Hacker steals NFT digital collectibles, what should be the crime?

Hacker steals NFT digital collectibles, what should the crime be?

Recently, several domestic digital collection platforms have suffered from hacker attacks, resulting in a large number of digital collectibles being stolen and quickly sold and withdrawn, causing significant losses to users or platforms. It is reported that the platform has already reported the incident to the police, and the police have frozen most of the funds involved, and the suspects have been apprehended.

NFT theft is not uncommon. As early as April 1st last year, Jay Chou announced that his friend’s “Bored Ape” was stolen. This was not an April Fool’s joke, and since then, both foreign platforms like Opensea and domestic digital collection platforms have experienced a series of hacker theft incidents. The root cause is that the NFT market is too tempting, the field is too hot, and the money comes too quickly, allowing hackers to quickly cash out and exit, promoting efficiency and convenience.

However, justice will be served, and once the suspects are apprehended, as a legal practitioner, I am concerned about the professional issue – what crime does stealing digital collectibles constitute?

Is it theft or unauthorized access to computer information systems?

Before discussing the theft of NFTs, let’s briefly talk about digital currencies, which are also based on blockchain technology. There has always been a debate over whether stealing digital currencies constitutes theft or unauthorized access to computer information systems. The Mankiw team has also discussed this issue (see: “Is it Theft to Illegally Steal Someone’s Bitcoin?”). However, in our judicial practice, different courts have different legal characterizations for stealing digital currencies, which directly leads to a huge disparity in the sentences for the parties involved.

For example, in the case of Xumou illegally obtaining computer information system data and illegally controlling a computer information system [case number (2020) Min 0305 Xing Chu 82], the defendant Xumou repeatedly extracted USDT using a platform system delay vulnerability, and then gathered five other people to use the same operation to obtain 110,000 Tether. In the end, the court convicted and punished Xumou with the crime of illegally obtaining computer system data, sentencing them to three years of suspended imprisonment and a fine of 30,000 yuan.

In the case of Fangmou’s theft [case number (2021) Hu 0118 Xing Chu 670], Fangmou used technical means to invade a company’s system and secretly transferred “King Kong Coin” to make a profit of 20,000 yuan. Finally, the court convicted Fangmou of the crime of theft and sentenced them to one year and six months of imprisonment and a fine of 5,000 yuan.

We can see that using the same method to steal coins can result in vastly different amounts and similar results, which is puzzling. The reason for this is that the two crimes are fundamentally different in terms of legal regulation. Theft is an ancient crime against property and can be punished with life imprisonment (the death penalty has been abolished); while unauthorized access to computer information systems and unauthorized control of computer information systems are established to maintain public order, and the maximum penalty is imprisonment for less than seven years and a fine.

02 What crime does stealing digital collectibles constitute?

After talking a lot, I want to explain that there is no consistent determination in practice regarding the theft of digital currency. However, for the theft of digital collectibles, the author believes that it should be convicted and punished as theft.

First of all, digital collectibles have many significant differences from cryptocurrencies such as Bitcoin. Bitcoin belongs to homogeneous tokens, while digital collectibles belong to non-fungible tokens, which are unique and represent ownership of specific works of art. They are created to achieve real and trustworthy digital issuance, purchase, collection, and use. They not only embody blockchain technology but also involve copyright and aesthetic value. Their “value” should not be denied just because some users/platforms hype it. They should be regarded as “property” protected by theft laws.

Secondly, domestic policies do not prohibit the trading of digital collectibles, especially since the majority of digital collectible platforms settle transactions in Chinese yuan. From the nature of transactions, digital collectibles are commodities and should be protected by law. Even if the country prohibits the trading of digital collectibles, rendering them completely non-circulating from a legal standpoint, they should still be protected by law. Otherwise, would stealing drugs be considered innocent? On the contrary, in practice, the majority are still convicted and punished for theft.

Thirdly, from the perspective of victim protection, stealing digital collectibles should also be classified as theft. Digital collectibles may have been purchased at a high price by users, and convicting and sentencing the thieves for theft can better protect their rights and interests (the underlying legal interests) from the perspective of their losses. Otherwise, it may fall into a moral trap, where criminals steal and resell digital collectibles without returning the proceeds, and enjoy a good life after a few years in prison. In such cases, the crime, responsibility, and punishment do not match, which easily encourages the arrogance of criminals.

03 Summary by Lawyer Mankun

As a legal practitioner in the NFT field, I hope to increase the crackdown on hackers and other cybercriminals. This industry not only needs its own compliance but also requires a sound legal environment to protect its healthy and orderly development.