Does operating a virtual currency exchange constitute the crime of running a gambling establishment?

Is operating a virtual currency exchange the same as running a gambling establishment?

Under the background of blockchain technology, due to the characteristics of decentralization and anonymity of virtual currency, it is becoming more and more common as a payment settlement channel for black-gray industries such as online gambling. Recently, a friend consulted and a certain virtual currency exchange was investigated and filed for the crime of opening a gambling hall by the public security.

What are the criminal risks related to the crime of opening a gambling hall that may be involved in the operation of a virtual currency exchange? This article discusses this.

0 1 Provide payment and settlement services for gambling websites

The more common situation in which virtual currency exchanges are suspected of opening casinos is to provide funds and payment and settlement services for gambling websites.

The author has introduced the concept of “running points and money laundering”. Criminals in online gambling seek part-time running points personnel to buy and sell virtual currencies, and then the running points personnel withdraw the money to the wallet address of the running points platform. The “running points” behavior of running points personnel providing payment and settlement for upstream casino crimes involves co-committing the crime of opening a casino.

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Similarly, if the exchange itself knows that the platform it cooperates with is a gambling website and still provides trading services for it, it objectively makes the exchange a payment and settlement channel for the gambling website. According to the “Opinions on Several Issues Concerning the Application of Laws in the Handling of Criminal Cases of Network Gambling” (hereinafter referred to as the “Opinions”), the exchange is suspected of constituting a joint crime of the upstream online gambling platform. At present, virtual currency exchanges are highly competitive, and some small business or sales personnel in virtual currency exchanges may lower their cooperation standards for customers in order to achieve more performance, thereby burying mines for their own companies.

02 Exchange conducting perpetual contract business

The other situation that this article focuses on is: virtual currency exchanges operate virtual currency perpetual contract business.

Perpetual contract is a kind of derivative contract without delivery date, which is different from delivery contracts (such as spot contracts and futures contracts). Investors use their own capital as margin and trade with leverage provided by the exchange, which can be as high as 100 times, to gain the possibility of future profit. The higher the leverage, the greater the potential return or risk for investors.

The exchange mainly earns revenue by charging transaction fees. The practice of setting high leverage in perpetual contracts will lead to great risks for investors, while the exchange can obtain higher transaction fee income.

Cryptocurrency exchanges operate perpetual contracts of virtual currencies, which is controversial as to whether it constitutes the crime of opening a casino.

One view is that perpetual contract business constitutes the crime of opening a casino. The reason is that investors judge the win or lose by betting on the rise or fall of virtual currencies, which has the same nature as betting big or small in gambling crimes.

According to Article 1 of the Opinion, the following circumstances constitute the act of “opening a casino”: “establishing gambling websites and accepting bets; establishing gambling websites and providing others with the organization of gambling…”

Another view is that perpetual contract business does not constitute the crime of opening a casino. The reason is that virtual currencies, as virtual property of citizens, are protected by law, and perpetual contract trading is essentially a kind of financial derivative trading, which does not violate legal provisions. In addition, unlike the pure luck in gambling where you bet big or small, the price fluctuation of virtual currencies is determined by the market. Therefore, contract trading is not a “gambling” behavior, and correspondingly, cryptocurrency exchanges operating such businesses cannot be defined as “opening a casino”.

Lawyer Shao believes that gambling, futures, and contract businesses have the common feature of shooting (refers to the behavior of obtaining accidental benefits from others’ losses), and this cannot be used as a standard for whether it constitutes a gambling crime.

It is necessary to consider the following factors to determine whether the behavior of virtual currency exchanges constitutes the crime of opening a casino:

First, whether the platform can realize real-time auction mechanism between users. If the platform itself engages in market manipulation behavior and conflicts with the interests of users, it will increase investment risks for users. Second, whether the platform’s risk control measures are perfect. Is the KYC system strict? Are there trading thresholds set? Are there corresponding risk circuit breaker mechanisms? If the platform blindly sets high leverage, it will increase the risk and return for users, stimulate more investment customers with gambling psychology, disrupt the market, and generate subsequent unpredictable chain reactions. Third, whether there are behaviors such as hiring water army, deceiving others’ trust, and inducing users to participate in transactions. Finally, whether there is behavior of manipulating backend trading data to help the platform make profits. Therefore, if the virtual currency exchange has the above four characteristics, it is possible to involve the crime of opening a casino. 0 3 Conclusion It is recommended that the platform set up a sound and reasonable risk control system, do a good job in KYC review of users and review of fund sources, regularly conduct security testing of the website, pay close attention to unfavorable public opinions and trends, and do a good job in user stability maintenance, etc., to reduce possible criminal risks.