On October 24, 2019, General Secretary Xi Jinping, during the 18th collective study session of the Political Bureau of the CPC Central Committee, emphasized the significant role of integrated blockchain technology applications in the new technological revolution and industrial transformation. He stressed the need to regard blockchain as a crucial breakthrough for independent innovation in core technologies, accelerating the innovation and development of blockchain technology and industry. Furthermore, he highlighted the importance of strengthening guidance and regulation of blockchain technology, exploring the establishment of a security保障体系 that adapts to blockchain technology mechanisms, implementing the rule of law in cyberspace within blockchain management, and promoting the safe and orderly development of blockchain.

With the rise in popularity of the "blockchain" concept in recent years, many have spared no effort in capitalizing on its popularity. According to the "2019 Network Fraud Trend Research Report," losses resulting from fraud perpetrated under the guise of blockchain are the highest among various types of online fraud, averaging 134,522 yuan per person. This phenomenon not only jeopardizes the financial security of investors but also severely disrupts the nation's financial order. "Blockchain" developers and investors alike should pay close attention, promptly recognize the associated legal risks, and avoid misinterpreting the true essence of blockchain.

1. ICO, IMO and other activities may be suspected of illegal fund-raising, financial fraud, online pyramid schemes and other crimes.

ICO (Initial Coin Offering) refers to the fact that the financing entity raises so-called "virtual currencies" such as Bitcoin and Ethereum to investors through the illegal sale and circulation of tokens. However, criminals use ICO, which is essentially an unapproved illegal public financing activity, and are suspected of illegal fund-raising, financial fraud, online pyramid schemes and other crimes.

On September 4, 2017, the China People's Bank, the Central Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission jointly issued the Announcement on Preventing Risks from Token Issuance and Financing, ICO was explicitly prohibited, and the chaos of ICO was finally effectively curbed.

However, under the popularity of blockchain, in order to circumvent supervision, the issuer has emerged a new model: IMO (Initial Miner Offering) means the first miner issuance, that is, the issuance of tokens through the issuance of miners. The issuer constructs a specific blockchain, uses a specific algorithm, and can only use its own dedicated miner for sale. Before the virtual currency is listed on the exchange, the token issuer allows investors to subscribe for the virtual currency in advance at a pre-set price, so as to continuously raise funds for profit. In this process, the issuer promises a rate of return to investors, and allows investors to form levels in a certain order, develop investment personnel, and pay for it. After that, the issuers use "lock-up" and "unlocking" and other means to prevent investors from withdrawing coins. In essence, IMO also has the risk of suspected illegal fund-raising, financial fraud, online pyramid schemes and other crimes, which should arouse investors' vigilance.

2. Investing in virtual currency financial products may suffer significant property losses, or even lose everything!

With the spread of concepts such as "blockchain" and "virtual currency", "virtual currency" wealth management has also become a disaster area. These wealth management products are similar to traditional financial market wealth management products such as Yu'ebao, Licaitong, and index funds, but they have huge risks that are different from traditional wealth management products.

Take the typical Plus Token wallet "runaway" case as an example. On May 1, 2018, the Plus Token wallet was officially launched. First, the issuer of Plus Token attracted investors to join with high rebates. After gaining the trust of investors, they guided investors to directly purchase virtual currencies such as Bitcoin and Ethereum with RMB on the virtual currency trading platform, and let investors transfer these virtual currencies to the Plus Token wallet, and then investors can get the dividends given by Plus Token every day. In short, it is "deposit currency to generate interest". Plus Token also set additional dividend conditions, such as absorbing more than 10 investors to obtain dividends, and then dividing them into different levels according to the amount of money invested by the absorbed investors. Plus Token even promised to permanently distribute 50% of the transaction fees to all those who are committed to promoting the Plus Token wallet. On June 29, 2019, after the Plus Token wallet was suspected of "running away", wallet members were terminated from withdrawing coins and withdrawals.

From a legal point of view, this is undoubtedly an evolved version of the "Ponzi scheme". Plus Token's behavior is suspected of pyramid schemes and fraud. According to relevant data, some mainstream virtual currencies stored in the PlusToken wallet have been transferred to different exchanges for cash out. Because virtual currency transactions themselves are highly concealed, these properties will be difficult to recover, resulting in property losses of hundreds of billions of dollars for investors.

3. There are many virtual currency exchanges, and they are mixed. There is a lack of industry standard guidance and supervision. Most of them are suspected of illegal and criminal activities, and the transaction of digital currencies cannot be safely guaranteed!

In November 2019, BISS, claiming to be the world's leading membership-based cryptocurrency exchange, became unreachable. Media reports indicated that "many users reported the BISS exchange was unable to process withdrawals, and the team was suspected of disappearing." "The primary reason for the exchange's investigation may be its suspected involvement in fraud, money laundering, and other crimes." These virtual currency trading platforms, masquerading as "exchanges" but essentially operating as Ponzi schemes, exploit digital transactions and use the "blockchain" gimmick to defraud investors, a practice that has raised serious concerns among public security authorities.

The data released by the digital currency trading market APP "Fei Xiaohao" on January 9, 2020 shows that the number of digital currency trading platforms that can be found is as high as 495, and 123 are involved in the transaction volume ranking. The top-ranked ones are mainly Huobi, Binance and OKEX, etc. The remaining 372 trading platforms are not involved in the ranking, and most of them cannot display basic information and transaction volume. It is understood that the servers of these trading platforms are mostly located overseas, mostly concentrated in Singapore, the United Kingdom, the Cayman Islands, Seychelles and other countries and regions, but their business is oriented to China, and the operating venues are extremely hidden, and the country is difficult to supervise these digital currency exchanges. If the project party "runs away" or the exchange collapses, even if the public security organs file a case for investigation, it will be difficult to find relevant case evidence clues from these servers set up overseas, so the difficulty of solving the case will be greatly increased, and investors' digital assets will naturally not be safely guaranteed.

4. Exercise caution when speculating on "crypto", as you may be exploited by project developers and exchange platforms.

Due to the lack of effective regulation, project developers and trading platforms can cooperate closely to exploit investors by manipulating prices.

For example, a trading platform cooperates "closely" with the project party. First, arrange the project to conduct ICO on the trading platform, and use the "blockchain" popularity to promote the project on the platform, and attract investors through false propaganda through platform announcements, WeChat, QQ and other channels. Then, the token of the project opened at an issue price of 1 yuan. After being launched on the platform, the trading platform quickly raised the price to 10 yuan by creating a false increase in transaction volume. Then, the trading platform cooperated with the project party to create momentum to attract a large number of investors to buy coins at a higher price, continue to trade sideways and slowly rise, so that the price of 10 yuan rose to 15 yuan or higher in a short period of time, and use the mentality of investors to chase the rise and kill the fall to make a wave of selling coins between 10 yuan and 15 yuan, or sell a large number of coins in a short period of time to cash out, so that the price is lower than the issue price or zero.

Given the explicit legal prohibitions in our country, investors should be vigilant and invest cautiously in high-yield virtual currency wealth management and 'currency speculation,' whether it's ICO or IMO, to prevent being deceived. Even if you decide to invest, you should choose a platform with a high trading volume, the corresponding emergency response capabilities, and compliance with relevant national standards and norms. Alternatively, consider investing in blockchain information service companies that have been registered in accordance with the 'Regulations on the Administration of Blockchain Information Services.'

In view of the continued high incidence of illegal fundraising cases, the repeated prohibition of virtual currency scams, and the characteristics of large scale, wide field, and numerous cases, the lawyer reminds investors to strengthen their knowledge of blockchain, rationally view blockchain, and avoid blindly following; keep abreast of relevant national policies and abide by national laws and regulations; establish correct investment concepts, and strengthen risk prevention awareness and identification capabilities.