Recently, two cases involving virtual currencies from the Shanghai High Court and the Lianshui Court of Jiangsu have sparked much discussion among friends in the circle, with some believing that domestic regulation of virtual currencies has shifted, allowing individuals to legally hold Bitcoin and other virtual currencies, thus providing protection for virtual currencies domestically. While I also hope that domestic regulatory policies will be more friendly to the industry and that judicial practice will severely crack down on illegal activities such as theft and fraud while balancing the interests of both parties in cryptocurrency-related cases, is this really the case? Today, I will discuss the true situation of domestic virtual currency regulation in light of recent judicial cases.
1. Regulatory policies for domestic cryptocurrency circles.
The evolution of regulatory policies for domestic cryptocurrency circles is shown in the figure below:
In December 2013, the People's Bank of China and other departments issued the (Notice on Preventing Risks of Bitcoin), hereinafter referred to as the (Document 289).
Clarifying the nature of Bitcoin: it is believed that Bitcoin is not issued by monetary authorities, does not possess characteristics such as legal tender and compulsion, and is not truly a currency in the proper sense. From its nature, Bitcoin is a specific virtual commodity that does not hold the same legal status as currency and cannot and should not circulate as currency in the market. However, Bitcoin trading, as a commodity buying and selling behavior on the internet, allows ordinary people the freedom to participate at their own risk.
Regulation of financial payment institutions: all financial institutions and payment institutions must not price products or services in Bitcoin, must not buy or sell Bitcoin as a central counterparty, must not underwrite insurance related to Bitcoin, nor include Bitcoin in the scope of insurance liabilities, and must not directly or indirectly provide other Bitcoin-related services to customers, including: providing Bitcoin registration, trading, clearing, settlement, etc. services; accepting Bitcoin or using Bitcoin as a payment settlement tool; conducting services for exchanging Bitcoin with RMB and foreign currencies; conducting storage, custody, and mortgage services for Bitcoin; issuing financial products related to Bitcoin; using Bitcoin as an investment target for trusts, funds, etc.
Regulation of trading platforms: Internet sites providing Bitcoin registration, trading, etc. services must be filed with telecommunications management agencies. Telecommunications management agencies will close illegal Bitcoin internet sites according to the identification and punishment opinions of relevant management departments. Banks, financial payment institutions, and trading platforms must fulfill anti-money laundering obligations.
In September 2017, the People's Bank of China, the Cyberspace Administration, and other seven departments issued the (Announcement on Preventing Risks of Token Issuance Financing), hereinafter referred to as the (Ninety-Four Announcement).
Characterization of ICOs: Through the illegal sale and circulation of tokens, raising Bitcoin, Ethereum, and other so-called 'virtual currencies' through token issuance financing (ICO) is essentially an act of illegal public financing without approval, suspected of illegally issuing token certificates, illegally issuing securities, and engaging in illegal fundraising, financial fraud, and pyramid schemes.
Tokens or 'virtual currencies' used in token issuance financing are not issued by monetary authorities, do not possess characteristics such as legal tender and compulsion, do not have the same legal status as currency, and cannot and should not circulate as currency in the market.
No organization or individual may illegally engage in token issuance financing activities, and organizations and individuals that have completed token issuance financing must make arrangements for refunding.
Regarding the regulation of trading platforms: any so-called token financing trading platform is prohibited from engaging in the exchange of legal currency and tokens, or 'virtual currencies', from buying or selling tokens or 'virtual currencies' as a central counterparty, and from providing pricing, information intermediary, and other services for tokens or 'virtual currencies'.
Regulation of financial payment institutions: all financial institutions and non-bank payment institutions must not engage in business related to token issuance financing transactions.
In September 2021, the People's Bank of China, the Supreme Court, the Supreme Procuratorate, the Ministry of Public Security, the State Administration of Foreign Exchange, and ten other departments issued the (Notice on Further Preventing and Handling Risks of Virtual Currency Trading Speculation), hereinafter referred to as the (Ninety-Two Four Notice).
Clarifying the attributes of virtual currencies and related businesses: virtual currencies do not hold the same legal status as legal tender, and activities related to virtual currencies in China are considered illegal financial activities. Overseas exchanges providing services to residents in China are also considered illegal financial activities.
Participating in virtual currency investment and trading activities poses legal risks. Any legal person,非法人组织, and natural person investing in virtual currencies and related derivatives that violate public order and good customs will have their relevant civil legal actions deemed invalid, and any resulting losses will be borne by themselves; those suspected of undermining financial order and endangering financial security will be investigated and dealt with by relevant departments according to law.
Multiple department regulation: The Ministry of Public Security severely cracks down on crimes related to virtual currencies, deploying public security organs nationwide to continue to carry out the 'Special Action Against Money Laundering Crimes,' 'Special Action Against Cross-Border Gambling,' and 'Card-cutting Action,' rigorously combating illegal operations, financial fraud, and other criminal activities related to virtual currency business activities, as well as money laundering, gambling, and illegal fundraising and pyramid schemes using virtual currency.
The cybersecurity department strengthens the management of internet information content and access related to virtual currencies. The market supervision department, in conjunction with financial management departments, will legally strengthen the regulation of advertisements related to virtual currencies and promptly investigate relevant illegal advertisements.
Lawyers' viewpoints: From the above regulatory documents, it can be seen that personal ownership of Bitcoin and other virtual currencies has never been illegal. Document 289 clarifies that Bitcoin is a specific virtual commodity, but virtual currencies like Bitcoin and Ethereum do not possess characteristics such as legal tender and compulsion and cannot circulate as currency in the market. At the same time, it also reminds participants in virtual currency investments and related derivatives that if they violate public order and good customs, then the contract is invalid and losses are borne by themselves. Currently, no new regulatory policies have been issued.
In recent years, law enforcement agencies have adopted stringent regulatory measures on virtual currencies. The public security organs have severely cracked down on illegal operations, gambling, illegal fundraising, and pyramid schemes involving domestic OTC merchants, trading platforms, and project parties, covering the entire process of fundraising, issuing coins, and transactions. In civil cases, many regions face difficulties in filing cases involving cryptocurrencies. If cases can be filed, courts often deal with them in a one-size-fits-all manner, making it difficult to protect the rights of investors and lenders, ultimately bearing the risks and losses themselves.
From these judicial practices, it can be seen that although holding coins is not illegal, the protection of the rights of holders is quite weak, primarily aiming to guide everyone to reduce their financial input and limit the scale of participating groups.
Some may argue that such regulatory methods can combat illegal activities such as money laundering using virtual currencies and reduce property losses for innocent people caused by electronic fraud. But can it truly eliminate related illegal activities? Thus, I do not agree with this viewpoint. Many cryptocurrency fraud cases currently existing in the country are disguised as virtual currencies to deceive victims into investing, and many victims only understand stories of sudden wealth from the emerging virtual currency industry, choosing to invest out of curiosity and human greed. Specific cases can be read in (Must-see for Cryptocurrency Newbies: Beware of the 'Pig Butchering' Trading Platforms' Fake Freezes and Real Scams).
With the advancement of technology, new technologies such as virtual currencies and AI will continuously emerge, leading to criminals exploiting information gaps and the technical thresholds of new industries to engage in illegal activities. For new technologies and new industries, it is better to facilitate than to block; by reducing information gaps and increasing understanding, we can fundamentally reduce the risk of being deceived.
2. Recent judicial cases regarding the characterization of virtual currencies.
The People's Court Newspaper published an article by the Lianshui Court of Jiangsu in its December issue (on the criminal characterization of illegal theft of virtual currency). In this article, the court has two viewpoints: 1. The defendant's act of using contract codes to illegally swipe USDT simultaneously constitutes the crime of illegally obtaining computer system data and theft, which is a case of imagined competition. According to the principle of selecting one serious crime for punishment in imagined competition, it should be recognized as theft.
2. The amount of theft is calculated based on the exchange rate of the virtual currency on the foreign trading platform at the time of the crime. In stating viewpoint 1, the article explains that virtual currency is generated through 'mining', which embodies social abstract labor, hence virtual currency has value and property attributes, constituting theft. This discussion has led many cryptocurrency users to believe that the regulatory direction has changed, making virtual currency legal and mining legal.
From the regulatory documents above, it can be seen that there is no regulation stating that individuals holding virtual currencies are illegal. The article discusses the purpose of 'mining' to prove that virtual currencies are not created out of thin air, but are produced through purchased mining machines consuming energy to generate blocks. Virtual currencies have value and are considered public and private property protected by theft laws, thereby supporting the view that illegal theft of virtual currencies constitutes theft, fundamentally aimed at combating illegal activities.
Regarding the characterization of virtual currencies in such cases, in a theft case (2024) Hu 0104 Criminal Original 301 involving employees of 360, the defendant used technical means to obtain the victim's private key to steal virtual currencies from the address, ultimately converting them into more than 2.5 million RMB. The court concluded that the defendant, with the purpose of illegal possession, used technical means to invade others' computer information systems and secretly stole others' virtual currencies, the amount of which was particularly large or involved other particularly serious circumstances, constituting theft.
In a fraud case (2024) Yue 06 Criminal Final 300 handled by the Foshan Court of Guangdong in June this year, the defendant fabricated investment projects, promised high interest, and deceived victims into investing, among whom victim Ye was defrauded of 500,000 RMB equivalent to USDT. Ultimately, the court recognized that virtual currency has manageability, transferability, and value, making it a target for fraud, and the defendant was convicted of fraud.
In the past six months, the courts in Shanghai and Guangdong have ruled in theft and fraud cases that virtual currencies are protected as public and private property under criminal law, and have punished them as theft and fraud respectively.
3. Summary and Reflection.
Theft and fraud cases in the cryptocurrency circle occur almost every day. We see that law enforcement agencies are cracking down on such illegal criminal behavior in the public judgments. But behind these cases, how many similar cases fail at the case filing stage? For ordinary victims of theft and fraud, how many can truly succeed in filing a case and receiving a notice of case filing? Those who have experienced the difficulty of filing a case can surely understand what I mean.
In addition, this year, there was a case where a party sold U for cash on an exchange and was scammed by a person who paid in RMB to buy U after the transaction was successful. The party selling U was asked by the police to refund the money because they received the involved RMB. Such cases are not uncommon in judicial practice, and the underlying logic is that many law enforcement officers have biases against the cryptocurrency circle, viewing cryptocurrency users as having original sin.
Regarding the legality of domestic mining, a recent virtual currency mining machine contract dispute case heard by the Jiahe Court of Hunan revealed that the mining machines involved in the dispute were delivered and operated in Canada, yet the court still deemed it a violation of green principles, rendering the contract invalid, with risks borne by the parties. More details can be found in the article (Will purchasing Bitcoin mining machines deployed overseas violate green principles and render the contract invalid?).
If one day, users holding coins in the cryptocurrency circle can smoothly report theft or fraud and receive fair treatment for the seized funds after selling U, and their legitimate virtual property rights are protected, with the courts no longer adopting a one-size-fits-all approach to civil disputes involving cryptocurrencies, then I think we can discuss a change in regulatory direction. For now, it remains a richly imagined dream, while reality feels starkly different. Please temporarily suppress your restless heart, continue building, stay steady, and we can win.
