Live broadcast from the Shanghai No. 1 Intermediate People's Court: 18.88 Bitcoins were forcibly transferred away

Does Bitcoin have property attributes? Should illegally obtained Bitcoin be returned, and how should it be discounted?

Text: Li Danyang

Bitcoin is an encrypted "currency" based on blockchain technology. It has no centralized issuer and is generated by calculations through a specific computer program. Although Bitcoin is called "currency", it is not a real currency because it is not issued by a monetary authority and does not have monetary attributes such as legal tender and compulsion. So, does Bitcoin have property attributes? Should illegally obtained Bitcoin be returned, and how should it be discounted?

On May 6, the Shanghai No. 1 Intermediate People's Court (hereinafter referred to as the Shanghai No. 1 Intermediate Court) publicly pronounced an appeal case involving a Bitcoin-related foreign-related property damage compensation dispute. The second instance determined that Bitcoin is virtual property on the Internet and should be protected by law. Bitcoin obtained through illegal means should be returned in full or compensated at a discount.

Illegal detention

18.88 Bitcoins were also forcibly transferred away

At around 21:30 on June 12, 2018, Yan Dong, Lu Fang, Zhang Fei, and Fu Yun (Malaysian nationality) went to the residence of Peter (American nationality) and his wife Wang Xiaoli, controlled their mobile phones, restricted their freedom, beat and threatened Peter and Wang Xiaoli, and forced them to transfer the 18.88 bitcoins and 6,466 Skycoins they held into the accounts designated by Yan Dong and others.

After the court hearing, it was determined that although there was an economic dispute between the two parties, there was no evidence to prove that Peter and Wang Xiaoli were at fault. Yan Dong and the other four expressed their willingness to return the Bitcoin and Skycoin obtained from Peter and Wang Xiaoli during the trial. In the end, the court sentenced Yan Dong, Lv Fang, Zhang Fei, and Fu Yun to fixed-term imprisonment ranging from six months and fifteen days to eight months for the crime of illegal detention.

However, Pete and Wang Xiaoli never received the Bitcoin and Skycoin that Yan Dong and others promised to return, so they filed a lawsuit.

Controversy: Does Bitcoin have property attributes and should it be protected by law?

After trial, the court of first instance held that the person who violated the civil rights of others due to fault should bear tort liability. If the property of others is violated, the property loss shall be calculated according to the market price at the time of the loss or other methods. The court of first instance then ordered Yan Dong and the other four to jointly return 18.88 bitcoins and 6,466 skycoins to Peter and Wang Xiaoli. If they cannot return them, they shall pay compensation of 42,206.75 yuan per bitcoin and 80.34 yuan per skycoin according to the closing price of bitcoin and skycoin transactions published by the cryptocurrency market website CoinMarketCap.com on June 12, 2018 and the US dollar exchange rate on that day.

Yan Dong and the other four people were dissatisfied and appealed to the Shanghai No. 1 Intermediate People's Court. The four people believed that the current Chinese law does not recognize the property attributes of Bitcoin and Skycoin, and does not regard Bitcoin and Skycoin as objects or property in the sense of Chinese law, so Peter and Wang Xiaoli do not have the right to request the return of property rights.

In the second trial, Pete and Wang Xiaoli made a written statement that they voluntarily gave up the claim for 6,466 Skycoins from Yan Dong and four others, but insisted on the claim for Bitcoin.

After hearing the case, the Shanghai No. 1 Intermediate People's Court held that this case was a dispute over compensation for foreign-related property damage. The infringement occurred within the territory of my country, the habitual residence of both parties was within the territory of my country, and the two parties did not agree on the law applicable to the dispute, so this case was governed by Chinese law.

The Shanghai No. 1 Intermediate People's Court held that the focus of the dispute in this case was:

1. Whether Bitcoin has property attributes and should be protected by law;

2. Should Yan Dong and the other four return the Bitcoins? If they cannot return them, should they compensate Peter and Wang Xiaoli for their losses and how should the amount of compensation be determined?

Court: Bitcoin is virtual property protected by law

Regarding the first focus of the dispute, the Shanghai No. 1 Intermediate People's Court held that Bitcoin is virtual property on the Internet and should be protected by law.

First, Article 127 of the General Principles of the Civil Law of the People's Republic of China stipulates: "Where the law has provisions on the protection of data and network virtual property, such provisions shall apply." The law takes a positive attitude towards the protection of network virtual property.

Second, to obtain Bitcoin, it is necessary to invest material capital to purchase and maintain special machines and equipment with considerable computing power, etc., and it also takes considerable time, which condenses the abstract labor of human beings. At the same time, Bitcoin can be transferred and generate economic benefits. Because Bitcoin has the characteristics of value, scarcity, and disposability, it has the characteristics of the object of rights and the commodity attributes of virtual property, and meets the constituent elements of virtual property.

(Picture from the Internet)

Regarding the second focus of dispute, Yan Dong and the other four went to Peter and Wang Xiaoli's residence and used methods such as controlling their mobile phones, restricting their freedom, beating and threatening them to force Peter and Wang Xiaoli to transfer their Bitcoin and other virtual currencies to the accounts designated by Yan Dong and the other four, infringing Peter and Wang Xiaoli's rights to possession, use, income and disposal of the disputed Bitcoin. According to the effective criminal ruling, Yan Dong and the other four voluntarily returned the property obtained from Peter and Wang Xiaoli. Therefore, regardless of the legal provisions or the promises made by Yan Dong and the other four in the lawsuit, Yan Dong and the other four should return the disputed Bitcoin to Peter and Wang Xiaoli.

(Picture from the Internet)

In this case, CoinMarketCap.com is not a virtual currency transaction price information publishing platform recognized by my country, and the Bitcoin transaction price data on the website cannot be directly used as a standard for determining losses. In the second instance trial, both parties agreed that if the return could not be made, they agreed to calculate the compensation amount at 42,206.75 yuan per Bitcoin. Therefore, the facts found in the first instance were clear, and the judgment was not improper.

In the second instance, Peter and Wang Xiaoli expressed their willingness to give up the pursuit of 6,466 Skycoins, which was a disposal of their own rights and was not contrary to the law. The Shanghai No. 1 Intermediate People's Court approved it. Based on this, the Shanghai No. 1 Intermediate People's Court made corresponding changes to the relevant content of Skycoin in the first instance judgment, and maintained the other contents of the judgment. (All names used in this article are pseudonyms)

Judge's opinion

Liu Jiang, the presiding judge of this case, pointed out that the People's Bank of China and other ministries and commissions have issued documents such as "Notice on Preventing Bitcoin Risks" (2013) and "Notice on Preventing Token Issuance and Financing Risks" (2017), which did not deny the property attributes of Bitcoin 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.

However, the "Notice" and other documents deny the legal status of such "virtual currencies" as currencies. Bitcoin and other "virtual currencies" cannot and should not be circulated and used as currencies in the market. Judge Liu Jiang reminded that investors should invest rationally, reasonably control risks, and maintain the safety of their own property.

Source: Shanghai No. 1 Intermediate People's Court