China’s National Committee of Experts for Internet Finance Security Technology (IFCERT) has reported that as of April 2018, it has detected 421 fake cryptocurrencies, more than 60% of which are run from servers outside China, which means that they are difficult to find and track.
In a report released on Friday, 18 May 2018, IFCERT said that China’s only state-level approved Internet financial regulatory technology platform, the National Internet Financial Risk Analysis Technology Platform, which was launched in December 2017, has found that the platforms for all of these fake cryptocurrencies had three things in common. Here are the red flags to look out for:
First, they rely on a “pyramid scheme” operational model that claims its virtual currency can generate high returns and promises a higher reward for a higher initial investment.
Second, the fake virtual currency has no real source code, and “can’t generate blocks or run on blocks.” Therefore, the scammers use an artificial splitting method to make token rewards, hence creating the illusion of skyrocketing growth. Their propaganda states that “the more investment tokens, the higher the split gains” with the rewards only rising and never falling.
Third, since these fake virtual currencies cannot be traded on any legitimate crypto exchanges, they are “often traded on over-the-counter or proprietary exchanges.” Behind the scenes, the prices are highly controlled by the scammers, which means that the poor victims regularly get to see price surges.
However, unfortunately (and predictably), the users of such platforms often cannot conduct any transactions or withdraw cash. Typically, the fake cryptocurrencies issued by such platforms can only be traded on their own websites, and any trading that they offer is poorly implemented and has very bad security.
The report further states that fake virtual cryptocurrency scams are examples of illegal fund-raising and pyramid selling, that there is a high risk of the scammers running away, and that once they do, it is very difficult for victims to defend their rights and get compensation since these platforms do not have any business premises and their servers are often operated from overseas.
Interesting, on 16 May 2018, as reported here, the U.S. Securities and Exchange Commission (SEC), tried to educate U.S. investors about fraudulent ICOs by launching its own fake ICO (“HoweyCoin”).
On 19 January 2018, China’s Ministry of Public Security, issued a statement that mentioned that it would “annihilate the illegal activities of cyber pyramid schemes” (which includes those involving virtual currencies).
Featured Image Credit: “Red Flags” by “Victoria Reay” via Flickr; licensed under “CC BY 2.0”
