Author: Mankiw Blockchain
In the blockchain world, tokens play an important role in effectively motivating network participants and maintaining common goals and consensus. Some people even believe that a blockchain without tokens is not a real blockchain.
In my country, businesses related to virtual currencies are subject to strict supervision and restrictions. Project owners often do not know which cryptocurrency-related businesses can and cannot be done, and where there are pitfalls.
Some time ago, a large-scale deep social learning platform project owner came to consult Mankiw. In the project, users use project-specific points to consume, and the platform provides settlement of project points and virtual currency for them, and charges a certain settlement fee. Is it feasible? What are the points that need to be paid attention to? In this article, we will talk about it in detail.
01A complete ban on virtual currency business?
When it comes to virtual currency business, many people's first reaction is that it is illegal and cannot be done. This conclusion is mostly drawn because the 94 Announcement in 2017 and the 924 Announcement in 2021 are too deeply rooted in people's minds.
In 2017, the People's Bank of China, the Cyberspace Administration of China, and the Ministry of Industry and Information Technology jointly issued the "Announcement on Preventing the Risks of Token Issuance and Financing", which clearly stated that no organization or individual may engage in illegal token issuance and financing activities; token financing trading platforms may not engage in the exchange of legal currency and tokens or virtual currencies, may not buy or sell tokens or virtual currencies or act as a central counterparty to buy or sell tokens or virtual currencies, and may not provide pricing, information intermediary and other services for tokens or virtual currencies.
In 2021, the People's Bank of China and ten other departments jointly issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Transaction Speculation", which clearly stated that virtual currency does not have the same legal status as legal currency, and that virtual currency-related business activities are illegal financial activities. Overseas virtual currency exchanges providing services to residents in my country through the Internet are also illegal financial activities.
From the above two announcements, we can see that my country denies the monetary attributes of virtual currency as legal tender, and prohibits the use of virtual currency for financing and the exchange and settlement of legal tender and virtual currency. However, the above announcements do not deny the property attributes of virtual currency as a commodity, nor do they prohibit all transactions related to virtual currency.
For example, if the use of virtual currency is just like using Internet points and game coins to exchange related products or services in the Web2 centralized Internet scenario, this kind of transaction is not prohibited under the current regulatory environment in my country. However, it is necessary to pay attention to the following in the operation process:
The use of virtual currency should be limited to the exchange of goods and services within the blockchain project system, and its circulation should be strictly restricted and controlled.
Avoid payment settlement between legal currency and virtual currency.
Prevent virtual currency from becoming a tool for financing and speculation.
02Beware of being cheated by others
Although it is mentioned above that the use of virtual currency to exchange products and services within the project is not prohibited, due to the decentralized and anonymous characteristics of virtual currency, it is easy for criminals to become a tool for committing crimes, the first of which is suspected of money laundering.
Mankiw's team has previously studied how criminals launder money through the cryptocurrency circle. In the article "The Secret of Money Laundering in the Cryptocurrency Circle", it is mentioned that "the common methods of money laundering through virtual currency can be divided into three steps: placement of stolen money, separation process, and fusion withdrawal."
Among them, the second step "separation process" refers to the fact that criminals use the anonymity of virtual currency to conduct multi-level and complex transactions on the platform, so as to disperse and exchange the stolen money among multiple accounts, and further conceal the nature of the funds illegally obtained from upstream crimes.
Specifically, criminals may invest "black U" into the platform, confuse and disperse the stolen money by conducting false transactions with other users, and launder the "black U" through the platform's specific points conversion.
Therefore, in order to prevent the project from becoming a tool for criminals to launder money and run points during the project operation, the project party can take the following measures:
Optimize service content and design substantial products and services. For example, the project party in this consultation mainly provides social and learning services for the metaverse. Users can obtain corresponding points and rewards only by deeply participating in the project content. In this way, the circulation of points between users has substantial meaning and avoids idleness.
Strengthen data monitoring and analysis, promptly mark or report suspicious transactions, and restrict user platform activities during the investigation.
Properly extend the settlement cycle and settlement time. For example, agree on a weekly or daily settlement cycle, limit the amount that can be settled each time, and make withdrawals more difficult.
03Beware of being cheated by your own people
When blockchain project parties use virtual currency for payment settlement within the project, in addition to being careful not to become a tool for criminals to commit crimes, they must also be especially careful not to be cheated by their own people.
Traditional companies usually use financial systems and banks for fund management and approval processes. If company employees want to use company funds, they must go through layers of approval and obtain authorization from the financial department. Even so, there are still many cases of misappropriation of company funds and embezzlement of company property.
The transfer method of virtual assets is more convenient. You only need to transfer from one wallet address to another wallet address to realize point-to-point transactions. Once the internal members of the project party cannot resist the temptation, it is very easy for employees to embezzle virtual assets. For example:
Ling worked as a backend development engineer at Shenzhen xx Technology Co., Ltd. From July to August 2019, he took advantage of his highest authority on the company's platform to create an account on the platform and repeatedly falsely recharged the company's PXG virtual currency, trading about 62,000 USDT virtual currency on the platform. He then transferred all the USDT virtual currency to his account on Huobi.com in multiple times and then resold it to others, making a profit of about 426,000 yuan. [(2021) Yue 03 Criminal Final No. 192]
Zheng Moumou took advantage of his position as an assistant manager of digital assets in the operation and maintenance department of a Qingdao Internet Technology Co., Ltd. to steal 75,750 USDT digital assets from the QYBB exchange that the company was entrusted to manage, with a value of more than 519,910 yuan. [(2021) Lu 1302 Criminal First Instance No. 1460]
During his internship at an information consulting company in Dongguan, Yang's job was to handle complaints from game players in the game backend management system and to review and decide whether to issue virtual currency "Yuanmou" to game players. During his internship, Yang first used his own game account to file a fictitious complaint, and then reviewed and decided to issue "Yuanmou" on his own, totaling 4,844,200 (worth 484,420 yuan), and sold the stolen goods through his own game account. [(2019) Yue 1972 Criminal First Instance No. 2006]
In order to avoid being cheated by their own people, the project party should establish a strict internal control mechanism and a multi-level approval procedure. In the process of virtual asset transactions, a multi-signature mechanism can be used to complete the transaction through the confirmation of multiple authorized parties to prevent virtual assets from being easily transferred.
04 Lawyer Summary
The world of Web3 is very exciting, but blockchain entrepreneurship is not easy. On a macro level, we need to grasp the policy direction and stick to the legal bottom line. In the specific operation process, we must not only prevent ourselves from becoming tools for others to commit crimes, but also be careful not to be harmed by our own people.
If bosses encounter problems and doubts on the road to entrepreneurship, you may wish to come to Mankiw for communication. After all, one of Mankiw’s goals is to use the law to realize the business dreams of bosses and help Web3.0 happen legally in China!
