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In recent weeks there has been great deal of concern that the virtual-currency boom of the past year has papered over many problems. As digital tokens slid more than 50 percent in value from their peak in early January some of these problems have come to light. Such as: hackers draining funds from online exchanges and Ponzi schemes.

The government regulators have been unable to keep up with the rise of cryptocurrencies and two main regulatory agencies in the United States that oversee the technology, the Securities and Exchange Commission and the Commodity Futures Trading Commission, are to testify before the Senate about their attempts to police virtual currency markets.

The pro currency enthusiasts argue that the problems are no different from what has happened in other booms, like the internet bubble of the 1990s. However, regulating bodies are concerned that virtual currencies by cutting out middlemen and government authorities have made bad behaviour more prevalent.

Cryptocurrencies are almost a perfect vehicle for scams,” said Kevin Werbach, a professor at University of Pennsylvania. “The combination of credulous buyers and low barriers for scammers were bound to lead to a high level of fraud, if and when the money involved got large. The fact that the money got huge almost overnight, before there were good regulatory or even self-regulatory models in place, made the problem acute.”

Government agencies in the United States have shut down a few notable frauds. Early last month, securities regulators in Texas and North Carolina issued cease-and-desist orders to BitConnect, an operation that had grown to be worth $3 billion. But those moves only came after BitConnect had operated openly for months, collecting hundreds of millions of dollars from people around the world despite being labelled a Ponzi scheme by many prominent people in the virtual currency industry.

Another pyramid scheme, MMM, which was shut down in an earlier incarnation by the Russian government, has been revived thanks to the popularity of Bitcoin and is openly operating again and there are online groups openly trying to manipulate the prices of digital tokens in what are known as pump-and-dump schemes. Many have been able to expand quickly because they do not use bank accounts and therefore do not have to win approval from established institutions. Instead, they are able to use virtual currency “wallets” without any approvals. And virtual currency transactions cannot be reversed like normal bank or even PayPal transfers.

Facebook book announced last week that it would no longer allow advertisements for virtual currency projects and JPMorgan Chase and Bank of America said they would bar customers from using credit cards to purchase virtual currencies This follows the recent news that Coincheck, which had been one of the largest exchanges in Japan, announced that it had lost nearly half a billion dollars of a virtual currency in what appeared to be the largest hack to hit the industry.

However the biggest number of incidents have cropped up around initial coin offerings, in which entrepreneurs sell custom virtual currencies to investors to raise money for software they are building. About 890 projects raised over $6 billion last year. Most of the new virtual currency projects borrow their basic design from Bitcoin using a network of computers to maintain records so that no central government or authority is needed. That design has allowed the virtual currencies to grow fast with no regard for international borders, attracting followers from Zimbabwe to South Korea.

It is a perfect storm for the kind of scammy activity we are seeing, and it’s not obvious to me how that is easily removed,” said Fred Wilson, a partner at the venture capital firm Union Square Venture and one of the earliest advocates of Bitcoin in Silicon Valley. “Regulation, ideally prudent and informed regulation, can help. But we may also need to have a big correction to really clean things up.”