China Warns of Biometric Crypto Risks Amid Global Crackdown

China has joined a global wave of regulatory scrutiny targeting cryptocurrency projects that use iris scanning and other biometric data for digital identity verification. The country’s Ministry of State Security (MSS) issued a public warning highlighting the risks these technologies pose to individual privacy and national security. The MSS emphasized that once compromised, biometric identifiers like iris scans cannot be changed, unlike passwords, making them particularly dangerous if misused [1].

In a detailed bulletin, the MSS outlined how certain crypto projects are allegedly collecting sensitive biometric data under the guise of offering digital financial services. It cited an unnamed overseas firm that had scanned iris data globally while issuing cryptocurrency tokens, later transmitting the data abroad. Such activities, according to the ministry, could enable foreign actors to conduct surveillance or infiltration operations against Chinese state institutions [1].

The MSS also warned of potential leaks from improper storage of facial recognition data, noting past cases where manipulated biometric data was used for espionage. It called for stricter oversight of how companies handle the storage, transmission, and protection of biometric data, underscoring the threat of large-scale data breaches or intentional exploitation [1].

While no specific companies were named in the bulletin, the description closely matches Worldcoin, a project co-founded by OpenAI CEO Sam Altman. Worldcoin uses proprietary hardware called the Orb to scan users’ irises in exchange for its native token, WLD. The company promotes the initiative as a means of digital inclusion and income access but has faced significant regulatory pushback worldwide [1].

Regulators in Kenya, Spain, Germany, Portugal, Brazil, South Korea, Colombia, and China Macau have all taken action against Worldcoin, citing non-compliance with local data protection laws. Indonesia froze the company’s operations earlier this year for failing to register as an Electronic System Operator, while Singapore authorities investigated individuals trading Worldcoin accounts for potential links to terrorism financing and money laundering [1].

Worldcoin and its parent organization, Tools For Humanity, have stated they are engaging with local regulators and prioritizing transparency. However, critics argue the project’s approach to consent and data handling remains inadequate given the permanent and sensitive nature of iris scans.

Ethereum co-founder Vitalik Buterin has proposed an alternative to biometric-based identity systems, suggesting a “pluralistic identity” model. This approach relies on multiple independent attestations from different sources—such as governments, social networks, or community groups—rather than a single data point like an iris scan. Proponents argue this method offers a more privacy-preserving way to verify identity without overreliance on biometric data [1].

The growing regulatory backlash against iris-scanning crypto projects reflects a broader global trend of tightening data protection laws and increased scrutiny of decentralized technologies. Governments are increasingly focused on ensuring that the collection and use of personal data—especially biometric identifiers—are conducted with proper safeguards and regulatory oversight. China’s intervention underscores its continued cautious stance on unregulated digital financial innovations and signals a likely expansion of similar measures in other jurisdictions [1].

As the regulatory landscape evolves, companies using biometric data in crypto platforms will need to implement stronger consent mechanisms, encryption, and compliance strategies to meet the expectations of global regulators. Failure to do so could result in operational suspensions or legal penalties, particularly in markets where data privacy laws are robust and enforcement is strict [1].

Sources:

[1] China joins global backlash against Iris-scanning crypto projects (https://invezz.com/news/2025/08/06/china-joins-global-backlash-against-iris-scanning-crypto-projects/)