Web3 lawyer: Is it illegal to trade cryptocurrencies by circumventing the firewall? Will profits be confiscated? Please don’t scare people!

Don't be too sensationalist

Author: Lawyer Liu Honglin, Manqun Blockchain Legal Services

Cover: Photo by Tingey Injury Law Firm on Unsplash

Recently, in several Web3 practitioner exchange groups where the Manqun law firm is located, a partner has shared a news report that has made everyone a bit nervous, and @Honglin Lawyer has been asked to comment on it. The relevant news event comes from an article published by a certain law firm (unfortunately, I am not familiar with this lawyer). Titled "The First Case in the Country, Circumventing the Great Firewall to Trade Cryptocurrencies, Recognized as Illegal Behavior, Administratively Punished, Profits from Cryptocurrency Trading Confiscated", it claims that the public security organs of a certain place in China have administratively punished individuals who used VPNs to circumvent the Great Firewall and engage in virtual currency trading, and confiscated their related cryptocurrency trading profits and tools.

Along with the quick reporting by relevant media, it has left many Web3 practitioners quite puzzled: Is using a VPN to access the internet illegal? Is it legal for mainland Chinese residents to trade virtual currencies? Is the money I earned through my own efforts actually illegal income?

I believe these are the questions that many cryptocurrency players will have when faced with such a sensationalist article. In this article, Lawyer Honglin will discuss these three topics with everyone.

Case Background

First, let's clarify the basic facts of the case. In August 2024, the local public security organ issued an administrative penalty decision, clearly stating that the defendant Liao (male, Hubei native) had, since December 5, 2019, formed a small team with Zhu, Hu, Zheng, and Sun, and used VPNs to bypass official channels for international internet access. They contacted clients on overseas trading apps and profited from buying and selling virtual currencies at low and high prices respectively, and were caught on site with 8 mobile phones, 8 sets of computers and other tools of the crime. The public security organ ultimately determined that their behavior constituted the illegal act of "unauthorized use of non-statutory channels for international internet access", and imposed a warning and a fine of 15,000 yuan, while confiscating their illegal gains of 90,000 yuan and the aforementioned equipment.

In the lawyer's article, this case was described as the "first case in the country", emphasizing that circumventing the Great Firewall to trade cryptocurrencies was defined as illegal, and that the profits were confiscated. By putting these inexplicable key words together as the title of the article, it has become a bit too sensationalist. As for how the article then goes on to argue the legal rights and wrongs, it has become a secondary matter. This can be seen from the media excerpts that have echoed and only extracted the most sensationalist part behind it. Even if the original author, the lawyer, had a rigorous description and analysis of the case itself, it has become overshadowed, with only the sensationalist article frightening Web3 practitioners on the internet.

Going back to the questions raised at the beginning of the article, is using a VPN illegal? Is trading cryptocurrencies illegal? Even if the article is "sensationalist", these two core questions cannot be avoided.

Many lawyer colleagues will cite the relevant provisions of the "Interim Regulations on the Administration of International Networking of Computer Information Networks" to discuss whether "circumventing the Great Firewall" is an illegal act? But the discussion is a bit out of touch with reality. The actual situation is: individual circumvention of the Great Firewall is like the current judicial view on virtual currencies in the mainland, it is a mystery, and both show a trend that the more economically developed the region, the lower the probability of being identified as illegal.

Previously, lawyer Red Lin also discussed his personal views with everyone: China adopts a "one-end-one-nest" approach to law enforcement on scientific internet access, focusing on cracking down on sellers who illegally sell VPN services. As for individuals who purchase VPNs, considering the large number of VPN users, the cost-effectiveness of law enforcement is really low, so as long as you browse normal content online, you generally will not be processed. As for whether individuals will actually be administratively punished, this is a probability event. Of course, if you cannot accept this probability risk, you can also use VPNs to access specific overseas websites, which is a very mature commercial service, completely legal and compliant, with an annual cost of only a few tens of thousands of RMB. If you are a cross-border business company, you can certainly consider this approach.

Another aspect is the virtual currency transaction itself. Lawyer Mankun has shared his views in previous popular science articles and activities: The current mainland China does not allow virtual currency exchanges to operate in mainland China, but the law does not explicitly prohibit mainland residents from legally and compliantly trading and holding virtual currencies. Although the regulatory policies have been tightened in recent years to prevent the risks related to virtual currencies, they have not completely denied the legal holding and reasonable trading of virtual currencies by individuals. That is to say, "speculation on coins" by individuals or small teams is not illegal. Whether as an administrative regulatory department or as a legal professional, it is not rigorous in terms of legal principles and logic to forcibly link "climbing the wall" with "speculation on coins".

Web3 Lawyers, Please Do More Positive Construction!

The future of Web3 still has infinite possibilities, we need to constructively promote the synchronous evolution of law and technology, rather than simply relying on alarmist reports to create industry panic. In the era of rapid information dissemination, legal practitioners like lawyers are not only providers of legal knowledge, but should also be the guardians of rational order in the industry. If lawyers start with a frightening tone and sensationalist headlines to exaggerate the interpretation of cases, it will only bring unnecessary panic and misunderstanding to the industry and practitioners. A new industry is not easy to develop in the early stage, and the law needs time to adapt to new things. What is needed now is clear, rational, and gradual legal guidance, providing more specific compliance advice to practitioners and entrepreneurs, so that everyone can have a clear path and avoid detours, rather than flying alarmist headlines.

It is precisely for this reason that lawyer Red Lin advocates within Mankun that all articles and short videos of Mankun lawyers should strive to do three things:

• First, don't scare people, make friends with everyone.

• Second, speak in plain language, using words and expressions that everyone can understand.

• Third, readers will learn something useful after reading, at least one useful legal knowledge point.

Why insist on doing this kind of positive construction in popularizing the law? The reason is simple, because we firmly believe that Web3 is the future! And only the success of our friends, our readers, and our clients can lead to the success of Mankun Lawyers.

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