From the legal nature of Bitcoin on bitcoin dispute adjudication ideas

Original title: "From the Legal nature of Bitcoin on Bitcoin Dispute adjudication ideas"
Original author: Wang Jin

Bitcoin was introduced on October 31, 2008, with the publication of A paper by Satoshi Nakamoto titled Bitcoin: A Peer-to-peer Electronic Cash System.

On January 3, 2009, the Bitcoin creation block was created in Helsinki, Finland. The birth of Bitcoin marks the acceleration of the Internet characterized by information generation and flow into a new era of value Internet characterized by value generation and transfer.

I. Introduction to Bitcoin and its legal nature

1. Introduction to Bitcoin

Bitcoin is a user autonomous, cross-border, decentralized cryptographic electronic currency. It is an open source program with currency issuance, transaction and account management generated on P2P and other network and distributed database platforms by combining the open source software engineering model, cryptography principle and workload proof mechanism.

Each participant executes a specific algorithm to solve a problem successfully, and is given a chance to receive a certain amount of bitcoin as a reward. This method of obtaining bitcoin is called "mining."

In addition to the original mining method, bitcoins can be obtained by trading on the Bitcoin exchange network.

Due to its technical nature, the total number of Bitcoins is limited, and it is estimated that the maximum number of bitcoins will reach 21 million by 2140. Bitcoin has been followed by digital currencies based on blockchain technology, such as Ethereum, Dash, Cardano and BitShares. For the sake of narration, bitcoin is collectively referred to as these blockchain digital currencies in the following paragraphs.

(ii) Analysis of the legal nature of Bitcoin

At present, there are many controversies about the legal nature of Bitcoin. In the author's opinion, the legal nature of Bitcoin should be determined from the following two aspects:

1. Bitcoin is essentially a digital currency

There is no uniform definition of a digital currency. The BANK for International Settlements defines digital currency as the digital representation of value, which plays the role of transaction, circulation, unit of account and store of value through data exchange. The IMF report notes that digital currencies represent a digital representation of value and are acquired in electronic form, enabling multiple USES such as storage and transactions.

The European Banking Authority (EBA) believes that digital currencies "can represent the value of money in digital form as an instrument of payment, not issued by a central Authority, not linked to legal tender, but accepted by a natural or legal person as a means of payment, and can also be transferred, stored or traded electronically."

As can be seen from the above concepts, there is no international consensus on the concept of digital currency. The author believes that the concept of digital currency varies from different research perspectives, and it also presents dynamic changes along with technological progress and policy changes in various countries.

Therefore, the definition of digital currency should not be limited to existing technological categories and regulatory policies. Instead, it should be dynamically grasped from the perspective of development with an inclusive and prudent attitude and based on its core characteristics.

In general, digital currency should have the following three basic characteristics:

First, in form, it is the non-physical currency developed based on computer technology, which exists in the virtual space and does not take the physical medium as the carrier.

Second, in essence, its security and exclusiveness are guaranteed by mathematical algorithms or encryption techniques.

Third, in terms of effectiveness, it is the type of currency that is issued, controlled, and run independently by the developer (either state or private).

From the perspective of the issuing body of digital currency, digital currency can be divided into central bank digital currency and private digital currency.

The central bank digital currency is issued by the central bank and provides credit endorsement. It is a pure digital currency with sovereignty and legal compensation.

Private digital currencies are pure digital currencies that have no issuer but enable the Internet to pay for some or all of the goods and services in real economic life.

Bitcoin operates on the principle of cryptography and relies on the block chain technology to disclose all transaction information on the platform. It is not issued by the authority with the function of credit guarantee. It is characterized by decentralization, anonymity, network, fixed amount, international circulation and low cost, which fully conforms to the basic characteristics of digital currency.

As the concept of digital currency is mainly used to describe the primary form of the development of blockchain technology, bitcoin, as a typical blockchain currency, has also become the main object of description of digital currency. From the perspective of the issuer, Bitcoin is a private digital currency.

2. Bitcoin is hardly an ideal legal tender

Supporters of Hayek's libertarianism for "non-national money" say yes to arguments about whether Bitcoin can become legal tender.

For example, Selgin (2013) creatively defined Bitcoin as "Synthetic Commodity Money", believing that it can be used as a new base currency with the "dual advantages" of Commodity currency and legal currency.

Harvey (2015) believed that although Bitcoin lacked the support from the government and real commodities, its credit from users also enabled it to be used as a currency.

But Keynesian economists argue that bitcoin's fixed gross currency sacrifices its regulability and, worse, will inevitably lead to deflation, which hurts the broader economy and makes it hard to become legal currency.

The author believes that bitcoin is difficult to become a legal digital currency due to its inherent characteristics. Details are as follows:

(1) The value of Bitcoin is questionable.

According to the essence view of money commodity in the mainstream currency theory, money, as a general equivalent, must have its own value just like the traditional precious metal currency. Although some people believe that Bitcoin has the value of the computing and processing energy consumed by "mining", most scholars hold the opposite attitude.

Hanley (2018) and Yermack (2013) defined Bitcoin as a speculative product, believing that the material consumption in its production process cannot form "intrinsic value". Moreover, from the perspective of the function of currency exchange medium, its current value only depends on its role in commodity trading. Li Chong (2015) strictly distinguished the use value, value and exchange value and believed that there was no use value of Bitcoin except the exchange value, so the labor invested in its production could not form the value, which was fundamentally different from the real commodity currency.

(2) Bitcoin lacks national credit endorsement.

According to the monetary debt theory, money mainly reflects the promise or obligation of the original debtor, while legal tender reflects the debt and commitment of a country to the public supported by its national credit.

Bitcoin, however, is produced by mining and by nature lacks a national credit endorsement, so it cannot become a legal tender.

Krugman (2013) points out that bitcoin is not created or endorsed by countries. Sheng Songcheng and Jiang Yile (2016) believe that there is no centralized issuer of Bitcoin and there is no guarantee of national coercive power. Yi Xianrong (2018) believes that the technical design of Bitcoin itself lacks institutional guarantee, and there is no credit guarantee.

(3) Bitcoin has hidden security risks.

Although the underlying payment system of Bitcoin is secure, the exchanges and payment software derived from it cannot guarantee its security, and bitcoin theft often happens. At the same time, due to the short running time of Bitcoin, some technical vulnerabilities have yet to be improved after being discovered.

(4) Lack of bitcoin supervision.

Bitcoin is designed to circumvent the regulation of any existing organization or institution, which is grossly inconsistent with the regulatory needs of legal tender. However, due to the lack of regulatory mechanism, there is no institution or organization to endorse the credit of Bitcoin, which is easy to breed illegal crimes such as tax evasion, extortion and money laundering.

(5) There is transaction delay in Bitcoin.

It takes 10 minutes for each bitcoin block to be created and 10 minutes for each transaction to be verified. The bitcoin system can only support seven transactions per second, compared with 40,000 transactions per second handled by the global VISA payment network, and alipay's peak rate reached 120,000 transactions per second during the 2016 Double 11 event. The bitcoin transaction delay cannot meet the demand for timely confirmation of transactions.

(6) Bitcoin consumes a lot of energy.

It takes a lot of energy to produce and circulate bitcoins safely. Bitcoin currently consumes about 0.21% of the world's supply of electricity, equivalent to the output of seven advanced gas-cooled reactor (AGR) nuclear plants. Bitcoin USES about 59 terawatt hours of energy a year, compared with about 58 terawatt hours in Switzerland as a whole.

(7) The value of Bitcoin is unstable.

Because bitcoin's fixed growth rules do not match the rapid expansion of demand for it, speculation is rife in the bitcoin market. And speculation undermines the stability of the value of bitcoin, which is inconsistent with the need for a stable currency for fiat money.

It should be noted that whether Bitcoin can become a legal currency in a country mainly depends on the monetary policies of each country. Although no country currently recognizes bitcoin as its legal currency, it must be made clear that this is a matter of fact, not a matter of academic debate.

The above analysis is mainly a theoretical analysis based on the gap between the technical characteristics of Bitcoin and the current requirements for legal tender in various countries.

Ii. China's current regulatory policies on Bitcoin

At present, the regulatory policies for Bitcoin vary greatly from country to country depending on their economic strength and regulatory preferences:

Russian officials have declared bitcoin trading illegal and banned its use within Russia, and imposed administrative fines on the production, use and promotion of virtual currencies such as Bitcoin.

The Bolivian central Bank has issued an official policy saying it is illegal to use any currency not issued by the government or its authorized organizations, including digital currencies such as Bitcoin.

The German government recognizes bitcoin as a "private currency." The German Finance ministry considers Bitcoin a "unit of account," meaning it can be used for tax and trading purposes in the country.

When Japan amended its Capital Settlement Law in 2016, it set up chapter III bis "virtual currency", which was used as a means of settlement and payment, and set clear regulatory regulations on the trading institutions of virtual currency. In the context of the banning of virtual currency exchanges by countries represented by China, Japan has thus become a hot spot for GLOBAL ICOs.

The United States has taken a more nuanced view of Bitcoin, transitioning from positive to cautious. From 2011 to 2016, the US Treasury Department, THE SECURITIES and Exchange Commission and other federal government regulatory authorities repeatedly stated that they recognized bitcoin's innovative contribution to society and supported its development. In 2015, the New York State Department of Financial Services formally promulgated the Virtual Currency Supervision Act. In 2017, the National Unified State Law Commission of the United States passed the Virtual Currency Business Unified Supervision Act.

But since 2017, due to the sharp rise of Bitcoin and the boom of ICOs, the United States has begun to warn investors about the risks of digital currencies and to be cautious about their future development. From the perspective of the US federal government and state governments, Bitcoin is regarded as a financial instrument or security with investment value, but it cannot be regarded as a currency equivalent to the US dollar. In Libra, a global digital currency, Facebook releases a white paper on June 18, 2019. Opposition from the US Congress has not stopped.

Restrictions on currency policy in our country at present mainly include on December 3, 2013, ministry of industry, by the People's Bank of China banking regulatory commission, securities regulatory commission, insurance regulatory commission five ministries issued the notice on preventing the risks of currency (hereinafter referred to as the "notice") and by the People's Bank of China on September 4, 2017, the central net letter office, the ministry, state administration for industry and commerce, the China banking regulatory commission, securities regulatory commission, insurance regulatory commission released seven ministries and commissions of the announcement of for the issue of financing risk prevention tokens (hereinafter referred to as "notice").

Although the effectiveness level of the Notice and announcement is only a departmental specification, it reflects China's current regulatory attitude towards Bitcoin, which mainly includes the following three aspects:

(1) Bitcoin is not legal tender.

Both the Notice and the Notice point out that Bitcoin is not a currency and is not issued by the monetary authorities. It does not have the properties of a currency such as legal compensation or coercion. It does not have the same legal status as a currency, and it cannot and should not be used in the market as a currency. As a result, it operates as legal tender in areas that are not allowed by the government.

(2) Bitcoin is a virtual commodity.

Bitcoin is a virtual commodity, according to the notice. The state does not recognize bitcoin as a virtual currency, but it does recognize it as a virtual commodity. Because the concept of virtual commodity is greater than virtual currency, currency is a special commodity. Bitcoin is not recognized as a currency, but it is considered as a commodity.

(3) The activities related to Bitcoin prohibited by the state are:

A token financing trading platform shall not engage in legal tender and token;

The exchange of "virtual currencies" between each other;

Not to buy or sell tokens or "virtual currency" as a central counterparty;

Services such as pricing and information intermediary shall not be provided for tokens or "virtual currencies".

Financial institutions and non-bank payment institutions shall not directly or indirectly provide account opening, registration, trading, clearing, settlement and other products or services for the issuance and financing of tokens and the "virtual currency", and shall not underwrite insurance business related to tokens and the "virtual currency" or include the tokens and the "virtual currency" in the coverage of insurance liabilities.

Regarding the legal nature of Bitcoin under China's current regulatory system, two points are worth emphasizing:

First, it cannot be regarded as the virtual property of article 127 of general Provisions of civil Law.

Virtual goods are not a legal concept, and the only concept that is similar to it in law is the virtual property stipulated in Article 127 of the General Provisions of civil Law.

Article 127 of the General Provisions of the Civil Law stipulates that if the law has provisions on the protection of data and network virtual property, such provisions shall prevail. However, the general Provisions of civil Law did not make specific provisions on the extension and connotation of virtual property, but only that the protection of virtual property must be stipulated by law, and the specific protection measures of virtual property were handed over to other laws to be stipulated.

As there is no legal provision on Bitcoin in China, it cannot be recognized as a virtual property in the General Provisions of civil Law.

Second, it cannot be considered as a "thing" in the property law.

Based on the numerus clauses principle, bitcoin cannot be regarded as a property under the property law without the explicit stipulation of the law.

To sum up, the state does not prohibit the activities of Bitcoin as a virtual commodity, except the activities of Bitcoin as a legal currency and the activities specified in paragraph 3 above.

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