By The debate as to whether central authorities can ever regulate the cryptocurrency industry further intensified with the launch of InVault in Shanghai last week. InVault, the Chinese crypto-startup, which offers cryptocurrency custody services is attempting to circumvent China’s cryptocurrency crackdown.
China’s ban is set to disallow any organization from holding assets that are virtual currencies or assets that belong to companies with no legal status in the Chinese mainland. InVault has managed to bypass this ban by offering a decentralized corporate cryptocurrency wallet service. This service offering allows InVault to be the custodian of users’ private keys rather than having to physically hold control of the safeguarded funds. By becoming custodians of users’ private keys, InVault has managed to avoid the hazard of holding client’s actual assets.
The chief executive officer and founder of InVault, Kenneth Xu, believes that cryptocurrencies would be best secured with the absence of human oversight. Xu, speaking to the South China Morning Post, stated that although “the vast majority of cryptocurrency exchanges globally still involve their senior management in managing the transfer of digital tokens ordered by clients” he believes that “putting the private keys to your cryptocurrency assets in the hands of senior management is akin to putting all your money in their control”.
InValut has therefore made itself the custodians of users’ keys which control access to the assets as opposed to being custodians of the assets themselves. Local media reports indicate that InVault will keep the users’ private keys secured in several physical vaults, which only authorized personnel will have access to.
China’s Flawed Strategy
Despite China’s financial and market regulators’ recent crackdown against local cryptocurrency operators, Chinese crypto companies are continuing to offer services to Chinese investors from offshore locations. To date, Chinese authorities have blocked access to 124 offshore crypto-exchanges that were previously providing trading services to Chinese investors.
The rise of other exchanges, fugitive in nature, working under different domain names is further challenging Chinese authorities’ attempt to crackdown on cryptocurrencies. Terence Tsang, of TideBit, stated that the latest warning and 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”.
Chinese authorities have also gone so far as to ban scheduled events that had any discussion of cryptocurrencies on the agenda and have even made it a requirement that local companies, such as WeChat, must monitor and report any users which they find to be involved in crypto activities.
Despite Chinese authorities’ efforts to further crackdown on cryptocurrencies, investors and companies alike continue to bypass the crypto ban. InVault, for example, recently scored its first major deal from an undisclosed cryptocurrency exchange for the custodianship of one million Ethereum tokens. It is therefore evident that despite China’s attempt to ban the holding and trading of cryptocurrencies, investors in China do not want to be precluded from accessing the crypto markets.
Do you believe Chinese authorities will succeed in totally banning cryptocurrencies? More importantly, what will happen to the crypto sector if the full force of China’s investors are unleashed into the market? Give us your thoughts in the comments below.
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