Many have written about the number of “bans” China has implemented on Bitcoin—it was an early joke that China had banned it so many times. How Bitcoin escaped these bans and grew even more vital is a lesson about how to build decentralized technology that is resilient to even the most potent attackers, and is a focus of my book on Bitcoin + China.

How does China control and censor its Internet?

China’s Great Firewall is based on IP blocking rather than protocol-level traffic blocking. China’s current ways to censor the Internet are to block connections from IP servers serving content and block protocol-level attempts, such as Tor, at specific points.

China is also incredibly aggressive in requesting Apple to do app store takedowns, which Apple regularly complies with. In 2022, for example, China was responsible for more than 97% of apps taken down by Apple for different countries. This app store control represents another attack vector for app-dependent technologies. Apps like Damus, for example, that are only on iOS, faced this attack vector early, with delisting from the Chinese app store almost immediately after launch.

Finally, within the country, law enforcement has access to physical surveillance and registered IDs of everybody in China who has purchased a phone, for example.

Still, with all of this, and multiple regulatory notices and attempts to ban Bitcoin, China was not able to dent Bitcoin itself – which is humming along at a much better price level and activity level than the level of bans implemented by China.

Vectors for blocking Bitcoin – and how each was defeated

Banking and communications

China has immense control over the banking system and app ecosystem within China itself. Different conversations on Chinese social media are regularly censored/monitored. One interesting vector for an attack on Bitcoin is that many Chinese social media apps are centralized—for example, Weixin is used disproportionately. There are alternatives like Xiaohongshu and Weibo, but in general, the ecosystem in China is less decentralized for group conversations and feeds. 

China started its attack on Bitcoin by banning the banking system from holding it—the most straightforward step it could have taken to signal disapproval. However, this gets straight to Bitcoin’s utility—unlike a digital payment rail controlled by a company (like Paypal) that requires a static ID and access to banking to work; Bitcoin does not. In 2013, the first round of restrictions and disapproval from the Chinese party-state came when it restricted Chinese banks from using Bitcoin “as a currency.” Previously, there seemed to be some openness to allowing people to participate in Bitcoin – the deputy governor of the People’s Bank of China and the director of the State Administration of Foreign Exchange had said as much, but with this regulatory notice, China started down a path of bans and made it clear that the banking system was not to use or provide Bitcoin.

The next easiest attack vector is to use the Chinese party-state’s control of communication rails. By banning specific hashtags and key accounts, the Chinese party-state has some control over the Chinese Internet. It can easily suspend certain key accounts, even particular hashtags and certain language, which China deployed multiple times to stifle Bitcoin. This power is deployed around the Tiananmen Square Massacre (June 4th) for example, and has led to multiple cat-and-mouse chases that have led to different ways of describing Tiananmen on the Chinese Internet – May 35th, for example. Chinese tech companies have periodically swept through Bitcoin/cryptocurrency influencer accounts, banning them from different platforms.

Bitcoin was built to be precisely resistant to these layers of attack. Whether or not Chinese banks hold Bitcoin is irrelevant—for the system’s decentralization, it’s probably better that they don’t. Likewise, Bitcoin will keep pushing blocks regardless of the Internet and media activity surrounding it—and there are enough exchanges around the world to make price discovery easy even if a country takes down its layer of exchanges, as China attempted to do. There is also a broader discourse outside of China as well as within group chats that are hard to police completely.

Why Bitcoin thrived through this attack: Bitcoin was always built to resist banking system-based attacks. However, the importance of establishing native language ecosystems and rails for onboarding and explanation remains—especially in areas where a central authority controls and censors the Internet. Mainland China and Simplified Chinese might be among the most significant clusters, but examples abound from Farsi to the Russian language. 

Any country that controls a large amount of the discussion in one language online can bend the discourse there. Yet, it’s clear that people are looking for information outside of their countries, and in the case of China specifically, a history of many people jumping the Great Firewall can help people get the documentation they need. Github is also surprisingly resilient as a hub, especially for technical documentation – there are 551 results for Bitcoin’s Mandarin symbols. As tools for machine learning translation and Nostr evolve more widely, organic efforts to cultivate cross-language communities will likely make Bitcoin even more resilient. This is especially important because local cultural nuances, regulatory nuances, case studies, peer-to-peer discussions, and trade can only happen in each language.

Exchange ban

The next layer of attack on Bitcoin is trying to attack central elements of it that cross over into the conventional Internet. To have a Bitcoin economy, you need ample trading volume between fiat currencies and Bitcoin – after all, most people still transact in fiat currencies. Bitcoin exchanges are a double-edged sword – most people will use exchanges to transact, and some will hold Bitcoin there. This helps grow access to Bitcoin among different countries as exchanges serve as rapid onramps and offramps for fiat.

China asked many exchanges that serviced Chinese clients to shut down and went after any foreign exchanges making Yuan trades and trying to sell all cryptocurrencies and Bitcoin to Chinese citizens.

Why Bitcoin thrived through this attack: By this time, the most popular exchanges were based on altcoin-to-altcoin trade rather than Yuan onramps and offramps such as Binance. Exchanges left, but robust peer-to-peer trading economies and OTC trading desks in Hong Kong and Mainland China still existed. People went from trading Yuan to trading Tether for Bitcoin. 

Arrests

There have been multiple arrests for trading Bitcoin or USDT, even in peer-to-peer trade. Traders and owners of OTC trading desks have been arrested for making an example to discourage physical trade. However, some persist in doing this trade – for one, it is lucrative, and two, it takes time to catch. People who have been arrested tend to interface with the Chinese banking system – there doesn’t appear to be much sophistication regarding on-chain ties and analytics.

Why Bitcoin thrived through this attack: Individual arrests don’t matter for the system incentives inherent. However, Bitcoiners should be aware of nation-state-level threats, especially nation-states that might be more pointed about combining KYC data with individuals.

Mining ban

China’s advantage in hardware manufacturing quickly made It the hub of Bitcoin mining sophistication, as ASICs and specialized chips became the only way to mine new blocks viably and earn the Bitcoin mining reward. A mining ban quickly disrupted Bitcoin’s hash rate as a province after the province banned Bitcoin mining, which was once a lucrative local tax source after the State Council weighed in.

One thing is that it doesn’t appear that China is using electricity usage tracking to hunt down people with miners—though they are seizing miners in Chinese physical territory. However, it doesn’t appear the provinces are overly invested in the ban and enforcement. There have been photos of people selling ASIC miners in Shenzhen and reports of Chinese mining hash power coming back online. 

Why Bitcoin thrived through this attack: Miners are physically mobile – you can take the devices, plug them in, and run mining. Bitcoin is uniquely positioned to withstand this attack vector because you can move Bitcoin miners across borders easily and set up shop the very next day.

Protocol level bans

China has banned Tor from a protocol level for some years – by recognizing entry nodes and sending fake agents that “speak Tor.” It has also been alleged that brute-force blocking has been used to filter out fully encrypted traffic. It’s not illegal to own Bitcoin, though it can be used in China as a currency. In theory, China could do something similar to Bitcoin as it did to Nostr, where it can ban the largest default relays and onboarding flights, making it difficult for people to get on Bitcoin – this has already happened on the application level, where app stores and IP blocks apply to people from China. However, someone can overcome this with VPN usage, which many people use across China. You could also circumvent this by using your node. As of May 31st, 2024, 55 reachable nodes on Bitcoin use Chinese IP addresses – and as of June 13th, 2024, 49 do. What those nodes are doing is anybody’s guess, but it speaks to the fact that people within China still have the ability to run nodes, and that even if the government is running some, that they need to maintain connection to the Bitcoin network even while scorning.

Yet, it could be easy for the Chinese party-state to ban traffic from reaching the nodes identified and take them offline and to potentially develop similar pattern recognition to deploy against people sending data in a way that is likely to do with Bitcoin.

However, two areas make Bitcoin more resilient here:

1- There’s a global reach of Bitcoin nodes and applications – it’s doubtful that nation-states will coordinate all at once to take all nodes offline. So, somebody within China can always use a method to broadcast transactions to Bitcoin networks, whether through a foreign app or in a foreign land. Even if China were “cut off from Bitcoin” by somehow inspecting every packet related to Bitcoin (a step the Chinese party-state hasn’t taken), then Bitcoin would still function in the background globally. One could go over the Great Firewall with a VPN or go physically.

2- Bitcoin’s scale and its many uses help here, too—unlike Tor, which hides web traffic, someone can use Bitcoin to transmit financial value. For example, more people run Bitcoin nodes than Tor relays, which gives the system more resiliency – and there are a variety of wallets and client apps that can be used to send and receive Bitcoin, whereas there are only a few options to browse using Tor. This isn’t to say that Tor is a bad tool or not used – but it is to say that Bitcoin has an unique scale and value proposition that protects it against even the most hardened state adversaries.

What happened after the bans – and why Bitcoin is thriving

In the immediate aftermath of the mining ban, the price swayed a bit, but only slightly. The hash rate also decreased but quickly increased back again – from 2022 to 2023, it steadily doubled to highs not seen before the mining ban. Bitcoin quickly took the blow, and people who had mining machines in China moved to different jurisdictions.

Bitcoin was fundamentally able to weather the blow of a powerful nation-state because it was built to be resilient and antifragile in the first place. Mandarin resources and communities oriented around Bitcoin, whose price discovery mechanism was an investment that could hedge against being stuck in the Chinese system and a store of value superior to Chinese equity and real estate markets.

As a result, there were large OTC trading desks and peer-to-peer trading spots beyond the exchanges. Nowadays, the Chinese party-state seems focused on Hong Kong’s ETF approvals and approved exchanges while shielding the Mainland from adoption.

There are a few principles Bitcoiners can take from Bitcoin’s interaction with China:

1- The more self-custody and diversified from exchanges a Bitcoin economy is, the stronger it is to nation-state attack.

2- Even in extreme cases, the right to Bitcoin ownership can still be preserved – and if that’s the case, eventually, a government can move in that direction, though it will prefer using it as a financial tool for its markets.

3- Communication and financial freedom go hand in hand – having independent media and places where one can express themselves can be a canary in the coal mine as to how one can transact – and the two intersect.