Since the cryptocurrency exchanges and project parties have gone overseas, the main propaganda battlefield for cryptocurrency has shifted from domestic media to overseas social media such as Twitter and Telegram. Many cryptocurrency traders need to use 'VPNs' to climb over the wall to obtain information and participate in cryptocurrency trading. Recently, a screenshot of an administrative penalty for 'climbing over the wall' while trading cryptocurrencies has caused heated discussions. For domestic cryptocurrency users, what are the legal risks of using 'VPNs' to trade cryptocurrencies, and why would their trading profits be confiscated? Today, I will share my views.

1. Legal qualification of 'climbing over the wall' behavior

'Climbing over the wall' behavior itself is illegal

Currently, China's internet firewall restricts external network access using a blacklist model. Foreign applications such as Google, Facebook, and Twitter (X) that are on the blacklist cannot be accessed directly through the domestic internet. The logic behind 'climbing over the wall' to access foreign websites is essentially to use foreign servers that are not on the national firewall's blacklist to proxy access to the foreign websites on the blacklist.

The behavior of 'climbing over the wall' using 'VPNs' is not only present in the cryptocurrency sphere but also commonly found in foreign trade, the internet industry, and even in university research processes. However, according to Article 6 of the (Provisional Regulations on the Administration of International Networking of Computer Information Networks of the People's Republic of China), direct international networking via computer information networks must use international access channels provided by the national public telecommunications network. No unit or individual may independently establish or use other channels for international networking.

Therefore, the act of using proxies to bypass the national firewall to access external networks is illegal based on the above regulations.

Regarding administrative penalties for 'climbing over the wall': Article 14 of the (Provisional Regulations) states that those violating Articles 6, 8, and 10 of these regulations shall be ordered by public security organs to stop networking, given a warning, and may be fined up to 15,000 yuan; if there are illegal gains, the illegal gains shall be confiscated.

Cross-border e-commerce and foreign trade enterprises, if they want to cross-border network through legal means such as dedicated lines, can legally rent from telecom operators that set up international communication access channels. Currently, only the three major operators can provide cross-border VPN service licenses.

Legal risks derived from the behavior of 'climbing over the wall'

In the civil case number (2024) Qiong 0108 Min Chu 4091 and (2024) Qiong 0108 Min Chu 8859 heard this year by the People's Court of Meilan District, Haikou City, the original plaintiff and defendant signed the TikTok incubation service agreement for the international version of Douyin. However, since the profits obtained by the plaintiff did not match the initial promises made by the defendant, the plaintiff filed a lawsuit requesting the defendant to return the fees. Ultimately, the court ruled that TikTok needed to use 'VPNs' normally, which violated Article 6 of the (Provisional Regulations), rendering the contract invalid and supporting the plaintiff's request for fee reimbursement.

In addition, the act of setting up foreign servers to provide proxy tools for 'climbing over the wall' may constitute crimes such as refusing to fulfill information network security management obligations, aiding in crimes, and other forms of cybercrime.

2. Why the profits from 'climbing over the wall' for trading cryptocurrencies may be confiscated

From the above, it can be seen that individuals 'climbing over the wall' to access foreign websites is indeed illegal behavior. However, domestic regulatory documents do not state that individuals holding virtual currencies and engaging in low-point accumulation and high-point selling of cryptocurrencies is illegal. So, what is the reason for the penalties imposed by Hubei police on the studio's 'climbing over the wall' trading of virtual currencies?

From this widely circulated administrative penalty decision, it can be seen that the studio's owner is Liao, and the studio has four employees. The operational model of the studio involves connecting with customers needing to buy cryptocurrencies at exchanges, using **currency to purchase virtual currency at the exchange, and then selling the purchased coins at a high price to foreign clients outside the exchange. The **currency mentioned in the penalty decision likely refers to the legal currency of a certain country, used to distinguish it from virtual currencies. In summary, the studio's profit model is to buy coins at the exchange and sell them at a high price outside to earn the price difference.

This studio’s arbitrage model differs from ordinary personal users buying BTC at low prices and selling at high prices to profit from the appreciation of cryptocurrency itself. The domestic studio owner employing staff to earn price differences is essentially a business operation. According to the (Notice on Further Preventing and Dealing with Risks of Cryptocurrency Trading and Speculation), cryptocurrency-related business activities are classified as illegal financial activities, which include buying and selling virtual currencies as a central counterparty and providing information intermediary and pricing services for cryptocurrency trading. The studio, as an intermediary, provided high-priced sales of virtual currencies as a business activity, so the public security organs confiscated the illegal profits.

Summary and Reflection

Many cryptocurrency traders were recently immersed in the joy of media reports from the Shanghai High Court and Jiangsu Lianshui Court stating that virtual currencies belong to property. However, they are now panicking due to fines and confiscations related to Hubei's 'climbing over the wall' cryptocurrency trading. What I want to convey is that personal cryptocurrency trading has not been illegal in the country. It is essential to be cautious about potential criminal risks related to capital inflows and outflows, as well as losses in virtual currencies caused by entrusted investments or trading.

However, for those wishing to engage in studio operations such as arbitrage and OTC trading involving cryptocurrencies within the country, the risks are still significant. The safest way is to expand overseas as soon as possible. In recent years, regulatory enforcement agencies have gradually restricted the development of virtual currency-related businesses domestically, first targeting certain domestic exchanges and project parties, and then OTC traders in the past two years.