Original Title: "Identification of the Property Nature of Virtual Currency and the Issue of Handling Involved Assets"
Original Authors: Wang Zhongyi, Yang Conghui
Original Source: People's Court Daily
The article "Identification of the Property Nature of Virtual Currency and the Issue of Handling Involved Assets" published in the People's Court Daily analyzes the criminal nature of virtual currency. The author states that virtual currency has economic attributes that can be classified as property, and current legal policies do not classify virtual currency as illegal goods. Therefore, under the current legal framework, virtual currency held by relevant entities in our country is still considered legal property and is protected by law.
The article suggests handling the involved assets from a standpoint of legality. As for criminal activities involving virtual currency, the involved assets should not be uniformly confiscated or returned. Instead, they should be treated differently based on the unity of criminal and civil law orders, in order to achieve a balanced protection of individual property rights and the public interest.
The full text of "Identification of the Property Nature of Virtual Currency and the Issue of Handling Involved Assets" is as follows:
Virtual currency has become an increasingly prominent "accomplice" in illegal criminal activities. The global transaction volume of virtual currency-related crimes has risen from USD 8.4 billion in 2020 to USD 20.6 billion in 2022, reaching a historic high. Currently, there are increasing differences in the judicial practice regarding the classification of acts in virtual currency-related crimes and the handling of involved assets. It is necessary to further clarify the criminal nature of virtual currency and the issue of handling involved assets.
I. Analysis of the Criminal Nature of Virtual Currency
In practice, there are several opinions regarding the criminal nature of virtual currency:
The first opinion holds that virtual currency is merely electronic data stored in a computer system, and currently, it circulates in the "black market" in China as an illegal currency, mostly serving as illicit means of payment in criminal activities and as a medium for illegal foreign fund inflows. Without explicit legal provisions, it should not be recognized as property in the sense of criminal law.
The second opinion is that virtual currency belongs to virtual commodities, has property value, and based on the provisions of judicial interpretations regarding theft, robbery, and illicit drugs, it should also be recognized as property in the sense of criminal law. However, considering that the current policy in our country prohibits the circulation of virtual currency, it should not be recognized as legal property deserving protection.
The third opinion is that virtual currency is property in the sense of criminal law, and it is legal property. Unless it is used for illegal activities by the holder or directly originates from the holder's illegal activities, the property rights of virtual currency holders should be protected.
I agree with the third opinion. The reasons are:
(1) Virtual currency has economic attributes and can be classified as property
1. Virtual currency itself has utility value. Unlike legal tender, especially paper money (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 utility value.
However, virtual currency is different. It can have certain utility value, as demonstrated by:
(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, to achieve the delivery versus payment (DVP) in a blockchain securities settlement system, virtual currency, known as "Settlement Coin," needs to be issued by the controlling or designated nodes in the blockchain with the prerequisite of depositing an equivalent amount of legal tender in the custodian bank to facilitate the settlement of securities and funds within the system.
(2) Acting as virtual vouchers or assets. For example, as tickets for concerts or music events, using blockchain technology to achieve tamper-proof functionality, or as electronic voting, game props, etc., using blockchain technology to ensure the immutability of virtual assets. In this case, although its monetary function should be negated by law, it does not affect the recognition of its property nature, which is also a reflection of the functionality provided by the law to reserve a necessary channel for the development of emerging technologies.
2. Virtual currency has objective exchange value. Virtual currencies like Bitcoin connect strangers from any corner of the world through blockchain, enabling peer-to-peer transactions with "consensus mechanism" and "decentralization." They have become a convenient settlement tool worldwide, especially stablecoins like Tether (USDT), which maintains price stability by anchoring to legal tender (or assets). With the improvement of the currency function of virtual currencies, their decentralized features, operating through distributed encrypted systems, all virtual currency hardware systems in the world hold virtual currency ledgers. Virtual currencies will not disappear due to the loss of a single hardware. Based on the immutability and antifragility of virtual currency technology, it is considered as "hard currency" by some groups 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 computer data and has been incorporated into the financial systems of many countries, being recognized as a legitimate currency, such as Japan, the United States, Europe, Australia, New Zealand, and other countries. According to statistics, there are already nearly 30,000 virtual currency ATMs in 73 countries worldwide.
At present, in order to protect the status of the renminbi as the legal currency and to combat illegal activities, our country has not yet recognized the legal status and monetary functions of virtual currency. However, its exchange value objectively exists due to the legal recognition and legitimate circulation in overseas markets, and cannot be eliminated. Treating virtual currency as prohibited items like drugs would inevitably result in the loss of the labor value and market value that are accumulated when virtual currency flows from overseas into the country, which objectively leads to the loss of property and is not conducive to the recovery and compensation work in cases involving virtual currency crimes.
3. Those who obtain other people's virtual currency by illegal means should be dealt with as property crimes. As mentioned before, virtual currency objectively has positive use value and exchange value, unlike prohibited items like drugs that have no positive value. In the case of property crimes such as theft, robbery, and fraud related to the protection of possession, it is only natural for virtual currency to be considered as the target of property crimes.
Based on the physical characteristics of virtual currency as computer data, there has always been a practice and viewpoint in judicial practice and academia to convict and punish virtual currency crimes as computer information system crimes, which obviously abandons the evaluation of the use value and exchange value of virtual currency. However, it has to resort to expanding the interpretation of computer information system crimes stipulated in our country's criminal law in order to seek a way to criminalize such behavior, which raises suspicions of violating the principle of legality. In a certain case, the defendant involved did not use the illegal means stipulated in Article 285 of the Criminal Law or engage in the deletion or modification of the functionality of computer information systems as specified in Article 286 of the Criminal Law. Its behavior essentially involved the illegal acquisition of virtual currency, which violated the property ownership rights and did not infringe upon the public order protected by crimes related to computer information systems. Abandoning property crimes and punishing them as computer information system crimes violates the basic principle of proportionality between the crime and punishment and deprives the victims of their right to participate in litigation and the protection of their property rights.
Based on the above analysis, the author agrees that the acts of obtaining other people's virtual currency through illegal means such as deception, theft, and robbery should be considered as a competition between legal provisions rather than an imaginary competition with crimes related to computer information systems. For cases where the amount stolen is below the threshold for criminalization, it is not acceptable to resort to punishing them as computer information system crimes.
(II) Current laws and policies do not categorize virtual currency as illegal goods
1. The relevant regulations clearly define virtual commodities. In December 2013, 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 jointly issued the "Notice on the Prevention of Bitcoin Risks" (Yinfa [2013] No. 289, hereinafter referred to as the "2013 Five-Ministry Notice"), which clearly states: "From the nature, Bitcoin should be a specific virtual commodity and does not have the legal status equivalent to currency. It cannot and should not be used as a circulating currency in the market." Furthermore, other virtual currencies such as Tether that share similar characteristics with Bitcoin, such as "no centralized issuer, limited total supply, unrestricted use across regions, and anonymity," should also be classified as virtual commodities. Article 127 of the Civil Code of China stipulates: "Where the law has provisions on the protection of data and virtual property on networks, such provisions shall be followed." It can be seen that Bitcoin and other virtual commodities are protected as virtual property, supported by the open attitude of the Civil Code.
2. Administrative laws and policies do not completely prohibit virtual currency transactions. The "Notice on Further Precautions and Disposal of Risks Related to Virtual Currency Trading" (Yinfa [2021] No. 237, hereinafter referred to as the "2021 Ten-Ministry 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, Section (2): Engaging in legal currency and virtual currency exchange business, exchange business between virtual currencies, buying and selling virtual currencies as central counterparties, providing information intermediaries and pricing services for virtual currency trading, token issuance financing, and virtual currency derivatives trading, etc., all activities related to virtual currencies that involve illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising, and other illegal financial activities are strictly prohibited and will be resolutely banned in accordance with the law. Regarding this provision, there are two interpretations in judicial practice: one view holds that all virtual currency trading activities are prohibited illegal financial activities, while another view believes that only virtual currency trading activities involving suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of futures business, and illegal fundraising are considered illegal financial activities and thus prohibited.
The interpretation of "activity" refers to the professional work of an individual or an institution. It is evident that occasional buying and selling transactions cannot be defined as business activities. For example, in a certain case, Li, who sold virtual currency domestically on behalf of his son, it can be proven by existing evidence that this was the first time Li's son sold virtual currency domestically. To classify this sale as a business activity would be inappropriate. In conclusion, the author believes that the "2021 Ten-Ministry Notice" does not classify all virtual currency trading activities as illegal financial activities and prohibit them. Judicial practice must determine whether it belongs to prohibited illegal financial activities based on the characteristics of individual case behaviors.
Looking at the provisions of Article 1, Clause (4) of the "2021 Ten Departments' Notice," the buying and selling of virtual currencies can be recognized as "virtual currency investment and trading activities." Acts that violate public order and good customs are deemed invalid, rather than being invalidated due to violating 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 act of buying and selling virtual currencies can be deemed invalid due to harming the country's financial order, the virtual currencies themselves are not illegal items.
3. From the perspective of civil trial practice, merely expressing "disgust" towards the trading behavior does not deny the legitimate property attribute of virtual currencies. Based on 16 final civil judgments involving virtual currency transactions randomly selected from the China Judgments Online portal since 2022, judicial practice determines the civil acts of producing, trading, and investing in virtual currencies as invalid due to violating public order and good customs. However, they have not transferred the virtual currencies and transaction prices involved to the relevant administrative departments for handling, nor have they taken measures such as confiscation. Among them, the representative and instructive judgment is the Supreme People's Court (2022) Final Civil Judgment No. 1581 of the Supreme Court. It states that a software development contract concluded to obtain virtual currencies is invalid due to damaging the public interest. However, both parties to the contract are at fault for its invalidity. Therefore, the appellant is ordered to return a contract payment of 100,000 yuan to the appellee, rather than confiscating or excluding the 100,000 yuan from legal protection. This is consistent with the spirit of the "2021 Ten Departments' Notice."For virtual currency trading activities that do not involve disrupting financial order or harming financial security, the risks and responsibilities lie with the participants in the civil acts. The current legal policies do not prohibit them, nor do they classify virtual currencies as prohibited items similar to drugs, obscene books, or controlled knives. Holding virtual currencies by relevant entities is legitimate. For example, Lin Nong, who owns trees, can legally possess them before obtaining a logging permit, but they cannot be disposed of through logging.
Therefore, under the current legal policy framework, the virtual currencies held by relevant entities in our country are still legitimate property and are protected by law.
II. Dealing with the legitimacy of the disputed property
Based on the above analysis, the author believes that for crimes involving virtual currency, the seized or recovered property should not be uniformly confiscated or returned. Instead, they should be treated differently based on the unified order of criminal and civil law, in order to achieve a balanced protection of individual property rights and social public interests.
(1) Victims with no transaction
For example, in theft of others' virtual currency, the victim did not engage in any act or expression of selling the virtual currency it held. If the defendant obtains the victim's virtual currency key through unlawful means and steals the virtual currency, the theft infringes on the victim's legal property right to the virtual currency. The victim did not engage in any act that harms the national financial order or violates public order and good customs. In this situation, the defendant should be sentenced to assume the obligation to compensate the victim for economic losses. For the virtual currency that the defendant has not transferred, it should be ordered to be returned to the victim; for the virtual currency that has already been transferred, the criminal amount should be determined based on the defendant's selling price, the victim's purchase price, the previous purchaser's purchase price, or the transaction price of similar virtual currencies in the defendant's or victim's recent transactions, and the defendant should be ordered to compensate the victim. If the selling price or purchase price cannot be determined, considering that China has already banned all forms of domestic virtual currency trading platforms, there is a lack of corresponding market reference prices. Therefore, the prices of relevant virtual currencies are not included in the criminal amount according to the provisions of the "Price Law of the People's Republic of China." However, the criminal behavior should still be established.
(2) Victims with transaction
For crimes involving virtual currency such as fraud, robbery, looting, and theft committed by taking advantage of the victim's transaction activities, because the victim has faults in the process of engaging in acts that violate public order and good customs, resulting in the infringement of their legitimate property, the criminal judgment should be consistent with civil judgments when determining the defendant's compensation responsibility. For situations where there are multiple virtual currency transactions, the legal source of the virtual currency cannot be explained, and there is evidence proving that the virtual currency transactions were carried out for the purpose of committing illegal crimes, the entire illegal gains can be confiscated without ordering compensation to the victim; for situations without the aforementioned circumstances, the defendant's compensation to the victim should be determined based on the degree of the victim's civil fault. If only a part of the compensation is ordered, the remaining part should be ordered to be recovered and confiscated from the defendant. The seized virtual currency can be legally sold in the international market through special channels, and the proceeds shall be turned over to the national treasury.
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