In a recent ruling by the Changzhou Zhonglou People’s Court in China, it was determined that a Bitcoin loan of 341 Bitcoins (equivalent to $9.9 million) is not protected by law. The lender, Mr. Xu, had lent the Bitcoins to Mr. Lin in a peer-to-peer loan, but when Mr. Lin defaulted on the loan, Mr. Xu took the matter to court. However, the court dismissed the case, stating that Bitcoin is not recognized as legal tender in China and therefore cannot be subject to legal enforcement.
Legal Status of Cryptocurrencies in China
This ruling highlights the current legal status of cryptocurrencies in China. Aside from outright ownership, all forms of cryptocurrencies and transactions are currently illegal in the country. The Chinese government has been cracking down on private blockchain initiatives and actively promoting centralized blockchain projects such as the digital yuan CBDC. This means that individuals and businesses dealing with cryptocurrencies face significant risks and legal uncertainties.
The Multichain Incident
Another recent incident that showcases the complicated legal landscape for cryptocurrencies in China is the shutdown of the Chinese cross-chain bridge Multichain. The co-founder of Multichain, Zhaojun He, was arrested by Chinese police, leading to the closure of the protocol. The protocol had around $1.5 billion in total value locked, which caused significant concerns among investors.
Implications of Individual Arrests
The arrest of Zhaojun He raised questions about how the arrest of a single individual could lead to the shutdown of an entire enterprise and the disappearance of enterprise funds. Some users speculate that third-party tracking companies in China play a role in supplying information on individuals holding cryptocurrencies, allowing the police to take action against them. This has led to issues of frozen assets and suspicious transactions linked to Multichain.
The Role of Blockchain Security Firms
Blockchain security firms such as Bitrace and PeckShield have been monitoring the movement of assets stored on the Multichain bridge since Zhaojun’s arrest. These firms have identified that the assets have been swapped for stablecoins and transferred out of the protocol. This prompted stablecoin issuers, including Circle and Tether, to freeze over $63 million of suspicious transactions linked to Multichain.
China’s Centralization Efforts
The crackdown on Multichain and other cryptocurrency-related activities in China can be seen as part of the government’s efforts to centralize blockchain initiatives. The Chinese government has been promoting centralized blockchain projects, such as the digital yuan CBDC, while cracking down on private blockchain initiatives. This has created a challenging environment for individuals and businesses involved in cryptocurrencies, as they face the risk of arrests, frozen assets, and legal uncertainties.
In addition to the Multichain incident, rumors have also been circulating about Huobi, one of China’s largest cryptocurrency exchanges. Local news outlets reported that senior executives of Huobi had been arrested by Chinese police, but the exchange denied these claims. However, rumors continue to swirl, with claims that Huobi staff are under criminal investigation. These rumors have had an impact on Huobi’s USDT reserves, which have declined significantly.
The legal landscape for cryptocurrencies in China is complex and fraught with uncertainties. The recent ruling on the Bitcoin loan case highlights the lack of legal protection for cryptocurrencies in the country. The crackdown on Multichain and the rumors surrounding Huobi further contribute to the challenges faced by individuals and businesses involved in cryptocurrencies. As China continues its centralization efforts in the blockchain space, it remains to be seen how the legal landscape will evolve and how it will impact the cryptocurrency industry in the country.
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