The rise of digital currencies like Bitcoin has sparked a global conversation about their legitimacy, value, and legal status. As more individuals invest in cryptocurrencies, questions about ownership, security, and legal protection have become increasingly urgent. One landmark case recently brought these issues into sharp focus — a Bitcoin dispute heard by the Hangzhou Internet Court on May 22.
A Landmark Case: Bitcoin Investor Seeks Legal Recourse
In a precedent-setting hearing, Wu, a Chinese investor, sued a Shanghai-based tech company that operated the now-defunct "FXBTC" platform. Five years ago, Wu purchased 2.675 Bitcoins through the website. However, when he attempted to log in again in May 2017, he discovered the site had shut down with no warning — and the operators were unreachable.
Wu argued that the company failed to notify users before closing the platform, resulting in the irreversible loss of his digital assets and significant financial harm. He is seeking compensation for his losses, raising a critical question: Can cryptocurrency be considered legally protected property under current laws?
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Understanding Bitcoin: From Digital Code to Virtual Commodity
Bitcoin, introduced in 2009, is a decentralized, peer-to-peer digital currency based on cryptographic code. Unlike traditional money issued by governments, Bitcoin is generated through complex computational processes known as mining. Its total supply is capped at 21 million coins — a design feature that ensures scarcity and controls inflation over time.
This scarcity has contributed to Bitcoin’s growing appeal as both an investment vehicle and a store of value. In countries like the United States, Japan, and Germany, Bitcoin is recognized as a legal financial asset and can be freely exchanged for fiat currencies. It’s also accepted by some merchants as a method of payment.
However, regulatory approaches vary widely across jurisdictions. In China, Bitcoin occupies a unique legal gray area.
China’s Regulatory Stance: Virtual Goods, Not Legal Tender
According to the Notice on Preventing Bitcoin Risks, jointly issued by the People’s Bank of China and other regulatory bodies in September 2013, Bitcoin is classified as a "virtual commodity" rather than legal tender. This means:
- It cannot be used as currency in everyday transactions.
- Financial institutions and payment platforms are prohibited from engaging in Bitcoin-related services.
- Initial coin offerings (ICOs) and token-based fundraising are banned due to risks of fraud, illegal fundraising, and pyramid schemes.
In line with this policy, Taobao announced in January 2014 that it would no longer allow the sale of Bitcoin, Litecoin, and other virtual currencies on its platform.
Despite these restrictions, private ownership and trading of Bitcoin are not explicitly illegal — provided individuals assume full responsibility for the risks involved.
Is Cryptocurrency Considered Property Under Chinese Law?
One of the most important developments in this space came with the inclusion of virtual property in China’s Civil Code (formerly addressed in the General Principles of Civil Law). This legislative step recognizes digital assets — including game accounts, virtual items, and potentially cryptocurrencies — as legitimate forms of property eligible for legal protection.
This means that if your Bitcoin was acquired legally, it may qualify as personal property deserving legal safeguards, even if its use or exchange is restricted.
In Wu’s case, the court must determine whether the FXBTC operator had a duty to protect users’ assets. If the company shut down without prior notice or opportunity for users to withdraw their holdings, it could be seen as breaching its obligations — especially since users entrusted their digital assets to the platform.
On the other hand, if the company had published a clear shutdown notice well in advance and provided sufficient time for withdrawals, it might be deemed to have fulfilled its responsibilities — limiting or eliminating liability.
Key Legal Distinctions: Investment vs. Illegal Fundraising
It's crucial to distinguish between individual cryptocurrency investment and regulated financial activities:
| Activity | Legal Status in China |
|---|---|
| Buying or holding Bitcoin privately | Permitted (with risk assumed by user) |
| Using Bitcoin as currency | Prohibited |
| Financial institutions trading Bitcoin | Banned |
| ICOs or token-based fundraising | Illegal |
The government’s primary concern lies with systemic risks — such as money laundering, capital flight, and unregulated securities offerings — not with individual ownership per se.
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Frequently Asked Questions (FAQ)
1. Is owning Bitcoin illegal in China?
No. While financial institutions are barred from handling Bitcoin transactions, individuals may legally own and trade Bitcoin at their own risk.
2. Can I sue if I lose access to my cryptocurrency?
Yes — if you can prove ownership and demonstrate negligence or breach of contract by a third party (e.g., an exchange), you may have grounds for legal action.
3. Is cryptocurrency protected under Chinese civil law?
Yes. Virtual property is recognized under Article 127 of the Civil Code, which supports the idea that legally obtained digital assets can be protected.
4. What should I do to protect my digital assets legally?
Keep detailed records of transactions, wallet addresses, and communications with platforms. Use secure storage methods like hardware wallets and avoid unregulated exchanges.
5. Can I get compensation if an exchange shuts down?
Possibly — but only if the operator failed to fulfill its duty (e.g., no warning before closure). Courts will assess whether proper procedures were followed.
6. Does China recognize Bitcoin as money?
No. The PBOC explicitly states that Bitcoin is not legal tender and cannot be used for pricing goods or services.
The Road Ahead: Clarity Through Case Law
While regulations remain cautious, judicial rulings like the FXBTC case are helping shape a clearer legal framework for digital assets. As courts begin to treat cryptocurrency as a form of virtual property with economic value, we may see stronger protections emerge — especially around transparency, user rights, and platform accountability.
For investors, this underscores the importance of using reputable platforms, understanding jurisdictional rules, and staying informed about evolving legal standards.
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Final Thoughts
Cryptocurrencies like Bitcoin challenge traditional notions of money and property — but they also demand modern legal responses. In China, while full legalization remains off the table for now, the door is open for recognizing digital assets as protectable property under civil law.
As technology evolves and adoption grows, clearer legislation will likely follow. Until then, cases like Wu’s serve as important milestones — reminding us that even in the digital realm, rights matter.
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