Interpretation of Shanghai court ruling: Individuals holding Bitcoin are legally protected, but China does not recognize platforms

The following article comes from Huo Xiaolu

Wu said blockchain highlights: The Shanghai court's judgment, after the second trial, is very rich in content and is another update of the legal/policy significance of cryptocurrency. There are several revelations: 1: It is legal and compliant for individuals to hold Bitcoin, and its commodity attributes are protected by law. 2: CMC quotation platform and other trading platforms are not recognized by Chinese law. 3: Furthermore, if cryptocurrency is used as currency to purchase and exchange with legal currency, it may not be recognized by law.

(The author is Huo Yijie, a former employee of the Shanghai Procuratorate and a professional lawyer)

Yesterday, the cryptocurrency circle was bustling again, with the statement that "Bitcoin is recognized by our country's laws" dominating the screen.

I can't help but think of the country encouraging the development of blockchain technology in October last year. The people in the cryptocurrency world were excited that day.

All the YY originated from a property damage dispute case involving Bitcoin in the Shanghai No. 1 Intermediate People's Court.

1

Is Bitcoin finally legally recognized?

After reading the judgment, let’s highlight the key points. 1. It recognizes the legal status of Bitcoin as virtual property; 2. If Bitcoin is obtained by illegal means, it should be returned or compensated at a discount according to law.

In fact, this is not a new judgment. As early as 2018 (note, it was after 1994), the Hangzhou Internet Court believed that Bitcoin has "commodity attributes" and can be purchased as a commodity by the recipient using currency in accordance with the law. In 2019, the court went a step further and believed that Bitcoin is a virtual property on the Internet and should be protected by law.

The judgment in 2019 is actually similar to the principle of this case. There was media coverage at the time, but the effect was not good. A very important reason is that the plaintiff lost the case. The fundamental reason for the loss was the problem of evidence - the plaintiff's evidence was not good, not a legal problem. As the saying goes, "whiteness covers a hundred uglinesses, blackness destroys everything", the court's recognition of the property attributes of Bitcoin was completely overshadowed by the result of the loss.

How to understand the so-called "property attribute"? 1. It is a concept in civil law, which is very important and needs to be distinguished from other legal fields. 2. The law requires that it has value, scarcity, and disposable. It is a little complicated to explain. For the general public, in order to facilitate understanding, it can be compared to the Q coins and online game equipment in the early years. 3. Based on this property attribute, legal holding is protected by law, that is, it is strictly forbidden for anyone to use illegal means to infringe the rights of legal holders.

In short, whether before or after 1994, my country's laws and regulations have never prohibited the legal holding of Bitcoin, and have affirmed its attributes as virtual property, commodity and the corresponding property rights.

Why do officials rarely mention this point of view? Everything has two sides, and they are afraid that the public will listen to one side and blindly enter the market without paying attention to risks.

I remind you again, don't rush to close the book, please read it patiently. If you only have a superficial understanding, you will easily believe everything you hear, and you will be confused again next time you encounter it.

2

Virtual property ≠ currency

After 1994, the regulatory direction has never changed. Every time the currency circle's public opinion fluctuates greatly, it only shows one problem - the public's understanding of "Bitcoin" is not comprehensive and thorough.

To be precise, there are three major misunderstandings: 1. When it comes to the development of blockchain, it means supporting Bitcoin; 2. When it comes to the risks of virtual currency, it means completely not recognizing Bitcoin; 3. When it comes to the development of digital currency, it means Bitcoin has prospects. Obviously, these three views are wrong.

The core misunderstanding of the general public in the cryptocurrency circle is the second point, that is, they think that Bitcoin is completely illegal. This concept is really deeply rooted in people's minds. For example, I usually communicate with some senior legal colleagues. They don't understand the cryptocurrency circle, and almost all of them "change color when talking about Bitcoin" and call it illegal. Imagine, if it is completely illegal, as a former judicial official, wouldn't Huo Xiaolu dig a hole for himself inexplicably? !

Why does this misunderstanding arise? The main reason is that the country has repeatedly issued documents to guard against various risks of Bitcoin, and strictly prohibited financial institutions from conducting businesses related to token issuance and financing transactions. The tragedies of cutting leeks in the cryptocurrency circle have continued to break out, and the platform parties have been sentenced, causing many people to believe that everything related to Bitcoin is illegal without knowing the truth.

As a leeks in the cryptocurrency circle, you must see clearly what the country is cracking down on? What is the core meaning behind it? my country strictly prohibits ICO and ICO-like fundraising activities. The core meaning behind this is that my country has always denied the monetary attributes of Bitcoin. What does it mean? Bitcoin cannot be circulated as currency in the market, that is, it cannot be used as currency to purchase goods, nor can it be exchanged with RMB according to law. The legal digital currency can only be the DC/EP issued by the central bank in the future. Any threat to the sovereign currency status of the RMB will not be recognized.

In summary, in the financial field, Bitcoin's policy and legal risks are still very high.

3

Is currency-to-currency trading legal?

To answer this question, we must first start with an interesting point. In the official announcement of the second-instance court, there is a seemingly unimportant sentence that is specially highlighted in black and bold. Why?

(Note: The picture comes from the WeChat account of Shanghai No. 1 Intermediate People's Court)

The court reiterated the national policy, a policy that has not changed. As of now, my country strictly prohibits any platform or institution from engaging in the exchange of legal tender and tokens or "virtual currencies", or buying and selling or acting as a central counterparty to buy and sell tokens or "virtual currencies", or providing pricing, information intermediary and other services for tokens or "virtual currencies".

In other words, in principle, the value conversion between Bitcoin and RMB is not supported. In this case, why is the corresponding discount compensation awarded? For example, A asked B to borrow a ship to go out to sea, but the ship sank and could not be returned, so he could only exchange it for other equivalent items. But how to determine the price? After all, the ship sank, and there is no way to officially estimate the value, so we can only rely on other methods recognized by both parties. The discount compensation here can be understood as a new agreement, which can only be executed if the original item cannot be returned. From a legal point of view, new flexibility has been achieved to some extent, but it is based on many prerequisites, which I will not go into detail.

There is another question worth pondering. Why did Pitt give up his claim for Skycoin in the second instance when the first instance judgment supported it? The Skycoin involved in the case is about 500,000 yuan, which is a considerable amount. I won’t go into the possible reasons, and leave it to those who like to think about it.

Back to the original question, is it legal to trade coins? It is difficult to generalize. Is it definitely not allowed when it involves legal currency? There may be workarounds. I have mentioned this point in other articles. If you are interested, you can read "Huolv Column: How to avoid losing all your money when entrusting investment in the cryptocurrency circle?"

Finally, the laws of the cryptocurrency industry are still in a semi-obscure state. Many issues are very broad and depend on the degree of understanding of virtual currencies by judicial authorities in different regions. "One move affects the whole body", seemingly similar cases may have completely different answers even if they are copied from others. It is recommended that if you have any questions, consult professionals first before taking action.