As digital economies continue to evolve, cryptocurrencies like Bitcoin and Ethereum have increasingly entered everyday life. Following Bitcoin’s dramatic rise in value, countless alternative digital assets have emerged seemingly overnight, sparking global hopes of overnight wealth. As the most recognized and trusted cryptocurrency, Bitcoin has ignited a worldwide wave of mining and speculative trading.
But what is Bitcoin’s legal standing—particularly in China? Is it treated as a currency, a commodity, or something else entirely? Understanding its classification is crucial for investors, regulators, and users alike.
The Legal Definition of Bitcoin in China
Although Bitcoin began appearing in Chinese court documents as early as 2014, courts initially offered no clear legal definition. It wasn’t until October 10, 2018, that the Hangzhou Internet Court provided a detailed judicial interpretation in a civil dispute over the sale of Bitcoin mining equipment (Case No. (2018) Zhe 0192 Min Chu 2641). While the ruling was not final, its reasoning has since served as an important reference for how digital assets are perceived in Chinese jurisprudence.
According to the court’s findings:
Bitcoin is defined as a decentralized, globally circulating digital currency generated through computational work—commonly known as "mining."
Miners around the world use specialized hardware and open-source software to solve complex mathematical problems. Successfully solving these equations rewards miners with newly minted Bitcoin. The currency itself exists purely in digital form—as strings of encrypted code.
This judicial clarification laid the groundwork for treating Bitcoin not as legal tender, but as a unique form of virtual property.
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Regulatory Stance: Not Legal Tender
In a landmark move on September 4, 2017, seven major Chinese regulatory bodies—including the People’s Bank of China, the Cyberspace Administration of China, and the China Securities Regulatory Commission—jointly issued the Announcement on Preventing Risks Associated with Token Offerings. This policy cracked down on Initial Coin Offerings (ICOs) and unauthorized fundraising via digital tokens.
The announcement made two critical declarations:
- Any financing activity involving the issuance or circulation of tokens to raise Bitcoin, Ethereum, or other "virtual currencies" constitutes unauthorized public financing.
- Bitcoin cannot be used as legal currency in the marketplace, effectively denying it official monetary status under Chinese law.
This means Bitcoin lacks legal tender status and compulsory acceptance—two core attributes of state-issued money.
Despite this, the ruling did not dismiss Bitcoin’s value outright.
Bitcoin as a Virtual Commodity
Even though Bitcoin is not recognized as money in China, courts and regulators acknowledge its economic value. The Hangzhou Internet Court emphasized that Bitcoin possesses commodity characteristics due to the labor and resources required to produce it.
Mining involves:
- Significant capital investment in high-performance computing equipment
- Ongoing costs for electricity and maintenance
- Time-intensive computational effort
Because these inputs reflect real-world labor and cost, the court reasoned that Bitcoin embodies human labor, aligning with classical economic theories of value. In this sense, mined Bitcoin is akin to a produced good—making it a virtual commodity rather than mere data.
This perspective echoes the 2013 Notice on Preventing Bitcoin Risks issued by five Chinese ministries. That document stated:
“While Bitcoin is often called a ‘currency,’ it is not issued by a monetary authority and lacks legal tender status or enforceability. It should be regarded as a specific type of virtual commodity and must not be used as currency in market transactions.”
Thus, both judicial and regulatory frameworks converge on one point: Bitcoin is property, not currency, at least within China's legal system.
Why Classification Matters
Labeling Bitcoin a "virtual commodity" rather than "money" has significant implications:
- Regulatory scope: Commodities fall under different oversight rules than financial instruments or currencies.
- Investor protection: Users must understand they’re investing in an unregulated asset with no government backing.
- Legal recourse: In disputes involving theft, fraud, or contract breaches, courts may recognize ownership claims based on property rights—but recovery isn’t guaranteed.
Moreover, Bitcoin’s core features—decentralization, limited supply, borderless transferability, and pseudonymity—make it attractive not only to investors but also to malicious actors. Regulators worldwide remain cautious about its potential misuse in money laundering, tax evasion, and illicit trade.
Frequently Asked Questions (FAQ)
1. Can I use Bitcoin to buy goods and services in China?
No. Under current regulations, Bitcoin cannot be used as a payment method in China. Merchants are prohibited from accepting it as legal tender.
2. Is owning Bitcoin illegal in China?
Owning Bitcoin is not explicitly illegal, but financial institutions and payment companies are barred from handling cryptocurrency transactions. Individuals assume full risk when holding or trading digital assets.
3. Is mining still allowed in China?
Large-scale cryptocurrency mining has been effectively banned since 2021 due to energy consumption concerns and financial risks. Mining operations are no longer permitted under Chinese policy.
4. Can I sue someone over a lost or stolen Bitcoin?
Yes, in theory. Courts may recognize Bitcoin as property in civil disputes (e.g., contract breaches or theft), allowing for legal claims. However, enforcement remains challenging without regulated custody solutions.
5. How do other countries classify Bitcoin?
Classifications vary:
- The U.S. treats it as property for tax purposes.
- Japan recognizes it as legal tender for payments.
- The EU classifies it as a digital asset under MiCA regulations.
- Many countries regulate it under anti-money laundering (AML) frameworks.
6. Does the “virtual commodity” label affect taxation?
Potentially. If treated as an asset, gains from selling or trading Bitcoin may be subject to capital gains or income tax, depending on jurisdiction—even if no formal guidance exists yet.
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Final Thoughts: A Digital Asset in Transition
Bitcoin occupies a complex space between innovation and regulation. While China has firmly denied it monetary status, the recognition of its commodity-like value reflects a nuanced understanding of blockchain-based assets.
For investors, this underscores the importance of due diligence. Bitcoin may offer high returns, but it comes with volatility, regulatory uncertainty, and operational risks—including platform failures or cyberattacks.
Understanding its dual nature—as both a technological breakthrough and a speculative asset—is key to navigating the evolving landscape of digital finance.
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