By Anderson Sima, Executive Editor of Foresight News
Shanghai — On East Changzhi Road, hidden among the city’s historical landmarks, stands the former site of the Lester Institute, with its restored Gothic-style auditorium facing the towering Bai Yulan Plaza, 320 meters high.
On October 17, Shanghai Blockchain Week, a ten-year tradition, relocated from the glitzy Bund W Hotel to this historic venue. At exactly 9:20 a.m., a crowd, gathered outside for casual conversations, rushed into the auditorium. They were drawn by a figure as influential as a “pioneer” in the blockchain world — Vitalik Buterin, the co-founder of Ethereum.
As the host concluded their opening remarks, Vitalik’s image appeared on the big screen. The audience erupted in cheers, with flashes of camera lights illuminating the room. The 30-year-old genius and billionaire drew immense curiosity.
But one subtle detail spoke volumes: since 2019, the blockchain visionary had not stepped foot on mainland China, a country once central to Ethereum’s ecosystem, now the world’s largest blockchain network.
As Vitalik’s presence faded from the streets of Shanghai and Beijing, the blockchain ecosystem on the mainland began to wither. “It’s a sad fact,” said Zhang Yuanjie, co-founder of Conflux, to Foresight News.
The Wild Growth and the Complete Ban
The rise of blockchain and cryptocurrencies began after the 2008 global financial crisis, when the mysterious Satoshi Nakamoto released the Bitcoin whitepaper. Over the years, blockchain and its economic counterpart, cryptocurrency, gradually evolved into a major financial technology industry.
Simply put, blockchain refers to a distributed ledger network, and tokens (such as Bitcoin and Ethereum) form an economic system to maintain the security and operational rules of this ledger — these are what the world has come to know as cryptocurrencies. In China, these are commonly referred to as “virtual currencies,” or sometimes “digital currencies.”
Fueled by the wealth effect, Bitcoin underwent three bullish cycles, reaching a total market value of $1.3 trillion — comparable to Meta, the social media platform led by Mark Zuckerberg.
Notably, at the peak of each of these bullish cycles, the Chinese government chose to cool the fervor for virtual currencies.
In December 2013, the People’s Bank of China, along with five other government departments, issued a notice defining Bitcoin, stating that it was not legal tender and should not circulate as currency.
By 2017, during the ICO (Initial Coin Offering) frenzy, seven regulatory agencies, including the People’s Bank of China, released a joint statement banning token issuance, calling ICOs a form of illegal fundraising that could lead to financial fraud, money laundering, and other illegal activities.
Following two rounds of stringent regulations, the ICO boom subsided, and the first batch of domestic cryptocurrency exchanges began exiting mainland China. The era of purchasing cryptocurrency directly with RMB officially ended.
But beyond ICOs, cryptocurrency mining and exchange businesses continued to flourish in China, accounting for more than half of the global market share. Industry figures such as Vitalik Buterin and Binance’s Changpeng Zhao were active participants in the Chinese market.
In 2021, the cryptocurrency market entered a new bull run, and China’s regulatory clampdown reached an unprecedented intensity. In September of that year, the National Development and Reform Commission and other departments called for a nationwide shutdown of cryptocurrency mining operations.
At the same time, the People’s Bank of China and other agencies issued a joint notice, declaring that overseas virtual exchanges would be held legally responsible for providing related services and warning that individual cryptocurrency speculation violated public order and morals.
This marked the beginning of the end for the cryptocurrency industry in mainland China. The world’s three largest cryptocurrency exchanges — Binance, Huobi, and OKEx — quickly announced they would suspend user registrations in mainland China and gradually begin phasing out existing users.
Many smaller local exchanges also shut down, unable to survive under the weight of stringent regulations. Outside of Huobi, which largely focused on shutting down its operations, offshore exchanges moved their headquarters to Singapore and Dubai.
The Original Sin: Illegal Fundraising and Money Laundering
Behind the regulatory crackdown on cryptocurrencies lies a financial risk that many of China’s regulators have been concerned about — the potential for cryptocurrencies to fuel illegal activities.
Government reports indicate that the People’s Bank of China and other authorities believed that cryptocurrency speculation could destabilize the market and foster illegal activities such as gambling, fundraising fraud, and pyramid schemes. By strictly prohibiting cryptocurrency transactions, the Chinese government sought to protect domestic financial stability and prevent systemic risks.
Following the P2P lending crisis, cryptocurrencies became another hotspot for illegal fundraising. According to China Central Television (CCTV), in May 2018, a virtual currency wallet named Plus Token, which claimed to be created by former Google and multinational company employees, appeared on the internet. Using blockchain technology as a front, Plus Token lured investors with high returns and swept up participants from over 100 countries, involving 40 billion yuan. In June 2019, the platform vanished.
Additionally, the Chinese government has long been concerned about cryptocurrencies being used for money laundering, tax evasion, and other illicit financial activities. The anonymity and decentralization of cryptocurrencies made them a convenient tool for criminals to evade regulation. In April 2023, a Chinese woman was convicted in the UK’s largest money laundering case, involving at least 61,000 Bitcoins connected to a 43 billion yuan fraud scheme in Tianjin.
This sort of financial crime posed a direct threat to the country’s capital controls. Zhang Yuanjie of Conflux told Foresight News, “As cryptocurrencies become more popular, some investors may use their cross-border liquidity to transfer funds overseas, which the government fears could undermine control over capital flows, leading to capital flight.”
Moreover, the speculative nature of the crypto market, with its extreme volatility, attracted a large number of traders, creating chaos in the financial system. The government believes this speculative activity not only harms ordinary investors but also risks triggering broader financial instability. As such, regulators have enforced stringent measures to prevent the market from being distorted by excessive speculation.
Singapore University of Social Sciences Professor Li Guoquan told Foresight News: “The Chinese government’s approach to cracking down on ‘speculation’ was crucial to protecting investors, and I fully support it.”
A Fear of “Talking Crypto”: A Complete Shrinkage
Under the current regulatory pressure, experts have pointed out that China’s blockchain industry is now marked by a “fear of discussing crypto” stereotype.
Xiao Sa, a senior partner at Beijing Dacheng Law Firm, told Foresight News: “Between 2017 and 2022, China went through a period marked by rampant ICOs, fraudulent activities under the guise of cryptocurrency, metaverse, NFTs, and digital collectibles. This led the government to adopt a stringent stance on cryptocurrencies, creating an environment where people are reluctant to talk about crypto, which has, in turn, hindered the development of blockchain technology in China.”
While the government cracked down hard on virtual currencies, it has also strongly supported consortium chains, hoping to drive blockchain technology in sectors such as finance, supply chain, and government services. However, the actual results have been disappointing, with consortium chain development falling short of expectations.
Deng Jianpeng, Professor of Law at the Central University of Finance and Economics, told Foresight News: “Due to stringent financial regulations, the development of public blockchains in China faces significant policy barriers. Public chains often need tokens for economic incentives, while the country prefers consortium or private chains, which are more restrictive and lack the innovation ecosystem.”
While China has numerous consortium chain projects, such as Baidu’s Superchain, Ant Group’s AntChain, and Tencent’s blockchain services platform, these projects have seen limited real-world applications. Despite China’s strong performance in global blockchain patent filings, its practical applications remain weak, with many companies using blockchain more as a marketing gimmick than as a genuine technology solution.
One major hurdle for consortium chains is their high degree of centralization, which contradicts the core decentralized ethos of blockchain. Additionally, issues surrounding data privacy, security, and interoperability remain challenging. This has led many companies to adopt a wait-and-see attitude, resulting in limited market adoption and real-world usage.
As China’s regulatory environment for blockchain and cryptocurrencies tightens, the global focus of blockchain financing and communication is shifting. More and more Chinese companies are seeking capital support and business opportunities overseas, particularly in regions like Singapore, Hong Kong, the United States, and the Middle East, while China gradually fades from the center of this field.
According to Galaxy Digital’s Q3 2024 Crypto Investment Report, the global crypto industry raised $2.4 billion in Q3. Companies based in the U.S. attracted 56% of the venture capital, while the UK, Singapore, and Hong Kong accounted for 11%, 7%, and 4%, respectively. Investment in mainland China was negligible.
The Future: Uncertain
As China’s regulatory clampdown on the blockchain sector continues, the focus of global blockchain financing and communication has shifted. Increasingly, Chinese blockchain companies are looking abroad, particularly to places like Singapore, Hong Kong, the U.S., and the Middle East for capital and business development. China’s role in this field is gradually diminishing.
With fewer startups and a drastic reduction in blockchain-related jobs, many students have become wary of pursuing careers in the field. Bright, president of the Fudan University Blockchain Association, told Foresight News: “Only top universities in major cities have blockchain-related clubs, and the number of graduates willing to accept blockchain offers is few — no more than ten per year at Fudan.”
Despite these setbacks, some experts remain optimistic. Deng Jianpeng from Central University of Finance and Economics believes China could still shift its stance in the long run, albeit not in the short term. “It’s difficult to foresee any significant changes in the next five years,” he said.
The Future of Blockchain in China: Where Do We Go From Here?
On September 28, 2024, the Tsinghua Wudaokou Chief Economist Forum was held in Beijing. In a rare moment, former Vice Minister of Finance Zhu Guangyao discussed cryptocurrencies and stressed the need to closely examine their development.
“There are indeed negative impacts, and we must fully understand the risks and potential harm to capital markets,” he said. “However, we must also study international changes and policy adjustments, because cryptocurrency is a crucial aspect of the digital economy’s growth.” Zhu reviewed the development of cryptocurrencies, noting that over the past decade, the U.S. has seen cryptocurrencies as a significant threat to international anti-money laundering efforts and the financing of terrorism.
Zhu compared U.S. and Trump-era cryptocurrency regulatory policies, explaining that “The volatile nature of cryptocurrency values can have a massive impact on international financial markets, but this year, the U.S. has undergone a significant policy shift. Trump’s campaign platform explicitly included cryptocurrency, saying, ‘We must embrace cryptocurrency or China will replace us.’ The SEC has also approved the listing of 11 Bitcoin ETFs on the stock and futures markets. Meanwhile, emerging market nations, including Russia, South Africa, Brazil, and India, have also taken action.”
Professor Deng Jianpeng, from Central University of Finance and Economics, shared a similar view, telling Foresight News: “There are indeed many instances of illegal activities within the virtual currency space, but I don’t think that’s the primary reason hindering blockchain development in China. I believe regulators should deepen their understanding of blockchain and, by observing international trends, adjust their policies to be more supportive of the technology, instead of just avoiding the topic altogether.”
“Virtual currencies are used in a wide range of illicit activities in China, just like in the U.S., Hong Kong, Europe, or the Middle East, including Dubai. However, just as cash dollars are used for money laundering and drug trafficking, we wouldn’t ban the circulation of dollars just because of its misuse. Therefore, we need to reconsider cryptocurrencies from multiple angles,” he added.
Xiao Sa, senior partner at Beijing Dacheng Law Firm, also pointed out that compliance issues are the biggest challenge for China’s blockchain ecosystem. “With regulatory documents like the ‘9.4 Announcement’ and ‘9.24 Notice’ still in effect, any efforts to develop a cryptocurrency ecosystem face compliance issues. As a result, the development space for DeFi, RWA (Real-World Assets), and other related projects is extremely limited.”
Is There a Shift in China’s Regulatory Stance?
For blockchain professionals in mainland China, the constant high-pressure regulatory environment raises the question of whether any changes might occur in the near future. The experts interviewed for this article all agreed that significant changes are unlikely in the short term. “I think it will be difficult to see any shift in the next five years,” Professor Deng Jianpeng commented.
Epilogue: The Migration of Blockchain Talent
In Shenzhen, just an hour’s drive from Hong Kong’s Causeway Bay, small teams of blockchain professionals are quietly returning and re-engaging with the global blockchain ecosystem. “Office locations may change, but the Chinese will never disappear from this industry,” said Zhang Yuanjie, co-founder of Conflux, to Foresight News.
As Hong Kong moves forward in embracing virtual currencies, many entrepreneurs and firms have returned to Shenzhen, lured by the city’s convenient transportation links and lower living costs compared to Hong Kong.
In contrast, as the global blockchain industry shifts its focus overseas, China finds itself stepping back from the center stage. Despite its early lead in the blockchain field and a dominant role in cryptocurrency mining and development, the regulatory crackdown has significantly hindered its growth.
With an ever-increasing number of Chinese companies seeking opportunities in places like Singapore, Hong Kong, the United States, and Dubai, it remains to be seen whether China can regain its foothold in this fast-evolving space.