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Author | Guangdong Guangqiang Law Firm Lawyer Han Wubin The author authorized WuShuoBlockchain to edit and publish 1 China’s History of Cracking Down on Bitcoin Mining Inner Mongolia fired the first shot The first shot to ban "mining" was the "Notice on Guiding the Orderly Exit of Virtual Currency "Mining" Enterprises in Our Region" (Inner Mongolia Rectification Office Letter [2017] No. 47), issued by the Office of the Leading Group for Special Rectification of Internet Financial Risks in Inner Mongolia in 2017. It clearly stated that "the 'mining' industry has nothing to do with the real economy and consumes a lot of energy. Some companies have safety hazards. Some companies use the "big data industry" as a package to enjoy local preferential policies on electricity prices, land and taxes." And it was banned. The "Internet Finance Regulation Office" followed closely behind In January 2018, it was reported online that the Internet Financial Risk Special Rectification Leading Group issued a document (Rectification Office Letter [2018] No. 2), requiring active guidance for enterprises in the jurisdiction to orderly exit from mining business. The NDRC issued a document showing a turning point In the 2019 "Guidelines for Industrial Structure Adjustment (Draft for Comments)", the National Development and Reform Commission listed "virtual currency mining" as an eliminated industry. However, in the official "Guidelines for Industrial Structure Adjustment (2019 Edition)", "virtual currency mining" disappeared from the restricted category, indicating that "mining" is no longer defined as an "eliminated industry" by the National Development and Reform Commission. Financial Committee makes final decision On February 25, 2021, the Inner Mongolia Autonomous Region Development and Reform Commission issued the "Several Guarantee Measures for Completing the 14th Five-Year Plan Energy Consumption Dual Control Target Tasks (Draft for Comments)", which mentioned the comprehensive cleanup and closure of virtual currency mining projects, and all withdrawal by the end of April 2021; and specifically mentioned that new virtual currency mining projects are strictly prohibited. This time, although only Inner Mongolia explicitly banned "mining", it indicates that the curtain of heavy-handed supervision is about to be opened. On May 21, 2021, the State Council Financial Stability and Development Committee meeting mentioned that it would resolutely prevent and control financial risks and crack down on Bitcoin mining and trading. This time, banning "mining" has been put on the national priority. Subsequently, the Inner Mongolia Autonomous Region Development and Reform Commission issued the "Eight Measures of the Inner Mongolia Autonomous Region Development and Reform Commission on Resolutely Crack Down on and Punish Virtual Currency "Mining" Behavior (Draft for Comments)". The draft opinion imposes different punishment measures on different entities that engage in "mining": Strengthen energy conservation supervision for industrial parks, data centers, self-owned power plants, etc. that provide venues and power support for virtual currency "mining" companies, reduce energy consumption budget indicators, and strictly hold them accountable; For big data centers, cloud computing companies and other "mining" companies, all kinds of preferential policies will be cancelled, and they will be dealt with strictly and held accountable; For communications companies, Internet companies, etc. that engage in "mining", their value-added telecommunications business licenses will be revoked and they will be held accountable; Internet cafes and other places that engage in "mining" will be shut down for rectification; For entities such as virtual currency "mining" projects that privately access power sources without approval, illegal electricity theft will be transferred to judicial authorities for handling in accordance with the law; Companies and personnel involved in virtual currency "mining" will be included in the blacklist of dishonest persons in accordance with relevant regulations; Public officials who use their position to participate in virtual currency "mining" or provide convenience and protection for it will be transferred to the disciplinary inspection and supervision authorities for handling. At this point, a regulatory system prohibiting "mining" has been gradually established. Under the frequent high-pressure supervision, miners are also questioning: Is there still a way to make a living from mining? Will all "mining" be regulated? Will continuing "mining" involve criminal risks? After continuous questioning, the future of "mining" also depends on the specific situation. At present, the entities related to "mining" are mainly "mining machine" manufacturers, "mining machine" service providers and ordinary "miners". With the upgrading of "mining" supervision, will these three parties face risks and what risks will they have? 2 Mining machine manufacturers and ordinary miners should not be hit Before analyzing the risks of the above three parties, let’s take a look at the analysis of existing views. Some people believe that “mining” is a process of producing tokens, which is likely to violate Article 22 of the Law of the People’s Republic of China on the People’s Bank of China (Draft for Comments): “No unit or individual may produce or sell token tickets and digital tokens to replace RMB in circulation in the market. They will face supervision and even be suspected of illegal business operations. They also believe that the purchase of mining machines and personal “mining” will also be hit. However, the above view obviously exaggerates the scope of the country's ban on "mining". The reason why the country is cracking down on "mining" is, on the one hand, to reduce energy consumption and waste and promote the optimization and upgrading of the industrial structure; on the other hand, it is to curb the output of virtual currency from the source, prevent the use of virtual currency transactions for illegal and criminal activities, and avoid financial risks. For this purpose, there will not be a "one-size-fits-all" crackdown on all activities related to "mining", but the essence is to crack down on "mining" operations and virtual currency transactions under the name of "mining". Therefore, what is prohibited is the "mining" operation, not the manufacturers providing "mining machines". Another question is whether individuals purchasing mining machines for mining will be illegal and subject to regulation? It is a very simple logic that individuals buying "mining machines" do not involve any business behavior. As Yang Tianyi, a lawyer at Guangqiang Law Firm, said in his article "Does the increasing supervision mean that virtual currency "mining" is no longer legal in my country?", the focus of the rectification and governance of "mining" is concentrated on the "mining" activities carried out by enterprises or individual operators using their business entities, and does not involve the private sector that does not have any business nature. Therefore, without further regulatory measures and clear prohibitive legal provisions, it cannot be arbitrarily determined that citizens' use of private computers for "mining" is illegal. At the same time, the act of purchasing "mining machines" will not be regulated, and it does not disrupt any social or economic management order, nor infringe on the personal or property rights of any citizen, and does not infringe on legal interests. Even if the sale of "mining machines" is considered illegal, the purchase of "mining machines" cannot be punished. This is exactly the same as only punishing those who sell obscene materials but not those who buy obscene materials. Those that are truly regulated and have criminal risks are the "mining machine" service providers, and they are large-scale mining companies that include mining machine hosting, mining machine leasing, and computing power leasing. 3 What crimes might he be suspected of? Illegal operation The "mining machine" service providers make profits by providing "mining" services, which is essentially a business behavior. As a business activity, if there are laws and regulations in the future that explicitly prohibit it, then the "mining machine" service providers may be guilty of illegal business operations. But it is by no means because “mining” is a process of producing tokens, which violates Article 22 of the Law of the People’s Republic of China on the People’s Bank of China (Draft for Comments on the Amendment), which states that “no unit or individual may produce or sell token tickets and digital tokens to replace RMB in circulation in the market.” "Mining" itself is just a process in which a computer calculates and produces virtual currency. It is an act of providing computing power and obtaining virtual rewards, not an act of issuing digital tokens. Furthermore, in the process of providing "mining" services, "mining machine" service providers are likely to be suspected of illegally engaging in fund payment and settlement business because they use virtual currency as a payment and settlement tool, constituting the crime of illegal business operation. Both the "Notice on Preventing Bitcoin Risks" and the "Announcement on Preventing Token Issuance and Financing Risks" clearly point out: "Financial institutions and non-bank payment institutions shall not directly or indirectly provide account opening, registration, trading, clearing, settlement, pricing, information intermediary and other products or services for 'virtual currency'. They shall not accept Bitcoin or use Bitcoin as a payment and settlement tool; carry out Bitcoin storage, custody, mortgage and other businesses, etc." If the "mining machine" service provider agrees to settle related services in virtual currency, it is likely to be suspected of illegally engaging in fund payment and settlement business, constituting the crime of illegal business operation. What really hides huge criminal risks is the cloud mining service that provides "computing power" rental services. There are many "cloud mining" models on the market. The cloud mining model is to mine through the computing power provided by the leasing platform. As an investment method, it is very dependent on the value of virtual currency in the market. If there is a promise of high returns on virtual currency in the business, when the price of virtual currency is unstable or there is a sharp drop in price, there will be a redemption crisis, which is likely to involve the crime of illegally absorbing public deposits. The currently implemented "Regulations on the Prevention and Disposal of Illegal Fund-raising" has included the use of virtual currency to absorb funds in the illegal fund-raising behavior disposal and investigation identification objects. More seriously, if the "mining machine" service provider does not provide real computing power and cannot produce virtual currency, it may be suspected of fund-raising fraud. Crime of organizing and leading pyramid selling activities In addition, there are criminal risks in virtual currency transactions in the name of "mining". The model is to use the sale/lease of computing power for "mining" to attract investors to use RMB or exchange RMB for mainstream currencies to purchase different levels of "computing power" to mine virtual currencies issued by themselves. This model is often suspected of illegal absorption of public deposits or organizing and leading pyramid schemes due to different publicity models. In the case of organizing and leading pyramid schemes, there are often static returns from coin investment and dynamic returns from recruiting people. The illegal absorption of public deposits promises that the value of virtual currency will continue to rise and that high returns will be obtained from virtual currency. 4 Conclusion In summary, under the upgraded regulation of cryptocurrency "mining", the state will not "one size fits all" crack down on all activities related to "mining", but will essentially crack down on "mining" operations and virtual currency transactions under the name of "mining". Therefore, at present, the "mining machine" manufacturers selling "mining machine" equipment and ordinary "miners" "mining" will not be subject to criminal crackdowns. The ones who are really regulated and have criminal risks are the "mining machine" service providers, and they are large-scale mining companies including mining machine hosting, mining machine leasing, and computing power leasing. In the future, these "mining" companies are likely to be suspected of illegal business operations, illegal absorption of public deposits, organizing and leading pyramid selling activities, and fundraising fraud due to the irregularities of their own businesses. Based on this, "mining machine" service providers must establish a sense of criminal compliance during the transformation of their cryptocurrency "mining" business, use professional criminal law teams to build a criminal legal risk management mechanism, set up a tight network, "prevent problems before they occur", reduce risk costs, improve risk resistance, and create long-term sustainable economic benefits.
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