On January 31, 2026, amid severe market volatility due to liquidity pressures, the Ministry of Public Security, in conjunction with relevant departments, drafted the "Network Crime Prevention Law (Draft for Comments)" and officially solicited public opinions.
Searching for "Network Crime Prevention Law" on X (Twitter), you will find very little discussion. Given the diminishing marginal effects of multiple ministries' notices over the past few years, most reactions are: "Is this just the same old story?" or "It's already banned anyway, what more can they do?"
This is an extremely dangerous misjudgment. The elevation from a "ministry notice" to a "national law" signifies that the regulatory logic has evolved from preventing financial risks to precise criminal governance. Biteye believes this could very well be the most impactful legislation for the Web3 ecosystem in mainland China in recent years.
A careful study of these sixty-eight draft articles reveals that it no longer dwells on macro concepts like "financial risks" or "illegal fundraising." Instead, it acts like a scalpel, precisely targeting three core lifelines of the crypto world's operations: OTC capital flows, technical development, and public chain node operation.
This article by Biteye provides an in-depth analysis:
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Key Legal Provisions
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Legal Expert Interpretation
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Compliance Actions Practitioners Need to Start Taking
I. Compared to Previous Ministry Notices, It Shatters Three Foundations
1️⃣OTC Dilemma: Redefining "Knowing"
In the past, OTC merchants (U merchants) often used "I was only trading, I didn't know the source of the funds" as a defense. Legally, it was often classified as illegal business operations or the crime of assisting information network criminal activities, with a relatively high threshold for conviction.
However, the new bill Article 26, Paragraph 3 makes a clear redefinition:
"No individual or organization may, knowing that funds are proceeds of others' illegal or criminal activities, conduct the following fund transfer, payment settlement, or other acts... using virtual currency or other network virtual property to provide fund transfer services for others."
Although the word "knowing" is retained here, in judicial practice, the scope of认定 (determining) "knowing" is being extremely broadened. If your transaction price is abnormal, you use encrypted chat software to evade supervision, or you fail to perform extremely strict KYC reviews, you may be presumed to "know."
This is no longer a simple "prohibition of trading," but formally brings virtual currencies like USDT into the regulatory scope of fund flows for network crimes. For the OTC industry, this means compliance costs will be infinitely heightened. It's no longer a question of whether it's easy to do, but whether it can be done at all.
2️⃣Long-Arm Jurisdiction and "Collective Punishment" Mechanisms
The crypto world has always believed that "code is law, technology is innocent." But the new bill's Article 19 and Article 31 deliver a fatal blow to this belief:
"[One] shall not, knowing that others are using the network to commit illegal or criminal acts, provide them with... development and operation maintenance, advertising promotion, application packaging... and other support and assistance."
More concerning is the provision on "long-arm jurisdiction" in Article 2:
"Citizens of the People's Republic of China outside the territory of China, as well as overseas organizations and individuals that provide services to users within the territory of the People's Republic of China, who commit acts in violation of this Law... shall be investigated for legal responsibility according to law."
Biteye consulted Sharon (@sharonxmeng618), a financial compliance lawyer at AllBright Law Offices (锦天城), regarding this provision: "Many clauses in the draft Network Crime Prevention Law stipulate administrative obligations. Generally, one would first face administrative penalties such as orders to correct, confiscation of illegal gains, and fines. Only in serious circumstances (e.g., involving huge amounts of fraud funds, not only providing signatures but also participating in operations) does it escalate to the criminal level.
Furthermore, there is a 'cost-effectiveness' issue with long-arm jurisdiction: Although Chinese criminal law has the principles of personal/territorial jurisdiction, in cross-border practice, unless it involves major cases (like the PlusToken level) or national security, the cost of跨国抓捕 (cross-border arrest) for programmers overseas is extremely high."
3️⃣Public Chain Governance: A One-Sided Challenge to Decentralization
This bill will also affect the public chain ecosystem in mainland China. Article 40, Item 9 requires nodes or institutions providing blockchain services to possess the ability 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 essentially presents an unsolvable dilemma for Web3 projects within China: either you become a "consortium chain" (pseudo-chain) with backdoors and censorship power, or you are illegal because you cannot fulfill the "blocking" obligation.
II. Echoes of History: From "9.4" to "2.1"
To understand the magnitude of this impact, we need to extend the timeline and compare three milestones in Chinese crypto regulation:
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2013/2017 (9.4): "Announcement", Defensive Phase. The focus was on "preventing risks," prohibiting ICOs. Back then, the regulatory purpose was "don't let ordinary people lose money."
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2021 (9.24): "Notice", Clearance Phase. The focus was on "illegal financial activities," clearing out mining. The regulatory purpose was "the crypto world must not disrupt financial order."
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2026 (Network Crime Prevention Law): "Law", Governance Phase. The focus is on "network crimes related to the crypto world."
In the first two phases, the regulatory departments were the central bank and the National Development and Reform Commission. As the competent authorities, their focus was on their own business areas, namely "money" and "matters". But this time, the lead is the Ministry of Public Security. They manage "crime" and "people".
Sharon (@sharonxmeng618), the financial compliance lawyer from AllBright Law Offices, interpreted it this way: "In recent years, both crypto-driven crimes (e.g., using crypto assets for money laundering, fraud) and crypto-native crimes (e.g., hacker attacks, Rug pulls) have shown a high incidence. This series of legislative actions is an inevitable response from regulators to upgrade from 'administrative prohibition' to 'criminal regulation' for such new types of crimes."
Final Words: 2026 is a Year of Rule Rebuilding for the Crypto World
The plunge on February 1st might just be a stress response from the market to liquidity tightening. The charts will eventually recover, the red bars will eventually turn green. But when the legal scalpel cuts into code and capital, compliance is no longer an option; it is a prerequisite for survival.
Advice from Lawyer Sharon: "The crime of assisting information network criminal activities has shown a trend of an expanding scope of打击 (crackdown) in recent years' judicial practice. Against this background, it is not recommended that Web3 practitioners and entrepreneurs regard 'technological neutrality' as a legal immunity. Instead, they need to make clear separations in related businesses, for example, strictly implement KYC, substantially block domestic user IPs; establish anti-money laundering risk control; avoid participating in token market-making and rebate promotion for high-risk projects."
In this new era, for practitioners and investors within mainland China, "compliance" is no longer a slogan, but a red line between life and death.
