Typical cases of application of the Civil Code in Chinese courts: There is no legal prohibition on the issuance and trading of "digital collections"

FX168 Financial News Agency (Europe) reported that in the latest article on Sunday (October 13), the public account of the People's Court of Laiwu District, Jinan City, China, published the content of the 167 typical cases of the application of the Civil Code of Shandong Court, showing the legal attributes of digital collections and the recognition of the effectiveness of their trading behaviors. The judgment summary pointed out that digital collections are a kind of online virtual property. China currently has no laws that explicitly prohibit the issuance and trading of digital collections. As long as the actor has the corresponding civil capacity and the intention is true, the transaction of digital collections between civil subjects should be deemed legal and valid.

This case involves a dispute over the sales contract between Yang Moumou and a cultural and creative company. The judgment summary mentioned that digital collections have the dual attributes of collection and investment, and contain higher market risks. The purchaser aims to earn the difference in the secondary market transaction of digital collections. He should not be identified as a consumer under the Consumer Protection Law and should bear the corresponding market price fluctuation risks.

Source: WeChat official account

After trial, the Changqing District People's Court of Jinan City held that: digital collections refer to digital publications that are issued, purchased, collected and used through the Internet, using blockchain technology to generate unique digital certificates corresponding to specific works and artworks. Based on their artistic characteristics, non-replicability, scarcity and other characteristics, digital collections have certain exchange value and can be exchanged as commodities. In addition, China currently has no laws that explicitly prohibit the issuance and trading of digital collections. According to the principle that in civil and commercial activities, if there is no prohibition, it is permitted, the trading of digital collections should not be considered illegal. Therefore, the transaction of digital collections between the two parties is a civil legal act that occurs voluntarily between the two parties and should be deemed legal and valid.

As a new thing, although digital collections have certain collection and investment value, they also contain high market risks. As a person with full civil capacity, Yang Moumou should have a full understanding of this and should focus on the artistic or collection value of digital collections themselves, rather than paying too much attention to the so-called "empowerment" and "appreciation space" and other investment attributes outside the digital collections themselves. Judging from Yang's transaction records, there are multiple records of buying and selling on the APP platform involved in the case, and his purpose is to invest in digital collections, so he should bear the corresponding market risks.

When interpreting the case, the article pointed out: "In recent years, with the application of blockchain technology and metaverse scenarios, digital collections have become a hot spot and outlet for investment, and transaction disputes related to digital collections have also followed. Digital collections and virtual digital currencies represented by Bitcoin are both based on blockchain technology, and are unique, tamper-proof, and non-replicable. Virtual digital currency transactions are prohibited by Chinese law, but there are no clear laws and regulations on the issuance and trading of digital collections. How to determine the legal attributes of digital collections and whether their transactions are legal, and many other issues, not only affect fairness and justice in individual cases, but also have an important impact on industry innovation and the development of new quality productivity."

Is the transaction of digital collections legal?

The article states that the current domestic consensus is that although virtual digital currencies represented by Bitcoin and digital collections are both based on blockchain technology and are unique, immutable, and non-replicable, there is a fundamental difference between the two: digital collections are non-homogeneous tokens, and virtual currencies are homogeneous tokens. Therefore, virtual currency transactions are expressly prohibited by relevant Chinese laws and regulations, but to date, the state has not issued relevant laws, regulations, and policies to stipulate that digital collections are illegal objects, nor has it prohibited the issuance and trading of digital collections. From a legal perspective, digital collections are not objects prohibited by law. Therefore, this case is based on the legal principle that in civil and commercial activities, if there is no prohibition, it is permitted, and according to Article 143 of the Civil Code on the judgment criteria for the validity of civil legal acts, combined with the characteristics of digital collections themselves, the transaction process, and the intentions of the parties, etc., it is determined that the transaction of digital collections in this case is legal and valid.

What are the functional attributes of digital collections?

As the only digital certificate of specific works and artworks, digital collections are a kind of digital publication after being empowered by blockchain technology. They have many characteristics such as uniqueness, immutability, and non-replicability. They have certain collection value and appreciation value and can meet people's spiritual needs. Therefore, in this sense, digital collections have the attributes of consumer goods. However, since digital collections are new things, their many characteristics make digital collections have both exchange value and investment value. Digital collections have both consumption and investment attributes, which has led to a large speculation for a period of time and has a high market risk. Buyers should have full awareness of this. They purchase digital collections for the purpose of earning the difference and "waiting for appreciation". They should not be identified as consumers stipulated in the Consumer Rights Protection Law and should bear the corresponding market volatility risks. This case correctly distinguished the consumption and investment attributes of digital collections based on the purpose of the parties' transaction of digital collections, guided the parties to rationally participate in the transaction of digital collections, and had a positive judicial guidance effect on the transaction participants.

How to view the legal attributes of digital collections?

At present, there is no consensus in the academic community. There are mainly several viewpoints, including the theory of property rights, the theory of debt rights, the theory of copyright, and the theory of network virtual property. This case adopts the theory of network virtual property, and characterizes digital collections as network virtual property. From a legal perspective, digital collections meet the characteristics of network virtual property. First, digital collections are virtual. On the Internet, digital collections are manifested as intangible digital codes, free from the constraints of tangible physical forms. Second, digital collections are property. Based on the unalterable characteristics, digital collections correspond to unique codes and contain detailed transaction information. This makes the scarcity of digital collections prominent, with both use value and exchange value. Third, digital collections are disposable.

Although China has not yet opened the secondary circulation market, consumers can rely on trading platforms to complete operations such as purchase, collection, transfer, and destruction, and realize exclusive possession, use, and disposal. In addition to meeting the characteristics of network virtual property, digital collections can be included in the protection scope of Article 127 of the Civil Code from the perspective of legislative interpretation. This article stipulates: "Where the law has provisions on the protection of data and network virtual property, such provisions shall apply." This provides normative guidance for the formulation of special laws in the future, and at the same time does not affect the protection based on existing legal provisions.