introduction
Yesterday, Lawyer Liu (web3_lawyer) just wrote an article titled " Is the "distant-sea fishing" in the cryptocurrency circle coming to an end? ", talking about the legal risks of people in the domestic crypto industry. This morning, I saw a piece of news: Hangzhou, which is also a hot area for web3 entrepreneurship in China, has been investigating crypto practitioners in its jurisdiction since June 8.
1. What are the police investigating?
According to an article by a blogger on the online platform (@mirrorzk), encryption practitioners in Hangzhou were verbally notified by the police to bring their laptops to the police station to cooperate with data collection, information recovery, and record keeping. The person under investigation said that the police used collection equipment to recover chat records from the uninstalled Telegram and Slack software.
According to the blogger's analysis, the cryptographic practitioners that Hangzhou is currently focusing on include:
(1) Those who have participated in token issuance/project financing experience;
(ii) Companies or individuals that have a record of raising funds overseas, repatriating financing, making cross-border transfers, or engaging in USDT off-site activities;
(III) (web3) Community operators or people with a background in attracting new users (such as KOLs, DAO managers, node operators, etc.)
The blogger analyzed that the investigation in Hangzhou may be a prelude to a nationwide investigation, because Hangzhou Public Security Bureau has leading technology in the field of blockchain, and Hangzhou has gathered web3 talents second only to Shenzhen (Lawyer Liu’s personal opinion), as well as the booming cross-border virtual currency transactions in Hangzhou and even the whole of Zhejiang, etc., which determined that Hangzhou would become the first city to conduct a large-scale investigation of the domestic currency circle.
2. Lawyers judge why crypto practitioners are investigated
From the perspective of a web3 lawyer, I personally would like to be more conservative and say that there is currently no particularly sufficient evidence to prove that mainland China will "crack down" on the cryptocurrency industry on the basis of the "9.24 Notice". However, if the Hangzhou incident is indeed true , the following factors need to be considered:
(1) There may be a large cryptocurrency team in Hangzhou involved in a criminal case, which has led to an investigation and investigation of all crypto practitioners in the Hangzhou area, mainly to confirm the possibility of crypto practitioners being involved in criminal cases;
(ii) Based on relevant clues from financial regulatory authorities such as the State Administration of Foreign Exchange and the People's Bank of China, the public security investigation of crypto practitioners within its jurisdiction is mainly based on the future regulation of cryptocurrencies in the financial sector;
(III) Based on the considerations of the tax department, since cryptocurrencies are a natural tax avoidance tool, if my country wants to impose taxes on cryptocurrency holders in the future, it also needs to start from the pilot cities to “cross the river by feeling the stones” and establish a basis for future taxation of crypto assets.
It is important to note that in my country, citizens' private property cannot be searched or seized by anyone without legal procedures. The public security organs (police) do have legal basis for verbally summoning citizens to cooperate with the investigation; however, if the data in the citizen's laptop is to be recovered through technical means, legal procedures must be followed (such as issuing a "seizure decision"), and it cannot be done simply by verbal request.
3. Is the mainland’s crypto winter coming again?
Since ten national ministries jointly issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Transaction Speculation" (hereinafter referred to as the "9.24 Notice") on September 15, 2021, my country has banned almost all virtual currency-related business activities.
The state regards the exchange of virtual currency for legal currency, exchange of virtual currency between virtual currencies, buying and selling virtual currency as a central counterparty, providing information intermediary and pricing for virtual currency transactions, token issuance financing, and virtual currency derivative transactions as illegal financial activities in the mainland. They are strictly prohibited and banned. Those who constitute a crime will be held criminally liable.
At the same time, mainland China does not allow any domestic or foreign virtual currency exchanges to conduct business, and those who provide services (marketing, payment settlement, technical support, etc.) to foreign virtual currency exchanges will also be held legally responsible. In addition, my country requires financial institutions and non-bank payment institutions not to provide services for virtual currency transactions (you usually use WeChat, Alipay, and bank cards to buy and sell virtual currencies, which is actually a violation of the "9.24 Notice"), and mainland China's enterprises and other entities cannot contain words such as "virtual currency", "virtual assets", "cryptocurrency", and "encrypted assets". Together with the "9.3 Notice" prohibiting mining in 2021 ("Notice on the Regulation of Virtual Currency "Mining" Activities"), these regulations basically completely isolate mainland China from virtual currency-related businesses.
However, the "9.24 Notice" also stipulates that "any legal person, non-legal person organization or natural person who invests in virtual currency and related derivatives and violates public order and good morals shall have the relevant civil legal acts invalid, and the losses caused by it shall be borne by themselves ." This provision has been interpreted by many legal practitioners as: China does not prohibit virtual currency investment, but it does not protect it either. Lawyer Liu also holds this view in his previous article, because as long as China does not explicitly prohibit citizens from investing in virtual currency, no one can say that buying and selling virtual currency in China is illegal.
However, legal theories are all beautiful. In practice, we have encountered too many people who were convicted and sentenced simply because they received stolen money from buying and selling virtual currencies (subjectively, they can clearly prove that they had no criminal intent). Therefore, if you want to completely eliminate legal risks in the cryptocurrency circle, I now recommend that mainland citizens do not speculate or trade in virtual currencies.
Back to the Hangzhou incident, it is indeed impossible to rule out that this is the prelude to a nationwide "currency ban". But it is also possible that it is simply because of some legal incidents in the Hangzhou crypto circle, which cannot be expanded into a national movement in the future. At least for now, it is not certain that the mainland crypto industry will encounter another cold winter.
4. Final Thoughts
In the policy guidelines released on May 30, the Monetary Authority of Singapore (MAS) stipulated the strongest web3 regulation in Singapore's history, which was implemented on June 30 this year; on the basis of the "9.24 Notice", the judicial authorities in mainland China continued to crack down on currency-related businesses; Hong Kong claimed to be open to web3, but the actual actions were half-hidden, and the US encryption policy was actually not that friendly...
No one can predict how cryptocurrencies, which are characterized by decentralization and anonymity, will develop in the future. Back then, the rise of Bitcoin was not based on actively moving closer to centralized institutions and organizations and showing loyalty; it relied on its technical consensus to be continuously accepted by the general public who knew or did not know blockchain technology, and eventually forced more centralized institutions (such as multinational companies, government agencies, etc.) to accept it. Therefore, true crypto believers do not need to care about what centralized institutions do to cryptocurrencies, but should continue to work hard to make cryptocurrencies truly reflect their value.
