The People's Court Report stated that the virtual currency held by relevant entities in our country still constitutes legal property and is protected by law.

Authors: Wang Zhongyi, Yang Conghui, People's Court of Siming District, Xiamen City, Fujian Province

Source: People's Court Report

The trend of virtual currency becoming an "accomplice" in illegal crimes is becoming increasingly prominent. The global transaction volume of virtual currency-related crimes has increased from 84 billion US dollars in 2020 to 206 billion US dollars in 2022, reaching a historic high. Currently, there is a growing divergence in judicial practice on the characterization of acts related to virtual currency crimes and the handling of assets involved. It is necessary to further clarify the criminal law attributes of virtual currency and the issue of handling assets involved in cases.

I. Analysis of the Criminal Law Attributes of Virtual Currency

In practice, there are several opinions on the characterization of virtual currency in criminal law:

The first opinion holds that virtual currency is merely electronic data stored in a computer system and is currently circulating in the "black market" in our country as illegal currency, mostly serving as illegal payment methods for criminal activities and as a medium for illegal entry of foreign funds. In the absence of explicit legal provisions, it should not be recognized as property in the sense of criminal law. The second opinion holds that virtual currency is a virtual commodity with property value. From the provisions in judicial interpretations regarding theft, robbery, and illegal drugs, virtual currency should also be recognized as property in the sense of criminal law. However, due to the current policy in our country prohibiting the circulation of virtual currency, it should not be recognized as legal property deserving protection. The third opinion holds that virtual currency is property in the sense of criminal law and constitutes legal property. Unless it is used for illegal activities by the holder or directly originates from the holder's illegal activities, the property rights and interests of virtual currency holders should be protected. The author agrees with the third opinion. The reasons are as follows:

(I) Virtual currency has economic attributes that can be attributed to property

1. Virtual currency itself has utility value. Legal tender, especially paper currency (excluding those with collectible value), besides serving as a measure of value, medium of exchange, and means of payment, does not have inherent utility value. However, virtual currency is different. It can have certain utility value, manifested in: (1) serving as a settlement medium. In some blockchain application areas such as securities settlement, the circulation of encrypted assets within the blockchain system is indispensable. For example, to achieve delivery versus payment (DVP) in a blockchain securities settlement system, it is necessary for designated nodes within the blockchain to issue virtual currency, known as "settlement coins," to settle securities and funds within the system, provided that an equivalent amount of legal tender is deposited with the custodian bank. (2) Serving as virtual vouchers or property. For example, as tickets for concerts, music events, etc., using blockchain technology to ensure tamper resistance; as electronic voting, game props, etc., using blockchain technology to ensure the immutability of virtual property. In these cases, although its monetary function should be denied by law, it does not affect the recognition of its property attributes, which also reflects the function of the law to reserve necessary channels for the development of emerging technologies.

2. The exchange value of virtual currency objectively exists. Virtual currencies like Bitcoin connect strangers from all corners of the world through blockchain, transmitting value through peer-to-peer transactions using consensus mechanisms and decentralization, becoming a convenient settlement tool worldwide, especially with the emergence of stablecoins like Tether (USDT), which maintain price stability by anchoring to legal tender (or assets). The monetary function of virtual currency is increasingly perfected. Virtual currency, with its decentralized features, operates through a distributed encrypted system, and all virtual currency hardware systems in the world store virtual currency ledgers. Virtual currency will not be lost due to the loss of a piece of hardware. Also, based on the immutability and antifragility of virtual currency technology, virtual currency is regarded 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, being included in the financial systems of many countries and used as a legal currency, such as in Japan, the United States, Europe, Australia, New Zealand, and other countries. According to statistics, there are nearly 30,000 virtual currency ATMs in 73 countries worldwide.

Currently, in order to safeguard the status of the renminbi as the legal tender and combat illegal activities, our country has not yet recognized the legal tender status and monetary function of virtual currency. However, its exchange value objectively exists due to the legal recognition and legal circulation in foreign markets, and cannot be ignored. Treating virtual currency as contraband like drugs, and not recognizing its exchange value, will inevitably lead to the loss of labor value and market value when virtual currency flows from abroad to the domestic market, objectively leading to the loss of property, which is not conducive to the recovery and compensation work in cases involving virtual currency crimes.

3. Illegally obtaining virtual currency from others should be handled as a property crime. As mentioned earlier, virtual currency objectively has positive utility value and exchange value, unlike contraband like drugs, which have no positive value. In judicial interpretations, for the purpose of protecting possession, theft, robbery, fraud, and other crimes involving contraband like drugs, virtual currency should naturally become the object of property crimes.

Based on the physical characteristic 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 clearly abandons the evaluation of the utility value and exchange value of virtual currency and has to seek a way to convict such behavior by expanding the interpretation of the means of committing computer information system crimes provided in our criminal law, which is suspected of violating the principle of legality. In a certain case, the defendant did not use illegal means as stipulated in Article 285 of the Criminal Law, such as illegal intrusion into a computer information system, nor did they carry out acts as stipulated in Article 286 of the Criminal Law, such as deleting or modifying the functions of a computer information system. Their behavior essentially involved illegally obtaining virtual currency, which infringed on the ownership of property and did not infringe on the public order protected by computer information system crimes. Abandoning property crimes and convicting and punishing them as computer information system crimes violates the basic principle of proportionality between the crime and the punishment, and deprives the victim of the right to participate in the litigation and the protection of property rights.

Based on the above analysis, the author agrees that the behavior of illegally obtaining virtual currency through deception, theft, robbery, etc., should be recognized as a situation of concurrence of legal provisions, rather than a situation of imagined concurrence. For cases where the amount of stolen virtual currency does not meet the standard for conviction, it is not appropriate to convict and punish them as computer information system crimes.

(II) Current legal policies do not categorize virtual currency as illegal items

1. Relevant regulations clearly define virtual currency as virtual commodities. The "Notice on Guarding Against Risks from Bitcoin" (Yinfa [2013] No. 289) 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 stipulates: "From its nature, Bitcoin should be a specific virtual commodity, does not have the same legal status as currency, and should not and cannot be used as currency in the market." Similarly, other virtual currencies with characteristics similar to Bitcoin, such as Tether, should also be considered virtual commodities. Article 127 of the Civil Code of the People's Republic of China stipulates: "If the law has provisions for the protection of data and virtual property on the network, such provisions shall be followed." It can be seen that the classification of Bitcoin and other virtual commodities as virtual property for protection is also supported by the open attitude of the Civil Code.

2. Administrative legal policies do not completely prohibit virtual currency transactions. The "Notice on Further Guarding Against and Dealing with Risks from Speculation in Virtual Currency Trading" (Yinfa [2021] No. 237) jointly issued by the People's Bank of China, the Supreme People's Court, and eight other departments on September 15, 2021, stipulates in Article 1, item (2): The activities of engaging in the exchange of legal tender for virtual currency, the exchange of virtual currency, acting as a central counterparty for buying and selling virtual currency, providing information intermediation and pricing services for virtual currency transactions, token issuance and financing, and trading in virtual currency derivatives, which are suspected of illegal issuance of tokens, unauthorized public offering of securities, illegal operation of futures business, illegal fundraising, and other illegal financial activities, are strictly prohibited and must be resolutely banned in accordance with the law. There are two interpretations of this provision in judicial practice: one holds that all virtual currency trading activities are considered prohibited illegal financial activities, while the other opinion holds that only virtual currency trading activities suspected of illegal issuance of tokens, unauthorized public offering of securities, illegal operation of futures business, and illegal fundraising are considered illegal financial activities and are therefore prohibited. The definition of "business" refers to the professional work of an individual or an institution. It is clear that occasional trading activities cannot be defined as business activities. For example, in a certain case, the seller of virtual currency, Li, can be proven to have sold virtual currency within the country for the first time on behalf of his son. It is clearly inappropriate to classify this sale as a business activity. Therefore, the author believes that the "Notice on Further Guarding Against and Dealing with Risks from Speculation in Virtual Currency Trading" does not categorize all virtual currency trading activities as illegal financial activities and therefore prohibits them. Judicial practice must make determinations based on the characteristics of individual behaviors in each case to determine whether they constitute prohibited illegal financial activities.

Furthermore, according to the provision in Article 1, item (4) of the "Notice on Further Guarding Against and Dealing with Risks from Speculation in Virtual Currency Trading," the buying and selling of virtual currency can be considered "virtual currency investment trading activities," and actions that violate public order and good customs are deemed invalid, 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 acts of buying and selling virtual currency can be deemed invalid for harming the country's financial order, etc., the virtual currency itself as the object of the transaction is not an illegal item.

3. From the perspective of civil trial practice, the disapproval of trading activities does not deny the legal property attributes of virtual currency. Based on 16 final civil judgments involving virtual currency trading randomly selected from the China Judgments Online since 2022, judicial practice has deemed civil acts aimed at the production, trading, and investment of virtual currency as invalid for violating public order and good customs. However, the virtual currency involved in the case and the transaction consideration have not been transferred to relevant administrative departments for recovery or other measures. Among them, the representative and instructive Supreme People's Court (2022) No. 1581 Civil Judgment held that a software development contract entered into to obtain virtual currency was invalid due to the harm to public interests, but both parties to the invalid contract were at fault. Therefore, the judgment ordered the appellant to return the contract payment of 100,000 yuan to the appellee, rather than confiscating the 100,000 yuan or excluding it from legal protection, which is consistent with the spirit of the "Notice on Further Guarding Against and Dealing with Risks from Speculation in Virtual Currency Trading." For virtual currency trading activities that do not involve disrupting financial order or endangering financial security, the parties to the civil acts bear the risks and responsibilities themselves. The current legal policies do not prohibit such activities, nor do they categorize virtual currency as contraband like drugs, obscene books and periodicals, or controlled knives. Therefore, the virtual currency held by relevant entities in our country is legal property and is protected by law.

II. Handling of Assets Involved Based on the Basic Position of Legality

Based on the above analysis, the author believes that for crimes involving virtual currency, the assets involved should not be uniformly confiscated or returned. Instead, they should be treated separately on the basis of unified criminal and civil legal order, achieving a balanced protection of individual property rights and public interests.

(I) Victims with no trading activities. For example, in cases of stealing another person's virtual currency, the victim did not engage in any behavior or express any intention to sell the virtual currency they held. If the defendant illegally obtained the victim's virtual currency key and stole the virtual currency, the theft infringed on the victim's legal property rights to the virtual currency, and the victim did not engage in behavior that violated public order and good customs. In this situation, the defendant should be ordered to bear the obligation to compensate the victim for economic losses. For virtual currency that the defendant has not transferred, it should be ordered to be returned to the victim. For virtual currency that has already been transferred, the criminal amount should be determined based on the defendant's proceeds from the crime, the victim's purchase price, the victim's previous purchase price, or recent similar virtual currency transaction prices of the defendant or the victim, and the defendant should be ordered to compensate the victim. If the proceeds from the crime or purchase price cannot be determined, and considering that various forms of virtual currency trading platforms have been canceled in our country, 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, but the criminal behavior should be determined.

(II) Victims with trading activities. In cases where the defendant used the victim's trading activities to commit fraud, robbery, extortion, theft, or other virtual currency-related crimes, the victim's involvement in behavior that violated public order and good customs resulted in the infringement of their legal property, and the victim also bears some fault. When determining the defendant's obligation to compensate in criminal judgments, attention should be paid to maintaining consistency with civil judgments. In cases 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 was traded for the purpose of committing illegal crimes, the defendant can be ordered to forfeit all illegal gains and no longer be ordered to compensate the victim. In cases without the aforementioned circumstances, the defendant's obligation to compensate the victim should be determined based on the degree of the victim's civil fault. If partial compensation is ordered, the remaining portion should be ordered to be recovered from the defendant and forfeited. The seized virtual currency can be legally sold in the international market through special channels, and the proceeds can be turned over to the national treasury.

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