A Chinese court has recognised bitcoin as property protected under criminal law, sentencing a man to prison for diverting more than 100 bitcoin using a seed phrase. The ruling is drawing attention for clarifying criminal liability for digital asset theft in China, where cryptocurrency transactions are strictly restricted.

Cointelegraph reported on Sunday that the Qingdao Licang District People’s Court sentenced a man surnamed Zhang to 10 years and 9 months in prison and fined him 100,000 yuan for unauthorised access to the victim’s bitcoin wallet and theft of the assets.

The incident occurred in July 2023. The victim, surnamed Peng, asked Zhang, an acquaintance who had previously helped with transactions, to assist in cashing out 117 bitcoin he held. During the process, Zhang was reported to have watched as Peng wrote down 12 seed phrases, or recovery words, to set up the wallet.

Prosecutors said Zhang memorised 11 of the 12 words at the time and later guessed the final word to obtain access to the wallet. Investigators found that he then moved 107 BTC from the victim’s wallet to an address he controlled.

Investigators accepted the victim’s report and traced on-chain transaction records, concluding the flow of funds was linked to Zhang. The court found that Zhang cashed out part of the stolen bitcoin and took more than $97,000.

Zhang argued during the trial that he did not steal the bitcoin but only moved it to protect the assets. He also claimed he made no real profit because he incurred losses during subsequent investments. Prosecutors concluded, based on electronic records and transaction details, that there had been actual disposal of the assets and realised gains, and the court accepted that view.

The most closely watched part of the ruling was the court’s assessment of bitcoin’s legal nature. China strongly regulates cryptocurrency trading and mining, but prosecutors argued that bitcoin constitutes property under the law and can be the subject of theft under criminal statutes. The court accepted the reasoning and convicted Zhang.

The industry views the ruling as not legalising cryptocurrency trading, but as a case in which criminal law protected property rights in individuals’ digital assets. It effectively confirmed that even assets with restricted trading can be subject to theft charges for unauthorised transfers and misappropriation.

The case also raised concerns about wallet security. Alvin Kan (앨빈 칸), chief operating officer at Bitget Wallet, said recovery phrases may be technically secure but can pose a serious security threat if exposed to people nearby. He stressed that even brief exposure is exposure, and said the surrounding environment must be strictly controlled when entering or writing down seed phrases.

The industry believes the case will remain an example showing the standards used by China’s judiciary in digital asset theft cases, while again underscoring how important seed phrase management is for personal wallet security.