Production and sales of mining machines, cloud computing power Legal risk analysis

The mining industry has been included in the crackdown and clearance around the world, and the legal risks of practitioners have changed.

Production and sales of mining machines, cloud computing power Legal risk analysis

It is commonly believed that services directly associated with virtual currencies are prone to the risk of suspected illegal or even criminal activity in the country. In contrast, as a type of computer, the legal risk of mining machine sales, hosting and use is relatively small. However, since the Financial Stability Development Committee of the State Council has explicitly proposed to “crack down on mining”, the mining industry has been included in the crackdown and clearance around the world, and the legal risks for practitioners have changed. Sara’s team will sort out and discuss this from the perspective of various legal departments for your readers’ reference.

Combing the risks of continued mining
The mining circle business model mainly covers the production of mining machines, the sale of mining machines, the sale of computing power, hosting mining machines, etc. Sister Za team from the administrative law, criminal law, civil law, three aspects of the legal risks of the business model of each participating subject: 1.

  1. Risk of administrative violations

On May 21, 2021, the Financial Stability Development Committee of the State Council clearly proposed to “crack down on bitcoin mining and trading, and resolutely prevent the transmission of individual risks to the social sector”. Provinces such as Inner Mongolia and Sichuan, where “mining sites” are concentrated, have also begun to enact local laws in response to local conditions. In the future, as the spirit of the aforementioned meeting to form laws and regulations, the regulatory authorities may crack down on both mining operations and buying behavior, and the relevant behavior into the scope of administrative violations.

In addition, Article 22 of the “People’s Bank of China Law of the People’s Republic of China (Draft Revision for Public Comments)” states that “No unit or individual shall make or offer token tickets or digital tokens to replace RMB in circulation in the market.” Mining is essentially “the act of making digital tokens”, and if this provision is not changed, mining will constitute an administrative offense after the new law takes effect.

Although the above-mentioned legal provisions are not yet in effect, it does not affect the local government to start cleaning up the mining industry around. According to Sara’s team, Inner Mongolia and other places have carried out and basically completed the cleanup.

  1. Risk of criminal offences

According to the different modes of operation and marketing, Sister Za’s team collated the following criminal offences that may be suspected in the mining circle.

(1) Illegal fund-raising type of crime

In some unregulated cloud mining models, operators abstract the arithmetic power of non-mainstream virtual currencies, advertise the rate of return to the public, and absorb their RMB, and there are cases in practice where such behavior is considered as the crime of illegal absorption of public deposits.

If the state further introduces legal provisions (administrative regulations and above) on virtual currency restrictions, even if the cloud mining mode of mainstream virtual currency, there is also the possibility of criminalization.

If the operator takes the purchase of a mining machine as the threshold of entry and the number of people developed as the standard of remuneration, and forms an organization with three levels and more than 30 people, the operator may therefore constitute the crime of organizing and leading pyramid selling activities.

(2) The crime of fraud

If the so-called mining machine does not exist at all or does not operate, the operator may therefore constitute the crime of fraud.

(3) Unauthorized establishment of financial institutions crime

Cloud mining platform absorbing funds promising income is essentially the act of providing financial services for the public. However, it is clear that the cloud mining platform has not obtained the administrative license to engage in financial activities. If the cloud mining platform is interpreted as a financial institution, the cloud mining platform may therefore constitute the crime of unauthorized establishment of financial institutions.

(4) Illegal business crime

Administrative supervision risk mentioned the “People’s Bank Law” legal effect level is higher than administrative regulations, and the spirit of the meeting of the State Council Finance Committee may also form the administrative regulations level, once implemented, will be in line with the “Criminal Law” Article 225 illegal business crime “violation of state regulations” of the previous elements, mining machines and their related business practices may be included in the fourth paragraph of the law “other serious disruption of the market order of illegal business practices” to combat.

  1. The risk of civil law remedies

From the perspective of civil practice, as the subject matter involves virtual currency, some courts believe that the rights associated with unlawful objects should not be protected (most of the coins in this situation are certain non-mainstream currencies).

The Sara team would like to remind that there is a possibility that the user’s legal act of purchasing a mining machine is not protected by justice: the user cannot defend his civil rights through litigation based on the contract.

Is there value in blocking domestic IPs?
Recently, in order to reduce the risk of public law, some mining circle companies have chosen to block domestic IP addresses and not open their services to the Chinese people.

As mentioned earlier, there are criminal law risks associated with the operation of mining machines, especially the cloud mining platform, which we analyze from the perspective of criminal law as follows.

Criminal law adopts mostly substantive criteria for the determination of facts, i.e., regardless of the means, such as Chinese users become users of the cloud mining platform, and if the behavior of the cloud mining platform is suspected of a crime, Chinese criminal law has jurisdiction over this according to the principle of territorial jurisdiction where the results of the crime occur or the principle of protection jurisdiction where the victim is a Chinese person.

Of course, the subjective aspect is one of the important elements of the composition of the crime. The practice of blocking IPs is at least an important subjective defense – the platform cannot substantially determine the nationality of the user and has fulfilled its KYC obligations. Although crimes committed by Chinese outside of China are also under the jurisdiction of China’s criminal law, the relevant services limited to outside of China would not infringe on the Chinese market order and would not be legally infringing.

However, it should be noted that if the suspected criminal mining circle company advertises its business to the territory and even provides access ports while blocking Chinese IPs, the aforementioned defense may be nullified as a result due to the operator’s apparent attitude of indulging domestic users.

In conclusion
In the context of virtual currencies not being categorized and regulated by the regulatory system, it is difficult for the mining circle, which is highly correlated, to be left alone. When virtual currencies are always associated with illegal crimes, the rise of legal risks in the mining circle has become inevitable. Sara’s team suggests that practitioners should be more prudent to regulate their own behavior against the elements of the crime to reduce the risk.

The above is what we share today, thanks to our readers!

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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