Xinhuanet: "Coin speculation" and "mining" are popular again. Beware of financial fraud disguised as blockchain "vests" "re-emerging"

Xinhua News Agency, Shanghai, December 4th, titled: "Coin speculation" and "mining" are popular again, beware of financial frauds disguised as blockchain "vests" "re-emerging"

Xinhua News Agency "Xinhua Viewpoint" reporters Wang Shujuan, Gao Shaohua and Li Lijing

"With the implementation of blockchain application scenarios, you can make a lot of money without doing anything with XX coins" "Once the mining machine starts ringing, you can get a lot of gold"... As early as 2017, domestic virtual currency transactions and related exchanges were stopped by regulators. However, "Xinhua Viewpoint" reporters found that with the country's recent clear support for blockchain technology, some lawless elements took the opportunity to fish in troubled waters and launched various so-called "coin" and "chain" high-yield technology investment projects, and engaged in large-scale pyramid schemes and illegal fundraising activities.

"Coin speculation groups" and "mining groups" are active again, and pyramid schemes are recruiting people to defraud in some third- and fourth-tier cities

The reporter's investigation found that recently, the "cryptocurrency trading groups" and "mining groups" on the Internet have become active again after two years of silence, and discussions about virtual currency prices and transactions have been heated.

Some criminals promote virtual currency and Ponzi schemes under the banner of blockchain, equating blockchain technology with virtual currency, and even making remarks such as "policies to prevent risks in token issuance and financing are outdated." Some use new names such as "chain," "mining," "IMO," and "STO" to carry out illegal financial activities under the guise of blockchain.

In some third- and fourth-tier cities, various pyramid schemes are engaged in fraud under the banner of blockchain. They disguise themselves as blockchain technology companies and hold free training courses in the name of so-called blockchain investment experts, recruiting people to incite the public to seize the so-called investment opportunities. The fraudulent methods are exactly the same as those of health care product pyramid schemes. Most people, especially the elderly, do not have a deep understanding of blockchain and regulatory policies, and are easily trapped.

At present, financial regulatory authorities in Shanghai, Beijing, Guangdong and other places have successively introduced measures to investigate and rectify virtual currency trading venues.

In fact, as early as September 4, 2017, the central bank and seven other ministries and commissions issued the "Notice on Preventing the Risks of Token Issuance and Financing", which stopped direct trading of virtual currencies and cleaned up and rectified virtual currency trading venues. Since then, large domestic virtual currency exchanges have turned to underground operations and moved their operating entities or servers overseas. Under strict supervision, virtual currency transactions are temporarily sluggish.

In October 2019, the central government affirmed the important position of blockchain technology in economic development and industrial innovation. The related topic became a hot topic in society, and the illegal currency issuance activities that had cooled down once again took the opportunity to "revive".

Mao Hongliang, director of the Blockchain Research Office of the National Internet Financial Security Technology Expert Committee, told reporters that recent illegal activities such as pyramid schemes and Ponzi schemes have used the concept of blockchain and the issuance of virtual currency for packaging. These activities have nothing to do with blockchain technology, involve a large amount of funds, and pose serious risks.

Uncovering the three main scams: mining, gaming, and coin issuance

Reporters’ investigations found that many fraudulent activities used blockchain technology to confuse investors.

——Fraud in the name of blockchain mining and currency exchange. The Zhengzhou police in Henan Province recently reported a scam involving 1.36 billion yuan and more than 7,000 victims.

Gao, a suspect in the fraud gang, established several companies including Henan Lianxin Technology Co., Ltd. and AT Exchange, and assembled the purchased hard disks, motherboards, and chassis into so-called "mining machines" with labels, and lied to customers: buying and investing in "mining machines" can get high returns through mining, exchange, and trading. However, when customers invested a large amount of money in its "mining machines", the company froze the digital currencies exchanged by customers on the grounds that the trading platform was attacked by hackers, and prevented customers from withdrawing cash through back-end operations, illegally occupying customer funds.

——Fraud in the name of blockchain games. Shanghai Pudong Internet Police released a blockchain pet raising fund fraud case. The project promised customers to raise virtual pigs for 15 days and then the platform would buy them out, and they would get a 28% return. But in fact, all transactions were controlled by platform staff, who even blatantly called participants "leeks", and the company ran away with the money.

——Issuing "air coins" and "MLM coins" in the name of blockchain. In order to attract user traffic and funds and increase the scale of transactions, some trading platforms have launched new ways of playing such as "trading is mining", "platform coins", and "trading platform financing IEO". Some platforms have even launched virtual currencies such as "resonance coins" that are suspected of being MLM and Ponzi schemes.

"Many projects themselves have nothing to do with blockchain. They just use the concept of blockchain to engage in illegal activities such as pyramid schemes and Ponzi schemes," said Mao Hongliang.

Regulatory authorities remind investors to enhance risk prevention awareness

Recently, the Shanghai regulatory authorities have specially reminded investors 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, the risk of investment speculation, etc. Investors should enhance their awareness of prevention and guard against being deceived.

Since 2019, relevant departments have dealt with more than 200 virtual currency trading platforms at home and abroad, closed more than 10,000 related payment accounts, and closed nearly 300 WeChat marketing applets and official accounts.

A founder of a virtual currency exchange told the reporter, "Since 2017, a large number of small and medium-sized virtual currency exchanges have emerged with servers set up overseas, and their main customers are domestic investors."

The reporter saw that on the virtual currency information aggregation platform "Fei Xiaohao", there are currently about 500 active virtual currency trading markets included, and many small exchanges are not included.

Zheng Yushan, a relevant person in charge of the National Technology Transfer Eastern Center, said that the current regulatory direction is to standardize and purify the development environment of blockchain technology, clean up and prevent private currency speculation, illegal fundraising and financial fraud, and ensure the safe and orderly development of real blockchain technology.

Cheng Yu, deputy director of the Talent Exchange Center of the Ministry of Industry and Information Technology, said that some criminals have used blockchain projects to defraud and engage in Ponzi schemes, which has caused a negative perception of blockchain technology in society and hindered the healthy development of technology and the industry. Supervision should be strengthened and the punishment of illegal acts should be increased.