The legal attributes of virtual currency and the direction of judicial adjudication

Virtual currency is a virtual item generated in the Internet environment after the development of Internet technology. Taking Bitcoin as an example, compared with legal currency, virtual currency does not rely on specific monetary institutions for issuance. It is generated by the calculation of network nodes based on specific algorithms. There is no centralized issuer and it is not controlled by any central bank or financial institution. It is an encrypted digital asset.

According to Article 1 of the Notice of the People's Bank of China, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, etc. on Preventing Bitcoin Risks, Bitcoin has four main characteristics: no centralized issuer, limited total volume, no geographical restrictions on use, and anonymity. Although Bitcoin is called "currency", it is not a real currency because it is not issued by the monetary authorities and does not have monetary attributes such as legal tender and compulsion. In terms of nature, Bitcoin should be a specific virtual commodity that does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market.

The right to issue currency is part of national sovereignty and is generally issued by a country's central bank. The currency issued can only be circulated domestically in accordance with the law. Virtual currency has no centralized issuer and is generated by calculations of network nodes based on specific algorithms. Virtual currency issued by other institutions other than the central bank or approved by the central bank in my country cannot be circulated as currency.

2. Trading platforms shall not provide exchange, sale, pricing, information intermediary and other services for virtual currencies

According to the Announcement of the People's Bank of China, the Central Cyberspace Affairs Commission, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission on Preventing Risks in the Issuance of Tokens and Financing, it is further clarified that "from the date of this announcement, any so-called token financing trading platform shall not engage in the exchange of legal currency and tokens, "virtual currency" between each other, shall not buy or sell tokens or "virtual currency" or act as a central counterparty to buy or sell tokens or "virtual currency", and shall not provide pricing, information intermediary and other services for tokens or "virtual currency."

Virtual currency has certain property value, and on-site transactions of virtual currency have financial attributes. Virtual currency trading platforms provide trading venues, software, rules, etc. to exchange, price, buy and sell virtual currencies, which are themselves financial behaviors. Virtual currency trading platforms can be identified as financial institutions. Opening financial institutions and conducting financial activities in my country require approval from regulatory authorities. At present, it is not legal to provide services for virtual currency transactions in my country without permission.

3. Virtual currency is a "civil interest" protected by law. You can obtain and hold virtual currency.

According to Article 127 of the Civil Code, where the law has provisions on the protection of data and network virtual property, such provisions shall be followed.

Although virtual currency is not legal tender in my country, it can be considered a virtual commodity. Virtual currency, especially stablecoins such as Bitcoin and Ethereum, as a virtual network property, has been recognized by the market, has commodity attributes, has certain property value, and has initially possessed certain functions such as pricing, payment, and storage. Civil interests with property value should be protected by law. The current regulatory policy only prohibits the circulation of virtual currency as currency and prohibits related business activities of exchanges. The acquisition and holding of virtual currency is not prohibited. In relevant judicial practices, the protection of virtual currency is also positive.

By searching judicial precedents, the author sorted out the different adjudicative paths of current civil and criminal judicial decisions on the legal attributes of virtual currencies.

Civil cases

The judgment path is that virtual currency belongs to online virtual property and should be protected by law.

Case 1: Second instance case of property damage compensation dispute between Yan Xiangdong et al. and Li Shengyan et al. (2019) Hu01 Minzhong No. 13689

Judgment Summary: Bitcoin is a kind of network virtual property and should be protected by law. The reasons are as follows: First, Article 127 of the General Provisions of the Civil Law of the People's Republic of China stipulates: "Where the law has provisions for the protection of data and network virtual property, such provisions shall be followed." Therefore, the law has a positive attitude towards the protection of network virtual property. Second, the disputed Bitcoin is a kind of network virtual property and should be protected by law. Bitcoin is an encrypted "currency" based on blockchain technology. Its generation mechanism is: it is generated by "miners" and "mining". "Mining" can be performed by anyone anywhere in the world. "Mining" refers to the process in which "miners" provide a certain amount of computer computing power according to the open source software provided by the designer, and obtain a specific solution of the equation through complex mathematical operations. The "miner" who obtains the special solution will receive a specific number of Bitcoins as a reward. The physical form of Bitcoin is a string of complex digital codes. To obtain Bitcoin, it is necessary to invest material capital to purchase and maintain special machines and equipment with considerable computing power, pay the corresponding price for the power consumption of machine computing, and also spend considerable time. The process and the acquisition of labor products condense the abstract labor of human beings. At the same time, Bitcoin can be transferred with money as consideration and generate economic benefits. Because Bitcoin has the characteristics of value, scarcity, and disposability, it has the characteristics of the object of rights and meets the constituent elements of virtual property. The People's Bank of China and other ministries and commissions have issued documents such as the "Notice on Preventing Bitcoin Risks" (2013) and the "Notice on Preventing Token Issuance and Financing Risks" (2017). Although the legal status of such "virtual currency" as currency is denied, the above provisions do not deny its property attributes as a commodity, and my country's laws and administrative regulations do not prohibit the holding of Bitcoin. The "Notice on Preventing Bitcoin Risks" also mentioned that "in terms of nature, Bitcoin should be a specific virtual commodity." Therefore, Bitcoin has the attributes of virtual property and virtual commodities and should be protected by law.

Case 2: Chen v. Zhejiang Communication Technology Co., Ltd. Online Shopping Contract Dispute

Judgment Summary: After trial, the court held that the plaintiff and the defendant entered into a Bitcoin "mining machine" sales contract in the form of data messages through the Internet, which was the true intention of both parties and the contract was established in accordance with the law. Bitcoin is a virtual item generated in the Internet environment after the development of Internet technology. It is generated by the calculation of network nodes. Compared with legal currency, it has no centralized issuer, is not controlled by any central bank or financial institution, and does not have currency attributes such as legal compensation and compulsion. However, Bitcoin has commodity attributes and can be purchased by the recipient using currency in accordance with the law as a commodity.

Case 3: Feng v. Beijing Lekuda Network Technology Co., Ltd. Contract Dispute

Judgment Summary: This case is a dispute over virtual property formed by Internet blockchain technology. Based on the fact that he holds Bitcoin (BTC), Feng sued Lekuda Company to deliver Bitcoin Cash (BCC), involving the following related issues: The legal basis of the plaintiff's lawsuit. Civil rights are specific interests protected by law, and they have different objects due to different types. The object of ownership is the object of the property, and the object of the creditor's right is the debtor's payment behavior. What kind of rights is the plaintiff's request for the delivery of Bitcoin Cash based on? This is the basic issue to be solved first. Article 127 of the General Provisions of the Civil Law of the People's Republic of China stipulates: "Where the law has provisions for the protection of data and network virtual property, such provisions shall be followed." Although Bitcoin itself does not contain inherent value, Bitcoin holders must exercise the power of possession, use, income, and disposal through the information recorded in the "public ledger" (database) that is distributed and confirmed by the entire network. However, given that my country's current laws do not stipulate that network virtual property such as Bitcoin is a "thing" in property law, based on the principle of statutory property rights, the plaintiff cannot require the defendant to deliver the Bitcoin Cash generated by the Bitcoin "fork" in accordance with the legal provisions of ownership (such as interest). It should be noted that Bitcoin transactions do exist and holders still hope to gain benefits from it. In the process of commodity exchange in an online environment, the value of Bitcoin depends on the market's confidence in Bitcoin as a medium of exchange. Therefore, Bitcoin is a transaction object under contract law and has "civil interests" that should be protected by law.

According to the judgment path, virtual currency is recognized as property as stipulated in the Criminal Law and can constitute the object of property crime.

Case 1: Pei Siyuan’s appeal for fraud (2016) Yue 19 Xingzhong No. 573

Judgment Summary: This court believes that Bitcoin should be identified as property stipulated in the Criminal Law, and Bitcoin can constitute the object of the crime of fraud. The reasons are: 1. Although Bitcoin is data in terms of physical properties, in real life, it is universal, disposable, publicly tradable, and has strong liquidity. It can also be converted into cash through professional trading platforms and has a high property value; 2. Bitcoin is different from game coins and game equipment. Although the Supreme Court’s opinion on the theft of virtual property such as game coins and game equipment is to convict and punish computer crimes such as illegal acquisition of computer information system data, it is mainly to solve the problem that the scope of game coins is small (limited to the game) and the price is difficult to determine, but Bitcoin does not have these problems. There is a clear difference between Bitcoin and game coins, game equipment, etc., and the two have a large gap in terms of scope of use, acceptance of the population, degree of tradability, and value determination; 3. Although my country emphasizes the control and risk prevention of Bitcoin, it has not banned it. Article 127 of the newly promulgated General Provisions of the Civil Law stipulates that "where the law has provisions on the protection of data and network virtual property, such provisions shall be followed." Although there are no detailed provisions yet, the concept of protecting network virtual property has been formed at the macro legislative level. Whether from the perspective of life practice or the huge benefits that the appellant in this case has gained from it, it is in line with common sense to classify Bitcoin as public or private property in the sense of criminal law.

Case 2: Wu Hongen theft case (2016) Zhejiang 10 Criminal Final No. 1043

Judgment Summary: The Bitcoin obtained by the victim Jin after paying the price is not only a specific virtual commodity, but also represents the property actually enjoyed by the victim in real life, which should be protected by the criminal law. Therefore, the defendant Wu Hongen stole the victim Jin's Bitcoin through the Internet, and then sold it for more than 200,000 yuan to his personal bank account. His behavior constituted the crime of theft.

Judging from current judicial practice, there are still some disputes as to whether Bitcoin can be traded as virtual property and whether it can be a transaction object under the Civil Code. However, most of the cases retrieved by the author show that the courts still believe that Bitcoin can have the attributes of a commodity and be protected by the Civil Code.

1. Prone to illegal and criminal activities

Since virtual currencies such as Bitcoin are based on blockchain technology, they have the characteristics of decentralization, trustlessness, distributed storage and unique consensus mechanism. However, from the perspective of investors, except for stablecoins such as Bitcoin and Ethereum, other virtual currencies are difficult to distinguish between true and false and difficult to distinguish between values, and are more likely to become tools for illegal crimes, such as money laundering, drug trafficking, smuggling, pyramid schemes, illegal fundraising and other illegal and criminal activities. The author searched the China Judgment Documents Network with Bitcoin as the keyword and found 1,237 criminal cases involved, which showed an increasing trend year by year. The causes of the cases included crimes of infringing on property, crimes of obstructing social management order, crimes of undermining the socialist market economic order, and crimes of infringing citizens' personal rights and democratic rights.

2. Uncertainty of regulatory policies

On September 4, 2017, my country's regulatory authorities banned any exchange from engaging in virtual currency exchange, trading, pricing, information intermediary and other services, causing domestic exchanges to move away from home to conduct business. Recently, the Turkish government announced a decree that the Turkish Central Bank will ban the "direct or indirect" use of cryptocurrencies in payments from April 30, and prohibit electronic currency institutions from acting as intermediaries for transfers to cryptocurrency platforms.

The uncertainty of regulatory policies will cause certain risks to virtual currency investment. Although it is not illegal to simply acquire, hold, and trade virtual currencies, they cannot be traded publicly on the exchange in my country. Most of the current exchanges are foreign trading institutions registered abroad, licensed abroad, and with servers abroad. Disputes arising from trading behaviors in exchanges cannot be protected by relevant domestic laws, and the cost of relief is high. Unlike exchanges or stock markets, which are protected by various regulatory agencies and specific laws, administrative regulations, and normative legal documents, there are greater policy risks in investing in virtual currencies before the law explicitly recognizes the legal status of virtual currencies and exchanges.