Chinese cryptocurrency mining firm charged with running pyramid scheme, as Beijing maintains tight grip on virtual assets

August 18, 2023

By Sharan Kaur Phillora

Amidst Beijing’s rigorous stance against cryptocurrency, local Chinese authorities have taken legal action against Shenzhen Shikongyun Technology, a prominent Filecoin mining entity, for orchestrating a pyramid scheme.

Here’s what we know:

The firm, which faced prosecution in Pingnan county, Guangxi region, had its four executives charged with instigating and steering a fraudulent scheme. The alleged operation amassed over 600 million yuan (approximately US$83 million).

In a recent court hearing, the Pingnan court revealed that Shikongyun had purportedly overstated the investment potential and economic model of its Filecoin project’s distributed storage technology. The company between February 2021 and May 2022, registered nearly 100,000 members. Their accrued earnings during this period were reported to be 606.9 million yuan and about 32 million Tether (USDT) tokens, a stablecoin equated to the US dollar.

Members on the platform were allegedly coaxed into purchasing or renting the company’s mining gear. Incentives were given to these members when they brought in new recruits.

Prosecutors assert that the firm lured people with promises of significant returns, which they define as a grave criminal act disrupting social and economic harmony. This case accentuates mainland China’s persistent skepticism towards cryptocurrency, particularly since the 2018 ban on digital token financial transactions.

It is worth noting that China’s anti-cryptocurrency efforts were heightened in May 2021 when the State Council revealed a crackdown on cryptocurrency mining.

Interestingly, Filecoin, launched in 2017 by Protocol Labs, rewards storage providers with tokens on its decentralized storage network. China also saw the popularity of the Interplanetary File System (IPFS), a Web3 tech by Protocol Labs.

Shikongyun isn’t the pioneer in facing scrutiny. In December 2021, RRMine executives were under investigation by the Chengdu police.

Despite China’s crackdown, cryptocurrency usage persists. Notably, the country ranked 10th in Chainalysis’ 2022 Global Crypto Adoption Index.

In a contrasting move, Hong Kong has been greenlit by Beijing to become a cryptocurrency nexus, with the recent licensing of crypto exchanges HashKey Group and OSL for retail trading.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.

Translate Now