While the Chinese government has declared that the cryptocurrency ban it has imposed was a success, traders apparently have discovered a variety of ways to evade the prohibition. This is in spite of more stringent measures implemented by government regulators. Crypto exchanges have likewise thought of ways to prevent a government shutdown while giving Chinese crypto users the opportunity to trade.
In late August, China’s government-controlled news outlet Shanghai Securities Times has reported that authorities are quickly blocking access to exchanges which are illicitly operating. According to the report, a further 124 overseas exchanges servicing to Chinese traders have also been blocked.
In order to evade detection, exchanges based offshore have taken advantage of certain flaws in the government ban by constantly changing their domain names. Others have transferred their servers to countries beyond mainland China, making it almost impossible for authorities to block them.
In a report published in July, the Central Bank of China has stated that the government’s crypto ban is extremely successful in reducing Yuan trading activity to below 1 percent. It previously accounts for 90 percent of worldwide trading volume.
After the ban, the Chinese government then shut down as many popular crypto exchanges, ICOs, and crypto initiatives, which resulted in the rapid decrease in trading volume that drove Chinese traders away from the industry.
However, it will be next to impossible for the government to entirely eliminate access to crypto exchanges even though state authorities are regularly shutting down illicit ICOs and blocking access to overseas exchanges.
“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.”
After reports circulated that state regulators are intensifying efforts against illicit exchanges, trading volume in China declined by 33 percent. This signifies that traders are most likely transferring their crypto holdings to cold storage wallets because of the dangers involved in keeping their crypto assets in exchanges.
Another strategy sees Chinese crypto traders using peer-to-peer (P2P) trading to sidestep the ban. This involves directly exchanging digital currencies between wallets, foregoing the need for a middleman or an exchange. These transactions are executed by converting fiat currency to Tether and sending that as payment in exchange for cryptos. All online transactions take place in virtual private networks (VPNs).
Even though the Chinese government has yet taken steps against VPNs, a ban on these tools will render P2P transactions more difficult to accomplish.
Meanwhile, major Chinese firms like WeChat, Tencent, and Ant Financial have blocked crypto trading on their platforms in a bid to adhere to the government’s directive.