At their peak, during the last two months of 2016, transactions in Chinese yuan accounted for more than 90 percent of global Bitcoin trading volume, according to Morgan Stanley. A month after the crackdown, in October 2017, that figure was down to less than 10 percent. The authorities have since tightened things further, closing loopholes that allowed investors to trade cryptocurrencies on overseas websites. In January, the central bank proposed limiting supplies of power to China’s bitcoin-mining industry, which currently accounts for two-thirds of the world’s processing power devoted to such activity, most of it in sparsely populated areas with abundant surplus electricity. Local authorities are enforcing the restrictions haphazardly.

Yet cryptocurrency is far from dead in China. In fact, the restrictive measures may have inadvertently triggered a wave of innovation that targets some of the problems faced by cryptocurrencies everywhere, not just in China.

New kinds of exchange

Cryptocurrency exchanges handle trades from one digital currency to another, as well as trades between digital coins and ordinary fiat currencies. But whereas cryptocurrencies are (at least in theory) decentralized and under no one organization’s control, exchanges are typically run by a single company, just like ordinary stock exchanges. This is one of cryptocurrencies’ biggest weak points.

Indeed, it creates a raft of potential problems. The exchanges are prime targets for hackers because, like banks, they hold investors’ assets. Insider deals are hard to prevent. And there are hundreds of separate exchanges around the world, making for a fragmented and inefficient financial system: the account holders on one exchange often don’t have quick access to better deals on others.

That was why Daniel Wang, who used to run a centralized exchange in Shanghai, founded a project called Loopring. It’s an open-source software platform that anyone can use to build a decentralized exchange—a marketplace for cryptocurrency transactions that doesn’t hold investors’ assets. Instead, all assets and transactions are recorded on a public blockchain, much like the blockchains that underlie cryptocurrencies themselves. That prevents insider trading, because anyone can view transactions on the blockchain. Smart contracts on the blockchain regulate the way orders are matched. Once there is a match, the parties transfer currency to each other electronically.

China’s crackdown should have killed Loopring in its cradle. Wang, who came up with the kernel of the idea in 2016, had just finished raising money for it in an ICO three weeks before the government banned ICOs and demanded that money they had raised be returned. But Wang enjoyed such support from his investors that he was able to keep part of their investment and continue the project.

Loopring’s own decentralized exchange is now hosted on Amazon Web Services, and it was set to start offering trading services in April, after this story went to press. But since Loopring is also open-source software that anyone can use to set up an exchange, it is relatively resilient against restrictions in any one country. Wang, who spends a lot of time in New York these days trying to get Loop­ring established in the US crypto community, says that if trading digital assets on a blockchain becomes a widespread practice, it will be harder for a country such as China to block it. “Shutting it out will reduce [a country’s] international competitiveness,” he says.

From “air tokens” to serious sales

China’s September crackdown also included a ban on ICOs, the crowdfunding schemes based on crypto-tokens. In China as elsewhere, these had acquired a shady reputation. Companies looking to raise funds quickly were selling digital tokens or “coins” that were supposed to buy access to some product or service in the future, but they often had no way to fulfill these promises. A Chinese term emerged: kongqibi, or “air token.”

The ICO ban suppressed this digital crowdfunding, but it didn’t address the root of the problem. Illegal fund-raising of all kinds has thrived in China because the formal banking sector still favors large corporations and state-owned enterprises. Smaller firms and entrepreneurs rely on a shadow banking sector to meet their needs for financing.

But though using token sales to raise funds is now illegal, merely issuing a digital token isn’t explicitly prohibited. Despite the ICO ban, therefore, a few people are forging ahead with token experiments.

One company at the forefront of this is Beijing-based Spectra Ventures, founded about a month after the crackdown in September. The founders, Iris Zhang and Aaron Chen, have worked in investment banking and China’s cryptocurrency community. Using their experience to evaluate both companies that want to issue tokens and the buyers of those tokens, they advise the companies on how to price the tokens, how many to issue, and how to get listed on cryptocurrency exchanges. To get around the restrictions on token sales, Spectra doesn’t engage in crowdfunding from Chinese retail investors but only from established digital-currency funds registered overseas.

It’s common for a project to raise 10,000 to 40,000 ether (Ethereum’s cryptocurrency) within a week, says Iris Zhang. At the exchange rate in early April, that was worth about $4 million to $16 million. Projects that have sold tokens through Spectra Ventures include an app for soccer fans and an instant-messaging app that allows users to transfer cryptocurrencies to each other.

These activities may appear to go directly against the Chinese government’s orders. But in a sense, they may be what Chinese officials wanted to see.

In their September edict, the authorities talked about “avoiding market chaos, strengthening the education of investors, and collectively safeguarding the normal financial order.” But China doesn’t have a fundamental aversion to digital currencies; in fact, the central bank is developing its own fiat digital currency. “A digital currency will bring about a new financial ecosystem,” says Shenglin Ben, dean of the Academy of Internet Finance at Zhejiang University. The purpose of the crackdown, he says, was to curb excessive speculation and give the authorities time to upgrade their regulatory capabilities.

Some of the centralized cryptocurrency exchanges that China banned last year still exist—they have simply set up servers abroad—and up until mid-March their websites were accessible in China. Since then they have been blocked, though Chinese users can still access them via virtual private networks. The one used by Chuan Zhang and his investor friends, Huobi.com, is among them.

After the panic sell-off last year, Zhang and his friends reinvested whatever savings they had left in cryptocurrencies again. This time, they do not plan to sell. Before the September ban, they had seen cryptocurrency as a way to prop up their fragile financial well-being. Now it has become a faith. “It’s something that cannot be suppressed,” says Long Zhang, 30, a close friend of Chuan Zhang’s. “It will definitely be worth a lot in the future.”

Yiting Sun is a freelance journalist based in Beijing.