Cryptocurrency Custody Continues to Thrive in China Despite Mainland’s Current Ban
China made its mind up about cryptocurrency quite a long time ago, but that stance has been strongly challenged lately. Right now, there seems to be a debate on the ability for central authorities to finally establish regulations for the industry. The decision is even more necessary now, considering the newest crypto-startup to be based in China – InVault.
InVault made the decision to offer cryptocurrency, along with other services, last week in Shanghai. This startup wants to primarily bring in other exchanges at clients, believing that they will help avoid some of the risks of holding onto assets for their clients.
Instead, the company acts as a custodian, holding onto any securities and cash for the clients to keep safe, whether it involves electronic or tangible versions. However, since there is a strict ban from the government right now, it would end up keeping the organization from preserving these assets if they are considered virtual currencies. It would also put up a roadblock for anyone that that works with companies that the ban prohibits.
Considering the severity of this ban, it would seem as though InVault would give up. However, they have decided to find a potential solution – a decentralized corporate cryptocurrency wallet service. Basically, without any type of centralization, there is not a governing entity that controls and protects the funds. However, this requires some trust from users, considering that they would hold onto private keys for participating users, which the media suggests would be held in a physical vault, rather than a digital one. The only individuals that will have access to the safes that hold the information will be authorized personnel.
The chief executive and founder of InVault, Kenneth Xu, believes that cryptocurrencies have the potential to be safely secured, but only without human oversight. He said,
“Today, the vast majority of cryptocurrency exchanges globally still involve their senior management in managing the transfer of digital tokens ordered by clients. Putting the private keys to your cryptocurrency assets in the hands of senior management is akin to putting all your money in their control.” The quote comes from a statement that Xu provided to the South China Morning Post.
Even with the way that Xu’s company has found a loophole, it comes at a fairly tense time for the country. Regulators that govern the financial sector have recently increased their regulations and have even blocked locals from accessing 124 offshore crypto exchanges that investors were using before. They have also placed bans on events where cryptocurrency would be discussed and required local companies like WeChat and Alibaba to monitor and report on users that have involvement in crypto-related transactions.
Even so, there are many Chinese cryptocurrencies still in business, and they are continuing to take the risk in offshore activities. Peer-to-Peer commerce has replaced the former money exchanges that follow the KYC-enabled exchanges, which could easily challenge the regulators that are trying to have more control right now. Exchanges that have previously been banned are working under the radar as different names from before, which is making it harder for regulators to find them.
Terence Tsang, which offers centralized cryptocurrency services in Hong Kong and Taiwan under the business TideBit, made a statement to the press in the area. He noted, “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.”
InVault still has an opportunity to keep their progress, considering their recent deal with an unnamed exchange. This deal involved the custodianship of account(s) that amount to over 1 million Ethereum tokens.