Be careful when solicited to buy virtual currency by your acquaintance or at a seminar. Don't believe words like "It's surely profitable".
Troubles in buying virtual currency ,1 which are electronically traded through the Internet, are on the rise. Inquiries about virtual currencies received by PIO-NET 2 amounted to 194 in FY2014 and 634 in FY2016 (See Diagram 1).3
The inquiries illustrated cases where a consumer was told by an acquaintance "The price will surely go up" and bought virtual currency with a view to making a profit by selling it, but the consumer neither made a profit nor recovered the amount paid. According to more recent cases, a consumer was told at a seminar that dividends would be paid and bought virtual currency, but ended up with trouble.
Due to risks of price changes, the price of virtual currency does not always increase. On the other hand, new regulations on virtual currency exchange services have been set up under the revised Payment Services Act (enforced from April 2017). In order to provide exchange services between virtual currency and legal currency in Japan, dealers are required to be registered as virtual currency exchange service providers.4
Therefore, NCAC decided to issue an alert to consumers concerning virtual currencies.5 When solicited to buy virtual currency, a consumer should check if the dealer is registered as a virtual currency exchange service provider. Never enter into a contract without understanding risks in the transaction.
Diagram 1: Number of inquiries about virtual currencies
Inquiries about virtual currencies amounted to 194 in FY2014, 440 in FY2015, and 634 in FY2016.
- 1 Article 2 (5) of the revised Payment Services Act (enforced from April 1, 2017) defines "virtual currency" as "asset-like values (limited to those items electronically recorded by electronic or other equipment and excluding Japanese currency, foreign currencies, and currency-denominated assets) usable as payment to indefinite parties for the cost of purchase or rent of items or receipt of services and which can be transferred by means of electronic data processing systems".
- 2 PIO-NET (Practical Living Information Online-Network System) is a database that collects information on inquiries concerning consumer affairs by linking the National Consumer Affairs Center of Japan with local consumer centers and similar organizations across Japan via an online network. This article uses data received by PIO-NET till the end of February 2017. Inquiries referred from local consumer centers, etc. are not included since FY2015.
- 3 The data includes inquiries about "virtual currencies" (including "cryptocurrencies" or "recorded values"), but excludes those about in-game currencies (digital money) used for buying online-game items.
- 4 It is stated on Article 63 (2) of the revised Payment Services Act. A grace period of six months from the date of enforcement shall be granted for registration of dealers which had started to provide virtual currency exchange services before the enforcement of the Act.
- 5 NCAC issued an alert on troubles related to virtual currencies also in February 2016 (See the NCAC's page).
Sample cases of inquiries received by PIO-NET
- [Case1] I bought virtual currency after solicited by an acquaintance like "It will more than quintuple in price", but no money was returned.
- I intended to learn foreign exchange trading from an acquaintance who had worked for a financial institution, but I was solicited to buy virtual currency which would soon be traded in a market. The acquaintance said, "If it starts to be traded in the market, it will more than quintuple in price, so you can make a profit by selling it". I was told to pay about 100,000 yen in total for agent fee, virtual currency, etc., and I transferred the money to the acquaintance's bank account without fully understanding contract details.
Although I waited for a long time, no money was returned. I knew neither the balance nor whereabouts of the virtual currency, so I was unable to buy or sell the virtual currency. I searched the virtual currency on the Internet and found reviews like "Recently the virtual currency trading market was opened to the public", but I have no idea how to confirm the matter. I don't know contact details of the dealer, so I cannot contact them. I don't want to ask the acquaintance about the problem because I don't want to spoil my relationship. What should I do?
- (received in June 2016, contract signatory: woman in her 40s in Hokkaido)
- [Case 2] I bought virtual currency because an acquaintance said "The price will triple in a half year. Then the seller can buy back all the virtual currency". Actually, the seller doesn't buy back the virtual currency.
- A half year ago, I was called to a coffee shop by my friend. An acquaintance of my friend solicited me to buy virtual currency, saying "If you invest in virtual currency developed by a certain company, the price will triple in a half year. If you want to sell it within a certain period, the company can buy back all the virtual currency". I was also told that I could get a referral fee if I introduce a third party, but I didn't introduce anyone.
I was explained that an order should be made online, so I made an order by myself four months ago. I transferred the purchase price of about 2,000,000 yen to seller's bank account. Later, I received a confirmation email. I received neither a written contract nor other relevant document. Soon after the purchase, I tried to sell the virtual currency within a buyback period specified by the seller, but I couldn't. I conveyed my request to the seller, but it was declined. Initially, the acquaintance told that the seller would buy back all. I am annoyed with the response.
I've found out on the Internet that there is a balance of my virtual currency, which is unable to be sold because there's a number of sell orders while there's no buy order. I want the seller to buy back all the virtual currency as they promised, or at least to return money I paid.
- (received in January 2017, contract signatory: man in his 30s in Tokyo)
- [Case 3] When I joined a seminar, a lecturer said "You can get a 1% dividend per day". I bought and deposited virtual currency, but I cannot withdraw my money as told.
- I used to subscribe an email newsletter providing side job information. When I joined a seminar introduced on the email newsletter, a lecturer said "If you buy virtual currency and deposit it with an overseas dealer, you can get a 1% dividend per day. When 20 days or more passed from the date of deposit, you can withdraw your money anytime". Then I entered into a contract.
The foreign dealer's website was written in English, so I asked a seminar attendant to enter necessary data for me to apply for free registration. After returning home, I bought virtual currency worth about 1,500,000 yen from another dealer via the Internet, and deposited it with the foreign dealer which I had signed in at the seminar venue. After 20 days passed, I sent a message to the foreign dealer that I wanted to withdraw money, but they replied that it was not possible.
Then I contacted the company which had held the seminar. They said "Currently the balance is bad between those who want to deposit and those who want to withdraw. Many people are waiting for withdrawal, so it takes long time".
What they told was different from their initial explanation. I am suspicious of them. I want to withdraw my money right away. What should I do?
- (received in January 2017, contract signatory: woman in her 30s in Ibaraki)
Advice for consumers
(1) Confirm if the company is registered as a virtual currency exchange service provider.
From April 1, 2017, the enforcement date of the revised Payment Services Act, companies not registered as virtual currency exchange service providers may not provide exchange services between legal currency and virtual currency under the Act in Japan. If you are solicited to buy virtual currency, confirm if the company is registered as a virtual currency exchange service provider on the website of the Financial Services Agency. It does not mean that transactions with a registered virtual currency exchange service provider are always safe, because each type of virtual currency has several risks, including a sharp decline in price.
(2) Don't believe words like "It's surely profitable". If you cannot fully understand risks, don't enter into a contract.
Any virtual currency can be freely traded on the Internet, but the price often changes. There is no guarantee of price increase. Don't believe words like "It's surely profitable", "You can get high dividends" and so on. If you can't fully understand a virtual currency mechanism or risks associated with transactions such as price changes, don't enter into a contract.
(3) If you are unsure about virtual currency's characteristics, the actual state, or contract details, decline to enter into a contract.
It is said that there are many types of virtual currencies. Risks associated with transactions differ depending on types of virtual currencies. Any virtual currency is freely traded via the Internet, so it may be difficult to confirm the actual state. If a certain virtual currency is yet to be traded, it is hard to check if the virtual currency will be traded in the future. In some cases of troubles, contract details were not clarified, and some consumers were solicited by an acquaintance and entered into a contract without really knowing details.
If you are unsure about virtual currency's characteristics, the actual state, or contract details even after hearing explanation on virtual currency transactions, decline to enter into a contract.
Virtual currencies traded by virtual currency exchange service providers are described on the website of the Financial Services Agency.
(4) If you feel even slightly suspicious or uneasy, consult your local consumer center right away.*
If you get in trouble in buying virtual currency or if you feel even slightly suspicious or uneasy, consult your local consumer center right away.
- * Consumer hotline: 188 (no prefix)
The three digit phone number, which is common nationwide, will connect consumers to a nearby consumer center established by a local government.