Theft of Virtual Assets
Special Disclaimer: This article is an original work by Attorney Shao Shiwei. It reflects only the personal views of the author and does not constitute legal advice or a legal opinion on any specific matter. For article reprints, legal consultations, or business exchanges, please add: sswls66
Let us begin with a question:
If Zhang San steals Li Si’s virtual assets and Li Si reports the incident to the police after discovering the theft, what crime should Zhang San be charged with, and what sentence might he receive?
Appropriating another person’s virtual assets through unlawful means commonly involves two categories of offenses in practice: the crime of illegally obtaining data from computer information systems and the crime of theft. The specific charge applied varies in judicial practice; some cases are classified as the crime of illegally obtaining data from computer information systems, others as theft, and in certain instances, courts have found that the perpetrator’s conduct constitutes both offenses, imposing punishment based on the more serious of the two.
Regardless of the applicable charge,the amount involved in the case is an unavoidable issue.。
Whether mainstream virtual assets such as Bitcoin and Ethereum, or alternative coins (such as exchange tokens and meme coins), significant price volatility is their common characteristic. Sharp rises and falls in coin prices deeply affect countless investors (which may well be part of the thrill and appeal of trading virtual assets).
However, in criminal cases,if there are substantial fluctuations in coin prices within a short period,how should the amount involved for the perpetrator be determined? Different valuation standards may yield different amounts, which could directly determine the future course of the case.
By Attorney Shao Shiwei
01
The method used to determine the value of crypto assets directly affects the outcome of the case.
Consider the following case study.(To protect privacy, certain details of this case have been slightly modified. This example is provided solely to illustrate legal issues; the types of crypto assets and their valuations mentioned herein do not correspond to those in the actual case.)：
Zhang San and Li Si met in an online group dedicated to trading newly launched, high-risk tokens (commonly referred to as "memecoins"). Zhang San had been trading crypto assets for several years and was considered a seasoned participant in the crypto community. Li Si, by contrast, was a novice with little understanding of the space, frequently asking basic questions in the group. Zhang San, being helpful, patiently answered questions from newcomers whenever he saw them. Over time, the two became acquainted and added each other as friends on social media.
One day, Li Si asked Zhang San again how to execute a trade. Zhang San requested a screenshot for reference. Li Si casually sent Zhang San a screenshot of his ImToken wallet interface. The next day, Li Si discovered that the PEPE tokens in his wallet had inexplicably dropped to zero. He immediately reported the incident to the police. Subsequently, Zhang San was arrested.He was charged with the crime of illegally obtaining data from computer information systems and was sentenced to eight months' imprisonment.。
It transpired that when Li Si sent the screenshot to Zhang San, he inadvertently included his private key in the image. Upon seeing this, Zhang San used the private key to restore (import) the wallet and transferred the PEPE tokens from Li Si's wallet address to his own.
Under Article 285, Paragraph 2 of the Criminal Law, if the illegal gains exceed RMB 5,000 or the economic loss caused exceeds RMB 10,000, the offender commits the crime of illegally obtaining data from computer information systems or illegally controlling computer information systems, and shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention. The court determined that the value of the PEPE tokens transferred by Zhang San was RMB 12,000, and the eight-month sentence imposed on Zhang San based on this amount was deemed generally appropriate.
However, is this case entirely free from controversy?Certainly not.
First,Zhang San did not obtain any illegal gains.Because the PEPE tokens transferred into his own wallet were moved by Zhang San to a cryptocurrency exchange for trading, resulting in a total loss, there are relevant transaction records on file and no dispute exists;
Secondly, the court’s determination that the PEPE tokens were valued at RMB 12,000 was based on thereal-time price on a certain cryptocurrency exchange at 00:00 on the day Zhang San transferred Li Si’s tokens. Is this choice of timing scientifically sound?
The value of the tokens involved in the caseshould it be determined based on Li Si’s purchase price, the real-time market price at the time Zhang San transferred the tokens, the price at which Zhang San converted the tokens into USDT, or the price determined through judicial audit(however, no audit was conducted in this case; the amount involved was determined directly based on the police interrogation record of Zhang San)as the basis for the final judgment?
Coincidentally, the real-time price of PEPE tokens at 00:00 on that day, as ultimately adopted in the case, happened to be the highest price point for both that day and that month. Based on the other timing points mentioned above, the price of PEPE tokens did not exceed RMB 10,000, meaning it did not reach the threshold required for criminal conviction and sentencing in this case.
02
What are the methods for determining the price of cryptocurrencies?
According to policy provisions, although virtual currencies do not have the same status as legal tender and civil legal acts arising from related transactions are invalid with losses borne by the parties themselves, as a type of virtual commodity, their property attributes are recognized in China. Therefore, in thecriminal contextabove,Virtual assets held by citizens are protected by law.
However, how to assess the value of virtual assets remains a thorny issue in practice. After all, announcements or notices issued by relevant ministries and commissions stipulate that “no organization or individual may provide pricing services for virtual assets.” Therefore, any pricing method would contravene China’s regulatory policies.
At present, the methods commonly adopted in judicial practice for determining the price of virtual assets include:
1. Reports issued by price determination institutions or judicial appraisal institutions;
2. The consideration paid to acquire the virtual assets;
3. The consideration received from liquidating the virtual assets;
4. Prices referenced from overseas virtual asset exchanges;
5. No value is calculated, leaving it to the court’s discretion;
The second and third methods above specify the timing for calculating the coin price, namely “at the time of acquisition” and “at the time of liquidation,” but they remain imprecise. The first and fourth methods are merely different approaches to determining the coin price, yet the specific timing must still be considered when making such determinations.
03
In judicial practice, how should the timing for calculating the coin price be selected?
1. Based on the amount of illegal gains
If the perpetrator sells the virtual assets transferred from the victim and converts them into fiat currency, this is obviously the simplest scenario. Where the perpetrator has illegal gains, the amount of such illegal gains may serve as the basis for the case determination.
For example, in Case No. (2023) Hu 0104 Xing Chu 856, Yang Mou analyzed and exploited a remote code execution vulnerability in Yapi to gain access to the target cryptocurrency website. He then controlled internal network servers through lateral movement within the intranet and by implanting trojans. After locating the server source code, he downloaded and analyzed it to extract one virtual wallet address, private keys, and other information belonging to the victim, Su Mou. He subsequently constructed fraudulent instructions to transfer the virtual assets from the victim’s virtual wallet. Thereafter, he exchanged these assets for other virtual currencies and sold them, obtaining illegal proceeds totaling more than RMB 2.5 million. The court convicted Yang Mou of theft and sentenced him to ten years and six months of fixed-term imprisonment.
However, if the victim’s acquisition cost for the virtual assets is significantly higher than the price at which the perpetrator stole, transferred, and sold them due to substantial price fluctuations, characterizing the case based solely on the amount of illegal proceeds would fail to adequately protect the victim’s interests.
2. Based on the central parity rate on the date the unlawful act occurred
Due to the significant volatility of virtual currency prices, which may fluctuate by tens or even hundreds of U.S. dollars on the same day depending on the specific currency, when determining the value based on the date the unlawful act occurred, it is naturally arguable from a defense perspective to select either the specific time point during which the criminal act took place that yields the lower valuation, or the daily average price.
For example, in the following case, the amount involved was calculated by multiplying the average trading price of Ethereum on the day the defendant stole the company’s Ethereum by the central parity rate of the RMB against the USD published by the People’s Bank of China on that day.
In Case No. (2020) Yue 0304 Xing Chu 2, the defendant, Li Mou, used previously obtained private keys and payment passwords for the Haode Planet project on June 20, 2019, from his residence. He accessed the account “PK-New Wallet” opened by Haode Company on the IMToken virtual trading platform via mobile internet and stole three Ethereum tokens. Market transaction records submitted by the victim entity from Huobi Global confirmed that on June 20, 2019, the highest trading price for Ethereum was USD 270.68, the lowest was USD 265.85, and the average price was USD 268.265.
3. Where valuation is not feasible, discretionary consideration applies
In the aforementioned Case No. (2020) Yue 0304 Xing Chu 2, Li Mou, as an employee of the company, not only stole the company’s Ethereum but also misappropriated four million Haode Coins developed by the company. However, because the Haode Coins involved were not publicly listed for trading at the time of the theft, the court held that their value could not be calculated. The judgment merely stated vaguely that this circumstance would be considered at the court’s discretion (Note: Since the defendant had returned all Haode Coins to the company after the incident, this attorney believes, based on the judgment outcome, that the court likely did not take this circumstance into account).
4. Based on the price determined by a price appraisal institution at the time of appraisal
In practice, another valuation method involves determining the price based on the final appraisal date established by a third-party appraisal institution. For example, in Case No. (2020) Chuan 1425 Xing Chu 1, the value of the virtual currencies involved was broadly determined based on the price on the final appraisal date issued by Panshi Software (Shanghai) Co., Ltd. Computer Judicial Appraisal Institute.
Compared with using the price at the time the unlawful act occurred, or the victim’s purchase price or the perpetrator’s sale price as the basis for the decision, Attorney Shao believes that pricing based on the appraisal date undermines the objectivity of virtual currency valuation and is unreasonable.
04
Concluding Remarks
In criminal cases, there is no uniform standard in judicial practice regarding the method for calculating the amount involved with virtual assets. In some instances, even within the same case, the procuratorate and the court hold conflicting views.
For example, in Case No. (2020) Hu 0106 Xing Chu 551, concerning the amount of Tether (USDT) stolen by Luo, the procuratorate initiated public prosecution based on the platform trading price at the time of the theft, equivalent to RMB 12 million. However, the court stated that China does not recognize transaction price data for virtual assets published by any virtual asset trading price information platforms; therefore,it should not be determinedthat the Tether (USDT) involved in the case was valued at over RMB 12 million based on historical prices from relevant websites,and accepted the defense counsel’s relevant arguments,ultimately determining the criminal amount based on Luo’s actual profit of RMB 900,000.
Thus, from the perspective of criminal defense lawyers, disputes over the valuation of virtual assets in specific cases precisely constitute the scope for legal defense.
As illustrated by the case initially mentioned in this article,by adopting a different analytical approach, the defendant might be found not guilty.
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