Hubei court ruled that the virtual currency "mining" contract was invalid, claiming that the contract was for mining Filecoin under the pretext of purchasing an IPFS storage server

Recently, the Wuchang District People's Court of Wuhan City, Hubei Province, pronounced a verdict on a virtual currency "mining" contract dispute case, ruling that the contract in question was invalid and requiring the seller to return part of the money to the investor.

In this case, the plaintiff Zhou and the defendant, a technology company, signed a storage server purchase contract on July 7, 2021. According to the contract, Zhou purchased an IPFS storage server for RMB 179,800 and entrusted a technology company to manage it. The technology company promised that the server it provided would provide services on the IPFS network and obtain Filecoin rewards. If the currency production volume is lower than the market average, the technology company will bear the compensation liability. However, since Zhou realized that virtual currency mining was expressly prohibited by the state, he invalidated the contract and demanded the return of all contract amounts and payment of interest on funds occupied.

Specifically, the main contents of the contract include: Parties A and B negotiated in a friendly manner and agreed that Party B would purchase IPFS storage servers and related hosting services from Party A, and promised to jointly abide by the contract.

Product information: The contract is priced in blockchain assets. The product model is DZ storage server with a capacity of 48T and a total price of RMB 179,800 or equivalent USDT. The payment method is 100% USDT and is paid to the blockchain wallet designated by Party A.

Delivery date and location: It is agreed that the delivery date of the storage server is within 30 days after Party B completes the payment, and the server will be put on the shelf in the computer room. The storage server is entrusted by Party B to Party A for custody.

Non-refundability: The contract clearly states that the IPFS storage server is a custom product and once purchased, it will not be returned.

Commitment and responsibility: Party A promises that the IPFS storage server it provides can provide services in the IPFS network and obtain Filecoin rewards. It also promises to iterate and upgrade the hardware according to network requirements and ensure that the currency production is not lower than the market average. If the currency production is lower than the market average, Party A will bear the compensation liability.

Hosting method and fees: Party B needs to place the storage in the custody of Party A and pay the relevant fees. The hosting service period is 3 years, starting from the date the machine is officially installed in the computer room. If Party B cancels the hosting in advance, it will pay liquidated damages.

Hosting service fee: Party A will deduct 20% of the amount of Filecoin mined by Party B's server as hosting service fee.

Withdrawal and Trading: Party B can submit a withdrawal application to Party A, withdraw Filecoin tokens to the designated address, and then trade them on a third-party digital asset exchange.

Project risks: The contract clearly states that the income and configuration of Filecoin mining are determined based on the information released by the project party. Party A does not guarantee the income and reminds Party B that there are risks in investment. It also requires Party B to have received blockchain knowledge training, promise funds from legal sources, and have a certain understanding of the Filecoin project.

In the end, despite the terms of the contract, the storage server equipment purchased by Zhou Xiaole was not actually delivered to him. Instead, Zeting hired professional technicians to operate on his behalf and ensure that the storage server produced Filecoin tokens on schedule. According to the account screenshots provided by Zhou Xiaole, the number of coins produced by his account each time the mining machine produced was between 0.10 and 0.015 Filecoin, and the total output was 186.7236.

Zeting claimed that they had an Internet agreement with IPFS, requiring storage space to be pledged in order to obtain Filecoin tokens. Zhou Xiaole could submit a withdrawal application through the "Zeting Technology" application software, and then IPFS Protocol Labs would pay Filecoin tokens based on the payment address information applied for. However, at the time of the trial, Zhou Xiaole had not yet withdrawn or traded the Filecoin tokens he received.

This contract involves virtual currency mining activities, which involves multiple risks, including the invalidity of the contract, violation of policy regulations, non-compliance with social public interests, violation of the principle of green development, etc. In the end, the court ruled that the contract was invalid and held both parties responsible for the corresponding liabilities. Zeting Company was required to return part of the money to Zhou Xiaole.

After trial, the court determined that the contract was actually intended to conduct virtual currency "mining" activities, rather than a purchase and sale contract for storage servers. This type of mining activity has multiple risks, including energy consumption and carbon emissions, and violates national policies and regulations and harms the public interest. Therefore, the contract was deemed invalid.

As the seller, a certain technology company should have known that the contract involved mining activities, and therefore had a high duty of care for the legality of the contract. As the buyer, Zhou should have known that there might be legal risks in investing in virtual currency, but he still signed the contract and paid the money out of the motivation of pursuing profits. Therefore, both parties are at fault and should bear the corresponding civil liability.

The court decided that a certain technology company should return 120,000 yuan of contract money to Zhou. Since the two parties did not agree on the interest on the funds used, the court did not support Zhou's claim for the interest on the funds used.

The court's ruling once again emphasized the risks of virtual currency investment, reminding investors to be cautious when participating in such activities and to fully understand the relevant laws and regulations and risks to avoid losses. Relevant national departments have also issued policy documents on many occasions to prevent and regulate risks in virtual currency and "mining" activities, emphasizing investors' risk prevention awareness.