The Shanghai No.2 Intermediate People’s Court in China has issued a report (Report) suggesting that digital currencies including Bitcoin have proprietary characteristics, such as scarcity, and inherent value. The Report was written by a judge at the Shanghai Court, and published on the Court’s Wechat channel, a popular Chinese social media platform.
Published on 25 September, the Report emphasizes that the current ambiguity surrounding the legal and proprietary status of digital currencies has posed significant challenges where they become the subject of judicial proceedings.
The Report indicated that digital currencies such as Bitcoin possess proprietary attributes, partly due to the fact that they are unique and non-replicable. Unlike other traditional virtual currencies (the Report mentions Q coin as an example, which is an in-app payment coin issued by WeChat’s mother company), digital currencies have generally-recognized scarcity. Therefore, their proprietary value cannot be ignored in day-to-day life or the financial sector.
Proposing that Bitcoin and other digital currencies should be recognised by the law as property, the Report compares and clarifies different guidance by the Chinese authorities’ issued at different times:
In the 2013 Notice on Preventing Risks in relation to Bitcoin by China’s central bank, Bitcoin is believed to be a specific type of “virtual commodity” that “cannot and should not be used as currency for circulation on the market”.
However, while both the 2017 Statement on Prevention of Financing Risks relating to Coin Offering and the 2021 Notice on Further Preventing and Addressing Virtual Currency Exchange Risks by China’s central bank continued to deny the currency status of digital currencies, they dropped the language referring to digital currencies as commodities. Instead, they indirectly acknowledged the financial/capital characteristics of digital currencies, by categorising public coin offering as unlicensed capital raising.
Interpreting this guidance, the Report clarifies the common view that Bitcoin, and all other digital currencies are the subject of a blanket ban in China. Instead, the Report says the Chinese authorities’ guidance should be understood as:
Financial and payment institutions are not permitted to conduct digital currency-related business, and no organisation or individual is allowed to publicly raise capital by offering digital currency, but the government has never prohibited peer-to-peer exchange between digital currency and fiat currency, and between different digital currencies.
In conclusion, digital currencies are not fiat currency in China, there are different views as to whether it is a commodity or capital, but it is not prohibited, and its proprietary attributes cannot generally denied.
While this Report is not an official decision by the Shanghai court, it represents a growing consensus within China’s legal and judicial system that, despite the country’s overall skepticism towards digital currencies, their proprietary attributes cannot be ignored, which has clear implications for judicial proceedings and enforcement. The Report may pave the way for Bitcoin and other digital currencies in China to gain a measure of legitimacy. It is also consistent with the growing trend in China to recognize and protect other digital assets, for example, a Chinese court's judgement earlier this year recognising non-fungible tokens (NFTs) as property.
Following this trend, it is entirely possible that there will soon be official judgments from superior Chinese courts that recognize digital currencies as personal property and which should be protected by law. By recognising digital goods as property, mainland China would join a growing international consensus among many jurisdictions, including Hong Kong, which recognised crypto as property earlier this year.
Written by Jake Huang and Steven Pettigrove