Crypto

Investors lose £250m in Bitcoin Ponzi Scam

A Hong Kong Bitcoin exchange has suddenly closed locking thousands of investors out of their accounts believes to hold around £250 million.

MyCoin is the latest in a line of Bitcoin ‘evaporations’ which have seen holders of the virtual currency lose hundreds of millions of pounds.

Almost to the day a year ago, Bitcoin exchange Mt Gox shut up shop in similar circumstances and a few weeks ago the Bitstamp exchange was hit by a mystery outage.

Hong Kong police are investigating the latest scandal to rock the Bitcoin community.

Investors have pooled their resources and fear that MyCoin was a Ponzi scheme which took in a minimum £80,000 investment after the firm told them they could get their cash returned if they found new clients to take their place.

Security vaults

The firm had promised making a 250% return on investment in four months and offered luxury cars and cash pay-outs to investors who recommended other wealthy individuals to sign up to the get-rich-quick scheme.

At the end of 2014, clients who went to the firm’s offices found the door boarded up and ‘Closed for renovation’ signs.

Police doubt if the scammers bought any Bitcoin and suspect they just collected cash from their victims and then went on the run.

Bitcoin is a virtual currency held in online security vaults protected by sophisticated electronic security codes.

Nevertheless, hackers have managed to break into a number of online vaults, such as Bitstamp, and steal the contents.

No regulation

Famously, Bitcoin is also unregulated by any financial institution or central bank, which makes life easy for scammers.

Anyone can set up as a Bitcoin exchange or trader without any qualification, licence or experience, which is one of the problems besetting the online currency as fraudsters see easy pickings.

Purists argue that the Bitcoin thefts and scams are nothing to do with the currency, but the people feeding off the network.

Unfortunately, Bitcoin investors have no recourse to compensation or redress if their investment goes wrong other than to report the matter to police.

As Bitcoin is an online currency, the fraudsters can operate from other countries beyond the reach of the law where the physical loss takes place.

This lack of supervision and consumer protection is likely to drive away prospective Bitcoin investors in their hordes.

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