In the past week, many friends around lawyer Mankun have been discussing an article published by the Shanghai High Court (What is the end of high financing for issuing virtual currency?), where the author clearly stated that personal holding of virtual currency is not illegal.
*Image source: WeChat article screenshot
Upon the release of this article, it seemed as if the domestic cryptocurrency circle was 'celebrating New Year', with various self-media outlets rushing to write articles, promoting this positive news as if it indicated that our country was beginning to relax restrictions on virtual assets. Here, lawyer Mankun has to 'pour two buckets of cold water' to slightly temper everyone's enthusiasm for virtual asset investment and awaken rationality.
The first bucket of cold water: Holding is not illegal.
If we take a closer look at our country's policy documents regarding virtual currency, we will find that, for a long time, personal holding of virtual currency has not been illegal.
Currently, many of the illegal behaviors related to virtual currency stem from the '924 Notice' issued in 2021. This document explicitly states that virtual currency does not have the legal status of legal tender and is not legally compensable; activities related to virtual currency are considered illegal financial activities, including providing trading services, exchange services, issuing virtual currency, etc. However, this document does not mention the illegality of 'personal holding of virtual currency.'
In other words, holding virtual currency is currently in a non-illegal gray area. The article from the Shanghai High Court actually just reiterates this point and does not represent a relaxation of policy.
Although the law does not explicitly prohibit individuals from holding virtual currency, its legality has not been fully recognized. However, in some cases, virtual currency has been regarded as a form of virtual property. For instance, in 2019, the Hangzhou Internet Court determined that Bitcoin has property attributes and meets the legal characteristics of virtual property, ultimately ruling in favor of the plaintiff's request for the defendant to return illegally transferred Bitcoin; similarly, in 2021, the Nanshan District Court in Shenzhen pointed out in a case involving Litecoin (LTC) that although virtual currency does not have the status of legal tender, it can be regarded as virtual property in specific contexts, ruling in favor of the plaintiff's request for return.
As a form of virtual property, virtual assets are similar to QQ coins and rare game items; holding them is certainly not illegal.
The second bucket of cold water: The premise of holding is acquisition.
However, many people overlook a key issue: the basis for holding is 'acquisition.' Currently, there are many ways to acquire virtual assets, and although most acquisition channels are not directly illegal, certain situations may trigger legal risks due to operational methods or funding sources. Here are the main acquisition channels listed by lawyer Mankun for everyone to understand:
1. Self-purchase
Purchasing virtual currency is one of the most common ways to acquire virtual assets. Legally, according to the **'924 Notice'**, virtual currency does not have legal compensability and is not protected by law, but the document does not explicitly state that 'purchase behavior' is illegal. Therefore, individuals' self-purchase of virtual currency is not illegal under current law. However, it is essential to note that trading activities involving virtual currency are not legally protected, meaning that once a transaction results in a financial loss, it is extremely challenging for individuals to seek legal redress, and they may even find no legal support.
Additionally, the 'legality' of purchasing behavior depends on the compliance of specific trading methods and funding sources. For example, purchasing currency through overseas exchanges, while not illegal in itself, may involve foreign exchange management and tax declaration issues; obtaining virtual currency through over-the-counter (OTC) transactions may present higher compliance risks due to anonymity and lack of third-party guarantees, especially in OTC transactions where information asymmetry can easily lead to fraud or financial loss.
At the same time, a common illegal situation in the trading of virtual assets in our country is the unclear source of trading funds, which may even involve 'dirty money.' If a buyer unknowingly purchases virtual currency suspected of being illegal, even if the purchase itself is not illegal, they may face account freezing issues due to indirect participation in illegal fund flows.
2. Participate in mining
Obtaining virtual currency through mining was once one of the main methods for investors, especially during the Bitcoin and Filecoin craze. However, with changing policies, the legality of mining has gradually become complex.
From a policy perspective, the notice issued in 2021 (on rectifying virtual currency 'mining' activities) clearly categorizes mining as a phase-out industry, requiring a complete cleanup of new mining projects and accelerating the exit of existing projects. This means that large-scale mining activities have been explicitly restricted by national policy. If mining activities lead to high energy consumption or environmental damage, or even involve illegal electricity use, they may be deemed in violation of public order or green principles and thus ineffective. For instance, in a contractual dispute case between a company in Shanghai and a company in Beijing, the court ruled that mining activities, due to high energy consumption and risk, were detrimental to the country's green development goals, declaring the relevant contracts invalid.
So, is personal mining considered illegal? Currently, our country has not directly prohibited small-scale personal mining through legal regulations. Theoretically, individuals can acquire mining machines through legal means and utilize their own electricity resources to mine, which does not violate existing laws. However, in practice, some mining activities may touch legal boundaries due to illegal means or improper operations. For example:
· Illegal electricity usage issues. Some miners steal electricity resources for mining, such as by tampering with meters to reduce electricity records or directly connecting to illegal power grids. These actions not only constitute civil infringement but may also involve theft offenses.
· Illegally using others' computing resources. Behaviors that control others' computers for mining through malicious programs may constitute the crime of damaging computer information systems and fall under criminal offenses.
· Financial compliance risks. If the virtual currency obtained through mining involves illegal transactions or fund flows, such as money laundering or tax evasion, miners may be held legally accountable.
3. Participate in investment
Acquiring virtual currency through investment projects is another relatively common method, especially in the early blockchain industry, where ICOs (Initial Coin Offerings) were once all the rage. However, the 'legality' of this method varies depending on the specific operational model and carries higher potential legal risks.
Firstly, from a legal perspective, ICOs are clearly illegal financial activities in China. As early as the '94 Document' (Announcement on Preventing Risks of Token Issuance Financing) issued in 2017, the People's Bank of China and seven other ministries explicitly prohibited fundraising through ICOs and required the cleanup of existing projects. ICOs are regarded as unlicensed fundraising behavior, suspected of illegal fundraising and illegal issuance of securities. Investors participating in such financing activities may suffer economic losses if the project party absconds.
Unlike ICOs, in recent years, participating as a VC in investments and obtaining project tokens has gradually become a popular financing model. Investors directly inject funds into blockchain projects to receive tokens distributed by the project party in return. Although this method seems to avoid the compliance risks associated with ICOs, its legal pitfalls should not be overlooked.
· First of all, projects participated in by VC will involve compliance issues, such as if the invested project is suspected of illegally issuing securities.
· Secondly, the transparency and legality of token distribution are equally important. If the tokens obtained through VC investment do not have clearly defined uses or rights, disputes may arise. For instance, some projects attract funds through inflated token valuations, but when the project stagnates or performs poorly later, investor rights may be compromised.
4. Participate in activities
Acquiring virtual currency through participating in activities organized by project parties, such as airdrops and referral rewards, seems to be the lowest cost and simplest way, but it may conceal many legal and compliance risks behind the scenes.
From a legal perspective, airdrops (Airdrop) themselves are not illegal, especially when users do not pay consideration or promise specific obligations. However, many projects use airdrops as a cover, with the actual goal of expanding influence and attracting users to participate in subsequent illegal activities. For example, some projects guide users to download DApps through 'airdrop tokens,' ultimately using these platforms for fake transactions, money laundering, or other illegal activities.
Referral rewards are another common activity model, especially in some projects that need to rapidly expand their user base. Such activities usually use the number of referrals or transaction amounts as reward standards to attract users to continually invite others. However, if the rebate structure reaches three levels or more, it can easily be regarded as a pyramid scheme. If a project uses the number of directly or indirectly developed personnel as a reward basis, it may be suspected of illegal activity, and participants may bear legal responsibility as a result.
In addition, some activities lure users to recharge or invest by promising high returns. Such behaviors often use 'more referrals, more rewards' as a guise but lack actual value support, constituting a typical Ponzi scheme. In such cases, whether participating in promotions or unintentionally involved, one may become embroiled in legal disputes.
Lawyer Mankun advises
· Compliance first, choose reasonable channels
Investors must ensure the legality of the trading methods and sources of funds when purchasing, mining, or participating in activities, avoiding cooperation with funds or projects of unknown origin. Choose reputable platforms and projects, and keep transaction records to reduce legal risks.
· Stay away from illegal activities and avoid high-risk projects.
Avoid participating in illegal financing activities such as explicitly prohibited ICOs or high-yield promise referral rewards, be wary of Ponzi schemes, and ensure that investment activities comply with legal requirements.
· Seek professional legal support
For complex legal issues related to virtual currency, such as cross-border transactions, tax compliance, and asset protection, consult professional lawyers in a timely manner to ensure your rights are protected.
The development of virtual currency is full of opportunities, but it also comes with risks. As investors, we must remain sensitive to laws and regulations, operate cautiously, invest rationally, and seek a balance between innovation and compliance.
