The sudden closure of an online trading platform of the virtual currency bitcoin in China has brought to the fore the problems surrounding the new currency in the country, where such transactions are surging, the Guangzhou-based Southern Weekly newspaper reports.
Chinese users of GBL, a bitcoin trading platform that claims to be based in Hong Kong, were shocked when they found on Oct. 26 that access to the service's website was no longer available.
One bitcoin was valued at US$225 on Nov. 4, according to Mt.Gox, the world's largest online currency exchange.
With their uncashed bitcoins lost due to the discontinuation of service, users across China have decided to report the case to local police, which had not yet decided as of Oct. 30 whether the case had been made for an investigation, the newspaper said.
GBL, whose domain — btc-gbl.com — was only registered on May 9, had been a questionable business from the outset, as the introduction to its services featured on the company's website was a patchwork of information cut and pasted from other companies.
Although the company behind GBL officially registered with the Hong Kong authorities on June 10, it did not obtain any license to operate financial services, the newspaper said.
However, these questions raised by certain experienced bitcoin traders in online forums were overlooked after GBL flooded the Chinese online community with its promotional messages and launched campaigns promising fee waivers to attract new users.
GBL also gained a market share with its futures market established for bitcoin, which was easily manipulated, perhaps even by the service itself, because of the small amount of trade involving the currency in China, according to the newspaper.
With the loopholes in futures trading becoming more obvious, GBL announced it was closing the market in mid-September, a move seen as a sign the service was shifting to a model similar to major players in the market.
Yet some users noticed worrying signs, such as GBL's issuance of its stocks to users from mid-September, as well as a longer processing time and a cap on cashing Bitcoin since early October, and pulled out early.
Research conducted by Southern Methodist University assistant professor Tyler Moore and Carnegie Mellon University assistant professor Nicolas Christin found that 18 of the 40 Bitcoin trading platforms set up in the past three years had closed, including TradeHill, which was once the second largest in terms of transaction volume.
Moreover, 13 of the discontinued services closed without any prior notice, while the remaining five were forced to shut down following hacker attacks. Only six of them were known to have offered refunds to users.
A report featured in Chinese state broadcaster CCTV's evening newscast in late October about the first bitcoin ATM in Canada led to some online users speculating about the country's possible recognition of the currency. However, Bitcoin's unclear legal status and talk of its links with illegal activities, such as money laundering and tax evasion, along with alleged scams, still pose a great risk to holders of the currency, the newspaper noted.