Main Points:
- A Shanghai judge ruled that cryptocurrencies have “property attributes” as virtual commodities but not as legal tender.
- Cryptocurrencies are not illegal to hold, but commercial entities cannot issue or trade them in China.
- The court clarified liability in a dispute involving unissued tokens, deeming both parties partially at fault.
- The ruling highlights the ambiguous legal standing of cryptocurrencies in China, amid strict regulatory measures.
Cryptocurrency’s Legal Ambiguity in China
Cryptocurrency has long stood in a legal gray zone in China. A recent judgment from the People’s Court of Songjiang District in Shanghai has shed some light on its legal status. Judge Sun Jie ruled that cryptocurrencies are not recognized as legal tender but can be treated as virtual commodities with property attributes. The case also delves into the challenges of enforcing contracts involving cryptocurrencies within China’s stringent regulatory framework.
Case Background: A Blockchain Investment Gone Awry
The case originated from a 2017 business dispute between an agricultural development company and an investment management firm. The two parties signed a “Blockchain Incubation Contract,” under which the investment firm was to draft a white paper and develop an application to issue tokens. Despite a payment of ¥300,000 (~$46,000) by the agricultural company, no tokens were issued after a year. The investment firm argued that an application needed to be developed before the tokens could be released. Frustrated, the agricultural company filed a lawsuit demanding reimbursement.
Court Ruling: Partial Accountability for Both Parties
The court found both parties at fault for engaging in a contract linked to potentially illegal activities. The investment management firm was ordered to return ¥250,000 (~$38,000) to the agricultural company. Judge Sun Jie clarified that while holding cryptocurrencies is not illegal in China, issuing or trading them as a commercial entity contravenes Chinese law. This ruling reinforces the notion that cryptocurrency transactions remain heavily restricted, though possession is not outright banned.
The Property Nature of Cryptocurrencies
Judge Sun highlighted the dual nature of cryptocurrencies, describing them as virtual commodities with “property attributes.” This classification underscores their potential economic value but differentiates them from state-sanctioned legal tender. The ruling also included a cautionary note about the risks associated with cryptocurrencies, such as facilitating unlawful activities like money laundering, illegal fundraising, and Ponzi schemes.
Cryptocurrencies in China’s Legal Framework
China’s stance on cryptocurrencies has evolved significantly over the past decade. In 2017, the government ordered the shutdown of cryptocurrency exchanges. This was followed in 2021 by stricter regulations from the People’s Bank of China (PBOC) and other government agencies, effectively banning cryptocurrency transactions. Despite these measures, holding cryptocurrency remains legal for individuals, as clarified in this case. However, Judge Sun warned that participants in cryptocurrency-related activities may not be fully protected under Chinese law.
Implications for the Global Crypto Landscape
The Shanghai court’s decision reflects a nuanced approach that acknowledges the economic realities of cryptocurrencies without fully embracing them. While China remains one of the most restrictive countries for crypto trading and issuance, this ruling may signal a subtle recognition of cryptocurrencies’ role in the modern economy. Investors and businesses eyeing the Chinese market should tread cautiously, given the stringent regulations and potential legal risks.
Recent Trends: Cryptocurrency’s Role in Asia
While China maintains its hardline stance, neighboring countries like Japan and South Korea have embraced cryptocurrency regulation. Japan, for instance, recognizes Bitcoin as legal tender, and South Korea recently enacted laws to protect crypto investors. These contrasting approaches highlight the diverse regulatory strategies across Asia and underscore China’s unique position in the crypto world.
Challenges and Opportunities in China’s Crypto Space
Despite the regulatory hurdles, the concept of cryptocurrencies as property could open new avenues for private investments and digital innovation in China. Blockchain technology, which underpins cryptocurrencies, continues to receive state support, particularly in areas like supply chain management and digital yuan development. However, entrepreneurs should be aware of the legal boundaries to avoid penalties.
Walking the Tightrope of Crypto Legality in China
China’s complex relationship with cryptocurrency continues to evolve. The Shanghai court’s decision reiterates that while holding cryptocurrencies is permissible, trading or issuing them remains tightly controlled. This ruling underscores the importance of understanding local regulations and highlights the broader implications for cryptocurrency adoption in one of the world’s largest economies.
