Breaking $70,000: A Little Advice on Bitcoin Regulation and Governance

Author: Liu Yang; Source: Nakamoto Ritsu

Recently, Bitcoin has successively broken through previous highs, hitting became a hotly searched topic. The author has been undertaking criminal cases and civil cases about virtual digital currencies since 2019, and has a certain understanding of the industry situation. Now, combined with relevant domestic and foreign policies and laws, I will make some immature suggestions for the future supervision and governance of virtual digital currencies in our country. . Due to the lack of professional knowledge in finance, economics, etc., I hope everyone will criticize and correct the shortcomings.

1. Be clear in the beginning and propose solutions within the scope of current legal rules for everyone to discuss and exchange

The latest regulations on virtual digital currency are the 924 notice issued by ten departments including the central bank, which talks about: carrying out legal currency and virtual currency exchange business, exchange business between virtual currencies, and serving as a central counterparty Virtual currency-related business activities such as buying and selling virtual currencies, providing information intermediaries and pricing services for virtual currency transactions, token issuance financing, and virtual currency derivatives transactions are suspected of illegally selling tokens, issuing securities to the public without authorization, and illegally operating futures business. Illegal financial activities such as illegal fund-raising are strictly prohibited and will be resolutely banned in accordance with the law. The solution proposed by the author is whether a restriction can be added before this regulation, that is, "without state approval", that is, the state can approve specific departments to engage in the above-mentioned business. Of course, the business scope can be temporarily limited to carrying out legal currency and virtual currency exchange business, serving as a central counterparty to buy and sell virtual currencies, and providing information intermediary and pricing services for virtual currency transactions. To explain in layman’s terms, the state approves specific Departments can engage in the business of exchanging virtual digital currencies, and the state can buy and sell virtual digital currencies, and can serve as an authoritative institution to determine the value of virtual digital currencies. From a prudential and functional perspective,state-owned banks can be approved in advance to conduct pilot projects.

The specific solution path is: Just taking Bitcoin as an example, bonds anchored to Bitcoin can be issued (assuming it is china btc, "cbtc"), cbtc can be issued on the alliance chain to strengthen management more effectively. CBTC is equivalent to 1 Bitcoin in terms of equity. State-owned banks can allow Chinese citizens to exchange Bitcoin for CBTC domestically. CBTC can be held for appreciation or depreciation. State-owned banks promise that CBTC can be converted into RMB in real time according to the value of Bitcoin. , of course, Chinese citizens can also be allowed to use RMB to exchange for CBTC, but domestically, CBTC is not allowed to be exchanged for Bitcoin. Overseas banks of state-owned banks promise that CBTC can be directly exchanged for Bitcoin overseas, but Bitcoin is not allowed to be exchanged for CBTC. At the same time, overseas funds should not be allowed to purchase CBTC.

For those who purchase CBTC in RMB and use Bitcoin to exchange CBTC, a strict KYC system should be implemented and more detailed information should be provided. Proof of source of funds to comply with anti-money laundering requirements.

From the above design process, during the entire process, from the perspective of a state-owned bank, Bitcoin can only enter but not exit. There is no risk of Bitcoin spilling over to the domestic market. After state-owned banks obtain Bitcoin, they can sell it overseas in exchange for offshore foreign currency.

As for other currencies, stable coins and non-stable coins, mainstream coins and altcoins should be distinguished, and the scope of exchangeability should be clarified.

2. Strictly control virtual numbers. What are we worried about?

(1) Impact on national foreign exchange management

As we all know, our country is a country that implements foreign exchange controls. It is precisely because foreign exchange management is relatively strict that we can ensure that It has protected the country's financial order from the influence and impact of the international market. However, the existence of Bitcoin has led to the failure of the foreign exchange management system. Currently, most countries recognize the value of Bitcoin. Even in our country,In addition to policy documents written in black and white In addition, the public knows deep down that Bitcoin is real money. The author believes that even the policy writers know the value of Bitcoin in their hearts.

(2) Real money for air

Just take one example of cross-border trade, because Cross-border trade requires the settlement of foreign exchange back to the country, which involves handling fees and other costs. The property value of virtual digital currency is widely recognized by the public. Therefore, in cross-border trade, virtual digital currency acts as a "currency" and is widely used. For example, a Chinese businessman sent a shipment of goods abroad, collected the consideration in Tether coins, and then exchanged the Tether coins for RMB. It seemed that the businessmen did not suffer a loss, and even took an advantage.From a national perspective, A shipload of goods was exchanged for a pile of air, and this pile of air still had to circulate in the domestic financial market. In essence, it was an exchange of real money and silver for air.

(3) Transferring domestic wealth abroad

Wealth outflow is also a practical practice more prominent issues. At present, this phenomenon exists in the country. Some wealthy people intend to immigrate abroad. However, the transfer of personal assets overseas needs to be regulated by the state. Our country has promulgated the "Regulations of the People's Republic of China on Foreign Exchange Administration" and "Interim Measures for the Administration of Foreign Exchange Sales and Payments for the Overseas Transfer of Personal Assets". 》 and other laws and regulations restrict the arbitrary transfer of personal assets. In order to evade supervision, wealthy people usually allocate their money in different regions. In the past, this was done through underground banks. Now with virtual digital currency, wealth transfer has become easier, and the problem of wealth outflow has become increasingly serious.

(4) Used by criminals as criminal tools

Currently, anything related to money crimes basically involve virtual digital currencies. Crimes such as pyramid schemes, online gambling, electronic fraud, and money laundering all take advantage of the anonymity, confidentiality, and global liquidity of virtual currencies for payment and settlement. Even some traditional crimes are strongly related to virtual digital currency, but here I want to emphasize thatvirtual digital currency itself has no natural criminal properties and is only used by criminals.

Of course, there are many reasons for negative evaluation of virtual digital currencies. Due to space limitations and the author’s limited understanding, I will not list them one by one. , summed up in one sentence, we are worried that money that should not have gone out has gone out, and money that should not have come in has come in.

3. Under super-strong supervision, some problems cannot be solved

(1) Virtual digital currency is difficult to fundamentally eliminate

In an article published on the website of the National Development and Reform Commission, it was pointed out that because "virtual digital currency The characteristics of "currency" that are decentralized and can be traded offline make it difficult to completely disappear in the country from a technical and regulatory perspective. Current laws and policies do not prohibit individuals from holding virtual digital currencies. Even if more stringent restrictive measures are introduced in the future, we should protect the existing virtual digital currencies before the policy is introduced based on our long-standing commitment to the "commodity" attribute.

(2) Obstacles in determining amounts and asset disposal in combating criminal crimes

Virtual numbers The field of currency-related crimes is an area that the author is relatively familiar with, so I will mention it first. For those who use virtual digital currency as a medium for pyramid schemes, non-smoking, fraud, as well as those who steal, deceive and steal coins, because the country does not recognize the property value of virtual digital currency, the determination of the amount of the crime has been criticized. . There will be a logical contradiction in that the judicial authorities deny the property value of virtual currency and use data crimes to pursue suspects involved, but at the same time use the exchange rate of virtual currency in the market to characterize the case when calculating the amount of the crime. At the same time, how to dispose of virtual digital currency collected by judicial authorities has also become a problem. Virtual digital currency is objectively a currency that can be exchanged with legal tender. Even if according to the latest and more compliant disposal methods, entrusting an agent to handle the foreign exchange overseas and return it to the country, it can After all, if the client is within the country, there are flaws in a certain sense. In addition, leaving virtual digital currencies to social institutions will inevitably give people a handle and even breed new crimes.

(3) Fairness and justice in civil and commercial cases cannot be achieved

Fairness and justice cannot be achieved except in legal terms , as well as reasons and public opinion. The judgment must conform to the simple values ​​of the public, not just the rigid application of the law. The current civil and commercial judgments on currency-related cases are relatively simple and the court finds that all contracts are invalid. But is it really fair? The person involved borrowed Bitcoin, which was obviously money, but the court did not support it. There was a dispute over using virtual currency to buy a mining machine, and the court did not support it. Since there is always a person who feels aggrieved in a lawsuit, the court's decision should support the aggrieved person within the scope of the law and allow those who take advantage to have nothing to take advantage of. Otherwise, it will feel like what Dean Chen said. "I have the right to interpret legal provisions." According to the author’s observation, the reason for this situation is that firstly, the court is not objective enough in interpreting political and legal documents; secondly, the virtual digital currency cannot be priced, which leads to the support of the judgment as a disguised recognition of the monetary attributes of Bitcoin, and the completed case cannot be valid. Execution, the root cause is that virtual digital currency cannot be priced.

(4) OTC’s trading model leads to the capital path being completely out of control

Whether it is through Trading on exchange platforms or through over-the-counter person-to-person transactions are all pan-OTC trading models. Currently, this is the only model that exists in our country. The disadvantage of this model is that from the banking system, we can only see the flow of funds and cannot identify the causes of fund transactions. We have no control over the flow of virtual digital currencies. Even if we retrieve KYC information through mainstream trading platforms and combine it with the district Through the analysis of block chain data, we can only partially understand the transaction status of virtual digital currencies, and cannot form comprehensive monitoring and achieve effective governance.

(5) The outflow and inflow of domestic property have not been controlled

Dummy numbers The extensive use of currency makes it difficult to regulate the outflow and inflow of wealth, which has always been an important reason why it is strictly regulated by the state. But in the author’s opinion, what needs to be solved is how to establish a set of efficient, concise and reasonable regulations to regulate the circulation of wealth, rather than blindly ban virtual digital currencies. First, money that wants to go out, even if there is no virtual digital currency, will still flow out in various ways, although the author firmly believes that these people who drain funds will definitely regret it. Second, we are more worried about outflows than inflows, and under the current situation we have not been able to solve the problem of capital outflows well. Third, money laundering is inevitable for money involved in upstream crimes. In an era without virtual digital currencies, there were many ways to launder money. Even Lego can be used to launder money. At least, virtual digital currencies have public blocks. Chain records can be queried.

Four. It is better to block than to open up. Strengthening supervision and governance capabilities has important practical significance

(1) Through the capital path of the cbtc alliance chain and combined with the banking system, the capital flow of virtual digital currencies can be more accurately grasped.

(2) Open the exchange channel between Bitcoin and RMB, in line with the international situation and meet the expectations of domestic legal currency holders.

(3) It helps judicial organs handle criminal cases and civil and commercial cases, and the collected virtual digital currency can be cashed in state-owned banks. At the same time, criminal funds are not dared to be exchanged in state-owned banks. It can be legally clarified that the traditional OTC market is illegal. In this way, the basis for judicial organs to identify crimes will be clearer, and it will be more conducive to discovering and combating crimes.

(4) Collect all fees that can be charged by the traditional securities market, and even collect personal income tax. This can also increase national treasury revenue.

(5) Increase foreign exchange reserves. Let me explain here that our financial war with beautiful countries relies on foreign exchange reserves and offshore foreign currencies, and the way we increase offshore foreign currencies is subject to certain limitations. If the above measures are feasible, it will essentially mean that we take the domestic virtual digital currency to the overseas market and convert it into offshore foreign currency, increasing foreign exchange reserves, and the money converted domestically circulates in the domestic economy, thus realizing that we can exchange air for real gold. Silver Forex.

(6) No matter how the domestic funds that want to flow out are supervised, they still want to escape. Strict control is required. It will only make underground banks make money, so the reasonable solution is that people who want to transfer funds abroad can take the money to a domestic bank to exchange CBTC, and then take the CBTC overseas, and the bank will be responsible for converting the CBTC into Bitcoin. , currency holders can use Bitcoin to exchange foreign currencies abroad. In this way, currency holders are also compliant and do not have to look for illegal ways. From a national perspective, at least it is not a net outflow, because the bitcoins delivered to customers can be the bitcoins that domestic users have exchanged for CBTC and converted into RMB, or they can be the bitcoins we purchased overseas. In this process, it can be Earn fees.

(7) Avoid foreign countries exchanging air for our real money. Take the cross-border trade mentioned above as an example. You definitely don’t dare to go to my bank to exchange CBTC, and I clearly told you that any over-the-counter transaction is illegal. Which merchant is willing to pay that fee for foreign exchange settlement? To commit a crime?

5. The solution path is not inconsistent with the current laws, regulations and policy documents, and is feasible

(1) The definition of virtual digital currency as a "virtual commodity" hasneverchanged

2013 In 2017, the People’s Bank of China and other departments’ “Notice on Preventing Bitcoin Risks” defined the attributes of virtual digital currencies such as Bitcoin for the first time, that is, “In terms of nature, Bitcoin should be a specific virtual currency. Commodities do not have the same legal status as currency and cannot and should not be used as currency for circulation in the market." Since then, the characterization of Bitcoin as a "virtual commodity" has never changed, even with the "924" notice, which is known as the most stringent in history , nor does it deny the attribute identification of "virtual goods".

Until May 18, 2021, the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association issued the "On Preventing the Risks of Speculation in Virtual Currency Transactions." The Announcement still specifically pointed out that "virtual currency is a specific virtual commodity." Therefore, from a superstructure perspective, there is no doubt that virtual currency is a commodity. Therefore, many grassroots judicial organs are handling criminal cases and civil and commercial cases. , believing that virtual digital currency is contraband and lacks legal basis. In my country's various policies and documents, items clearly defined as contraband are never called commodities, such as guns, drugs, etc. This also shows in disguise that my country's current policy documents do not define virtual currencies as contraband.

(2) Since it is a commodity, it should be given property attributes

Commodities are defined in the compulsory political book of the People's Education Press as labor products used for exchange. The basic attributes of commodities are value and use value. Value is the essential attribute of commodities, and use value is the natural attribute of commodities. Engels said that commodities "are first of all private products. However, only when these private products are produced not for one's own consumption but for the consumption of others, that is, for the consumption of society, do they become commodities; they enter society's consumption through exchange." .

Commodities are property that can be exchanged with others. In other words, commodities are wealth that has ownership and can be exchanged with others. Therefore, like all property, commodities also have two value attributes, namely the wealth value of the commodity itself relative to human needs and the property value relative to the price people pay to obtain it.

Even from people’s simplest consciousness and concepts, we can know that since it is a commodity, it should be valuable, and since it is a commodity, it should be allowed to be traded and traded. exchange. The role of legal policies is to guide people's lives and give them expectations for life. If the property attribute of virtual currency is essentially denied without the introduction of any new legal policies, people will misunderstand the definition of commodities.

(3) Not being "currency" is not the same as not having property attributes

Many people who deny that virtual digital currencies have property attributes believe that because virtual digital currencies are deemed not to be currency by national regulatory policies, they cannot be recognized as property in the sense of criminal law. The author has sorted out all the statements in the current documents that virtual digital currency is not "currency":

1. "Notice on Preventing Bitcoin Risks": Although Bitcoin It is called "currency", but because it is not issued by a monetary authority, it does not have monetary attributes such as legality and compulsory, and it is not a currency in the true sense... It does not have the same legal status as currency and cannot and should not be used as Currency is circulated and used in the market.

2. "Announcement on Preventing Token Issuance Financing Risks" (94 Announcement): Tokens or "virtual currencies" used in token issuance financing are not controlled by currency Issued by the authorities, it does not have monetary attributes such as legality and compulsory nature, does not have the same legal status as currency, and cannot and should not be used as currency in circulation in the market.

3. "Notice on Further Preventing and Handling the Risks of Speculation in Virtual Currency Transactions" (924 Notice): Virtual currency does not have the same legal status as legal currency. Virtual currencies such as Bitcoin, Ethereum, Tether, etc. have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed accounts or similar technologies, and existing in digital form. They are not legal and should not and cannot be used as currencies in the market. Used in circulation.

Through the above statements, it is not difficult for us to draw two conclusions:First, all policy documents only deny that virtual digital currency is "currency"; Deny the property attributes of virtual digital currency. Second, all policy documents only prohibit the circulation of virtual digital currencies as "currency" in the market, but do not prohibit the circulation of virtual digital currencies in the market as "commodities". The author gives an example to illustrate the difference between the two. If the author uses virtual digital currency to buy a house, a car, a cigarette, or a drink, the virtual digital currency plays the role of "currency" in this process and should be prohibited. However, virtual digital currency is a commodity. If you sell the virtual digital currency you hold, or use "currency" to purchase virtual digital currency, it is essentially an exchange of "currency" and "commodity". In the above scenario, virtual digital currency Currency does not function as “money” and should not be banned.

(4) Superior legal basis

"Civil Code of the People's Republic of China" General Provisions 127 Article 1 stipulates, “If the law has provisions on the protection of data and network virtual property, those provisions shall prevail.” It should be noted that the Civil Code clearly refers to "law" rather than departmental regulations and policy documents. As mentioned above, there is currently no policy document denying that virtual digital currency is a commodity. Therefore, if legislation or regulations are passed, The issued document recognizes the property attributes of virtual digital currencies and is not inconsistent with existing policy documents.

6. Conclusion

Bitcoin's successive breakthroughs in previous highs indicate that the virtual digital currency represented by Bitcoin is having a profound impact on the world's financial landscape. Therefore, regarding the challenges that virtual digital currencies bring to the traditional financial regulatory system, we cannot just use a "one-size-fits-all" prohibition policy to avoid the problem. Instead, we should optimize the existing regulatory system based on the analysis of the characteristics of virtual digital currencies. This allows the country to take the lead in the highly competitive world financial system. Combining his own knowledge base and policy interpretation in the field of virtual digital currency, the author clarified the property attributes of virtual currency and the shortcomings of the existing regulatory system, and proposed a regulatory plan to solve the above shortcomings within the framework of laws and regulations. This plan may not be comprehensive yet, so I have written this article for readers to discuss and correct, hoping to use my own small power to promote the improvement of regulatory legislation in the field of virtual digital currencies.