The Chinese government has a somewhat bipolar approach towards digital assets. On the one hand, the regulators are urging the development and research into the underlying distributed ledger technology, with Chinese companies topping the charts for blockchain-related patent applications. On the other hand, authorities have cracked down on cryptocurrencies and ICOs, issuing a total ban on them.
Chinese regulators stepped up their efforts last month, blocking access to over 120 crypto exchanges, still available in the country. In response to the government’s decision to shut down all local crypto businesses last September, the exchanges were forced to resort using different domain names and move their servers outside of China, registering their companies offshore.
However, the South China Morning Post reports that such measures only slow down crypto trading but cannot stop it entirely. According to Terence Tsang, COO of TideBit, “The latest warning and potentially increased monitoring of foreign platforms is targeted at a batch of smaller exchanges that had claimed to be foreign entities but are in fact operating in China claiming they have outsourced their operations to a Chinese company. Those exchanges whose website landing pages are in Chinese have drawn particular scrutiny by regulators.“
As long as the servers of a trading platform remain outside of China, its crypto aficionados are calm as it is nearly impossible for the regulators to completely block access. Many traders use the so-called client-to-client trades, using tether (USDT), currently the only stable major cryptocurrency. Retail traders convert yuan into USDT and proceed with the client-to-client trade, with the exchange only acting as an overseer.
The money is usually transferred through third-party payment platforms between two individuals, who usually know each other pretty well due to mandatory KYC procedures. Once the USDT is received, traders use virtual private networks (VPNs) to execute their orders.
An unnamed source has told that “Chinese regulators definitely have the technical ability to shut down VPNs. However, traditionally it takes numerous conversations with different stakeholders to reach a consensus on configuring a firewall, which lengthens the process.“ It seems that this avenue will be available for Chinese crypto traders for quite some time, as there are no VPN restrictions at the moment or in the foreseeable future.
Chinese media giants Baidu, Tencent and Alibaba have recently joined the blockade, banning all crypto-related discussions. Back in July, the Central Bank of China released a report, claiming the crypto ban has been hugely successful. Yuan once accounted for more than 90 percent of the global crypto trade volume and authorities claim that figure has plummeted to below 1 percent as a result of the regulatory crackdown.
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I have been following the crypto markets since mid 2017, just in time to witness the incredible surge of the digital asset industry. Fascinated by the potential of blockchain technology I’ve started to dig deeper and that’s how I ended up meeting the Toshi Times team. I hold a Political Science degree, therefore the crypto regulation development is particularly interesting for me. I’m also heavily involved with music, running my own label, a YouTube channel and working with distribution. People call blockchain the ‘Fourth Industrial Revolution’ and I believe it will change our daily lives in the coming years and we will have the front row seats to witness it.