Shanghai court recognizes crypto as property but bans business activities

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As an analyst with extensive experience in the Chinese financial sector and a keen interest in the digital asset space, I find this court ruling intriguing. It represents a nuanced approach by the Shanghai High Court that acknowledges cryptocurrencies as property while maintaining strict control over their use for commercial activities.

According to the Shanghai High Court, cryptocurrencies are considered to have “property-like qualities” according to Chinese legal standards, thereby recognizing them as valuable digital assets or virtual goods.

In summary, the court supported China’s firm restriction on cryptocurrencies being utilized in commercial transactions like token issuance and speculative trading, as stated in the court decision.

The origin of this decision stemmed from a disagreement between an agricultural development corporation and a financial investment organization, arising from the unsuccessful debut of a cryptographic token they had jointly planned.

The case, adjudicated by the Songjiang District People’s Court, highlights the ongoing tension between China’s recognition of crypto as property and its crackdown on crypto-related financial activities.

Court rules on token issuance dispute

The conflict dates back to 2017, during a cryptocurrency market boom. The agricultural company, referred to as Company X in court documents, sought to issue tokens and raise funds through a “Blockchain Incubation Agreement” with the investment firm, identified as Company S.

As per the contract, Company S was assigned to create a white paper and oversee the token issuance utilizing blockchain technology. In return, Company X remunerated a service charge amounting to 300,000 yuan or approximately $41,000.

About a year past, no tokens were distributed as promised by Company S, who asserted that more work on the app development was required – expenses not accounted for in the deal. Growing aggravated, Company X filed a lawsuit aiming to end the contract and reclaim their payment.

The court declared that the agreement was not valid, explaining this by referring to China’s law which considers token issuance as an illegal financial action similar to unauthorized crowd funding without a license. Although both firms were found responsible, it was decided that Company S should refund 250,000 yuan of the service fee to Company X.

Legal status of crypto in China

In simpler terms, the court made it clear that while digital currencies are classified as assets and aren’t outright prohibited, any business transactions connected with them are still forbidden. This rule highlights China’s overall strategy of preventing financial chaos and illegal activities linked to cryptocurrencies like fraud and money laundering.

As a crypto investor, I’ve learned that personally holding digital currencies is within the law. Yet, dabbling in crypto business endeavors could potentially expose me to substantial legal complications.

Crypto implications in China

The court’s decision reflects China’s ongoing “high-pressure” stance against speculative cryptocurrency activities aimed at maintaining financial order.

The judgment serves as a warning about the legal risks associated with participating in crypto transactions or launching token projects without proper authorization. Contracts found to violate financial regulations are likely to be deemed invalid, limiting legal recourse.

As I navigate the complexities of the Chinese cryptocurrency legal landscape, I find myself repeatedly reminded by the presiding judge’s insistence on meticulous adherence to financial regulations to prevent similar outcomes. This serves as a crucial guidance for all entities involved.

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2024-11-19 23:18