Fake Blockchain --- A Chinese Ponzi Schemes (Blog 8) 14.12.2019

Fake Blockchain --- A Chinese Ponzi Schemes (Blog 8)

In this week, Dr. Roman help us to understand some cases about financial fraud, and explain the concepts about the financial fraud, such as bribery, channel stuffing, round-trip transactions, side agreement and etc. But the most impressed concept is Ponzi Schemes, the author is interested with this topic and make a deeper research about a Ponzi schemes in China called ''Blockchain''.

Definition about Ponzi Schemes and Blockchain

Firstly, A Ponzi Scheme is a fraudulent investment, not a legitimate one. They promise above-average returns but fail in the long run. In the beginning, they will cash in on those returns. They use the principal invested by new investors to generate above-average returns for older investors. After paying those returns, they will use all their resources to attract new investors. In the end, these plans failed. They can't keep hiring enough new people to keep paying their old investors (Zuckoff, 2006).

Before explain the definition of Blockchain, the bitcoin should be mentioned. The Bitcoin is a digital currency (also called crypto-currency) that is not backed by any country's central bank or government. Bitcoins can be traded for goods or services with vendors who accept Bitcoins as payment (Rouse, 2013). And the Blockchain is a key part of bitcoin's peer-to-peer payment system. The bitcoin system USES the blockchain ledger to record transactions. Bitcoin is a global cryptocurrency that can be used as a medium of exchange. However, while many parties have begun to accept bitcoin as a currency, it remains controversial and poses security and stability risks (Anwar, 2019).

In this case in China, the shark use buzzwords such as "blockchain" and "virtual currency" to lure normal investors and citizens into ponzi schemes. But many investment plans named ''Blockchain''are not really based on blockchain technology, but hype the blockchain concept and raise money illegally.

Fraudulent P2P and Blockchain platforms

According to the China’s Ministry of Public Security said it had arrested 62 suspects who were operators of fraudulent P2P and Bitcoin platforms from 16 foreign countries including Thailand and Cambodia, the state-run news agency Xinhua reported on Sunday.

This was a rare public response by China’s top police authority since a wave of defaults hit the P2P lending sector in June, which wiped out savings worth hundreds of billions of dollars that investors – usually mom-and-pop investors with little financial knowledge – lent and invest through P2P and Blockchain platforms.

A spokesman for the ministry of public security said that many platform operators use false advertisements to fabricate investment projects and waste the funds raised on their own interests, which constitutes illegal fund-raising, xinhua reported. According to the spokesman, more than 100 senior managers of such P2P and Blockchain platforms had fled, some of them having gone abroad, long before the breaches and crimes came to light (Liu, 2019).

Eight people have been charged in a $9 billion ponzi scheme in China. Local police departments have prioritized ponzi-like schemes and have resolved major cases of public outcry. These include lianbi financial, a large shanghai-based lending platform that collapsed in June, with nearly 4,000 investors across the country defaulting on 844 million yuan in investments, according to official statistics.

The cheater is to use the Bitcoin, blockchain and other difficult professional vocabulary to embellish their fraud very pattern, although its kernel is illegal fund rising, and then through the high returns and complex contracts to defraud investors trust and fraud. This is a typical Ponzi Schemes with new shell.

Critical thinking and personal opinion

According to the case, it can be clearly to find that the victims are often ordinary citizens or investors with no financial knowledge, they can easily believe that high returns come with no risk or sacrifice. But in business, it is no possible. In addition to accusing swindlers of fraud through false propaganda and other means, the author believes that we should have a clear understanding of its kind of fraud to avoid and identify them.

Combine with the lecture, when the situation is High returns and profits with little risk, overly consistent returns, unlicensed sellers and investments, complex contract and difficulty receiving payments, it should be suspicious and cautious to take care everything, because these anomalies show that this is not a "stable" investment. Finally, for the author personally, do not be greedy, will not be deceived.

References

Anwar, H. (2019). Blockchain Definition: The Real Meaning Of Blockchain Technology. Retrieved 14 December 2019, from https://101blockchains.com/blockchain-definition/

Liu, Y. (2019). China crackdown on fraudulent P2P platforms results in US$1.5 billion of assets frozen. Retrieved 14 December 2019, from https://www.scmp.com/business/china-business/article/2186608/china-crackdown-fraudulent-p2p-platforms-results-62-overseas

Rouse, M. (2013). What is Bitcoin? - Definition from WhatIs.com. Retrieved 14 December 2019, from https://whatis.techtarget.com/definition/Bitcoin

Zuckoff, M. (2006). Ponzi's Scheme: The True Story of a Financial Legend. Random House.