Digital assets recognized as legal property in China

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Digital assets are legal property in China, according to a report published by the People’s Court of China, putting China among a cohort of jurisdictions that have explicitly recognized that property rights apply to digital assets in the same way they do any other.

“Virtual currency is not classified as an illegal item. Therefore, under the current legal policy framework, the virtual currency held by relevant entities in our country is still legal property and protected by law,” the document read as quoted by a local news outlet.

The report suggests some openness to digital assets, which reflects a China that has warmed to the industry in recent years. The country doubled down on its ban on digital asset transactions in 2021, with the People’s Bank of China (PBoC) expressing concerns that the use of digital assets breeds “money laundering, illegal fund-raising, fraud, marketing, and other illegal and criminal activities, seriously endangering the safety of people’s property.”

However, neighboring Hong Kong has made concerted efforts to turn itself into a global digital asset hub and has become a beneficiary of the ban on the mainland. A special administrative region of China, Hong Kong saw state-backed Chinese banks flood into the city to offer services to incoming international firms, leading some to speculate that the region is acting as China’s own regulatory sandbox for digital assets.

The question of whether digital assets amount to legal property is one of the more rudimentary questions posed by the technology. The uncertainty, in large part, comes from the fact that digital assets are created and managed entirely digitally via software operation and are disanalogous to most other forms of property.

As of 2023, the question has largely been answered—at least in many jurisdictions and contexts.

For example, the Internal Revenue Service (IRS) has treated Bitcoin as property since 2014, meaning that investors must pay capital gains tax on each sale. 

In 2022, the U.K. High Court applied the long-standing definition of property to digital assets in deciding that it could grant an injunction over stolen digital assets. Applying the definition of property set out by Lord Wilberforce in the 1965 case National Provincial Bank v Ainsworth, the Judge found that BTC qualified as something that is “definable, identifiable by third parties, capable in their nature of assumption by third parties and having some degree of permanence.”

Further, this year, the Law Commission noted in its digital asset regulation report in 2023 that the recent Court of Appeal judgment in Tulip Trading v Van Der Laan and others, which seeks to show that blockchain developers owe legal duties to those relying on their projects, had ‘brought a high degree of certainty’ to the law and in particular had confirmed that digital assets are legal property.

However, ‘property’ means different things in different contexts. For instance, a finding that BTC is property for the purposes of a proprietary injunction does not mean that BTC is ‘property’ for every other purpose. This is further complicated by the potential vast differences between different kinds of digital assets, each with their own nuances, which may change the ‘legal property’ calculation. Short of sweeping legislation, there will likely be no single point at which one digital asset or another is declared ‘legal property.’

Nonetheless, the scope for ambiguity on this point is growing smaller all the time. To the extent that legal systems have commented on the question directly, the answers have all pointed the same way: digital assets are legal property. 

Watch Nouriel Roubini: Bitcoin must embrace the rule of law