The biggest payment processor in China, which claims to have some one billion users, has publicly rebuked Changpeng Zhao of Binance after the latter suggested Binance can now accept fiat on-ramp with Alipay and Wechat, the two payments giants.
“NO, you cannot,” was Alipay’s swift reply with emphasis theirs. They further added:
“There’re several reports about Alipay being used for bitcoin transactions. To reiterate, Alipay closely monitors over-the-counter transactions to identify irregular behavior and ensure compliance with relevant regulations.
If any transactions are identified as being related to bitcoin or other virtual currencies, Alipay immediately stops the relevant payment services.”
Bitcoin and other cryptocurrencies have effectively been banned in China where possession is legal, but any retailer of size or service provider is prohibited from having any involvement with crypto.
Crypto exchanges have been banned there since September 2017 amidst a capital flight in China following Yuan devaluation.
It took about a year and a half for this to be routed around through a somewhat complex system of decentralized or crypto only exchanges and Over the Counter (OTC) trading.
That latter aspect has been refined further, with Binance stating on Wednesday:
“Binance has launched P2P trading functionality with BTC, ETH and USDT available for trading against CNY (Chinese Yuan).
Access to P2P trading will be initially provided to Android users (Version: 1.12.1) that have Binance accounts registered for over 30 days.”
Zhao clarified that “Binance is not working directly with WeChat or Alipay. However, users are able to use them in P2P transactions for payment.”
The platform is basically a way to arrange an agreement between two individuals on the amount of bitcoin they wish to buy or sell and its price.
That bitcoin is then put in what is called an escrow by the seller, with it then further requiring confirmation by the seller that the buyer has sent the fiat payment prior to the bitcoin being released to the seller.
So the fiat payment is someone paying some amount to someone else with no way of knowing if such payment was for bitcoin or for a second hand iPhone or a gift and so on, unless either the buyer or the seller mentions bitcoin in the reference number or anywhere else in the fiat transfer.
Meaning Alipay or Wechat have no way of knowing a transaction is related to bitcoin.
The practice, moreover, is not illegal as people in China are free to buy and sell bitcoin. The restriction is instead by bankers and what service they provide, not the legislature, as we are not aware of any act of parliament or equivalent from China that restricts even accepting bitcoin for payments.
Some there do in fact accept bitcoin for payments, with the situation in China best described as one where the central bank has exercised a quasi-law making jurisdiction, but the civil service has tried to kind of limit that jurisdiction.
While where law makers are concerned, their approach seems to be that of hostile words, but no action.
In short, they had to limit bitcoin’s use to enforce capital controls, but they want to maintain the bitcoin mining industry as it brings them quite a bit of revenue, and thus they allow, and in some cases maybe even facilitate, bitcoin’s usage potentially for strategic ends and especially in international trade.
From a western point of view that makes this a highly protectionist approach, with the beginning of the trade war arguably being that September ban of crypto exchanges in 2017.