VPN and P2P: How the Chinese Avoided the Bitcoin Ban

After a series of partial bans, China took its latest step against the cryptocurrency market in 2021, expelling miners and banning its citizens from trading cryptocurrencies. However, The Wall Street Journal states that the Chinese continue to trade such assets freely.

As recently as August last year, the American newspaper stated that China was the largest market for the brokerage Binance. This Thursday (18), the WSJ touched on the topic again, pointing out the tactics used to circumvent the government’s ban.

On the other hand, cryptocurrency activities in Hong Kong appear to be booming. After reopening the doors to the sector last year, players like Arthur Hayes believe they will now copy ETFs recently launched in the US.

“Remember, China will launch an exact copy of the US-listed ETF in Hong Kong financial markets to capture intra-China and Asia-Pacific flows.”

The Chinese not only use VPN, but also focus on P2P

According to data from Chainalysis, Chinese investors received $86 billion (R$425 billion) worth of cryptocurrencies in 12 months between July 2022 and June 2023. An impressive number, especially for a country where Bitcoin and other digital currencies are banned.

Speaking to The Wall Street Journal, Bobby Lee, founder of Ballet Portfolios, noted that Chinese authorities may have no control. After all, the Chinese population consists of approximately 1.4 billion people.

“It’s hard to catch. There are a billion people in China. How do you know what they are buying?” said Bobby Lee, also known as the brother of Charlie Lee, founder of the cryptocurrency Litecoin (LTC).

According to the newspaper, one of the tactics the Chinese use is VPN. A service that presents a new entry location for websites, but also prevents the operator from knowing which websites are visited by the user.

“Some cryptocurrency traders in the country can access their accounts even without a VPN”, some people told the WSJ, showing the ban’s ineffectiveness. Next, note that the HTX broker (formerly Huobi) allows its clients to create a digital identity in another country, if you are prohibited from trading cryptocurrencies.

HTX (formerly Huobi) is said to have a tool that can create a digital identity to circumvent a ban from China.  Source: The Wall Street Journal/Reproduction.
HTX (formerly Huobi) is said to have a tool that can create a digital identity to circumvent a ban from China. Source: The Wall Street Journal/Reproduction.

Another strategy that the Chinese use is P2P, that is, direct negotiation between two people, without the intervention of third parties. According to the newspaper, the purchases and sales take place in private establishments and public places.

“Chinese cryptocurrency traders also use old-fashioned methods to circumvent the rules. This includes gatherings in public places where they exchange cryptocurrency wallet addresses.”the WSJ noted, citing anonymous sources. “Merchants exchange cryptocurrencies directly, pay in cash or arrange bank transfers.”

This practice would be more common in inner cities, where the population is poorer and inspections are more lenient. Another problem is that such places were once home to miners before the ban.

“Cryptocurrency traders in these cities go to laundromats, cafes, cafeterias or restaurants, where they negotiate with the owners of these businesses or with other customers. Some traders find these deals through the peer-to-peer services of cryptocurrency exchanges, while others rely on word of mouth.”

Finally, there is the impression that banning cryptocurrencies is far from effective. After all, there is no way for a government to monitor all its citizens, especially operations involving cash. If we go further, China will also stop making money from taxes.

Source: Live Coins