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Mainland China’s Cryptocurrency Crackdown Amid Hong Kong’s Virtual Asset Ambitions

BusinessTechnologyMainland China's Cryptocurrency Crackdown Amid Hong Kong's Virtual Asset Ambitions

In stark contrast to Hong Kong’s burgeoning endeavors to become a leading virtual-assets hub, mainland China is persistently clamping down on cryptocurrency-related activities. A recent development has seen one of the largest Filecoin miners in the country prosecuted for orchestrating a pyramid scheme, further illuminating China’s strict stance on cryptocurrencies.

The accused, Shenzhen Shikongyun Technology, found its four executives facing criminal charges in Pingnan county, Guangxi. The charges include organizing and spearheading a pyramid scheme that amassed more than 600 million yuan (US$83 million). Local prosecutors, in a blog post from Pingnan court, highlighted that Shikongyun misrepresented the economic viability and potential of its Filecoin project’s distributed storage technology. The allegations suggest that between February 2021 to May of the same year, the company enrolled almost 100,000 members and accumulated an impressive 606.9 million yuan along with nearly 32 million Tether (USDT) tokens – a stablecoin with parity to the US dollar.

The company’s modus operandi reportedly involved urging members to either purchase or lease mining equipment from them. An enticing promise of returns from recruiting more participants further fueled their scheme. By offering inflated returns, the firm allegedly defrauded numerous individuals, an act that local prosecutors have denounced as a severe infraction disrupting societal and economic stability.

Mainland China’s unwavering aversion to cryptocurrencies is not new. The country had already prohibited financial transactions involving bitcoin and other digital tokens back in 2018. This prosecution follows the Chinese government’s 2021 announcement of a comprehensive crackdown on cryptocurrency mining, highlighting its unwavering regulatory approach towards crypto activities.

Filecoin, the center of this controversy, is a unique cryptocurrency that operates on a decentralized storage network. It rewards storage providers with tokens and is a brainchild of Protocol Labs, also responsible for the decentralized file-sharing network, Interplanetary File System (IPFS). While IPFS enjoys a significant following in mainland China, its use has sometimes extended to sharing prohibited content, further complicating its status.

China’s stringent cryptocurrency oversight isn’t confined to this one instance. In 2021, executives from Filecoin mining and storage service provider RRMine faced investigations by the Chengdu police. Such events underscore Beijing’s heightened scrutiny of all crypto-related activities.

Yet, even amidst this regulatory hostility, cryptocurrency usage has demonstrated resilience in the country. The persistence of crypto can be seen in various cases, from money laundering activities involving substantial sums to the data from collapsed exchange FTX, indicating 8% of its clientele hailed from China. Despite Beijing’s ban, the country’s rank improved in Chainalysis’ 2022 Global Crypto Adoption Index.

While China is staunch in its stand against cryptocurrencies, it is endorsing Hong Kong’s ambition to evolve into a crypto epicenter. As Hong Kong charts its crypto journey with regulations for trading on centralized exchanges and the recent licensing of its first crypto exchanges for retail consumers, the contrasting policies of these two regions will undoubtedly shape the crypto landscape in the future.


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