Knock-off cryptocurrency rampant in China despite ban on virtual currencies

Updated 2017-12-05 16:01:56 Xinhua

A Chinese woman surnamed Yang invested 5,000 yuan (about 755 U.S. dollars) in an obscure cryptocurrency, after being promised a staggering 4 million yuan in return.

Not surprisingly, her venture into the virtual currency market ended up being a scam. With the advertised profit on par with hitting the jackpot, she was not the only victim, just one in what turned out to be a 1.4-billion-U.S.-dollar scam.

Since the beginning of this year, Chinese police have uncovered a large number of virtual currency fraud cases nationwide, and have found 107 so-called "knock-off" cryptocurrencies.

Police investigations showed that most of these fraud cases were pyramid schemes orchestrated in the guise of cryptocurrency trading. They have become increasingly rampant in China amid the worldwide frenzy of bitcoin mining.

In recent months, Chinese authorities tightened the grip on the virtual currency market in an effort to rein in financial risks.

In September, regulators ordered a ban on Initial Coin Offerings, calling the activity "unauthorized and illegal public fundraising." Later, they shut down all virtual currency exchanges in the country.

However, the move did little to dampen the hopes of China's virtual coin miners who believe they can make a fortune with virtual currency and many knock-off virtual currencies have continued to appear.

"The closure of exchanges for mainstream virtual currencies such as bitcoin created a market vacuum and gave rise to various knock-off cryptocurrencies," said Zhao Shouguo, an economics professor at Northwest University in Xi'an.

On Chinese internet forums, advertisements for virtual currency speculation are easily spotted, with many promising "zero investment," "zero risk," and "fast money."

"Make 600 yuan easy money after you enroll five people. Even a beggar can do it!" reads one advertisement.

In an online pyramid scheme busted by police in Haikou, capital of Hainan Province, more than 47,000 people had been recruited to trade fake virtual currencies, with some 613 million U.S. dollars involved.

Chinese police have vowed to take down the widespread pyramid schemes related to cryptocurrency exchange, but ending online crime remains a challenge.

"As the perpetrators are often located in different parts of China and orchestrate the scams via computers and mobile phones, it's quite difficult to detain all at once and secure the evidence," said Ren Jian, a police officer in Haikou.

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