In the past week, many friends of attorney Mankiw have been discussing one thing: the Shanghai High Court published an article titled " Issuing Virtual Currency for High-Amount Financing, What's the End? " The author clearly stated in the article that it is not illegal for individuals to hold virtual currency.
*Image source: Screenshot of WeChat article
As soon as this article came out, the domestic cryptocurrency circle was like "Chinese New Year", and various self-media wrote articles to promote this good news, as if this article represented that my country had begun to relax restrictions on virtual assets. Here, lawyer Mankiw had to "pour two basins of cold water" on everyone, slightly reduce everyone's enthusiasm for virtual asset investment, and awaken everyone's rationality.
The first basin of cold water: holding is never illegal
If we carefully review our country's policy documents on virtual currency, we will find that for a long time, it has not been illegal for individuals to hold virtual currency.
Many current characterizations of illegal activities related to virtual currencies originate from the "924 Notice" issued in 2021. In the document, the People's Bank of China and ten other ministries and commissions clearly stated that virtual currencies do not have the legal status of legal tender and are not legally enforceable; virtual currency-related business activities are illegal financial activities, including providing trading services, exchange services, issuing virtual currencies, etc. However, this document does not mention the illegality of "individuals holding virtual currencies" throughout.
In other words, holding virtual currency is currently in a gray area that is not illegal. The Shanghai High Court's article actually just reiterates this point and does not represent a relaxation of the policy.
Although the law does not explicitly prohibit individuals from holding virtual currencies, its legality has not been fully recognized. However, virtual currencies have been regarded as a type of virtual property in some cases. For example, in 2019, the Hangzhou Internet Court determined that Bitcoin has property attributes and meets the legal characteristics of virtual property. The final judgment supported the plaintiff's request for the defendant to return the illegally transferred Bitcoin. For another example, in 2021, the Nanshan District Court of 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 situations, and the judgment supported the plaintiff's request for return.
As a form of virtual property, virtual assets are similar to QQ coins and rare game props, and it is certainly not illegal to hold them.
The second basin of cold water: the premise of holding is to obtain
However, many people overlook a key issue: the basis of holding is "acquisition". Currently, there are many ways to obtain virtual assets. Although most of the acquisition methods are not directly illegal, in some situations, legal risks may arise due to the operation method or source of funds. The following are the main acquisition methods listed by attorney Mankiw for your understanding:
1. Purchase on your own
Purchasing virtual currency is one of the most common ways to acquire virtual assets. From a legal perspective, according to the "924 Notice", virtual currency is not legally forfeitable and is not protected by law, but the document does not explicitly stipulate that "purchasing behavior" is illegal. Therefore, it is not illegal for individuals to purchase virtual currency on their own under current laws. However, it must be noted that virtual currency trading activities are not protected by law, which means that once a transaction results in a loss of funds, it is extremely difficult for individuals to defend their rights, and they may not even receive legal support.
In addition, the "legality" of the purchase behavior also depends on the compliance of the specific transaction method and the source of funds. For example, although the purchase of coins through overseas exchanges is not illegal in itself, it may involve issues such as foreign exchange management and tax declaration; and obtaining virtual currency through over-the-counter (OTC) transactions may bring higher compliance risks due to anonymity and lack of third-party protection. Especially in OTC transactions, information asymmetry can easily lead to fraud or financial losses.
At the same time, a common illegal situation in the sale of virtual assets in my country is that the source of transaction funds is unknown, or even involves "black money". If the buyer purchases suspected illegal virtual currency without knowing it, even if the purchase behavior itself is not illegal, it may face account freezing due to indirect participation in illegal fund flow.
2. Participate in mining
Obtaining virtual currency through mining was once one of the main ways for investors, especially during the Bitcoin and Filecoin boom. However, with policy changes, the legality of mining has gradually become complicated.
From a policy perspective, the "Notice on the Rectification of Virtual Currency "Mining" Activities" issued in 2021 clearly lists mining as an eliminated industry, and requires a comprehensive cleanup of new mining projects and an accelerated exit from existing projects. This means that large-scale mining activities have been clearly restricted by national policies. If mining activities lead to high energy consumption or environmental damage, or even involve problems such as illegal use of electricity, they may be deemed to violate public order and good customs or green principles and be invalid. For example, in a contract dispute between a Shanghai company and a Beijing company, the court held that mining activities were energy-intensive, high-risk, and not conducive to the country's green development goals, and therefore determined that the relevant contract was invalid.
So, is individual mining illegal? At present, my country has not made any legal provisions that directly prohibit small-scale individual mining. In theory, individuals who purchase mining machines through legal means and use their own electricity resources to mine do not violate current laws. However, in practice, some mining activities may touch the bottom line of the law because they involve illegal means or improper operations. For example:
Illegal electricity use. Some miners mine by stealing electricity resources, such as by modifying electricity meters to reduce electricity usage records or directly connecting to illegal power grids. These actions not only constitute civil torts, but may also be suspected of theft.
Illegal use of other people’s computing resources. The act of controlling other people’s computers to mine through malicious programs may constitute the crime of destroying computer information systems, which is a criminal offense.
Financial compliance risks. If the virtual currency obtained from mining involves illegal transactions or capital flows, such as money laundering, tax evasion, etc., miners may be held accountable for relevant legal responsibilities.
3. Participate in investment
Another common way to obtain virtual currency is through investment projects, especially in the early blockchain industry, where ICO (initial coin offering) was all the rage. However, the "legality" of this method varies depending on the specific operation mode, and the potential legal risks are high.
First, from a legal perspective, ICO is a clear illegal financial activity in China. As early as the "94 Document" (Announcement on Preventing the Risks of Token Issuance and Financing) issued in 2017, the People's Bank of China and seven other ministries and commissions clearly prohibited the raising of funds through ICO and required the cleanup of existing projects. ICO is regarded as an unauthorized financing behavior, suspected of illegal fundraising, illegal issuance of securities, etc. If investors participate in such financing activities, they may suffer financial losses due to the project party running away.
Different from ICO, in recent years, participating in investment as a VC and obtaining project tokens has gradually become a popular financing model. Investors directly inject capital into blockchain projects in exchange for tokens distributed by the project party. Although this method seems to avoid the compliance risks of ICO, its legal risks should not be ignored:
First , the projects that VCs participate in will themselves involve compliance issues, such as if the invested projects are suspected of illegal issuance of securities.
Secondly , the transparency and legality of token distribution are equally important. If the tokens obtained by VC investment do not clearly stipulate the use or rights, it may cause disputes. For example, some projects attract funds through inflated token valuations, but investors' rights are damaged when the project stagnates or operates poorly in the later stage.
4. Participate in activities
Obtaining virtual currency by participating in activities organized by the project party, such as airdrops and new user rewards, appears to be the lowest-cost and simplest way, but there may be many legal and compliance risks behind it.
From a legal perspective, airdrops themselves are not illegal , especially when users do not pay consideration or commit to specific obligations. However, many projects use airdrops as a cover to expand their influence and attract users to participate in subsequent illegal activities. For example, some projects guide users to download DApps through "airdrop tokens" and ultimately use these platforms to conduct false transactions, money laundering or other illegal activities.
Rewards for bringing in new members is another common activity model, especially in projects that need to quickly expand their user base. Such activities usually use the number of referrals or transaction amounts as reward criteria to attract users to continue to bring in new members. However, models with three or more rebate levels are easily identified as pyramid schemes . If a project uses the number of people directly or indirectly developed as a reward basis, it may be suspected of being illegal, and participants may also bear legal responsibility.
In addition, some activities also induce users to top up or invest by promising high returns. Such activities are often under the guise of "more new members, more rewards", but have no real value support, and are typical Ponzi schemes . In this case, whether you participate in the promotion or not, you may be involved in legal disputes.
Attorney Mankiw recommends
·Compliance first, choose reasonable channels
When purchasing, mining or participating in activities, investors need to ensure the legality of the transaction method and source of funds, and avoid cooperating 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 ICOs that are clearly prohibited, or new customer attraction rewards and pyramid schemes with high-return promises. 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, asset protection, etc., consult professional lawyers in a timely manner to ensure that your rights and interests are protected.
The development of virtual currencies is full of opportunities, but also comes with risks. As an investor, you must be sensitive to laws and regulations, operate prudently, invest rationally, and seek a balance between innovation and compliance.
