The legal attributes and judicial disposal of digital currency

Author: Ren Suxian, member of the Review Committee of Shanghai No. 2 Intermediate People’s Court, President of the Criminal Division, senior judge of the third level, and expert in trial business of Shanghai Court

Foreword:

In judicial practice, there has been controversy over the characterization of crimes targeting mainstream digital currencies such as Bitcoin, and there have been disputes over illegal acquisition of computer information system data and theft and other property-related crimes. When some judicial officers hear cases involving digital currency, they will handle it differently depending on whether the price of the digital currency can be calculated in the case. For example, in one case, the public prosecution agency accused the defendant of stealing Tether coins worth more than 12 million yuan and selling the stolen goods to make a profit of more than 900,000 yuan. The judicial referee characterized the crime of theft and determined the amount of the stolen goods to be the amount of theft. In another case, because the prosecution only accused the defendant of stealing the amount of Bitcoin and other virtual currencies without a clear amount of charges, the judicial referee was ultimately convicted and punished for illegally obtaining computer information system data. The cases are similar but qualitatively different. The reason is that they have different understandings of the legal attributes of digital currencies. Before analyzing the legal attributes of digital currencies, we first understand the difficulties faced by the judicial disposal of digital currencies in judicial practice, and use this perspective as an entry point to demonstrate the legal attributes of virtual currencies.

1. The main difficulties faced by the judicial disposal of digital currency

(1) Digital currency seizure methods encounter bottlenecks

The seizure of digital property involved in the case is different from the seizure of physical property in traditional criminal proceedings. The storage content, form, changes and other characteristics of the former are similar to electronic data, but are not exactly the same. For the physical property involved in the case, the seizure stipulated in the Criminal Procedure Law is a unilateral coercive measure, and the investigative agency has unilateral coercive power over the property involved. However, in terms of digital currency, if the criminal suspect does not hand over the key to the digital currency, the investigation agency cannot seize it. This means that the seizure of digital currency is bilateral, and the investigation agency cannot complete it unilaterally without the cooperation of the criminal suspect. , which makes the seizure of digital currency significantly different from that of physical property. Is it possible to adopt a method similar to the seizure of electronic data? Electronic data is generally stored and preserved by seizing physical carriers such as U disks, optical disks, and computer hard drives. However, digital currency based on the underlying technology of the blockchain appears in the form of computer data information. Even if the criminal suspect hands over the secret key, it is difficult to prevent it. Due to the transfer of private key backup, the seizure method of storing electronic data on physical carriers also presents difficulties in digital currencies.

(2) The digital currency transfer process is difficult to smooth

The transfer of property involved in a case that has a physical entity is a legal measure after the implementation of property preservation measures in a broad sense. At this stage, the transfer of physical property is carried out in a designated storage place and custodian, and transferred between different case-handling agencies. In recent years, as the volume of property involved in the case has gradually expanded, it has become increasingly difficult for different agencies to transfer the physical objects in a time-consuming and laborious manner. The traditional physical transfer has evolved into the transfer of documents. The physical objects are not transferred to the storage place designated by the original investigative agency, but the custody subject is responsible for the document transfer. Transfer changes. However, digital currency is different from physical property in that it is highly mobile and involves many agencies and personnel in the circulation process. There are currently no relevant regulations on how to transfer and what means of storage can be used to ensure the safety of the digital currency involved. Moreover, the real value and anonymity of digital currencies prevent traditional custody methods from providing complete control. When judicial agencies keep digital currencies, the handler must have the private key, which is just like handing over cash to the handler for safekeeping. Violated the current property management system involved.

(3) Digital currency realization channels cause controversy

In order to prevent financial risks brought by digital currency, the People’s Bank of China and other ministries and commissions have issued multiple documents prohibiting financial institutions and payment institutions from carrying out Bitcoin-related pricing, settlement and other businesses. Domestic digital currency trading platforms have also been closed one after another. After the official implementation of regulations on digital currencies, disputes arose in judicial practice over how to deal with the digital currencies involved. Some places regard them as contraband and believe that they should be confiscated directly, but there are different opinions on the specific disposal after confiscation. One opinion is that contraband should be destroyed directly and cannot be converted into cash and turned over to the national treasury; another opinion is that digital currency has a relatively large value and it would be a pity to destroy it directly. It can be auctioned or entrusted to a third-party organization to sell it. However, if digital currency is determined to be contraband, the court’s enforcement department cannot realize it through normal auction procedures. Entrusting third-party institutions to sell also faces two problems. On the one hand, third-party institutions currently need to charge huge intermediary fees for the disposal of digital currencies, causing additional losses to the victim or the victim unit; on the other hand, third-party institutions New questions arise, such as whether the disposal is legal and where the disposed funds flow, etc., which will create an embarrassing situation where the official cannot handle it legally, but it is illegally handled by a third-party agency.

2. Main reasons for difficulties in judicial handling of digital currencies

(1) The legal attributes of digital currency have not been clarified

In 2013, the People’s Bank of China, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission and other ministries and commissions issued the “Notice on Preventing Bitcoin Risks” (hereinafter referred to as the “Notice”), which clarified the nature of Bitcoin and considered Bitcoin to be A specific virtual commodity cannot and should not be used as currency in the market. However, in 2017, the People’s Bank of China and other seven departments issued the “Announcement on Preventing Token Issuance and Financing Risks” (hereinafter referred to as the “Announcement”), and in 2021, the People’s Bank of China and other ten departments issued the “On Further Preventing and Dealing with Virtual Currency Transaction Speculation”. “Risk Notice” also clearly states that token issuance financing is essentially an act of illegal public financing without approval, and is suspected of illegal financial activities such as illegal selling of tokens, illegal issuance of securities, and illegal fund-raising. It can be seen from the above regulations that the People’s Bank of China and other ministries and commissions continued to deny the monetary attributes of digital currencies in subsequent documents, but based on the functional attributes of digital currencies, they regarded digital currencies as the object of illegal financial activities such as illegal fund-raising, and indirectly The financial nature of digital currency is recognized. From denying the monetary attributes of digital currencies and considering them to be a specific virtual commodity; to issuing multiple documents clearly denying the monetary attributes of digital currencies, but no longer mentioning virtual commodities, leading the judicial field to believe that there are official regulations on the legal attributes of digital currencies. There have been changes, and as a result, the practice of treating digital currencies as contraband has emerged in the specific disposal process.

(2) Difficulties in judicial handling of digital currencies

The three main difficulties currently faced by the judicial disposal of digital currencies are all related to the attributes of digital currencies. No matter how much controversy there is in the theoretical and judicial circles about the property attributes of digital currencies, it can be seen from the judicial disposal of digital currencies that difficulties such as seizure, transfer, and realization all revolve around the specific ideas for the disposal of the property involved in the case. If it is considered that digital currency is based on data as an element and supported by computing power, and does not have property attributes because it has no characteristics such as physical manageability, logically speaking, there will be no difficulty in judicial disposal, let alone “property involved in the case”. Problems such as difficulty in monetization. The current disposal dilemma precisely reflects that relevant ministries and commissions have denied the monetary attributes of digital currency, but its property attributes as commodities have not disappeared. Some criminal judgments not only deny the monetary attributes of digital currencies, but also deny their property attributes, directly identifying them as computer information data, and believe that digital currencies cannot be the object of property crimes. However, in the judgments, they also identify the sale price of digital currencies. There is a logical paradox in assigning the attribute of property to it. It can be seen that on the one hand, judicial referees do not agree with the property attributes of digital currencies, and on the other hand, they face the dilemma of being unable to avoid the property value presented by digital currencies during the trial of the case.

(3) The property attribute of digital currency is difficult to avoid

Some people believe that “the infringement of virtual property must be completed by modifying the data of the computer information system. If it causes serious consequences, it should be deemed as a crime of destroying the computer information system. This will not only avoid disputes about the legal nature of virtual property, but also It can well embody the principle of proportionality of crime and punishment.” This view not only avoids the legal attributes of digital currency, but also the technical characteristics it describes are obviously no longer applicable to digital currency with the development of the Internet. Traditionally, when we judge whether a commodity has value and what kind of value it has, we usually calculate it based on the socially necessary labor time to produce the commodity. We believe that the value of a commodity can only be demonstrated if there is labor behind it. Digital currency is generated from computer information systems and is binary data composed of 0s and 1s. The traditional concept is that the infinite copying characteristics of data make it too easy to generate property and difficult to condense the fruits of labor. This deviates from our traditional understanding of commodity value. Cognition. However, with the development of Internet technology, digital currency represented by Bitcoin is unique and non-replicable. It is different from virtual currencies such as Q coins. Its relative scarcity has been widely recognized, and its property attributes are no matter in social life. There is no way to avoid it whether it is a field or a field such as finance.

3. Legal justification of digital currency property attributes

Since the digital currency represented by Bitcoin is named “currency”, whether it is of course a currency in terms of functional attributes has been a huge disagreement among academic circles and all walks of life since the birth of digital currency. In 2015, the U.S. Commodity Futures Trading Commission characterized Bitcoin as a “commodity” for the first time, and in 2020, the U.S. Federal Court characterized Bitcoin as a “currency.” This shift reflects the dispute between digital currencies’ commodities and credit, which exactly reflects the This highlights the fierce debate in theoretical circles about the nature of traditional currency. The first view, which is also the mainstream view in contemporary economics, is that money originated from the exchange of things. This view gave birth to the monetary commodity theory. The second view is that currency originates from the authority of the government and relies on government credit to function. This view is called the currency creditor’s rights theory. Theoretically, there is a view that the traditional theory’s assumption that money was developed through barter is not consistent with the facts. The essence of money is not a special commodity that is separated from commodities and serves as a fixed general equivalent, but is used for recording, transfer, A general debt certificate to settle a debt, so the monetary commodity theory is more of a theoretical logical reasoning. The third view is that the monetary commodity theory and the monetary creditor’s rights theory are two sides of the essence of money. It regards currency as a creditor’s right, emphasizes the relational nature of currency in practical applications, and depicts the economic process of currency value transformation; while monetary commodities The theory reflects the value measurement function of currency. The above three viewpoints are essentially disputes between the value scale characteristics and social relationship characteristics of currency. The third viewpoint integrates the two characteristics together and gives currency comprehensive characteristics. In actual operation, the digital currency represented by Bitcoin is not managed by the central bank, cannot lend part of the reserves, and cannot create credit; its decentralized characteristics mean that it does not have a specific management subject, and the above two points exclude its reliance. Characteristics of claims that play a role in government credit. However, Bitcoin can circulate freely among different users. It can be obtained through labor production “mining” based on the original acquisition basis of property rights, or it can be obtained through inheritance such as buying and selling, giving, etc. Compared with the five major functions of currency, namely value In terms of scale, means of circulation, means of storage, means of payment and world currency, it seems to have the function of currency.

The author believes that digital currency represented by Bitcoin is different from legal currency. It has not been uniformly issued by the People’s Bank of China, and its currency attributes and status have not been legally confirmed. There is no basis for determining that it is a currency in the legal sense. The “Notice” issued by the People’s Bank of China and other ministries and commissions in 2013, the “Announcement” issued by seven departments including the People’s Bank of China in 2017, and the “On Preventing Virtual Currency” jointly issued by the China Internet Finance Association, China Banking Association, and China Payment and Clearing Association in 2021 “Transaction Speculation Announcement” all deny the monetary attributes of virtual currencies and believe that virtual currencies should not and cannot be used as currency in the market. Analyzing the above regulations, it can be seen that although financial institutions and payment institutions are not allowed to carry out digital currency-related businesses, and no organization or individual is allowed to illegally engage in token issuance and financing activities, the official does not prohibit digital currency and legal transactions between individuals. currencies, and transactions between digital currencies. In real life, the way people obtain digital currency is to transfer it to each other through real currency as a medium, and its property value is reflected. Digital currency can be stored on the public key by establishing an electronic wallet, and the owner can pay and transfer it at any time through a specific private key, and has absolute control over it. The perpetrator’s purpose of stealing mainstream digital currencies such as Bitcoin is not to obtain computer data, but to obtain property interests in digital currencies. It is determined that illegally obtaining computer information system data not only makes it difficult to fully evaluate the perpetrator’s behavior, but also fails to reveal the nature of the behavior. essential characteristics. All in all, digital currency is not currently recognized as currency in our country, and there are different descriptions of its characterization as commodities and funds. However, it is not contraband, and its property attributes cannot be completely denied.

4. Analysis of the Judicial Disposal Path of Digital Currency

Since the property attribute of digital currency cannot be avoided, the various difficulties faced in judicial disposal can be improved from the following aspects:

(1) Establishing a double-layered litigation target of “people” and “things”

Establish a dual-level litigation goal of conviction and sentencing of “people” and recovery of stolen goods and damages of “things”. The traditional concept of “heavy convictions and sentencing, light recovery of stolen goods and damages” is no longer able to meet the needs of current trial tasks when property-related crimes, especially digital currencies, are increasingly becoming an important part of the review of criminal cases. Therefore, the concept should be changed. By changing the traditional legislative orientation of obtaining and fixing evidence for coercion of “things” and the ultimate goal of correct conviction and sentencing, we can timely establish a two-tiered litigation goal that pays equal attention to “persons” and “things”.

(2) Establishing targeted enforcement measures for digital currencies

Establish targeted enforcement measures against stolen money and stolen goods such as digital currencies. The current measures such as inquiry, seizure, sealing, and freezing of property involved in the case are mainly aimed at ascertaining criminal facts, fixing criminal evidence, and for the People’s Court to investigate and verify evidence. However, the inquiry, seizure, sealing, and freezing of property, especially digital currency, , that is, the relatively independent legal system for coercive measures and physical disposal of “things” is not yet complete. A complete set of coercive measures can be established based on the characteristics of digital currency. For example, the seizure list indicates the type, address, quantity, etc. of the digital currency, and clearly defines the seizure and storage method; designates specialized personnel to generate new private keys and addresses, and store them on mobile hardware isolated from the network to avoid being stolen through the network. .

(3) Establish a new mechanism for identifying digital currency property attributes

Establish new mechanisms for auditing, evaluating, and price determination of digital currencies. What is more important in the trial of property-related crime cases is to find out the source, whereabouts, nature identification, value assessment, price determination, etc. of the property. In judicial practice, these need to be achieved through auditing, asset evaluation, price determination, etc. However, the current legal regulations only stipulate one type of “forensic appraisal”, which focuses on solving the causal relationship of personal injuries. There are currently no relevant measures to recover the stolen goods, especially digital currencies. It is recommended that under the criminal prosecution target system, the audit and evaluation of digital currencies should be improved, such as selecting third-party institutions to realize them based on comprehensive factors such as reputation, ability, commission, etc., and judicial organs supervising the entire realization process, etc.