Bitcoin pyramid scheme attracts attention, steals billions of euros, fails to steal Bitcoin, steals mining machines and computers

As the price of Bitcoin continues to soar, people from all walks of life are scrambling to get on this "get rich" train. In addition to those who speculate in coins, ICOs, and the recently opened Bitcoin futures, there is a group of people who are willing to "take the shortcut" at all costs, either using Bitcoin for pyramid schemes or organizing large-scale thefts to obtain Bitcoin.

According to the public information of China Judgment Documents Network, the reporter of China Business Network found that the criminal cases caused by Bitcoin have increased significantly in the past two years. A large number of pyramid schemes use the "high technology" behind Bitcoin as a cover to develop downlines to promote virtual currencies of various names. There are also a large number of miners who cannot afford to buy mining machines or pay electricity bills, so they steal mining machines, steal electricity, or generate electricity privately. What's worse, some even install Bitcoin mining software on the company's server, occupying the company's network and server resources to mine Bitcoin.

Since 2017, the price of Bitcoin has increased nearly 20 times. The Chinese government and regulatory agencies in many countries around the world have imposed strict supervision and warnings on Bitcoin investment and investment in related fields, and have cracked down on illegal activities such as using Bitcoin for money laundering, pyramid schemes, and illegal virtual token financing (ICO).

Bitcoin cross-border pyramid schemes are on the rise again

Pyramid schemes are not unfamiliar frauds, but pyramid schemes disguised as Bitcoin are hard to guard against. In one pyramid scheme involving OneCoin, the amount involved was as high as 15.9 billion euros.

The Zhuzhou Intermediate People's Court of Hunan Province sentenced Duan Shuming and more than 20 others to the crime of organizing a pyramid scheme. The gang used Bitcoin as a cover to promote the virtual currency "OneCoin", claiming that it was the second-generation cryptocurrency after "Bitcoin".

According to the verdict, the OneCoin pyramid scheme gang is an organization that promotes virtual currency from abroad to China. The pyramid scheme website and marketing model were established by a Bulgarian named Lu, and the server was set up in Copenhagen, Denmark. The organization claimed that OneCoin had great potential for appreciation, and lured others to invest huge amounts of money in the website it established. It also set a threshold, and members could not withdraw from the membership or get a refund after registration. OneCoin online members received corresponding returns by developing downline members.

If you want to become a member of the OneCoin organization, you must, under the recommendation of an old member, pay different levels of "threshold fees" to obtain the corresponding level activation code to register as a member of different levels, namely entry level 130 euros, advanced level 530 euros, professional level 1030 euros, executive level 3030 euros, tycoon level 5030 euros, supreme tycoon level 12530 euros, festival tycoon level 18830 euros, two-in-one package 31330 euros, three-in-one package 36330 euros, of which 30 euros is the membership fee, the unit of pricing is euro, and the fixed euro exchange rate is 1:7.7.

The OneCoin organization and leaders can quickly and completely cash out the MLM bonuses obtained by developing "heads" through buying and selling activation codes while earning the price difference, and gradually collect the criminal funds obtained to the top management of the organization. The OneCoin MLM divides profits into two modes: static value-added and dynamic value-added. Static value-added takes a long time and has a small space for value-added; dynamic value-added is achieved by recommending others to join, that is, developing downlines by recruiting heads, and obtaining different proportions of direct promotion bonuses, algebraic bonuses, and matching bonuses based on the number of heads developed. 60% of all rewards go into the cash account of the member account, and the system forces the purchase of tokens again (i.e. "reinvestment") for the remaining 40%.

As of August 12, 2016, the electronic data excavated through remote inspection and verification can confirm that the total number of OneCoin accounts opened worldwide is more than 10.77 million, the total number of levels is 67,671, and the total number of activation codes purchased worldwide is 4.8 million, about 15.859 billion euros. At present, a total of RMB 1.369 billion of OneCoin funds involved in the case have been frozen and seized.

In this organization, Ni was at the 31st to 34th level below Lu, generating activation codes and selling them for 507 million euros. The highest level, from Lu to Ni to the defendant Wang Hui, totaled 79 levels. In addition, the fugitives Fei, Ni and other members had more than 333,000 offline accounts.

Coincidentally, the People's Court of Jimusar County, Xinjiang Uygur Autonomous Region, recently ruled on a case of investment fraud using virtual currency. The plaintiff Zhang Yanmei participated in an "investment seminar" held at a high-end hotel in Urumqi through a friend's introduction, and invested in a financial product called "Dark Coin", resulting in a loss of 200,000 yuan from the sale of the house. Another investor also invested more than 70,000 yuan to buy "Dark Coin". After the investment, the backend could not be opened and could not be logged in, and later found out that he had been cheated.

According to Zhang Yanmei's account, a total of several investment seminars were held, with usually more than a dozen people attending. The "financial management teacher" broadcast videos through computers and taught Bitcoin-related content through the Internet. He also introduced that "Darkcoin" and Bitcoin are the same financial management and money-making content, and specifically absorbs, trades, and returns digital currencies through "mining" on a virtual network platform.

According to police investigation, the "Darkcoin" financial product is essentially a commissioned online platform manager to invest in and purchase virtual currency. Purchasers obtain membership qualifications by paying the "Darkcoin" mining machine rental fee (threshold fee) and become members. Each member's offline division is divided into three zones in order to form a fixed level. The number of people developed is used as the basis for rebates, and direct profits are made by selling virtual "Darkcoins".

On September 2 this year, the Office of the Leading Group for Special Risk Rectification of Internet Finance issued a "Notice on the Cleanup and Rectification of Token Issuance and Financing" to the financial offices (bureaus) of all provinces and cities. It clearly stated that ICO (Initial Coin Offering) is essentially an unauthorized illegal public financing, suspected of illegal fundraising, illegal issuance of securities, illegal sale of tokens for fundraising, as well as financial fraud, pyramid schemes and other illegal activities, which seriously disrupted the economic and financial order.

Bitcoin-related thefts continue to increase

Recently, the news that a bitcoin mine in Slovenia was stolen and tens of millions of dollars were lost has attracted global attention. However, it is not known that hackers use Trojan viruses to invade bitcoin wallets and steal bitcoins, which requires very high technology support. Using computer viruses to invade systems and extort bitcoins is a "skill" that ordinary people do not have. Therefore, ordinary bandits cannot steal bitcoins, so they can only settle for the next best thing, stealing the mining machines that produce bitcoins, or the electricity required to produce bitcoins. But no matter what is stolen, it is illegal after all.

The Shanyang District People's Court of Jiaozuo City, Henan Province, recently sentenced a case of stealing mining machines. In 2015, the defendant Zhao and several friends pried open the door of a rental house and stole all 202 Bitcoin mining machines. After identification, the stolen models were Antminer S5 Bitcoin mining machines with a total value of 350,000 yuan. Zhao was eventually sentenced to five years in prison for the crime of theft and fined 20,000 yuan.

To get Bitcoin, it is not enough to have a mining machine, you also need electricity. According to the characteristics of Bitcoin, Bitcoin production requires a lot of electricity, so many Bitcoin mines have to be relocated to mountainous areas with lower electricity costs to reduce production costs. In order to save the cost of laying lines and the convenience of electricity use, most Bitcoin "mines" are built directly inside hydropower stations. Since the first half of this year, China's Bitcoin production - "mining" industry has leapt to the world's leading level. In areas such as Sichuan, China, where hydropower resources are very rich, during the flood season, when electricity is not used up, "miners" use this water power to "mine".

The People's Court of Zhaoyuan County, Heilongjiang Province, recently sentenced a theft case in which the thieves stole the electricity needed to produce Bitcoin. In May 2016, the defendant Wang Zhiwei went to the power supply of an oil well in the third mine of the Daqing Oil Production Plant No. 7 in Daxing Township, Zhaoyuan County, buried the connecting cable underground, and then led it to a room in the yard of a grain collection point he rented about 100 meters west of the oil well, preparing to steal oilfield electricity to produce Bitcoin.

Afterwards, Wang Zhiwei replaced the transformers of the two oil wells in the oil field and privately connected cables to his grain collection point to operate the machine for producing Bitcoin.

The public security organs seized 268 computer servers and other equipment, 2 transformers, and more than 600 meters of cables on the spot. According to the certification of the Zhaoyuan County Price Certification Center, the stolen electricity was worth RMB 2,763.14. The court finally determined that Wang Zhiwei's behavior constituted the crime of theft and sentenced him to two months of detention, suspended for four months, and fined him RMB 5,000.

In addition, a civil ruling issued by the Beijing High People's Court also showed that Ma, an employee of a Beijing information technology company, privately installed and ran Bitcoin mining software on the company's production server while working as an application server administrator, occupying the company's network and server resources to mine Bitcoin. He was later terminated from his employment contract and fined.

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