Introduction
The advent of Web 3.0 has ushered in transformative technologies like blockchain, AI, and big data, reshaping socio-economic landscapes. Among these innovations, virtual currencies have garnered significant investor interest due to their decentralized nature, traceability, fixed supply, global accessibility, and inflation-resistant properties. However, their rise also presents unprecedented challenges to monetary policies and financial regulation.
China's regulatory stance on virtual currencies has evolved from relative neutrality to stringent prohibition. Initially recognizing their commodity attributes while denying monetary status, authorities have increasingly clamped down on related activities—even categorizing some transactions as illegal. This policy shift has created fluctuations in judicial interpretations, significantly impacting the legal risks for participants in this space.
This article examines the historical progression of virtual currency regulation in China, analyzes judicial rulings before and after key policy changes, and explores the resulting criminal liabilities. Our goal is to provide clarity on navigating this complex legal landscape.
Part 1: The Evolution of Virtual Currency Regulation
(1) Pre-Virtual Currency Era (2007-2009)
Before Bitcoin's emergence, China focused on regulating game tokens used for gambling:
- 2007 Notice: Prohibited converting game tokens to cash/services
- 2009 Definition: Classified game tokens as "virtual exchange tools" distinct from cryptocurrencies
(2) Initial Bitcoin Regulation (2013)
The People's Bank of China (PBOC) and four ministries issued pivotal guidance:
- Recognized Bitcoin as a "specific virtual commodity," not currency
- Banned financial institutions from Bitcoin-related services
- Maintained limited tolerance for trading platforms
(3) Crackdown on ICOs (2017)
PBOC's September 2017公告:
- Declared Initial Coin Offerings (ICOs) illegal fundraising
- Prohibited trading platform operations
- Triggered mass migration of exchanges overseas (e.g., BTC China's shutdown)
(4) Full Criminalization (2021)
The September 2021 joint notice marked a turning point:
- All virtual currency-related activities deemed illegal financial operations
- Extended jurisdiction over offshore platforms serving Chinese users
- Coordinated with bans on cryptocurrency mining
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Part 2: Judicial Perspectives in Civil Cases
Courts have shifted positions alongside regulatory changes:
Pre-2021 Recognition Period
Hangzhou Internet Court (2019): Affirmed Bitcoin's property attributes based on:
- Value: Embodied labor and exchange potential
- Scarcity: Fixed 21 million supply
- Transferability: Clear ownership boundaries
- Beijing Court (2018): Protected Bitcoin under contract law
Post-2021 Rejection Phase
Two dominant approaches emerged:
Dismissal of Claims
- Zhejiang courts: Ruled virtual currency disputes "non-justiciable"
- Beijing courts: Deemed contracts legally unenforceable
Invalidation with Remediation
- Guangdong High Court: Reversed arbitration awards involving crypto-to-fiat conversions
- Shanghai Courts: Ordered token returns or market-value compensation
Part 3: Criminal Risks in Virtual Currency Activities
(1) Illegal Fundraising (Art. 176 Criminal Law)
Case Examples:
- LCC film blockchain token sales (2020)
- Bitcoin miner leaseback schemes (2019)
- Tether (USDT) investment fraud (2021)
(2) Illegal Business Operations (Art. 225)
Key Indicators:
- Operating unlicensed trading platforms
- Facilitating crypto-fiat exchanges
- 2023 Supreme Prosecutorial Case: USDT-RMB conversions as "disguised forex trading"
(3) Other Criminal Exposure
Organizational Crimes:
- Pyramid selling (Zhejiang 2019)
- Money laundering (Xinjiang 2020)
Ancillary Offenses:
- Aiding cybercrunctions (Zhejiang 2020)
- Handling stolen goods (multiple jurisdictions)
(4) Seized Asset Disposal Challenges
Authorities face dilemmas when confiscating cryptocurrencies:
- No domestic liquidation channels
- Cross-border sales raise transparency concerns
- Price volatility complicates fair valuation
FAQs
Q1: Are Bitcoin transactions completely illegal in China?
A: While personal holdings aren't criminalized, all commercial activities (trading, mining, intermediation) are prohibited since 2021.
Q2: Can I recover funds from failed crypto investments through Chinese courts?
A: Post-2021 cases typically dismiss such claims, though pre-2021 contracts may receive limited protection.
Q3: What penalties apply to operating a virtual currency exchange?
A: Risks include 5+ years imprisonment for illegal business operations and/or fines up to 5x illicit gains.
Q4: How do authorities track offshore crypto transactions?
A: Through bank transaction monitoring, IP address tracing, and international cooperation frameworks.
Q5: Is mining cryptocurrency at home still risky?
A: Yes, all mining activities—whether individual or industrial—are banned under 2021 regulations.
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Conclusion
China's virtual currency regulatory framework demonstrates three clear trends:
- Expanding Prohibitions: From ICOs to mining and now cross-border services
- Judicial Alignment: Courts increasingly defer to administrative determinations
- Enforcement Prioritization: Focus on preventing capital flight and financial instability
Participants must weigh these realities against the evolving international landscape where many jurisdictions are establishing structured crypto governance regimes. Prudent risk assessment and legal compliance remain paramount in this high-stakes environment.