Deng Jianpeng: The Significance of Regulating Virtual Currency “Mining” Activities and Thoughts on the Rule of Law

1. The main purpose and current significance of the “Notice”

On September 24, 2021, eleven departments including the National Development and Reform Commission issued the “Notice on Regulating Virtual Currency “Mining” Activities” (hereinafter referred to as the “Notice”), requesting the promotion of the rectification of virtual currency “mining” activities. The “Notice” believes that the virtual currency “mining” activity is the process of producing virtual currency through the calculation of dedicated “mining machines”. On the one hand, it consumes a lot of energy, emits large amounts of carbon, and has limited contribution and value to society; on the other hand, The risks derived from the production and trading of virtual currencies have become more prominent, which has an adverse impact on energy conservation and emission reduction. It is worth noting that on May 21, the Financial Stability and Development Committee of the State Council held its 51st meeting. The meeting proposed to resolutely prevent and control financial risks and crack down on Bitcoin mining and trading. Therefore, the issuance of the “Notice” means that in the form of a regulatory document, the spirit of the meeting of the Financial Stability and Development Committee of the State Council has been specifically clarified, and the administration in accordance with regulations will further promote the specific implementation of national policies by local governments.

In terms of specific measures, the “Notice” prohibits new virtual currency “mining” projects, and requires that the orderly exit of stock projects be accelerated. In the past few years, the price of Bitcoin has skyrocketed. Being attracted by its “wealth effect”, Bitcoin “mining” has become an industry that some capital is chasing. Under the banner of technology, some local governments actively attract investment and give these “mining” companies preferential policies in terms of taxation or electricity prices. However, the “mining” industry has rushed to the top, causing many problems. Bitcoin computing power in mainland China has long accounted for more than 70% of the global computing power. A large number of private capital has competed in this industry, squeezing out the opportunity cost of this capital that could serve the real economy or other digital economies; in some places Therefore, thermal power energy consumption is huge, or part of the hydropower originally used for entity companies is consumed by “mining” companies, which causes the pressure of the country to reduce carbon emissions; the “mining” industry is endlessly large, and the Bitcoin system’s computing power Enhancement will drive more Chinese “retail investors” to join the army of “money speculation”, and there is the possibility of proliferation of financial risks. In summary, the current rectification activities have contributed to promoting the optimization of my country’s industrial structure, promoting energy conservation and emission reduction, and achieving the national goals of carbon peaking and carbon neutrality on schedule, preventing more private capital and even listed companies from following the trend and entering the “mining” industry, and encouraging more capital. It will have certain practical significance to better serve the real economy and prevent the expansion of financial risks in personal “currency speculation”.

However, the past rectification activities have a “sporty” law enforcement color. While advancing the realization of national policies and industrial goals, we should try our best to avoid the negative impact of “movement-style” law enforcement and the ups and downs of industrial policies on the society and economy, and make administrative supervision and law enforcement strictly comply with the “comprehensive law and law” that has been advocated since the 18th National Congress of the CPC Central Committee. The spirit of governing the country. The “Notice” specifically mentions that under the premise of ensuring a smooth transition, scientifically determine the withdrawal timetable and implementation path based on the actual conditions of each region; it is necessary to use rule of law thinking and methods to comprehensively promote the rectification of virtual currency “mining” activities, and strictly implement relevant laws Laws and regulations, strictly investigate and punish illegal virtual currency “mining” activities in various places; actively and steadily promote, not only to accelerate withdrawal, but also to properly resolve conflicts and disputes to ensure social stability. The use of rule of law thinking and methods of rule of law in rectification activities is one of the highlights of the “Notice”, which should cause local governments to attach great importance to the implementation of policies. To this end, the author puts forward two thoughts and suggestions.

2. Two thoughts on the rule of law in “rectification” activities

First of all, “rectification” activities should be highly consistent with the spirit of the rule of law. In order to consume local surplus electric energy or abandoned hydropower, promote local economic development and increase employment positions, individual local governments have attracted some “mining” companies to invest and set up factories in the form of investment promotion. The investment scale of individual enterprises is huge, and they have entered into a legal form contract with individual local governments before the “Notice” is issued, agreeing on the preferential policies and corresponding deadlines given by the local governments. Currently, the “Notice” requires local governments to stop all financial and taxation support for virtual currency “mining” projects, and to stop and cancel existing projects that have already given preferential policies such as taxes, rents, and utilities to local governments within a time limit. This means that the national policy and some local governments’ previous agreements with certain “mining” companies will deviate greatly, and the new industrial policy will cause huge losses to related companies. The ancients said: “There is no faith in the law, but there is no standing.” Confucius pointed out: “Speaking faithfully, doing reverence, although it is a savage state, it will act stubbornly. The inherent spirit of fairness and honesty in the rule of law, local governments order “mining” companies to withdraw in an orderly manner and stop continuing to provide corresponding preferential measures. At the same time, in order to prevent “one size fits all” implementation of policies, harm the interests of companies that were originally legally operating. The author thinks it can be considered whether to damage the local government’s business reputation environment, whether appropriate compensation should be given to relevant enterprises, and a relatively loose exit timetable for relevant enterprises.

Secondly, the national follow-up policy should take this as an opportunity to maintain the continuity and predictability of the policy, reduce the excessive impact of the policy on the economy, enhance the predictability of industrial policies by entrepreneurs and investors, and reduce the meaninglessness of social costs. loss. In the past, some industries have often fallen into the vicious circle of the “disorder cycle”. The “release-manage-grab” type of industrial policy has been highly volatile, which has increased the operating costs of enterprises. There is a discrepancy in spirit. Specifically, the Leading Group of the Special Rectification Office for Internet Financial Risks issued a document in January 2018, requiring all localities to guide enterprises within their jurisdictions to withdraw from the “mining” business in an orderly manner. Subsequently, the “Industrial Structure Adjustment Guidance Catalogue (2019) Draft for Comments” issued by the National Development and Reform Commission listed the “mining” industry as an outdated industry, and local governments began to clear the “mines” accordingly.

However, in November 2019, the National Development and Reform Commission officially promulgated the “Industrial Structure Adjustment Guidance Catalog (2019 Edition)”, which deleted the “virtual currency mining” that was a phased-out industry in the previous consultation draft. According to the “Decision of the State Council on Issuing and Implementing the “Interim Provisions on Promoting Industrial Structure Adjustment”, the “Industrial Structure Adjustment Guidance Catalog” is an important basis for guiding investment directions, government management of investment projects, and formulating and implementing fiscal, taxation, credit, land, import and export policies . The “Industrial Structure Adjustment Guidance Catalog” is composed of three categories: encouragement, restriction and elimination. Those that do not fall into the above three categories and comply with relevant national laws, regulations, and policies are permitted categories and are not included in the Catalog. In the field of civil and commercial affairs, the spirit of the rule of law implements “the law can do nothing unless it is explicitly prohibited.” Under the premise that there is no explicit prohibition by national laws and regulations, it means that the “mining” industry will be a nationally permitted industry starting from New Year’s Day 2020. Affected by such factors as the adjustment of industrial policy and the rise in the price of Bitcoin, the private capital of mainland China entering the “mining” industry will continue to increase from 2020. The “Notice” once again proposes to list virtual currency “mining” activities as an obsolete industry, and to add “virtual currency “mining” activities” to the “Industrial Structure Adjustment Guidance Catalog (2019 Edition)” “elimination category” . Before being added to the list, the virtual currency “mining” project shall be treated as an outdated industry, and it shall be prohibited in accordance with the “Decision of the State Council on Issuing and Implementing the “Interim Provisions on Promoting Industrial Structure Adjustment”” (Guo Fa [2005] No. 40) invest. This shows that the national industrial policy has been adjusted too much in the short term. Excessive jumps in industrial policies will affect practitioners’ stable expectations of market prospects and impact the orderly development of the industry. The policy volatility is huge. When making market decisions, it is difficult for investors and operators to predict whether the industry can do anything in the future, and it is difficult to determine the development trend and policy direction of the market. In response to the above problems, it should be regulated from the rule of law thinking. On February 25, 2019, General Secretary Xi Jinping presided over the second meeting of the Central Committee for the Rule of Law. The meeting emphasized that the rule of law is the best business environment, and the property rights and legitimate rights and interests of various market entities must be protected equally in accordance with the law, within the framework of the rule of law Adjust the interest relationships of various market entities. Strictly implement the spirit of the rule of law in the economic field, endow relevant enterprises with certainty of industry development and market predictability, and strictly guarantee the property safety, transaction safety and transaction safety of relevant enterprises and citizens in accordance with the corresponding provisions of laws and regulations passed through legal procedures in advance. And other related legal rights.

Deng Jianpeng: Professor of Law School of Central University of Finance and Economics, Director of Fintech Legal Research Center

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