When notifications become law, what does the Cybercrime Prevention and Control Law (Draft for Comments) mean for the crypto community?

January 31, 2026, at a time when the market is experiencing intense volatility due to liquidity pressures, the Ministry of Public Security, in collaboration with relevant departments, officially released the “Draft Law on Cybercrime Prevention and Control (Public Consultation Draft)” for public comment.

Searching for “Cybercrime Prevention and Control Law” on X (Twitter), you’ll find very few discussions. Given the diminishing marginal effects of multiple ministries’ announcements over the past few years, most people’s reactions are: “Isn’t this just old news?” or “It’s already banned anyway, what more can they do?”

This is an extremely dangerous misjudgment. Elevating from “Ministry Notice” to “National Law” means that regulatory logic has shifted from preventing financial risks to precise criminal governance. Biteye believes this could be the most far-reaching legislation affecting China’s Web3 ecosystem in recent years.

Carefully studying these sixty-eight draft articles, you’ll find that it no longer fixates on macro concepts like “financial risks” or “illegal fundraising,” but instead acts like a scalpel, precisely targeting three core vulnerabilities in the crypto industry: OTC capital flows, technological development, and public chain node operations.

This article provides an in-depth analysis for you:

1. Key Legal Provisions
2. Legal Experts’ Interpretations
3. What Compliance Actions Industry Practitioners Need to Start Taking

1. Compared to previous ministry notices, it shatters three foundational blocks

1️⃣ OTC Dilemma: Redefining “Knowing”

In the past, OTC traders (U-sellers) often used the defense: “I’m just doing business, I don’t know the source of the funds.” Legally, this was often classified as illegal business operation or aiding and abetting, with high conviction thresholds.

But Article 26, Clause 3 of the new draft explicitly states:

“Any individual or organization shall not knowingly engage in the transfer, payment, settlement, or other behaviors involving funds derived from illegal activities of others… utilizing virtual currencies or other virtual assets online to provide fund transfer services for others.”

While it retains the phrase “knowingly,” in judicial practice, the scope of “knowing” is being greatly expanded. If your transaction prices are abnormal, if you use encrypted chat software to evade regulation, or if you fail to perform extremely strict KYC procedures, you could be presumed to have “knowingly” participated.

This is no longer just a ban on transactions; virtual currencies like USDT are now officially within the scope of regulation for criminal funds transfer. For the OTC industry, this means compliance costs will skyrocket. It’s no longer about whether it’s feasible but whether you can do it legally.

2️⃣ Extraterritorial Jurisdiction and “Joint Responsibility” Mechanism

The crypto community has long believed that “code is law, and technology is innocent.” But Articles 19 and 31 of the new draft deliver a fatal blow to this belief:

“Individuals or organizations outside the territory of the People’s Republic of China who knowingly utilize the internet to commit illegal crimes and provide support such as development, operation, advertising, or application packaging…”

Even more daunting is the regulation on “long-arm jurisdiction”:

“Chinese citizens abroad and foreign organizations or individuals providing services to users within China who violate this law… shall be held legally responsible.”

Biteye consulted with Sharon (@sharonxmeng618), a lawyer at Jingtian & Gongcheng’s Financial Compliance Department: “Many provisions in the ‘Cybercrime Prevention and Control Law’ draft concern administrative management obligations. Usually, the first steps involve orders to correct, confiscation of illegal gains, fines, etc. Only in severe cases (such as involving large-scale fraud funds, or those who not only provide signatures but also participate in operations) does it escalate to criminal charges.”

Moreover, extraterritorial jurisdiction has a “cost-effectiveness” issue: although Chinese criminal law adheres to principles of jurisdiction based on nationality or territory, in cross-border practice, unless it involves major cases (like PlusToken) or national security, the judicial costs of cross-border arrests for overseas programmers are extremely high.

3️⃣ Public Chain Governance: The One-Way Challenge of Decentralization

This draft law will also impact the mainland’s public chain ecosystem. Article 40, Clause 9 requires nodes or institutions providing blockchain services to have the ability to “monitor, block, and handle” illegal information and payment settlements.

Tech-savvy people understand that truly decentralized (permissionless) blockchains cannot achieve single-point “blocking.”

This essentially presents an unsolvable dilemma for Web3 projects within China: either you become a “consortium chain” (a pseudo-chain) with backdoors and censorship rights; or you are illegal because you cannot fulfill the “blocking” obligations.

2. 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 China’s crypto regulation:

• 2013/2017 (9.4): “Announcement,” defensive phase. Focused on “risk prevention,” banning ICOs. At that time, the regulatory goal was “prevent ordinary people from losing money.”
• 2021 (9.24): “Notice,” cleanup phase. Focused on “illegal financial activities,” zeroing out mining. The goal was “prevent the crypto industry from disrupting financial order.”
• 2026 (Cybercrime Prevention and Control Law): “Law,” governance phase. Focused on “cybercrimes related to the crypto industry.”

In the first two phases, regulators were the People’s Bank of China and the National Development and Reform Commission, concerned mainly with their own domains—“money” and “matters.” But this time, the lead agency is the Ministry of Public Security, which deals with “crimes” and “people.”

Sharon (@sharonxmeng618) from Jingtian & Gongcheng explained: “In recent years, both crypto-driven crimes (such as money laundering and scams using encrypted assets) and crypto-native crimes (such as hacking and rug pulls) have been on the rise. This series of legislative actions is a necessary response by regulators to upgrade from ‘administrative prohibition’ to ‘criminal regulation’ of these new types of crimes.”

Final words: 2026 will be the year of rebuilding the rules for the crypto industry

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

Sharon’s advice: “The crime of aiding and abetting has been expanding in recent judicial practice. In this context, Web3 practitioners and entrepreneurs are advised not to see ‘technological neutrality’ as a legal exemption. Instead, they should implement strict measures such as rigorous KYC, substantially blocking domestic IP addresses, establishing anti-money laundering controls, and avoiding participation in high-risk token market-making and rebate promotions.”

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