On January 31, 2026, amidst severe market fluctuations due to liquidity pressures, the Ministry of Public Security, in conjunction with relevant departments, officially solicited public opinions on the "Cybercrime Prevention Law (Draft for Comments)."

Searching for the "Cybercrime Prevention Law" on X (Twitter), you will find very few discussions. Given the diminishing marginal effects from multiple ministerial announcements over the past few years, most people's reactions are: "Isn't this just the same old story?" or "It's already been banned anyway, what else can be done?"

This is an extremely dangerous misjudgment. The transition from "ministerial notifications" to "national law" signifies that the regulatory logic has evolved from preventing financial risks to precise criminal governance. Biteye believes this could be the most far-reaching legislation affecting the Web3 ecosystem in mainland China in recent years.

A close reading of the sixty-eight articles in the draft reveals that it no longer gets bogged down in macro concepts like "financial risk" or "illegal fundraising," but instead, like a scalpel, precisely targets three core operational vulnerabilities in the cryptocurrency space: OTC fund flows, technology development, and public chain node operations.

In this article, Biteye will deeply analyze:

1. Key legal provisions

2. Interpretations by legal experts

3. Compliance actions that practitioners need to start taking

I. Compared to previous ministerial announcements, it has shattered three floors

1️⃣ OTC Dilemma: Redefining "Knowledge"

In the past, OTC merchants (U merchants) often used "I’m just doing business, I don’t know the source of the other party's funds" as a defense. Legally, this was often classified as illegal operation or aiding and abetting, with a high conviction threshold.

However, the new bill's Article 26, Paragraph 3, clarifies:

"No individual or organization shall knowingly engage in the following fund circulation, payment settlement, etc., with funds that are known to be illegally obtained by others… providing fund circulation services for others using virtual currencies or other online virtual properties."

While the term "knowingly" is retained, the scope of its determination is expanding dramatically in judicial practice. If you engage in transactions at abnormal prices, use encrypted chat software to evade regulation, or fail to conduct extremely strict KYC checks, you may be presumed to be "knowingly" involved.

This is no longer a simple "prohibition on trading," but rather officially includes virtual currencies like USDT within the regulatory scope of cybercrime fund circulation. For the OTC industry, this means compliance costs will skyrocket, turning the question from whether it is feasible to whether it can be done at all.

2️⃣ Long-arm Jurisdiction and "Joint Liability" Mechanism

The cryptocurrency space has long adhered to the belief that "code is law, technology is innocent." However, the new bill's Articles 19 and 31 deliver a fatal blow to this creed:

"One shall not knowingly provide support and assistance such as… development and operation, advertising promotion, application packaging… to others who use the internet to commit illegal acts."

Even more daunting is the provision regarding "long-arm jurisdiction":

"Chinese citizens residing abroad and foreign organizations or individuals providing services to users within the People's Republic of China who violate the provisions of this law… shall be held legally accountable."

Biteye consulted Sharon, a financial compliance lawyer at Jingtian & Gongcheng AllbrightLaw (@sharonxmeng618), regarding this provision: "Many clauses in the draft of the Cybercrime Prevention Law are regulations on administrative management obligations. Generally, the first response is to order corrections, confiscate illegal gains, impose fines, etc. Only in severe cases (such as involving huge amounts of fraud, not only providing signatures but also participating in operations) does it escalate to the criminal level."

Moreover, long-arm jurisdiction also has a "cost-effectiveness" issue: although Chinese criminal law has principles of personal and territorial jurisdiction, in cross-border practices, unless it involves major cases (like PlusToken level) or national security, the judicial costs of cross-border arrests for programmers residing overseas are extremely high.

3️⃣ Public Chain Governance: A One-Way Challenge to Decentralization

This bill will also impact the public chain ecosystem in mainland China. Article 40, Paragraph 9 requires nodes or institutions providing blockchain services to have the capability to "monitor, block, and handle" illegal information and payment settlements.

Those who understand technology know that a truly decentralized public chain (Permissionless Blockchain) cannot achieve single-point "blocking."

This effectively presents an unsolvable dilemma for Web3 projects within China: either you become a "consortium chain" (pseudo-chain), possessing backdoors and censorship rights; or you are illegal because you cannot fulfill the "blocking" obligation.

II. Echoes of History: From "9.4" to "2.1"

To grasp the magnitude of this impact, we need to extend the timeline and compare three milestones in China's cryptocurrency regulation:

• 2013/2017 (9.4): "Announcement," Defensive Stage. The focus was on "preventing risks," banning ICOs. At that time, the regulatory goal was "to prevent ordinary people from losing money."

• 2021 (9.24): "Notice," Cleanup Stage. The focus was on "illegal financial activities," zeroing out mining. The regulatory goal was "the cryptocurrency space must not disrupt financial order."

• 2026 (Cybercrime Prevention Law): "Law," Governance Stage. The focus is on "cybercrime related to the cryptocurrency space."

In the first two stages, the regulatory bodies were the central bank and the National Development and Reform Commission, with their focus being on their own business areas, namely "money" and "affairs." But this time, it is led by the Ministry of Public Security. They are concerned with "crimes" and "people."

Sharon from Jingtian & Gongcheng AllbrightLaw (@sharonxmeng618) interprets it this way: "In recent years, whether it is crypto-driven crime (such as money laundering and fraud using crypto assets) or crypto-native crime (such as hacking attacks, rug pulls, etc.), there has been a high incidence of these crimes. This series of legislative actions is an inevitable response from the regulatory authorities to upgrade from 'administrative prohibition' to 'criminal regulation' against such new types of crime."

Final Thoughts: 2026 is a Year of Rule Reconstruction in the Cryptocurrency Space

The crash on February 1 may just be a market reaction to liquidity tightening; the K-line chart will eventually recover, and the red bars will turn green. However, when the legal scalpel cuts into code and funds, compliance is no longer optional but a prerequisite for survival.

Advice from lawyer Sharon: "The scope of 'aiding and abetting' has been expanding in recent judicial practice. In this context, it is not advisable for Web3 practitioners and entrepreneurs to view 'technological neutrality' as a legal exemption. Instead, they need to ensure proper separation in relevant businesses, such as strictly implementing KYC, substantively blocking domestic user IPs; establishing anti-money laundering risk controls; and avoiding participation in high-risk projects' token market-making and commission promotions."

In this new era, for practitioners and investors in mainland China, "compliance" is no longer just a slogan but a red line between life and death.

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