. No unit or individual may refuse to accept renminbi in payment of all public and private debts within the territory of the People's Republic of my country. Therefore, the only currency that can be used as a measure of value and a means of circulation in our country is the renminbi. Other currencies, including virtual currencies, are illegal if used as a measure of value and a means of circulation, and are essentially counterfeit banknotes," said Li Aijun.
According to Liu Shaojun, my country has taken a series of measures, such as the People's Bank of China's regulations that financial institutions and payment institutions are not allowed to settle virtual currencies, so there is no trading market for virtual currencies in China. However, although there is no settlement market in China, virtual currencies may choose to settle overseas, because virtual currencies are attached to the Internet and can be settled in any country. "By establishing a virtual currency trading platform on a foreign website for people to trade, it will be more difficult to manage."
Liu Shaojun told the Legal Daily reporter that there are some third-party payment institutions in China that secretly provide settlement services for virtual currencies. This virtual currency trading market brings certain difficulties to supervision. Now formal payment and settlement institutions are not allowed to provide settlement channels for virtual currency transactions, but informal institutions may still provide settlement services in secret. Even if informal institutions are cleaned up and rectified, some people may choose to go abroad to carry out similar behaviors.
The rectification efforts have been stepped up layer by layer, and the key regulatory functions and uses have been strengthened. In recent years, the relevant departments have been stepping up their efforts to clean up and rectify virtual currencies.
In 2018, the five departments of the China Banking and Insurance Regulatory Commission, the Central Cyberspace Affairs Commission, the Ministry of Public Security, the People's Bank of China, and the State Administration for Market Regulation issued a "Risk Warning on Preventing Illegal Fund Raising in the Name of "Virtual Currency" and "Blockchain", stating that some criminals have recently raised funds by issuing so-called "virtual currency", "virtual assets" and "digital assets" under the banner of "financial innovation" and "blockchain", infringing on the legitimate rights and interests of the public. Such activities are not truly based on blockchain technology, but are actually illegal fundraising, pyramid schemes, and fraud by hyping the concept of blockchain.
The above risk warning states that these behaviors have the following characteristics: First, they are obviously networked and cross-border. Relying on the Internet and chat tools to conduct transactions, the risks are widespread and spread quickly. Some criminals rent overseas servers to build websites, actually carry out activities for domestic residents, and remotely control and implement illegal activities. Second, they are highly deceptive, tempting, and concealed. They use hot concepts to hype and fabricate a variety of "high-end" theories. Some even use celebrities to "stand on the platform" to promote, claiming that "the currency value will only rise and not fall" and "the investment cycle is short, the return is high, and the risk is low", which is highly persuasive. Third, there are multiple illegal risks. Through public propaganda, criminals use "static income" (profit from currency appreciation) and "dynamic income" (profit from developing downlines) as bait to attract the public to invest funds, and induce investors to develop personnel to join, and continuously expand the capital pool, which has the characteristics of illegal fundraising, pyramid schemes, fraud and other illegal behaviors.
Recently, Beijing police cracked a fraud case involving the illegal digital currency exchange BISS and arrested dozens of suspects.
In addition, relevant data show that since 2019, a total of 6 newly discovered virtual currency trading platforms in the country have been closed, and 203 overseas virtual currency trading platforms have been technically disposed of in 7 batches; nearly 10,000 payment accounts have been closed through two large non-bank payment institutions; on the WeChat platform, nearly 300 promotional and marketing applets and public accounts have been closed.
Li Aijun believes that based on the current situation, the supervision of virtual currency should focus on preventing any form of virtual currency from replacing the functions of the RMB and engaging in illegal activities through virtual currency, that is, strengthening the supervision of the functions and uses of virtual currency.
"We should focus on whether virtual currency is used as currency, not just whether it is counterfeit or altered RMB from the perspective of the currency's object form. It can be said that any object that exercises monetary functions within the territory of the People's Republic of China violates the relevant provisions of the People's Bank of China Law." Li Aijun said.
Li Aijun believes that according to the relevant provisions of the "People's Bank Law of the People's Republic of China", issuers and users of virtual currencies are subject to risks such as counterfeiting, altering RMB, holding and using counterfeit currency.
"As long as virtual currency presented in the form of code is used as currency, its nature is equivalent to counterfeit currency in our physical world. It can be regulated and sanctioned in accordance with the relevant laws and regulations such as the People's Bank of China Law and the Criminal Law," said Li Aijun. |
