Comprehensive interpretation: The central bank’s new law strictly prohibits the issuance of currency tokens. Are first-time currency issuers in danger?

On the evening of October 23, the People's Bank of China issued a notice soliciting public opinions on the "People's Bank of China Law of the People's Republic of China (Draft for Soliciting Comments on the Revised Draft)".

This is the first time that China has included virtual currencies and cryptocurrencies in its laws. It should be noted that the inclusion of relevant content in the law is very rigorous, especially for emerging things, otherwise it may not keep up with the changes of the times.

Therefore, it can be seen that the core of this updated law is a strict prohibition on the issuance of tokens. This may also be the red line drawn by decision makers after a long discussion, but there are still some ambiguities to be explained later.

The draft opinion mentions cryptocurrencies three times.

1: The explanatory note states: The Draft for Comments stipulates that RMB includes both physical and digital forms, providing a legal basis for the issuance of digital currency; preventing virtual currency risks, and clearly prohibiting any unit or individual from producing and selling digital tokens

2: Article 22 (Tokens) No unit or individual may produce or sell token tickets and digital tokens to replace the RMB for circulation in the market.

3: Article 65 (Liability for the production and sale of tokens) If token tickets and digital tokens are produced and sold to replace the circulation of RMB in the market, the People's Bank of China shall order the cessation of illegal activities, destroy the illegally produced and sold token tickets and digital tokens, confiscate the illegal gains, and impose a fine of not more than five times the illegal amount; if the illegal amount cannot be determined, a fine of not less than RMB 100,000 and not more than RMB 500,000 shall be imposed. In serious cases, the

The punishment shall be in accordance with the provisions of the second paragraph of Article 61.

Add a comparison with the 2003 version, the picture is from Huo Xiaolu.

This law is a continuation of the 94 ban by the central bank. The 94 ban strictly prohibits 1CO, which is actually a ban on the issuance of coins, saying that it is essentially an act of illegal public financing without approval, and is suspected of illegal issuance of token tickets, illegal issuance of securities, illegal fundraising, financial fraud, pyramid schemes and other illegal and criminal activities.

Lawyer Huo Yijie believes that this amendment also reiterates the spirit of the original document and raises it to the legal level, continuing to strengthen deterrence and coercive power. Article 65 of the "Draft for Comments" mainly increases the intensity of punishment. The fine amount for illegal production and sale of token tickets and digital tokens is greatly increased.

Wu Blockchain consulted special legal consultants Xia Wei and Huo Yijie, and their comprehensive opinions are as follows:

First, the regulatory documents for Bitcoin in 2013 are still in effect, which means that the sale and holding of Bitcoin as a virtual commodity is still legal. The judgments of Hangzhou Internet Court last year and Shanghai No. 1 Intermediate People's Court this year further confirmed that Bitcoin is a virtual property on the Internet. Refer to "Interpretation of Shanghai Court's Judgment: Individuals Holding Bitcoin Legally Protected, but China Does Not Recognize Platforms"

Second, it emphasizes that it must not "replace the RMB in circulation in the market". For example, QC, which was previously anchored to the RMB by ZB Exchange, and CNHT, which was anchored to the RMB by Tether, are illegal according to this definition. The standard for judging whether to replace the RMB is whether it is possible to appear in the market on a large scale in a role similar to "legal currency" for people to consume and exchange. As legal currency, the core of the RMB is legal compensation and compulsion, that is, in all debt relationships within my country, one party provides RMB payment, and the other party cannot refuse for any reason. This is a feature that no other unofficial currency can have.

Third, the principles of the new law will not be retroactive. Because it is not a criminal law, the subject's overseas institutions have no jurisdiction. However, if the person in charge is a Chinese citizen, the law has the power to govern the citizen. Those who purchase tokens will generally not be pursued, and the issuer will be held responsible. For organizations that use overseas entities to issue coins, if they comply with local policies and laws, in theory, investors, including domestic investors, bear the relevant transaction risks themselves. There are also two exceptions. The first is to maliciously circumvent domestic policies by deploying overseas servers, etc., which can be reported to the regulatory authorities; the second is suspected of illegal and criminal activities, which can be reported to the public security organs.

Fourth, some details are yet to be explained by the legislature. The core is what types of tokens and tickets are illegal to sell? Is it not illegal as long as it does not replace the status of the RMB? Are the Q coins issued by Tencent and the brand coins recently issued by CCTV illegal?

Fifth, in any case, the law has provided a strong deterrent to domestic institutions from issuing coins. Some domestic public chain projects that have not issued coins are likely to slow down their pace; some institutions whose responsible persons are in China may also suspend the issuance of coins. This is probably not good news for some early investors and Chinese cryptocurrency entrepreneurs.

Sixth, the 94 ban not only prohibits the issuance of coins, but also prohibits trading platforms. However, this coin issuance only involves the issuance of coins, and does not explicitly prohibit platforms from engaging in the trading and exchange of mainstream cryptocurrencies such as Bitcoin and Ethereum. Does this leave a loophole for the future?

my country has not banned formal virtual currency trading activities, but has always been cautious in discouraging them. The reason is that many investors do not have sufficient identification ability for various illegal financial activities "disguised as legal financial activities" on the market and are easily deceived.

Lawyer Huo stressed that the sales principle of traditional financial products is "the seller is responsible and the buyer is responsible for himself". That is to say, when the seller has fulfilled its prudent obligations and risk warnings, the relevant transaction risks are borne by the buyer. As a qualified investor, you cannot decisively enter the market when faced with the temptation of high returns, and once you suffer losses, you cannot accuse the relevant transactions of being illegal and want to get back the principal.

Refer to Huo Xiaolu's "Virtual Currency || Regarding the "People's Bank Law" (Draft for Comments), Things the Cryptocurrency Circle Needs to Know"