I don't think China banned Damus because it was something they couldn't control. They banned it because nostr is new and they want time to figure out what it is and if they need to control it before it proliferates. Same reason they banned Bitcoin mining and are now easing up a bit on it.

I heard someone talking about this on a podcast, so take that as you will, but it made sense to me. China will be fine with nostr because it is totally transparent. They can monitor everyone and the anonymity isn't that great. They want people to have an outlet to complain about the state that they can monitor and adjust their policies before things get out of hand. Nostr is not a subversive threat to them.

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And also they can shut down nostr at any time, so there's no threat.

That's possible as I don't know anything about Chinese policy, however it does not seem to mix with their current state of social media monitoring or complete monitoring of their citizens.

and we think we are not monitored here lol

They typically ban anything new that grows fast, and then unban it (or not) once they understand what it is.

I'm pretty confident in nostr and Bitcoin being adopted at a very high level by the Chinese government.

The bigger question for me is what will the US do when China uses Bitcoin to gain independence from the USD and nostr to gain independence from US social/legacy media broadcast their point of view directly whoever wants to hear it.