Which parts of Bitcoin should be under the jurisdiction of investigative agencies?

At the beginning: This article is, in nature, an expression of the author's thoughts based on current laws and regulations and public security experience, combined with his own understanding of the Bitcoin industry. It does not have any guiding significance, nor is it a judgment of the actual situation, nor does it constitute any investment advice.

According to Article 3 of the Criminal Procedure Law of the People's Republic of China, "the public security organs shall be responsible for the investigation, detention, execution of arrest and pretrial of criminal cases." That is to say, if a criminal case occurs in the cryptocurrency circle and falls under the jurisdiction of the public security organs, it should be accepted, filed and investigated by the public security organs. For a long time, victims have been troubled by the difficulty in accepting and filing criminal cases in the cryptocurrency circle, especially in September 2021, when the central bank and ten other departments issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (hereinafter referred to as the "924 Notice"), which includes "Any legal person, non-legal person organization or natural person who invests in virtual currency and related derivatives and violates public order and good morals, the relevant civil legal acts shall be invalid, and the losses caused thereby shall be borne by themselves ", which seems to provide a policy basis for the public security organs not to accept cryptocurrency cases.

However, Article 13 of the Criminal Law of the People's Republic of China defines the concept of crime, namely, "all...disruption of social and economic order, infringement of state-owned property or collective property owned by the working people, infringement of private property owned by citizens...which should be punished according to the law, are crimes." The definition of crime applies to all walks of life, and the Bitcoin industry should not and cannot be treated differently. In accordance with the basic principle of "crime and punishment are legally prescribed", the author will talk about which specific situations should be handled by the public security organs in combination with the specific situation in the industry.

About coin theft

So far, the main thefts can be summarized into three situations: first, hackers use technical means to obtain private keys to steal coins; second, they use acquaintances and trust to steal coins; third, telecommunications fraudsters use phishing websites and links to obtain private keys to steal coins. No matter which one, I think it meets the criminal behavior and the public security organs should be in charge. In practice, if hackers have advanced technical means, use VPNs when committing crimes, do not leave device fingerprints, enter the coin mixer after obtaining virtual digital currency, and finally use false KYC to withdraw money, phishing websites and links to obtain private keys, most of these are committed by transnational telecommunications fraud groups. Such cases are difficult to crack with existing investigative means. When encountering such situations, victims must also be prepared to suffer losses. Of course, in practice, many hackers also have some loopholes, and a large number of hacker theft cases were eventually cracked. There are also a large number of public precedents. In some cases, the court ruled that it was theft, and in others it was illegal acquisition of computer information system data. There are also certain disputes among judicial organs on how to identify in theory and practice, but no matter what crime is identified, it is a criminal act. In response to this situation, the public security organs should not refuse to accept and file the case on the grounds of "the loss is borne by the victim".

About ICO

The Announcement on Preventing the Risks of Token Issuance and Financing (hereinafter referred to as the "94 Announcement") clarifies the definition of ICO, namely "activities of financing through the initial token issuance". The 94 Announcement mentions that ICO behavior "is suspected of engaging in illegal financial activities and seriously disrupting the economic and financial order", but should all ICO behaviors be managed by the public security organs? Are they all illegal? The author believes that the specific circumstances should be distinguished in conjunction with the newly revised Criminal Judicial Interpretation of Illegal Fund-raising (hereinafter referred to as the "Interpretation").

First of all, the public security organs must take care of those who issue air coins to make money, including those who do nothing and run away after raising funds, and those who raise funds from the public to issue coins, including the recently hot NFT field. This situation also exists. This situation seriously infringes on the financial order and the property rights of the people. In practice, this type of "mass-involved" case is also cracked down on more.

Secondly, most of the "local dogs" often played by people in the circle are naked scams. CCTV has previously conducted special reports on such cases. The threshold for playing "local dogs" is relatively high. At least you have to be able to operate a decentralized exchange. But precisely because of this, it is more difficult for victims to file complaints in practice, and the public security organs face more difficulties in solving cases.

Of course, I don’t think all ICOs are crimes. After all, many “great” projects also originated from ICOs, including ETH, BNB, etc. We often see the phrase “technology is not guilty”. If it is an insider, starting from “technical experiment”, raising funds from institutions, not promising returns, and indeed “doing things” after raising funds, I think this situation should not be considered a crime. ICO’s behavior is more in line with the criminal characteristics of the crime of illegally absorbing public deposits. Although the revised “Interpretation” has added the situation of “virtual currency transactions”, it still retains the four characteristic elements of the crime of illegally absorbing public deposits, namely illegality, publicity, inducement, and sociality. If there is no public publicity, no promise of guaranteed returns, and no fundraising from the public, it should not be considered a criminal offense. Of course, ICO’s behavior is prohibited by current policies. Even if it does not constitute a crime, it may still face administrative penalties.

About Mining Machines

There has always been a lot of controversy over whether some behaviors in the mining machine field constitute criminal offenses. Judging from news reports, public security organs in various places have also successively filed criminal investigations into illegal and criminal behaviors in the mining machine field. The author is also handling related cases and has been paying attention to the progress of criminal cases in other mining machine fields.

The author has encountered such a case: some users purchased mining machines, and after powering on the mining, according to the mining pool software, there were indeed coins produced every day. However, when the machine was disassembled, there was no graphics card or chip inside. The so-called mining machine was actually just a piece of iron sheet, and the so-called coin production was that the mining machine sellers regularly gave coins to users. This situation should be considered a fraud.

There is also "cloud computing power" mining. Some project parties do not have the so-called mining machines or mining farms at all. They just use the customers' money to regularly transfer coins to the customers. This situation should also be identified as fraud, but the victims are often unable to provide evidence when reporting the case, and the public security organs need to find out the facts of the case.

At present, there is a great deal of controversy over whether some mining projects constitute the crime of organizing and leading pyramid schemes. The author believes that it should be distinguished based on the specific types. First, it should be distinguished whether it is a fraudulent pyramid scheme or an operating pyramid scheme, a criminal offense or an administrative violation. Secondly, it is necessary to focus on identifying "fabricating and distorting national policies, fabricating and exaggerating business, investment, service projects and profit prospects, concealing the true source of remuneration and rebates, or other fraudulent means".

According to the "Opinions on Several Issues Concerning the Application of Law in Handling Criminal Cases of Organizing and Leading Pyramid Selling Activities" regarding the identification of levels and number of people in pyramid selling organizations, the conditions for conviction require that "there are more than 30 people participating in pyramid selling activities within the organization and the levels are above three." Many project parties are also evading criminal responsibility, and strictly control the levels of development of personnel and remuneration and rebates from the time of project design. In this case, the author believes that the principle of legality of crime and punishment should be strictly followed. However, as a report from the victim, the public security organs should still accept and investigate it in a timely manner. After all, the crime of organizing and leading pyramid selling involves a wide range of people and has great social harm, and some problems with signs and tendencies cannot be ignored.

About the Exchange

The author believes that the exchange itself does not constitute the crime of illegal business operation (which does not mean that the author believes that the exchange is legal). This part has been discussed in detail in other articles. The exchange has many products, and the victims suffer losses in various situations, so they should be treated differently.

For example, some players conduct contract transactions in small exchanges and encounter losses when the exchanges use technical means to insert pins, modify K-lines, etc. If the victim provides basic evidence when filing a complaint, this situation is a typical fraud and the public security organs should accept the case.

If an exchange encounters extreme market conditions and experiences downtime, causing losses to customers, this situation must be judged comprehensively based on the specific market conditions, downtime time, and the conditions of other mainstream exchanges. The core of the judgment is whether the exchange subjectively has an "evil" mentality. If an epic extreme market condition such as "312" or "519" is encountered, to be honest, it is not a problem with the exchange itself.

There is another special phenomenon, that is, players steal from exchanges. If players reasonably exploit loopholes in the exchange rules, I believe that it does not constitute a crime. For details, please see "Is the "bullish retail investor" stealing from exchanges a criminal offense?" However, if technical means are used to interfere with the operation of the exchange and prevent loopholes from stealing coins, even if the exchange is not compliant with relevant policies of our country, the behavior of the perpetrator still meets the composition of a crime, similar to "drug robbery", and the public security organs should still accept it.

The above situation is a little thought from the author's practice. Welcome to criticize and correct, and discuss together. In the past few years of deep cultivation in the field of crypto, to be honest, I can look at some problems objectively and rationally from the industry itself, rather than blindly discriminating against the industry. Especially in criminal defense, clients are faced with the urgent situation of being held criminally responsible, which requires lawyers to understand the industry better and prove the elements of crime from the essence of the industry, so that clients who really do things can be exempted from criminal responsibility. In essence, the real geek spirit of the project parties and players in the circle are also resentful of the evil wind from the bottom of their hearts. It is precisely because of the existence of these lawless elements that the regulatory policies have come so fiercely that we don’t even have a decent public chain at present, and we don’t even have the underlying foundation. What is the meaning of discussing superstructures such as the metaverse and web3 every day? If the alliance chain is also considered a blockchain, it is another matter. It is for this reason that the author rejected the compliance requirements of some small exchanges and project parties who aim to make money and get rich quickly. The same is true for lawyers who make money to spend . A few days ago, I mentioned in my article that in the NFT field , "those who make money are not compliant, and those who comply do not make money." This is a conclusion drawn from in-depth studies of laws, regulations and industry development. Many people believe that this is the most insightful summary of the current NFT field. Therefore, we only provide compliance services to clients who do not aim to make money, only accept criminal defense for cases with certain grounds, and only assist victims who have committed criminal offenses and have certain conditions for detection to file criminal charges. The law is not omnipotent, and only in this way can we keep our clients who have provided compliance services from getting into trouble, allow criminal suspects to obtain the most optimized results within the scope of responsibility they should bear, and recover economic losses for real victims.