China’s Central Bank Warns on Blockchain, Cryptocurrency Frauds

The People’s Bank of China, along with other state agencies, published a warning of criminal activity related to blockchain and crypto projects, especially those resembling initial coin offerings (ICOs).

The People’s Bank of China (PBOC) published on Friday a statement warning of criminals participating in fraudulent schemes marketed as “blockchain”, “digital currency”, and “financial innovation”, among others. The bank claims that criminals might attract retail investors in different schemes of illegal fundraising, but in reality, the latter are manipulated to enter pyramid schemes and frauds.

The statement was jointly prepared by China’s central bank, the Public Security Bureau, the China Banking and Insurance Regulatory Commission, and two other state agencies. They agreed that many blockchain and crypto-related activities “are not really based on blockchain technology but are hyping the blockchain concept to raise funds illegally,” acting as Ponzi schemes.

The statement didn’t specify any concrete actions against such activities, but the agencies find it necessary to warn retail investors to avoid such scams. The PBOC noted that some companies choose to advertise their products with claims like “the value will only rise” and “high return, low risk”, which, according to the central bank, are typical for frauds.

According to the statement, the PBOC distinguishes three main features that are representative for such fraudulent schemes:

• International Operations: Most of the blockchain-oriented fraudulent schemes operate internationally, relying on the internet and social media instruments. They use chat tools and online payment methods to raise funds. However, the use of online tools helps the risk spreads at a rapid pace. Some of these scammers are developing their websites via rental of servers located overseas, managing their projects from a foreign country.
• Deceptive Methods: The fraudsters are using deceptive and manipulating methods to attract investors. They are applying the so-called airdrops, social media marketing, and other marketing tricks to make the public believe that the value of their token will only increase.
• Public Propaganda: The criminals use public propaganda to promote “passive income” and “dynamic income” as a bait to attract investors and encourage them to join the development of the project.

Last week, The Communist Party of China released a blockchain guide for government officials. The document, titled Blockchain – a Guide for Leaders, proves that the government is not averse to blockchain.