Chinese police are reportedly pursuing Web3 co-founders, but not with the intention of serving and protecting. According to Wuwei Liang, the brother of imprisoned CoinXP co-founder Liang Liang, executives should never hand over their private keys when detained by Chinese authorities. Liang warns that Chinese police are primarily after money and will do whatever it takes to confiscate assets. Losing access to private keys means losing everything, including personal wealth, and potentially facing wrongful imprisonment.

Recent Arrests and Asset Confiscation

In May, Jun Zhao, the CEO of China’s largest cross-chain protocol, was arrested by Chinese police. With control over all protocol MPC nodes, access to private keys, and investors’ funds, Zhao’s arrest had a devastating impact on the protocol and users’ assets. The closure of the protocol left over $10 billion in total value locked at its peak inaccessible. While cryptocurrency ownership is not illegal in China, cryptocurrency exchanges, mining, and initial coin offerings are. However, there remains a gray area when it comes to crypto projects outside of prohibited categories.

The Profit-Driven Approach of Law Enforcement

Wuwei Liang points out that profit-driven law enforcement projects are primarily motivated by money. He refers to the ongoing case of CoinXP, where his brother Liang Liang and other developers were arrested in 2018. Initially charged with “illegal use of information networks,” Liang’s charges were later upgraded to “illegal solicitation of public funds” and “multi-level marketing.” The case involved the transfer of virtual currency to other addresses, resulting in the disappearance of 20 Bitcoins. Liang fears that similar scenarios could play out for other Web3 co-founders.

Troublesome Trials and Limited Justice

The trial for Liang Liang and his fellow developers has been ongoing since July, and early indications suggest a lack of fairness. The presiding judge reportedly dismissed the principle of “presumption of innocence” on the opening day of the trial. Furthermore, Liang’s defense attorney was allegedly “kidnapped” by police and detained for over five hours without cause. Ordinary citizens have also faced unjust detention for simply listening to public court procedures. These developments paint a bleak picture for Web3 co-founders facing similar situations.

China’s Blockchain Outlook and Government Control

Despite the challenges faced by Web3 co-founders, China remains optimistic about the potential of blockchain technology, as long as it is under the control of the central government. Shanghai recently announced a two-year plan to advance blockchain infrastructure, aiming to launch the “Pujiang Digital Chain” by 2025. The plan includes various services related to shipping, customs, and government affairs. Chinese President Xi Jinping has also emphasized the development of central bank digital currencies for local currency trade settlements between friendly nations.

South Korea, which has experienced issues with digital asset operators, has introduced new regulations for crypto exchanges. Starting in September, exchanges must accumulate a reserve of 3 billion won ($2.35 million) to fulfill liabilities to users in the event of hacking or computer failure. The maximum reserve amount is capped at 30% of the daily average of deposits, with a compensation limit of 20 billion won ($15.7 million). These measures aim to improve the security and stability of the cryptocurrency ecosystem in South Korea.

Malaysia Grants Regulatory Approval to Halogen Capital

Halogen Capital has become the first digital assets fund to receive regulatory approval from the Securities Commission Malaysia (SCM). The fund has been granted a full Capital Markets Services license to manage cryptocurrencies, nonfungible tokens, and tokenized assets. Halogen Capital offers Shariah law-compliant Bitcoin and Ethereum funds, ensuring customers’ assets are segregated in accordance with SCM regulations. This regulatory approval highlights the growing recognition and acceptance of digital assets in Malaysia.

Chinese police targeting Web3 co-founders for their private keys and assets raises concerns about personal safety and unjust confiscation. The ongoing trials and questionable justice system further compound these worries. Despite China’s bullish outlook on blockchain technology, the government maintains strict control over its development. New regulations in South Korea aim to enhance the security of crypto exchanges, while Malaysia takes steps toward regulatory approval for digital asset funds. The landscape for Web3 co-founders and the broader cryptocurrency industry remains complex and ever-changing.

Analysis

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