Digital coins surge, so do scams

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Digital coins surge, so do scams

With the value of digital currencies Bitcoin and Ethereum going through the roof, pyramid schemes where potential investors are swindled into purchasing similar, but fraudulent, currencies also are on the rise.

Last month, Gangnam District Police arrested five executives of King Holdings, including its chief executive, after the Financial Supervisory Service requested an investigation last year. They reportedly scammed some 1,500 investors and stole more than 18 billion won from them by selling “KCoin,” a type of digital currency issued by King Holdings. The company sold KCoin by telling the investors that they could use it for payments at local theaters or coffee shops, as well as designated online shopping sites and hotels. The company reportedly paid investors cash or coin when they recruited new investors. But a police investigation showed the company had no affiliates where investors could use the currency for purchases.

“OneCoin,” another digital currency, also was on the FSS’s radar. The financial watchdog said Thursday that it notified the authorities about possible fraud involving OneCoin after receiving complaints. Kim Sang-rok, a director at Illegal Finance Monitoring Department in the FSS, said, “We asked the authority to investigate an organization that collected fund from investors by advertising that OneCoin’s price will go up [like bitcoin].” Kim added that reported cases of fraud involving OneCoin came from all over the country including Daejeon, Pohang and Busan.

The FSS said that main target of fraudulent schemes involving cryptocurrencies are the older population. Traders reportedly trick their targets by showing them news articles about Bitcoin and telling them that their digital currencies have similar potential.

OneCoin’s website claims it is “a digital currency, based on cryptography and created through a process called ‘mining’.” While its developers claim that it was developed through blockchain technologies, experts beg to differ. An expert from Coinone, a cryptocurrency trader in Korea, explained that OneCoin has no disclosed source code which is a must for blockchain-based currencies. Blockchain uses distributed ledgers, which means the data are not stored in a central server but saved in computers of traders. Developers of OneCoin say that its “centralized model protects its members’ safety.” But experts say blockchain technology was developed to overcome problems stemming from centralized data management and to enable peer-to-peer trading instead.

The only trading platform of OneCoin - the OneCoin Exchange or xcoinx - is shut down. Authorities overseas have already identified it as a scam. Federal Financial Services Supervisory Authority of Germany, or BaFin, ordered an end to transactions involving OneCoin this year. Hungarian Central Bank warned OneCoin is a pyramid scheme.

But OneCoin trading continues to be active in Korea, according to the FSS. “If traders of so-called digital currencies claim to guarantee high profit as well as the principal, people must be skeptical,” said Kim.


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