Are there any legal risks in holding and trading "virtual currency" in the country?

This article has two authors, one of whom is He Yifan, who recently publicly stated that any virtual cryptocurrency will not be legal in China within 5-10 years. This makes this article even more interesting.

To some extent, I think it represents an official reminder and warning to digital currency traders and investors. We must carefully savor the terms in the article and use it to guide and regulate our future investment behavior.

The entire article is divided into three sections, which provide detailed explanations of the regulations on the acquisition of "virtual currency", the sale and withdrawal of "virtual currency", and the trading services of "virtual currency".

In general, there are several passages in this article that deserve our attention:

1 "The party concerned is a natural person who obtains "virtual currency" through mining, airdrops or gifts without paying any consideration in China. Announcement 94 and Document No. 289 do not explicitly prohibit this, but the financial regulatory level does not support the above activities."

In layman's terms, this means that if the digital currency obtained by the public through mining, airdrops or gifts is not supported in my country, but it is not illegal. Therefore, such behavior is not illegal and can be done.

2 "The party concerned is a natural person who obtains 'virtual currency' from an organization or individual in China by paying legal tender. Announcement 94 and Document No. 289 do not explicitly prohibit this. However, the organization or individual selling virtual currency may be suspected of violating the law by selling or providing exchange between legal tender and 'virtual currency'."

In simple terms, this means that any behavior that provides channels for buying and selling digital currencies using RMB within the country or acts as an intermediary for buying and selling is illegal.

3 "The party concerned is a Chinese citizen who purchases 'virtual currency' from any other party outside China with legally outbound funds. Announcement 94 and Document No. 289 do not explicitly prohibit this."

In simple terms, this means that it is not illegal if we use legal funds to buy and sell digital currencies overseas.

4 "If a party holds a legally acquired 'virtual currency' and obtains another 'virtual currency' through currency-to-currency transactions, and does not involve money laundering, Announcement 94 and Document No. 289 do not explicitly prohibit this."

In layman's terms, this means that currency-to-currency transactions are not illegal. For example, it is not illegal for us to conduct currency-to-currency transactions on decentralized exchanges (such as Uniswap).

5 "If the holder is a Chinese citizen and sells the 'virtual currency' he holds, he must declare personal income tax to the Chinese tax authorities as long as there is a profit, regardless of the region and currency. If he fails to declare the tax, he is suspected of tax evasion."

In layman's terms, this means that all digital currencies need to pay taxes to the state after being converted into legal tender, otherwise it is illegal.

6 "If the holder is a Chinese citizen and knowingly sells the 'virtual currency' he holds to others, thereby assisting others in illegally entering or leaving the country, he is also suspected of money laundering. If the funds of others are illegally obtained, he may be involved in more crimes."

This passage is about money laundering, and is also the most likely direct trigger of the recent OKEX incident.

7 "Any organization or individual that provides 'virtual currency' trading services in or outside China, establishes RMB channels and capital pools in China, and charges transaction fees is prohibited by law."

This is actually a gray area that all exchanges are currently operating in. Strictly speaking, all exchanges have violated this rule.

This article covers much more in detail than the 7 paragraphs above, but it can be summarized into the following five points:

1 It is illegal to buy and sell digital currency with RMB within the country, and it is also illegal to provide such buying and selling channels.

2 Coin-to-coin trading (such as on decentralized exchanges) is not illegal.

3. You have to pay taxes when selling digital currency, otherwise it is illegal.

4 It is illegal to raise RMB using digital currency.

5 Mining, airdropping, and gifting of digital currency are not illegal.

6. The source of funds for overseas digital currency transactions must be legal.

In this case, we try to reduce transactions and gradually shift from short-term speculation to long-term investment, which can avoid transaction risks on the one hand and tax evasion risks on the other.

In addition, I think there may be a new trend in the future: that is, digital currency mining may become the way for more and more people to enter this field.

Because from these regulations, almost all ways to obtain digital currency have legal risks, and mining is the only way that does not have legal risks. Investors first obtain Bitcoin or Ethereum through mining, and then use Bitcoin and Ethereum to trade coins to obtain other digital currencies. This is almost the only way to avoid all risks of obtaining and trading digital currencies.