China’s Ministry of State Security has warned that cryptocurrency does not provide criminals with true anonymity, pointing to permanent blockchain records and offchain data that can connect wallet activity with real-world identities.
Crypto’s perceived anonymity is only superficial, the ministry said in a September 28 security warning republished from its official WeChat account. Public blockchain transactions leave an enduring onchain trail, while wallet addresses can be tied to users by combining transaction analysis with exchange records, device identifiers, IP information and other data.
The warning identified telecom fraud, online gambling and cross-border smuggling as crimes where digital assets can be used to split, move and convert proceeds outside conventional banking rails. Ransomware operators and network intruders also demand crypto payments to obscure their identities, while foreign intelligence services have used digital assets to transfer espionage funding, the ministry said.
Blockchain Trails Can Outlive the Crime
Moving funds between addresses does not erase the transaction history recorded on a public blockchain. Investigators can reconstruct flows across wallets and then combine those movements with information collected when assets reach exchanges, payment interfaces or other identifiable infrastructure.
The ministry described wallet-address anonymity as a temporary separation between an address and its user rather than permanent identity protection. Blockchain records cannot simply be deleted after a transfer, leaving investigators able to revisit historical flows as new addresses, counterparties or identities become known.
That tracing model has become increasingly important in investigations involving cross-border scam and gambling networks. Chinese authorities have also pursued alleged operators connected to the wider Huione network, including former Huione Group chairman Li Xiong, who was transferred from Cambodia to China in April while facing allegations including gambling, fraud and concealment of criminal proceeds.
China Replaced Its 2021 Crypto Rules This Year
China’s current restrictions extend beyond the 2021 crackdown. A new framework issued on February 6, 2026 widened the crypto ban and formally replaced the 2021 notice while preserving the prohibition on domestic virtual-currency business activity.
Bitcoin, Ether, USDT and other virtual currencies remain outside China’s legal-tender system, while crypto exchange services, token issuance, crypto financial products and related intermediary services are prohibited domestically. The 2026 rules also restrict unauthorized yuan-linked stablecoin issuance and most real-world asset tokenization activity involving mainland entities.
Financial institutions are barred from providing accounts, transfers and settlement services for prohibited crypto activity, while authorities are required to strengthen monitoring of fund flows, online promotion and illegal mining. The February framework also directs law enforcement to target crypto-linked fraud, money laundering, illegal fundraising and unauthorized financial operations.
The September 28 warning specifically urged people approached with crypto payments for sensitive information, suspicious fund transfers or intelligence-related tasks to report the activity through China’s 12339 national security hotline or its national security reporting platform.
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