The Chinese National Internet Financial Risk Analysis Technology Platform (IFCERT) ran an investigation on the local cryptocurrency market and found 421 allegedly fraudulent coins peddled by various sites, “causing investors to suffer major losses.”
According to the organization, most of these so-called cryptocurrencies are just websites set up for pyramid schemes stating that they are the next big coin while presenting absolutely no sign that whatever it is they’re selling even runs on a blockchain. They also almost never trade on exchanges.
IFCERT provides the example of Digit Coin, a website that promotes a cryptocurrency that promises returns based on how much each person invests in it.
People who fall in the “six-star” level and have invested more than $5,000 get returns of up to 60%, according to the site.
“The fake virtual currency has no real code and can’t generate or run on blocks. Therefore, it uses the artificial splitting method to create token rewards. By splitting them in the short term, it generates a large number of points or tokens, resulting in wealth. It creates the illusion of skyrocketing… According to the platform’s marketing, ‘the more people invest in tokens, the bigger the split gets,’” IFCERT said in their report.
The organization also points out that some of these cryptocurrencies are traded on proprietary or OTC exchanges, giving them a high degree of control over the price of their asset, allowing them to provide “the illusion of rapid price increase” to coax potential investors to dump their money into their platforms.
“However, users cannot conduct transactions or withdraw cash,” IFCERT added.
Cryptocurrency-related scams continue to be a problem in China and authorities find themselves facing new challenges due to this new threat.
Last month, police in Xian arrested several people who were connected to a pyramid scheme that ran out of Hong Kong after several reports came to their offices about losses. The scheme’s operators even spent significant amounts of money to hire a foreign-looking individual as a puppet executive to make the firm look legitimate.
“The organization [...] went to Cambodia, Phnom Penh, Xian, Ningbo, and other places to hold cryptocurrency promotion meetings. They promised that members who invested 3 million yuan can earn 80,000 yuan per day, making profits of more than 2 million yuan in a month,” authorities said.
The growth of these scams prompted the Chinese government to act by starting an initiative that would identify individuals claiming to run blockchain companies to scam people.
This article appeared first on Cryptovest
