$2 million crypto graphics card counterfeit scheme busted in China

Several suspects have been apprehended in China for selling used graphics cards as new to crypto miners in a counterfeit operation, reports on July 20 reveal.

Their modus operandi involved purchasing relatively new GPUs in bulk from miners, cleaning them, removing identifying marks, and repackaging them to appear as brand-new models.

The arrest came after a year-long investigation by police in the Bincheng district of Binzhou City. During the operation, authorities discovered numerous mining enclosures missing their graphics cards in a warehouse. 

Seven people have been arrested in connection with the $2 million graphics card counterfeit scheme.

The suspects, all Chinese nationals, are accused of producing and selling counterfeit graphics cards that look like genuine products from well-known manufacturers.

The group exploited the current global chip shortage and the resulting high demand for graphics cards, which made it difficult for consumers to purchase new ones. Consequently, many customers agreed to pay more than usual, unknowingly becoming victims of the scam.

In recent years, cryptocurrency prices have skyrocketed, rising by multiples from 2017 peak levels. Amid this skyrocketing demand, miners constantly need to upgrade their gear to stay competitive when connected to proof-of-work networks like Bitcoin, Litecoin, Ethereum Classic, and Monero.

In these networks like Ethereum Classic, miners connect their graphic cards and compete to solve complex cryptographic problems for a chance to verify a block of transactions.

When successful, they receive block rewards in the network’s native currency. These coins can later be sold for cash to cater to operational expenses and to realize profits. 

While mining can be lucrative, GPUs are in high demand considering they can be used in other economies. This demand has led to scarcity, a reason that has seen some individuals refurbish gear and sell them as new.

In August, Litecoin, which is Bitcoin’s silver, will halve its miner rewards to 6.25 LTC. Next year, Bitcoin and Bitcoin Cash will also have their network rewards.

These events will impact supply and may likely support prices in the days ahead. With reduced revenue, mining might be affected as users will have to upgrade their gear to stay competitive especially if prices rise.