Let’s start with a question: Zhang San stole virtual currency from Li Si. After Li Si discovered this, he reported it to the police. So, what crime should Zhang San be charged with, and what would be the potential sentence? Illegally appropriating someone else’s virtual currency often involves two types of charges: Unauthorized Acquisition of Computer Information System Data and Theft. The specific charge is not uniformly applied in practice. Some cases are charged with Unauthorized Acquisition of Computer Information System Data, some with Theft, and there are instances where courts recognize the perpetrator as committing both crimes, choosing the more severe charge for sentencing. Regardless of the charge, the amount involved is an unavoidable issue. Whether it is mainstream virtual currencies like Bitcoin and Ethereum or altcoins (such as platform tokens and Meme coins), high price volatility is a common characteristic. The dramatic fluctuations in cryptocurrency prices affect countless investors’ emotions (perhaps this is part of the thrill and excitement of cryptocurrency trading). However, in criminal cases, if there is a significant fluctuation in cryptocurrency prices within a short period, how should the amount involved be determined? Different standards of determination could directly influence the future direction of the case.

By Lawyer Shao Shiwei

01. Different Methods of Determining Cryptocurrency Value Directly Influence the Outcome of Cases

Let’s discuss a case (slightly modified to protect privacy and to illustrate legal issues; the cryptocurrencies and their prices mentioned do not correspond to any real case):

Zhang San and Li Si met in a meme coin trading group. Zhang San has been trading cryptocurrencies for several years and is quite experienced in the crypto community, while Li Si is a newcomer who knows nothing and frequently asks basic questions in the group. Zhang San, being helpful, often answers these questions patiently, and over time, they became quite familiar with each other and added each other as friends.

One day, Li Si asked Zhang San how to execute a transaction, and Zhang San asked him to send a screenshot. Li Si carelessly sent a screenshot of his ImToken wallet page. The next day, Li Si discovered that the PEPE coins in his wallet had inexplicably gone to zero. He immediately reported this to the police. Subsequently, Zhang San was arrested and charged with Unauthorized Acquisition of Computer Information System Data, receiving an eight-month prison sentence.

It turned out that when Li Si sent the screenshot to Zhang San, he accidentally included his private key. Zhang San used this private key to restore (import) the wallet and transferred the PEPE coins from Li Si’s wallet to his own.

According to Article 285, Paragraph 2 of the Criminal Law, if the illegal gains exceed 5,000 yuan, or if the economic loss exceeds 10,000 yuan, the perpetrator shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention for the crimes of Unauthorized Acquisition of Computer Information System Data or Illegal Control of Computer Information System. The court determined that the value of the PEPE coins transferred by Zhang San was 12,000 yuan, and this amount was used to sentence Zhang San to eight months, which is roughly appropriate.

But is there no dispute in this case? Of course, there is.

Firstly, Zhang San did not actually obtain any illegal gains. The PEPE coins he transferred into his own wallet were subsequently used for trading on an exchange, resulting in a total loss, as evidenced by the relevant transaction records.

Secondly, the court determined the value of the PEPE coins to be 12,000 yuan based on the real-time price at midnight on the day Zhang San transferred Li Si’s tokens, as listed on a particular exchange. Is this time point selection scientific?

The value of the involved tokens should be determined based on:

• Li Si’s purchase price,
• The real-time market price when Zhang San transferred the tokens,
• The price when Zhang San converted the tokens to USDT,
• Or should it be based on a judicial audit price (although in this case, there was no audit, and the amount involved was determined directly based on the police records of Zhang San’s statement)?

Coincidentally, the real-time price of PEPE coins at midnight on the day in question was the highest point of that day and month. According to the other mentioned time points, the price of PEPE coins had not exceeded 10,000 yuan, which would not have met the threshold for criminal sentencing in this case.

02. Methods for Determining Cryptocurrency Value

According to policy regulations, although virtual currencies do not have the same legal status as fiat currencies and any civil legal actions arising from related transactions are invalid, with losses being borne by the individual, their property attributes are recognized in China. Therefore, on a criminal level, the virtual currencies held by citizens are protected by law.

However, determining the value of virtual currencies in practice is a challenging issue. Announcements or notices issued by relevant ministries stipulate that “no organization or individual shall provide pricing services for virtual currencies.” Thus, any pricing method would contravene Chinese regulatory policies.

Currently, the methods commonly used in judicial practice to determine the price of virtual currencies are as follows:

1. Reports from Price Certification Institutions or Judicial Appraisal Agencies: These organizations can provide official valuation reports for virtual currencies.
2. Price Paid for Purchasing Virtual Currency: This method considers the amount paid to purchase the virtual currency as its value.
3. Price When Converting Virtual Currency to Fiat Currency: This method uses the amount received when the virtual currency is converted back to fiat currency.
4. Reference to Prices on Major Cryptocurrency Exchanges: This method considers the market price listed on mainstream virtual currency exchanges.
5. No Value Calculation, Court’s Discretionary Consideration: In some cases, the court may choose not to calculate the value explicitly and consider the circumstances at its discretion.

The second and third methods clearly specify the time points for calculating the cryptocurrency’s value as “at the time of purchase” and “at the time of realization,” respectively, but these are still not precise enough. The first and fourth methods involve different approaches to determining the value but still require careful consideration of the specific time points chosen.

03. Choosing the Time Point for Calculating Cryptocurrency Value in Judicial Practice

1. Based on Illegal Gains

If the perpetrator sells the stolen cryptocurrency and converts it to fiat currency, this is the simplest scenario. The illegal gain can be used as the basis for the case’s determination.

For example, in the case (2023) Hu 0104 Criminal First Instance No. 856, Yang Mou exploited a remote code execution vulnerability in Yapi to gain access to the target virtual currency website. He then used lateral infiltration and implanted malware to control internal servers, ultimately extracting the victim Su Mou’s virtual wallet address and private key. He transferred the victim’s virtual currency and exchanged it for other cryptocurrencies, eventually selling them for a total of over 2.5 million yuan in illegal gains. Yang Mou was sentenced to ten years and six months for theft.

However, if the victim’s cost of acquiring the virtual currency far exceeds the price at which the perpetrator stole and sold it due to significant price fluctuations, determining the case based on the amount of illegal gains might not adequately protect the victim’s interests.

1. Based on the Median Price on the Date of the Illegal Act

Given the significant price volatility of virtual currencies, which can fluctuate by tens or even hundreds of dollars within the same day depending on the type of cryptocurrency, determining the price based on the date of the illegal act can be complex. From a defense perspective, one could choose a lower price point within the specific time frame of the criminal act or use the average price of that day.

For instance, In the case (2020) Yue 0304 Xing Chu No. 2, the defendant, Li, used a previously acquired private key and payment password for the HaoDeXingQiu project to log into the company’s account on the IMToken virtual trading platform from his residence on June 20, 2019. He then stole 3 Ethereum tokens. The victim submitted screenshots of market transaction records from HuobiGlobal, showing that on June 20, 2019, the highest transaction price for Ethereum was $270.68, the lowest was $265.85, and the average price was $268.265.

1. No Pricing, Discretionary Consideration

In the aforementioned case, Li, as an employee of the company, also stole 4 million HaoDe tokens developed by the company. However, since the HaoDe tokens were not publicly traded at the time of the theft, the court determined that their value could not be calculated and stated vaguely that this situation would be considered at its discretion. Notably, since Li returned all the HaoDe tokens to the company after the incident, it appears that the court did not factor this into the final judgment.

1. Using Prices from Valuation Institutions

Another pricing method used in practice is to base the value on the date of the final appraisal by a third-party valuation institution. For instance, in the case (2020) Chuan 1425 Xing Chu No. 1, the value of the involved virtual currency was broadly determined using the price on the final appraisal date by the Panshi Software (Shanghai) Co., Ltd. Judicial Appraisal Institute.

Comparatively, basing the valuation on the date of the illegal act, the victim’s purchase price, or the perpetrator’s selling price seems more objective. Shao, the lawyer, argues that using the appraisal date for pricing lacks objectivity in recognizing the value of virtual currencies and is not reasonable.

Summary of Pricing Methods:

1. Reports from Price Certification Institutions or Judicial Appraisal Agencies: Offers official valuation but may lack the real-time relevance of market prices.
2. Price Paid for Purchasing Virtual Currency: Reflects the initial investment but not necessarily the current or realized value.
3. Price When Converting Virtual Currency to Fiat Currency: Captures the actual realized value but can vary widely over short periods.
4. Reference to Prices on Major Cryptocurrency Exchanges: Provides market-based valuation but depends on the specific time point chosen.
5. No Value Calculation, Court’s Discretionary Consideration: Used when the value cannot be objectively determined, but this can lead to inconsistencies and perceived unfairness.

Each method has its advantages and disadvantages, and the choice of method can significantly impact the legal outcomes in cases involving cryptocurrency theft or fraud.

04. Final Thoughts

In criminal cases, there is no unified standard for calculating the value of virtual currencies involved. Even within the same case, discrepancies can arise between the prosecutor’s office and the court.

For example, in the case (2020) Hu 0106 Xing Chu No. 551, regarding Luo’s theft of Tether (USDT), the prosecutor’s office charged Luo based on the platform’s trading price at the time of the theft, equivalent to 12 million RMB. However, the court ruled that since China does not recognize the price data published by any virtual currency trading information platform, the value of the stolen USDT should not be calculated based on historical prices from these platforms. Instead, the court accepted the defense’s argument and determined the crime’s amount based on Luo’s actual profit of 900,000 RMB.

Thus, from a criminal lawyer’s perspective, disputes over the valuation of virtual currencies offer significant room for defense. As illustrated in the initial case mentioned, a different approach to valuation could potentially lead to a not guilty verdict.

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