Summary
Three of the largest cryptocurrency exchanges, Bybit, Bitget, and OKX, had nearly a million monthly active users in the U.S. in August, according to data from Sensor Tower. While these users may not have been trading on the platforms, they could have been using virtual private networks (VPNs) to circumvent geoblocks and access the exchanges’ services.
Main Content
The Issue of VPNs and Geoblocking
Cryptocurrency exchanges are prohibited from operating in certain jurisdictions, including the U.S., due to regulatory requirements. However, users can disguise their locations using VPNs, allowing them to access these restricted platforms. This issue has been highlighted by the recent case of Binance, which was forced to pay over $4 billion to settle allegations that it improperly allowed Americans to trade on its platform.
The Role of Sensor Tower Data
Sensor Tower data shows that Bybit had 451,800 monthly active users in the U.S. in August, followed by Bitget with 281,600, and OKX with 144,000. While these numbers do not necessarily mean that these users were trading on the platforms, they do indicate a significant presence of American users on these exchanges.
The Measures Taken by Exchanges
Bybit, Bitget, and OKX have all implemented measures to restrict access from U.S.-based IP addresses. Bybit requires users to complete know-your-customer (KYC) procedures and has implemented IP address bans to block access from restricted jurisdictions. However, these measures may not be effective in preventing users from accessing the platforms using VPNs.
The Challenge of Enforcing Compliance
Daniel Arroche, partner at French crypto law firm d&a partners, notes that the use of VPNs highlights the persistent demand for access to global markets despite regulatory hurdles. Arroche also points out that while this practice often violates terms of service, it is a common occurrence in jurisdictions with stringent cryptocurrency regulations.
A Video Demonstration
A video shared with CoinDesk demonstrates how an American can easily circumvent Bybit’s geofencing using a VPN. The user changes their IP address to a country allowed by Bybit’s terms of use and is then able to complete KYC checks using a non-U.S. ID belonging to someone else.
Bypassing Geoblocking Rules
Americans can bypass geoblocking rules by purchasing someone else’s know-your-customer (KYC) information for less than $50 worth of crypto. A series of screenshots shared with CoinDesk shows how a U.S. user provided their login credentials to someone they met on X (formerly Twitter). Shortly after, the U.S. user was verified and able to trade freely on the exchange using the identity of a Kenyan.
Responses from Exchanges
Bybit’s spokesperson stated that the exchange has taken various measures to ensure that its services are not available to people from restricted jurisdictions. However, Bybit did not respond to follow-up questions about VPNs and rented IDs. Bitget said it adheres to global compliance standards by enforcing region-based restrictions, including prohibiting access for U.S. citizens. OKX initially did not respond to requests for comment but later stated that its app can be used as a non-custodial wallet without trading on the exchange.
Conclusion
The use of VPNs and geoblocking rules highlights the challenges faced by cryptocurrency exchanges in enforcing compliance with regulatory requirements. While Bybit, Bitget, and OKX have implemented measures to restrict access from U.S.-based IP addresses, these measures may not be effective in preventing users from accessing the platforms using VPNs. The issue of VPNs and geoblocking rules raises important questions about the regulation of cryptocurrency exchanges and the need for greater transparency and accountability.
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