Deng Jianpeng: The Judicial Identification Dilemma and Theoretical Reconstruction of the Attributes of Encryption Assets

Authors: Deng Jianpeng, PhD in Law, Professor, Doctoral Supervisor, School of Law, Central University of Finance and Economics; Li Chengyu, PhD candidate in Law, School of Law, Central University of Finance and Economics. The authors would like to thank the reviewers for their valuable revision suggestions; the authors are responsible for the content of the article.

This article was published in the 3rd issue of the Journal of Financial Regulation in 2025, pages 37-51.

1. Introduction

On September 4, 2017, the release of the “Announcement on Preventing Risks of Token Issuance Financing” (hereinafter referred to as the “94 Announcement”) officially initiated the process of strict regulation of blockchain finance and crypto assets in our country. Although a series of financial rectification efforts have somewhat alleviated the trading frenzy in the domestic market and partially eliminated speculative risks, some domestic investors are still trading crypto assets through over-the-counter transactions and overseas platforms (Deng Jianpeng and Li Chengyu, 2024b). Civil disputes arising from the trading, lending, wealth management, or entrusted investment of crypto assets continue to occur. In particular, mainstream private crypto assets such as Bitcoin, Ethereum, and Tether have been exploited by criminals for overseas transactions and even criminal activities, making them key targets for our country in combating money laundering, fraud, and other crimes (Wu Yun et al., 2021).

With the in-depth application of blockchain technology in many fields, the impact of crypto assets on the existing legal system and theories and the related practical problems caused by this are increasing day by day (Huang Zhen and Ma Wenjie, 2024). The jump in the number of lawsuits and the amount of money involved show that crypto assets have become an important type of property that cannot be ignored in China’s judicial activities. However, in the judicial field, the phenomenon of “different judgments in the same case” continues to occur (Deng Jianpeng and Zhang Xiaming, 2023), indicating that there are differences in adjudication standards among the judiciary, resulting in a large contrast in the conviction and sentencing of each case (Lai Zaoxing, 2022), and a large number of crypto assets involved in the case have not been properly disposed of (Yang Kai, 2024), which has affected the credibility of China’s judiciary. The fundamental reason for the above-mentioned judicial dilemma is that there are no laws and regulations in China that clarify the legal attributes of crypto assets, and the judiciary has long been troubled by disputes such as property theory and data theory. At the same time, normative documents such as the “94 Announcement” and the “Notice on Further Preventing and Dealing with the Risk of Speculation in Virtual Currency Transactions” (hereinafter referred to as the “924 Notice”) jointly issued by the People’s Bank of China and other departments pointed out that crypto assets do not have legal compensation, mandatory and monetary properties, and should not and cannot be used as currency in the market. A large number of judicial decisions, influenced by the above-mentioned financial regulatory policies and judicial spirit (represented by Guiding Case No. 199 of the Supreme People’s Court), began to deny the property attributes of crypto assets, and made different styles and vacillating interpretations and reasoning on the basis of different cognitions, which eventually led to the successful conclusion of only some cases with the return of property or severe punishment, while a considerable number of cases were rejected and litigation claims were dismissed, or it was impossible to accurately determine what kind of crime the relevant acts constituted, and failed to be fairly handled. This has seriously affected the predictability and seriousness of judicial decisions.

Given that the judiciary is an important way to establish emerging rights practices (Meng Rong, 2023), this article will sort out the judicial authorities’ recognition of the legal attributes of cryptocurrency assets based on numerous cases involving cryptocurrency assets. It will analyze the policy reasons behind the cognitive dilemmas in related judicial practices in recent years, as well as the shortcomings and limitations of different judicial cognitions such as the “property theory” and the “data theory.” The article aims to re-examine and argue for the property attributes of cryptocurrency assets to address the challenges in valuing cryptocurrency assets and the existing dilemmas in judicial adjudication, thereby achieving an effective “dialogue” between legal theory and judicial practice, while also providing theoretical insights for future adjustments in financial regulatory policies.

II. Judicial Analysis of the Legal Attributes of Cryptocurrency Assets

First, property says. Some courts have recognized the property attributes of crypto assets such as Bitcoin and Ether, and some courts have further pointed out that, judging from the current laws and administrative regulations, China does not prohibit individuals from holding and legally circulating crypto assets, so it can also be presumed to be a virtual commodity with restricted circulation. Second, the non-property theory. Contrary to the above-mentioned views, some courts have pointed out that bitcoin and other non-“civil law things” that are not explicit in laws and regulations negate the property attributes of crypto assets, and the relevant investments and transactions engaged in by citizens are not protected by law. Third, the data says. The third mainstream view is that the legal attribute of crypto assets is computer information system data. Therefore, in a criminal trial, the defendant’s criminal act of illegally obtaining crypto assets may simultaneously infringe upon the legal interests of property and the legal interests of the computer information system management order, and the criminal activities related to it may be recognized as the crime of illegally obtaining computer information system data.

In summary, the legal classification of crypto assets in judicial rulings in our country can generally be divided into three categories: “property theory,” “non-property theory,” and “data theory.” The above viewpoints are insufficient to resolve the classification dilemma, easily leading judges into endless debates, resulting in inconsistent judicial positions, trial approaches, and judicial effects concerning crypto assets across different judicial institutions. First, the property theory emphasizes that crypto assets possess economic value, disposability, scarcity, and transferability, which align with the basic characteristics of property. It applies property rights rules to allocate the rights and obligations of the parties or criminalize and sentence based on property infringement, achieving higher judicial remedy efficiency. However, this viewpoint only partially extracts certain characteristics of crypto assets, and the understanding of its concept remains stagnant at an initial stage, failing to explain characteristics that are far removed from traditional property, such as the virtuality, non-legality, and prohibition of pricing of crypto assets, leading to ongoing disputes between the “property theory” and the “non-property theory.” Moreover, many judges have not been able to finely address the identification approach of property attributes.

Second, the “non-property theory” refuses to legally protect crypto assets as property on the grounds that they are non-physical and illegal. In this process, the negative evaluation of crypto assets by financial regulatory policies has become an important basis for judgment. Based on the above-mentioned administrative normative documents such as “announcements” and “notices”, many judicial rulings believe that crypto assets do not have legal liquidity and should not be regarded as property. However, the above-mentioned document states that “it should not and cannot be used as currency in the market”, rather than a comprehensive ban on the trading and circulation of all functions and types of crypto assets, especially without explicitly denying the property attributes of crypto assets. Therefore, some judicial officials directly deny the legitimacy and property attributes of the crypto assets involved in the case without proving whether they play a monetary role, which is an expansive interpretation and excessive understanding of financial regulatory policies, without sufficient legal basis and unconvincing. On the other hand, the application of lower-level administrative normative documents such as the “94 Announcement” and the “924 Notice” in judicial adjudication is suspected of going beyond the “law” trial. In particular, the use of such administrative normative documents as a “precedent law” that affects criminal trials clearly undermines the spirit of the rule of law that “crimes are punishable by law” in the Criminal Law. Therefore, the above-mentioned administrative normative documents cannot be used as a basis for determining the property attributes of crypto assets (especially in the criminal field). From this point of view, the “non-property theory” lacks the support of formal law.

In conclusion, the “data narrative” has significant flaws in its argumentation, denying the property attributes of crypto assets, which creates more challenges for sentencing. Practical results show that abandoning the evaluation of the property attributes of crypto assets and denying the fiat currency valuation mechanism, while trying to resolve judicial disputes through the “data narrative,” will lead to judgments that are full of loopholes and disappointing, especially in cases where crypto assets are used as tools or objects of crime, such as bribery, money laundering, robbery, fraud, and illegal fundraising, among others. From this perspective, defining crypto assets through “data” does not help in resolving disputes effectively or in achieving proper sentencing and punishment for crimes.

III. Suggestions for Solving the Judicial Identification Dilemma of Cryptographic Assets

First, it is necessary to clarify the property attributes of crypto assets. Among the three positions of “property theory”, “non-property theory” and “data theory”, the “property theory” is quite reasonable, but the subversive innovation in the physical form and operation mode of crypto assets poses a great challenge to the traditional theory of property rights. In the global blockchain financial practice in the past ten years, according to the different value mechanisms and market performance, crypto assets can be roughly divided into three categories: (1) private crypto assets generated by cryptographic technology, with a constant total amount and issued on public chains, represented by Bitcoin; (2) stablecoins pegged to the value of a fiat currency or other asset, represented by Tether and USDC; (3) Crypto assets that imitate the technical architecture of mainstream tokens, but have a small market size and popularity, including a large number of altcoins and aircoins that do not have any physical support, and do not have a global social consensus or application scenarios.

From a holistic perspective, the three types of cryptocurrency assets mentioned above exist in the form of electromagnetic data, lacking physical form, and do not conform to the definition of “property” in the Civil Code. Therefore, courts should not adopt the viewpoint of “property rights” to handle relevant judicial disputes. However, some mainstream cryptocurrencies and stablecoins issued on public chains should be defined as a new type of virtual property in judicial contexts, such as Bitcoin and Tether (which is pegged to the US dollar at a 1:1 ratio). The reasons are: (1) Some cryptocurrencies and stablecoins have actual assets as value support, or have garnered recognition and acceptance from a large number of participants globally, demonstrating a strong global social consensus and thus possess high and certain value attributes; (2) The total issuance of some cryptocurrencies or stablecoins is fixed, or they maintain market prices through pegging to the US dollar at a 1:1 ratio; (3) Cryptocurrencies and stablecoins issued on public chains can utilize blockchain technology to achieve transaction information verification and public disclosure, allowing for the presentation of holders’ possession of specific cryptocurrencies, resulting in stable property rights allocation.

Some cryptocurrencies issued on alliance chains, private chains, or essentially still operate using traditional computer systems often lack sufficient funding or a global social consensus system to support their value and credit. They also do not have a fully tamper-proof, decentralized ledger system, which may make it difficult for them to meet the general characteristics of property. Those “air coins” that have no application value, scarcity, or are associated with false or exaggerated claims are suspected of fraud and should not be recognized as property in the legal sense.

Second, reconstruct the pricing rules. China’s current financial regulatory policy prohibits the calculation of the price of crypto-assets in fiat currency, which means that there is no way to determine the amount of property returned or the amount of the crime, which constitutes an obstacle to the conviction and sentencing of crimes involving crypto-assets. Although some courts support the protection of crypto assets as the legitimate property of citizens, due to policy prohibitions, they can only rule to “return the original goods” and cannot replace them with fiat currency. However, due to the technical inability to achieve the forced transfer of crypto assets, some cases had to terminate the enforcement procedure, which ultimately led to the failure of the goal of property protection.

It is evident that financial regulatory measures have created a deterrent effect on the cryptocurrency market, but they have also impacted the recognition of the property attributes of crypto assets, weakening the feasibility of property protection. Under the principle of “what is not prohibited by law is allowed,” there remains a significant demand for crypto assets in our country that has not been dissipated by the market, leading to a large number of property rights disputes waiting to be resolved by the courts. Crypto assets are a new type of virtual property in the network, and their regulation should not only focus on risk constraints and control, but also be sufficiently inclusive in protecting legitimate property. There needs to be space in financial regulatory policies for legitimate pricing work, allowing crypto assets to revert to their property positioning and eliminating obstacles in judicial trials and enforcement.

Therefore, China may consider reformulating the rules for assessing the price of crypto assets. In current judicial practice, if there is an agreement between the parties on the transaction amount and the deduction amount, the court may directly make a judgment based on the valuation results determined by both parties. In some criminal cases where the sale of stolen goods has been completed, the court may refer to the amount of the defendant’s profit from the sale of crypto-assets for conviction and sentencing, but the valuation standard based on the price agreed upon by both parties or the amount of the stolen goods sold is not universal. A more common and convenient approach is to refer to the valuation standards of the Civil Code, the Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases of Theft and other regulations and judicial interpretations, and judge the amount of damages or crimes based on the “market price at the time of the act”.

At present, there is no qualified institution in China specifically for the price assessment of crypto assets, and some authoritative platforms in the industry are not recognized information intermediaries in China, so they cannot provide appropriate price data for judicial trials. The “924 Notice” expressly prohibits the provision of information intermediary and pricing services for crypto-asset transactions, and domestic trading platforms have been banned, and courts can only refer to the price information provided by overseas trading platforms, but it may be a disguised support for overseas platforms to provide trading services to domestic citizens through the Internet, which will exacerbate the risk of crypto-asset speculation. At the same time, it is difficult to confirm the fair market price formed spontaneously by the private sector, and there are price differences between different trading platforms, and a large number of unregulated trading platforms have concocted false trading quotes to manipulate the rise and fall of crypto asset prices.

From the perspective of supporting judicial work, China may consider establishing specialized institutions for the judicial disposal of crypto assets, relying on the technical services of legitimate third-party organizations such as industry associations and technology platforms to carry out data crawling for crypto assets and the development of price indicators. Currently, it is advisable to focus on market price indices from leading compliant platforms in Hong Kong and other countries, to provide objective and definite pricing references and amount standards for all parties involved in litigation and adjudicators.

This is a refined version of the article, footnotes and references are omitted.