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Hong Kong cryptocurrency operators warn against fake websites

PUBLISHED : Thursday, 02 April, 2015, 5:54pm
UPDATED : Thursday, 02 April, 2015, 6:05pm

Hong Kong’s cryptocurrency operators have banded together to warn investors about fake websites and other scams.

The Dash Foundation (known until last week as Darkcoin) and Bitcoin Hong Kong, two legitimate issuers of cryptocurrencies that trade on global platforms, have issued a joint statement  warning cryptocurrency users about fraudulent schemes both in Hong Kong and overseas.

A  Dash Foundation spokesman said a Hong Kong-based fake website was using the Darkcoin name and logo, offering unrealistic 40pc returns and, in typical pyramid-scheme style, was offering investors benefits to bring in new members. The Dash Foundation and Bitcoin Hong Kong have reported the fake website to Google. 

Fernando Gutierrez, vice-chairman of the newly renamed Dash Foundation, says it’s vital investors do their homework before investing in cryprocurrencies.

“The only way to avoid scams is for investors to take responsibility and do their research … We have been working with [Bitcoin] Hong Kong to report the scams we detect so they publish them in their lists. When users contact us, we refer them to this list so they can avoid the scams we know about and any others that have been detected.”

The call comes in the wake of police action over an alleged pyramid scam in Hong Kong involving MyCoin, a bitcoin-trading platform which collapsed in February. According to a police report, more than 50 people are reported to have fallen to the alleged scam, which involves sums totalling HK$74 million.

The only way to avoid scams is for investors to take responsibility and do their research
Fernando Gutierrez

To date, five people have been arrested on suspicion of conspiracy to defraud in connection with the case. They have been released on bail and are required to report to the police this  month. The force's commercial crime bureau is investigating.

The Hong Kong police have strengthened the force’s Cyber Security and Technology Crime Bureau to fight growing cybercrime. Hong Kong police figures show that, in 2014, there were 6,778 cases of computer crime in the city, compared with 5,133 in 2013 and 1,506 in 2009.

Last month Britain took a significant step towards becoming a global bitcoin hub when it announced it would regulate digital currency exchanges. However, Gutierrez says regulation can do little to protect users. “Cryptocurrencies is a new field – it’s complex and changes constantly and governments are slow because laws should be made taking many factors into consideration and following strict processes. There is no way they can keep up.”

He noted that cryptocurrencies are global, while governments are local.

“This doesn’t mean that cryptocurrencies have to be Wild West. There is still the protection of non-specific laws. Theft and fraud are forbidden everywhere. It doesn’t matter if it is done with fiat [currency that a government has declared to be legal tender] or cryptocurrencies.

Gutierrez says enforcement is becoming more difficult and requires more work. “In reality, it’s no different to what happens with the financial sector at large. Banks have become so complex that making them accountable for their actions has become extremely difficult. Governments spectacularly failed at that after the 2008 collapse and the harm done was millions of times bigger than [that from] any crypto scam. 

"We are entering an era in which governments are less powerful, so people should stop relying on them for everything."

He says public education and investor caution are the best policies. “Educate the public. Be reachable and clear with all people who ask for help. … Long established reputations are a huge aid for users needing help with their decision and their value can exceed the value of the transaction easily.”

In February, the Hong Kong Monetary Authority warned the public to be vigilant when investing in bitcoin. “Bitcoin and other similar virtual commodities are not regulated by the HKMA. Given the highly speculative nature of bitcoin, we would like to remind the public to exercise extra caution when considering making transactions or investments with bitcoin.”