Author: Wang Zhongyi, Yang Conghui Source: People’s Court Daily
The article “Recognition of the Property Nature of Virtual Currency and the Issue of Disposal of Involved Properties” published in the People’s Court Daily analyzes the criminal law nature of virtual currency. The author believes that virtual currency has economic attributes and can be regarded as property. The current legal policies do not classify virtual currency as illegal goods. Therefore, under the current legal policy framework, virtual currency held by relevant entities in China is still legal property and is protected by law. The article suggests that the involved properties should be dealt with based on the basic principle of legality. The author believes that for criminal acts involving virtual currency, the involved properties should not be uniformly confiscated or returned. Instead, they should be treated differently based on the unified basis of criminal and civil law order, so as to achieve a balanced protection of personal property rights and social public interests.
The full text of “Recognition of the Property Nature of Virtual Currency and the Issue of Disposal of Involved Properties” is as follows:
Virtual currency has become a prominent accomplice in illegal and criminal activities, and the global transaction volume of virtual currency-related crimes has risen from 8.4 billion US dollars in 2020 to 20.6 billion US dollars in 2022, reaching a historic high. At present, there are increasing differences in the judicial practice regarding the characterization of acts related to virtual currency crimes and the disposal of involved properties. It is necessary to further clarify the criminal law nature of virtual currency and the issue of disposal of involved properties.
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1. Analysis of the Criminal Law Nature of Virtual Currency
There are several opinions in practice regarding the recognition of the criminal law nature of virtual currency:
The first opinion believes that virtual currency is only electronic data stored in computer systems, and currently it circulates in the “black market” in our country as an illegal currency, mostly serving as illegal payment methods for criminal activities and illegal entry media for overseas funds. In the absence of explicit provisions in the law, it should not be recognized as property in the criminal law sense.
The second opinion believes that virtual currency belongs to virtual commodities and has property value. From the provisions of judicial interpretations regarding theft, robbery of prohibited drugs, and other crimes, virtual currency should also be recognized as property in the criminal law sense. However, considering that the current policy in our country prohibits the circulation of virtual currency, it is not appropriate to recognize it as legal property and protect it.
The third opinion believes that virtual currency is property in the criminal law sense and is legal property. Unless it is used by the holder for illegal activities or directly originates from the holder’s illegal activities, the property rights and interests of the holder of virtual currency should be protected.
The author agrees with the third opinion. The reasons are as follows:
(1) Virtual currency has economic attributes and can be classified as property
1. Virtual currency itself has use value. Unlike fiat currency, especially paper currency (excluding those with collectible value), which only has legal functions such as value measurement, medium of exchange, and means of payment, it does not have general use value.
However, virtual currency is different. It can have certain use value, manifested in:
(1) Acting as a settlement medium. In some blockchain application fields such as securities settlement, the circulation of encrypted assets within the blockchain system is indispensable. For example, in order to achieve delivery versus payment (DVP) in a blockchain securities settlement system, it is necessary for the controlling or designated nodes in the blockchain to issue virtual currency, known as “settlement coin,” under the condition that an equivalent amount of fiat currency is deposited into a custodian bank, in order to facilitate the settlement of securities and funds within the system.
(2) Acting as virtual vouchers or property. For example, as tickets for concerts or music festivals, implemented through blockchain technology to ensure immutability; as electronic voting or game props, using blockchain technology to ensure the immutability of virtual assets. In this case, although its monetary function should be denied according to the law, it does not affect the recognition of its property attributes, which is also a reflection of the legal function of reserving necessary channels for the development of emerging technologies.
2. Virtual currency has objective exchange value. Virtual currencies such as Bitcoin connect strangers from any corner of the world through the blockchain, transferring value through consensus mechanisms and decentralized peer-to-peer transactions, making it a convenient settlement tool worldwide. In particular, stablecoins such as Tether (USDT), which maintain price stability by anchoring to fiat currencies (or assets), have further improved the monetary function of virtual currencies. With the decentralized characteristics of virtual currency, operated through distributed encryption systems, all hardware systems of virtual currencies in the world maintain virtual currency ledgers, and the loss of a single hardware does not lead to the loss of virtual currency. It is precisely based on the immutability and antifragility of virtual currency technology that virtual currency is regarded by some groups as “hard currency” and has become a means of payment for purchasing goods and services in real life. In the current world payment system, virtual currency has surpassed its physical characteristic of being computer data and has been incorporated into the financial systems of many countries, being recognized as a legal currency, such as in Japan, the United States, Europe, Australia, and New Zealand. According to statistics, there are nearly 30,000 virtual currency ATMs in 73 countries around the world.
Currently, in China, virtual currency has not been recognized as legal tender or as having monetary functions, due to considerations of safeguarding the status of the Renminbi as legal tender and combating illegal activities. However, its exchange value objectively exists due to the legal recognition and legitimate circulation in overseas markets, and cannot be ignored. If virtual currency is treated as a prohibited item like drugs, without recognizing its exchange value, it will inevitably result in the loss of the congealed labor value and market value when virtual currency flows from overseas into the country, objectively leading to the loss of property and not conducive to the recovery of assets in virtual currency-related criminal cases.
3. Those who obtain others’ virtual currency by illegal means shall be dealt with as property crimes. As mentioned earlier, virtual currency objectively has positive use value and exchange value, unlike prohibited items such as drugs that have no positive value. In order to protect possession, theft, robbery, fraud, and other prohibited items such as drugs are defined as relevant property crimes. Therefore, virtual currency should naturally become the object of property crimes.
Based on the physical characteristics of computer data related to virtual currency, there has always been a practice and viewpoint in judicial practice and academia to classify virtual currency crimes as computer information system crimes and impose corresponding penalties. This clearly abandons the evaluation of the use value and exchange value of virtual currency, and has to expand the interpretation of computer information system crimes defined in our country’s criminal law in order to seek a way to prosecute such behavior, which is suspected of violating the principle of “nullum crimen, nulla poena sine lege” (no crime, no punishment without law). In a certain case, the defendant did not use illegal means such as those specified in Article 285 of the Criminal Law to illegally invade the computer information system, nor did they delete or modify the functions of the computer information system as specified in Article 286 of the Criminal Law. Their behavior is essentially the illegal acquisition of virtual currency, which infringes upon the property rights and does not infringe upon the public order protected by computer information system crimes. Abandoning property crimes and imposing penalties based on computer information system crimes violates the basic principle of proportionality between crime and punishment, and deprives the victim of the right to participate in litigation and the protection of property rights.
Based on the above analysis, the author agrees that the act of obtaining others’ virtual currency through illegal means such as deception, theft, and robbery should be regarded as a competition between legal provisions rather than an imaginary competition with computer information system crimes. For theft of virtual currency and so on, if the amount does not meet the criteria for prosecution, we cannot resort to imposing penalties based on computer information system crimes.
(2) Current laws and policies do not classify virtual currency as illegal items
1. Relevant regulations clearly define virtual currency as virtual commodities. The “Notice on Preventing Bitcoin Risks” (Yinfa [2013] No. 289, hereinafter referred to as the “2013 Five Departments Notice”) jointly issued by the People’s Bank of China, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission in December 2013 clearly states: “From a nature point of view, Bitcoin should be a specific virtual commodity, which does not have the same legal status as currency and should not be used as currency in circulation in the market.” Furthermore, other virtual currencies such as Tether, which have the same characteristics as Bitcoin, such as “no centralized issuer, limited total supply, unrestricted use, and anonymity,” should also be classified as virtual commodities. Article 127 of the Civil Code of China states: “If there are provisions in the law for the protection of data and virtual property on the network, they shall be followed accordingly.” It can be seen that classifying virtual commodities such as Bitcoin as virtual property and protecting them is also supported by this open attitude of the Civil Code.
2. Administrative laws and policies do not completely prohibit virtual currency transactions. The “Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Trading” (Yin Fa [2021] No. 237, hereinafter referred to as the “2021 Notice”) issued by the People’s Bank of China, the Supreme People’s Court, and other ten departments on September 15, 2021, stipulates in Article 1, paragraph (2) that virtual currency-related business activities, such as conducting the exchange of legal currency and virtual currency, the exchange of virtual currencies, acting as a central counterparty for buying and selling virtual currencies, providing information intermediation and pricing services for virtual currency transactions, token issuance financing, and virtual currency derivatives trading, are suspected of illegal financial activities such as illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of futures business, and illegal fundraising, and are strictly prohibited and resolutely banned in accordance with the law. Regarding this provision, there are two interpretations in judicial practice: one view believes that all virtual currency trading activities are prohibited illegal financial activities, while the other view believes that only virtual currency trading activities involving illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of futures business, and illegal fundraising are considered illegal financial activities and are therefore prohibited.
The interpretation of “business” refers to the professional work of an individual or an institution. Obviously, occasional buying and selling activities cannot be defined as business activities. For example, in a certain case, Li (the seller of virtual currency) can be determined to have sold virtual currency for the first time within the country on behalf of his son based on existing evidence. It is obviously inappropriate to classify this selling behavior as a business activity.Therefore, the author believes that the “2021 Notice” does not classify all virtual currency trading activities as illegal financial activities and prohibit them. Judicial practice must combine the characteristics of individual case behaviors to determine whether they belong to illegal financial activities that should be prohibited.
Looking at the provisions of Article 1, paragraph (4) of the “2021 Notice,” buying and selling virtual currency can be regarded as “virtual currency investment and trading activities.” Only behaviors that violate public order and good customs are considered invalid, and not because they violate mandatory provisions of laws and administrative regulations. Virtual currency trading activities that do not involve illegal financial activities do not have administrative illegality. Although the civil behavior of buying and selling virtual currency can be deemed invalid because it harms the country’s financial order, the virtual currency itself, as the object of the transaction, is not an illegal item.
3. From the perspective of civil judgment practice, mere “disgust” towards the trading behavior does not deny the legitimate property attributes of virtual currency. According to 16 final civil judgments involving virtual currency transactions randomly selected from the China Judgments Online since 2022, judicial practice determines that civil actions aimed at the production, trading, and investment of virtual currency are all deemed invalid due to violation of public order and good customs. However, the related administrative departments have not been involved in handling the virtual currencies and transaction amounts involved, nor have they taken measures such as recovery by the administrative departments. Among them, the most representative and instructive Supreme People’s Court (2022) Supreme Court Civil Final Judgment No. 1581 holds that the software development contract concluded for obtaining virtual currency is invalid due to the harm to the public interest, but both parties to the contract have faults in the invalidity of the contract. Therefore, the judgment orders the appellant to return the contract payment of 100,000 yuan to the respondent, rather than confiscating the 100,000 yuan or excluding it from the scope of legal protection. This is consistent with the spirit of the “2021 Notice.”For virtual currency trading activities that do not involve disrupting financial order or endangering financial security, the risks and responsibilities lie with the parties involved in the civil actions. The current laws and policies have not prohibited them, nor have they classified virtual currency as a prohibited item like drugs, obscene publications, or controlled knives. Holding virtual currency by relevant entities is legitimate. For example, Lin Nong legally owns the trees he owns, but he must not dispose of them by cutting them down without obtaining a logging permit.
In the current legal and policy framework, the virtual currency held by relevant entities in our country is still considered legal property and is protected by law.
II. Handling of funds involved based on the basic position of legality
Based on the above analysis, the author believes that for criminal acts involving virtual currency, the funds involved should not be uniformly confiscated or returned. Instead, they should be treated separately based on the unified criminal and civil legal order, in order to achieve a balance between individual property rights and the public interest.
(1) Cases where the victim did not engage in any transactions
If someone steals another person’s virtual currency and the victim did not engage in any acts or expressions to sell the virtual currency they held, the theft infringes upon the victim’s legal property rights to the virtual currency. The victim did not engage in any acts that violate public order and good customs, such as harming national financial order. In this situation, the defendant should be sentenced to bear the obligation of compensating the victim for economic losses. For virtual currency that the defendant has not transferred, they should be ordered to return it to the victim. For virtual currency that has already been transferred, the criminal amount should be determined and the defendant should be ordered to compensate the victim based on the defendant’s selling price, the victim’s purchase price, the previous purchase price of the victim, or the recent trading price of similar virtual currencies involving the defendant or the victim. If it is impossible to determine the selling price or purchase price, etc., considering that various forms of virtual currency trading platforms within the country have been abolished, there is a lack of corresponding market reference prices. Therefore, the price of the relevant virtual currency should not be included in the criminal amount according to the provisions of the “Price Law of the People’s Republic of China”. However, the criminal act should still be identified.
(2) Cases where the victim engaged in transactions
For criminal acts involving virtual currency such as fraud, robbery, theft, etc., committed by taking advantage of the victim’s transaction activities, the victim also bears some responsibility as they engaged in acts that violate public order and good customs, which led to the infringement of their legal property. When determining the defendant’s responsibility to compensate and return in the criminal judgment, attention should be paid to maintaining consistency with civil judgments. In cases where there are multiple virtual currency transactions, inability to explain the legal source of the virtual currency, and evidence proving that the transactions of virtual currency were made for the purpose of committing illegal crimes, the court may order the confiscation of all illegal gains of the defendant without further ordering compensation and return to the victim. In cases where the aforementioned circumstances are not present, the court should consider the degree of the victim’s civil fault and order the defendant to partially or fully compensate and return to the victim. If partial compensation and return are ordered, the remaining part should be ordered to be recovered from the defendant and confiscated. The seized virtual currency can be legally sold on the international market through special channels, and the proceeds can be handed over to the national treasury.
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