Is mining a legal business? (I)

With the development and popularity of the blockchain industry, cryptocurrencies such as Bitcoin have entered the vision of more people. For various reasons, many people have major misunderstandings and prejudices about cryptocurrencies such as Bitcoin and their mining. We believe that misunderstandings and prejudices are mainly due to unfamiliarity.

As the blockchain industry is still in its early stages of development, the relevant laws and regulations are not sound. Some people choose to take risks and break the law in order to obtain improper benefits. This situation exists in all walks of life. It cannot be said that because people in a certain industry have done illegal things, the entire industry is illegal . This kind of misunderstanding and prejudice is not easy to appear in other mature industries, but the same situation, in the blockchain industry that is unfamiliar to the public, people unconsciously form misunderstandings and prejudices.

To this end, Zhikuang University has launched a small legal column aimed at popularizing legal knowledge related to blockchain, hoping to contribute a little to eliminating people’s misunderstandings and prejudices about the blockchain industry .

01
Mining bias

After years of development, the mining industry has become larger and larger, and its compliance has improved ; however, many people still have misunderstandings about mining, and some miners even think that mining is a gray industry. It is this misunderstanding that makes many people stay away from mining, and the entire cryptocurrency mining industry has been unfairly evaluated. Some people have missed the opportunity to mine and regretfully missed the opportunity to make a fortune . Today we will interpret mining from a legal perspective.

Because of misunderstandings about the mining industry, even veteran miners have doubts about whether mining is illegal, and they worry that their mines, mining machines and other assets will be fined and confiscated. Let me reassure you first. As long as the mine is compliant, the mining machine is purchased through formal channels and is hosted in a formal mine, your related assets are protected by law. As for what is a "formal mine" and what is the basis for the legality of mining, let me explain in detail.

02
Overview of Bitcoin Mining Elements

Let's first briefly explain what cryptocurrency mining is. Take Bitcoin mining as an example. Mining is to use a professional Bitcoin mining machine to solve a calculation problem given by the system. The miner who first gets the answer that meets the system requirements can get a Bitcoin reward. Mining is the act of using a mining machine to produce Bitcoin . Through the above introduction, we know that mining involves two elements:

The first is the machine that produces Bitcoins - the mining machine;

The second is the product of mining - Bitcoin.

If all aspects of mining are legal, then mining is undoubtedly legal.

The steps involved in mining include:

Site – Mine;

Equipment – ​​mining machine;

Product – Bitcoin;

…

03
Bitcoin mining elements - mining machines

There are two mining machine manufacturers in China, Canaan Creative and Ebang International, which have been listed on NASDAQ. Based on this, it can be judged intuitively that mining machines are legal, otherwise how can companies that produce mining machines be listed? From a legal perspective, Bitcoin mining machines are special computers that use ASIC chips. Miners purchase them through legal channels and are protected by law as long as they use the mining machines normally .

Image source: Bitmain official website

04
Bitcoin Mining Elements - Bitcoin

As early as 2013, the People's Bank of China and five other ministries and commissions issued the "Notice on Preventing Bitcoin Risks" (hereinafter referred to as the "Notice"). The "Notice" clarified the nature of Bitcoin, stating that Bitcoin is not issued by the monetary authorities, does not have monetary attributes such as legal tender and compulsion, and is not a real currency. In terms of nature, Bitcoin is a specific virtual commodity . From the "Notice", we can see China's current regulatory attitude towards Bitcoin. Bitcoin is not a legal currency, but a virtual commodity, and Bitcoin is not prohibited from engaging in activities as a virtual commodity . However, because the effectiveness level of the "Notice" is only a departmental regulation and cannot be used as a legal basis for judicial trials, there are still various opinions on the nature of virtual currencies such as Bitcoin in actual cases. Some courts have determined that Bitcoin is a kind of property and is protected by law. However, some courts believe that the issuance and fundraising of "copycat coins" violates the mandatory provisions of China's laws and administrative regulations, so transactions are not protected.

Let’s look at two real-life cases.

Case 1:

Pei used the website to defraud Zhu of 183.8 bitcoins and Sun of 9.47 bitcoins. Pei then transferred the bitcoins to his exchange account and used them for consumption after cashing them out. The Dongguan Intermediate People's Court believes that bitcoins have a high value, and their trading level and scope of existence are far higher than game coins, so it is determined that bitcoins should be recognized as property stipulated in the Criminal Law in terms of legal attributes and protected by law . Pei was convicted of fraud and sentenced to ten years and four months in prison and a fine of 50,000 yuan.

Case 2:

Yan and four others transferred more than 18 bitcoins of Bu and others to the designated accounts of Yan and others by controlling mobile phones. Bu sued Yan and others in court, demanding that Yan and others return the bitcoins. The Shanghai No. 1 Intermediate People's Court held that bitcoins belong to online virtual property and should be protected by law. First, according to the General Principles of Civil Law, the law has a positive attitude towards the protection of online virtual property. Second, bitcoin has the characteristics of value, scarcity, and disposability, so it has the characteristics of the object of rights and meets the constituent elements of virtual property . Moreover, according to the 2013 "Notice" and the "Announcement on Preventing the Risks of Token Issuance and Financing" issued by the People's Bank of China and seven other ministries and commissions on September 4, 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 China's laws and administrative regulations do not prohibit the holding of bitcoins. The "Notice" 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. Yan was ordered to return more than 18 bitcoins.

The above two cases show that although Bitcoin has not been defined at the level of laws and regulations, and the judgments of local courts are not uniform in actual cases, the author believes that Bitcoin, as a kind of private property, will be more comprehensively protected by law as it is widely recognized and applied, and the basis for judgments of local courts on cases involving Bitcoin will gradually converge.

05
Summarize

Well, let's summarize, Bitcoin and its production tools - mining machines are not prohibited by law, and everything is allowed unless prohibited by law, so Bitcoin mining is a legal industry . Not only that, this year some areas in Sichuan Province have introduced relevant policies, planned and built hydropower consumption parks, and encouraged Bitcoin mining .

Seeing this, some friends may have a question. According to this statement, why are there frequent news about mines being closed and fined? Good question! The reason why the mines were fined is not the two major factors of Bitcoin and mining machines, but the problem lies in the mines themselves. Regarding the legality of the mines, wait for the next analysis.

About the Author:

The author of this article is Pan Ting, a lawyer at Shanghai Rongfu Law Firm . Pan holds a master's degree from the University of British Columbia and has worked at Zhongtai Securities Co., Ltd. She is proficient in blockchain business and has provided long-term legal counsel or dispute resolution services to many blockchain-related companies.

Risk warning : The content of this article is only the author’s personal opinion, does not represent the views or position of Zhikuang University, and does not constitute any investment opinion or recommendation.