Vietnam has launched an investigation into a multi-million-dollar cryptocurrency scam, ordering a crackdown on trading in the highly-popular iFan and Pincoin digital currencies in its lightly regulated market.
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A directive signed by Vietnam's Prime Minister Nguyen Xuan Phuc on Wednesday requested to "strengthen the management of activities related to cryptocurrencies," and ordered a total of six ministries to "quickly consider and tackle" the fraud of about $658 million in such assets.
The government statement announcing the moves didn't mention the names of the coins involved in the probe. But state media reported that it was targeted against Vietnamese company Modern Tech Jsc which was accused of scamming tens of thousands of people who bought iFan and Pincoin cryptocurrencies.
The Ho Chi Minh City-based company promised to repay clients monthly interest — and more if they could attract other customers — but has been slow to pay them back as the value of the two coins slumped, newspaper VNExpress reported.
Paying with cryptocurrencies is illegal in Vietnam, where they are not recognized as a legitimate tender by the central bank. However there are currently no laws explicitly banning the possession of assets such as Bitcoin and Ethereum.
Bitcoin: Where it came from and where it's headed
The booming cryptocurrency has a cryptic backstory and a perplexing modus operandi. Following a year of particularly tumultuous growth, DW asks where Bitcoin will go next. Can it sustain its incredible ascent?
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Good time to start a currency
Introduced in 2009, Bitcoin was the world's first decentralized digital currency. It quickly gained traction amid lingering uncertainty in the wake of financial crisis. Designed to be as rare as gold, Bitcoin was created to have a maximum of 21 million "coins." Initially worth just a fraction of a cent, by February 2011 the currency had gained parity with the US dollar, then it really took off.
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An anonymous founder
The name Satoshi Nakamoto is synonymous with Bitcoin. It is said to be the alias for an unknown IT whizz who invented the cryptocurrency. But despite claiming to be a 30-something Japanese national, it is generally thought that several computer science experts created the technology behind the digital coin. One rumor even suggested that Tesla chief Elon Musk is the real Satoshi, which he denied.
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So no coins then?
Instead of being printed like dollars and euros, each Bitcoin is created on a global network of computers and verified by the system rather than a bank. There are no transaction fees. The smallest amount you can buy is a "Satoshi" or one-hundred-millionth of a Bitcoin. Purchases can be made anonymously and even at digital currency ATMs. When you buy Bitcoin, it is often stored in a digital wallet.
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Complex puzzles
To ensure that not too much Bitcoin comes into circulation, a process called mining was created where blocks of transactions could only be processed once a difficult math problem was solved by geeks. The puzzles are becoming so complex that bigger and bigger computers are being utilized to decipher them. That's led to concerns about the amount of electricity used to handle Bitcoin transactions.
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Are Bitcoin fortunes legit?
Due to its anonymous nature, Bitcoin's success is likely being fueled by organized crime, including money laundering and the purchase of illegal goods. The currency is also being targeted by cybercriminals. A recent hack blamed on North Korea forced a South Korean digital currency exchange into bankruptcy. Reports suggest the "Islamic State" armed group used Bitcoin to receive funds to buy arms.
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Bitcoin leads, others follow
Bitcoin is the largest of all the cryptocurrencies and its incredible rise has spawned many imitators. Other large digital cash creators include Ethereum, Zcash, Bitcoin Cash, Ripple and Litecoin. As of November 2017, their number had swelled to 1,324. Hundreds of others have attempted and failed to launch their own digital coins. The market is now coming under increasing scrutiny by regulators.
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Watch it skyrocket
2017 was a stratospheric year for Bitcoin. Worth close to $1,000 in January, some twelve months later it had scaled to an all-time high of $19,784. Despite much skepticism, the currency started to see serious interest from institutional investors. Two exchanges began Bitcoin futures trading, allowing speculators to punt on the incredible volatility in the value of the cryptocurrency.
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Warnings abound
From central banks to respected investors, almost the entire financial establishment warned of a massive Bitcoin bubble, which they said can only end in disaster for holders of the digital currency. Among them was Nobel prize-winning economist Joseph Stiglitz who said Bitcoin "ought to be outlawed." Jamie Dimon, the CEO of JPMorgan Chase labeled those who buy the currency "stupid."
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The shape of things to come?
Just before Christmas 2017, Bitcoin saw a dramatic rally, topping out at nearly $20,000 before losing a third of its value in just five days. More intense volatility followed early in the New Year, only to be reversed when it plummeted by almost half. Are we in for an even bigger rollercoaster ride if Wall Street adopts Bitcoin?
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Legal handle on crypto
While so-called initial coin offerings (ICOs) have allowed some legitimate blockchain-related ventures to raise funds quickly by selling tokens to investors, the offerings have also been plagued by reports of wrongdoing.
Regulators are battling all over the world to gain control of cryptocurrency markets, amid fears that Bitcoin and cryptocurrencies — untaxable assets that are exchanged independent of governments and banks — could be used to launder money and fund criminal or terrorist networks.
The new Vietnamese directive said investing and trading the currencies was "increasingly complicated and threatens to affect the stability of the market, social order, and can pose great risks to organizations and individuals involved." It warned financial institutions against accepting the currencies and said authorities would "detect and handle" those dealing in the illegal units.
However, Vietnam has a booming startup sector which has gained a reputation as a hub for homegrown blockchain tech development. Several Bitcoin cafes have also opened to cater to a growing class of local cryptocurrency investors.
Experts now say the government's heavy-handed approach could quash ambition and income for the government.
"If there's too much regulation, that's going to hamper a very interesting, unique, and potential innovation stream for Vietnam, which could be a great source of foreign direct investment," said Thomas Glucksmann from Gatecoin, a Hong Kong-based cryptocurrency and blockchain token exchange.
