Borrowing Litecoin from a friend for seven years without paying it back has caused trouble for the government. The Court of Justice ruled that virtual currency is a kind of online virtual property and must be paid back.

Virtual currency does not have the same legal status as legal tender in my country, and regulatory authorities have repeatedly reminded that business activities related to virtual currency are illegal financial activities, but civil disputes related to virtual currency occur from time to time. How will the court determine the nature of virtual currency? Recently, the Beijing No. 1 Intermediate People's Court announced a second-instance judgment on a virtual currency loan and repayment dispute. The court clearly stated that there is currently no law that denies the protectability of virtual currency itself as virtual property. The final judgment was that the defendant who borrowed money must return 33,000 Litecoins to the plaintiff.

A man who owed his friend 33,000 Litecoins for seven years was sued in court

The verdict shows that the plaintiff Zhai and the defendant Ding were originally friends. In December 2014, Ding borrowed 50,000 Litecoins from Zhai for fund investment.

The IOU between the two parties stated that Ding borrowed 50,000 Litecoins from Zhai, and agreed to repay all of them between July and October 15, 2015. If he failed to repay on time, he would repay in RMB at the price of 19 yuan per Litecoin, but Litecoin would be repaid first.

However, by April 2017, Ding had only repaid 17,000 Litecoins, and 33,000 Litecoins were still unreturned. Although Zhai repeatedly urged for repayment, Ding refused to repay. After February 2019, Ding even "disappeared" and stopped replying to Zhai's messages. With no way to collect the debt, Zhai had to sue Ding in court.

The court believes that virtual currency is a kind of online virtual property and is protected by law.

The Beijing Shijingshan Court held at first instance that Litecoin is a specific virtual commodity that does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market. However, Litecoin has the attributes of virtual property and virtual commodity, and belongs to online virtual property and should be protected by law. Now Ding refuses to return the Litecoin, infringing on Zhai's property rights and civil rights. The court ruled at first instance that Ding should return 33,000 Litecoins to Zhai.

Ding was dissatisfied with the first-instance judgment and filed an appeal. Ding said that according to relevant regulations issued by the People's Bank of China and other departments, investment in virtual currency is not protected by law in China, and he could not obtain the subject matter through legal means, so the first-instance judgment could not be actually implemented.

In the second instance, neither party submitted new evidence. The Beijing No. 1 Intermediate People's Court pointed out in the second instance judgment that there are two controversial points in this case. First, whether Litecoin is a virtual property that should be protected by law. Although the documents of the relevant departments clearly state that virtual currency does not have the same legal status as legal currency and cannot be circulated and used as currency in the market, it also stipulates that virtual currency-related business activities are illegal, and if investing in virtual currency and related derivatives violates public order and good morals, the relevant civil legal acts are invalid. However, there are currently no laws, administrative regulations or departmental regulations that deny the protectability of virtual currency itself as virtual property. Therefore, the first instance court determined that the Litecoin lent by Zhai in this case has the attributes of virtual property and should be protected by law, and there is nothing wrong with it, and it is upheld.

The second controversial point in this case is whether the Litecoin involved should be returned. During the first trial, after the court fully explained, Zhai insisted that Ding return the Litecoin and voluntarily assumed the risk of non-execution. The Beijing No. 1 Intermediate People's Court believes that there is no sufficient evidence to prove that the Litecoin in dispute between the two parties has been determined to be impossible to return in reality. The first instance court's decision that Ding should return Zhai's Litecoin is correct and should be upheld.

Illegal proceeds are virtual currency

The prosecutor converted the amount into RMB according to market prices.

In another case in Shanghai, the property attributes of virtual currency itself were also reflected. The illegal income of the criminal suspect Zhang was 6,000 Tether coins. The prosecutor determined that his illegal income was RMB 38,790 based on the price of relevant trading platforms and the exchange rate between the US dollar and the RMB.

After investigation, it was found that from July to August 2021, Zhang illegally hacked into the system of Shanghai M Company through network technology, obtained customer order information in the system and sold it for profit. After deduplication, 20,673 pieces of customer order information were found in his seized electronic devices, and he illegally earned 6,000 USDT (Tether). Shortly thereafter, Zhang's case of suspected infringement of citizens' personal information was transferred to the Pudong New Area Procuratorate for review and handling.

In order to hold Zhang liable for civil infringement, the prosecutor faces a difficult problem: how to determine the amount of Zhang's illegal gains. Zhang's illegal gains were 6,000 Tether. Is Tether protected by law? Can it be used as illegal gains to pay damages? And how to determine the amount of compensation? These questions must have clear answers.

After careful analysis, the public interest litigation prosecutor believes that virtual currency does not have the status of legal tender in my country, but as a tool, it is easily used by people who commit crimes. "If this currency is used in a transaction, we can still calculate the amount of illegal income according to the market value of the currency." Public interest litigation prosecutor Lei Yao introduced that the ratio of Tether to the US dollar is basically 1:1. Referring to the transaction price of the relevant trading platform on the day of the transaction and the exchange rate between the US dollar and the RMB, the procuratorate determined that Zhang's illegal income was approximately RMB 38,760.

Finally, the court sentenced Zhang to three years in prison, suspended for four years, and fined him RMB 40,000 for the crime of infringing citizens' personal information. At the same time, under the auspices of the court, the two parties signed a criminal civil mediation agreement, and the defendant Zhang agreed to accept all the civil public interest litigation requests raised by the procuratorate: publicly apologize in national news media and compensate RMB 38,760 according to the profits from infringing citizens' personal information.

There are differences in court decisions on disputes involving the sale or investment of virtual currencies

Lawyers advise against investing in virtual currencies

In recent years, the People's Bank of China and other ministries and commissions have successively issued documents such as "Announcement on Preventing the Risks of Token Issuance and Financing" and "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading and Speculation", which clearly stipulate that virtual currency-related business activities are illegal and that if legal persons, non-legal persons and natural persons invest in virtual currency and related derivatives and violate public order and good morals, the relevant civil legal acts shall be invalid and the losses caused thereby shall be borne by themselves; if they are suspected of disrupting financial order and endangering financial security, the relevant departments shall investigate and deal with them in accordance with the law.

If you think that investing in or buying and selling virtual currency is protected by law because of the above two cases, you are totally wrong. After all, the above two cases only involve the property attributes of virtual currency itself, not the object of investment or buying and selling by the parties.

A Beijing Youth Daily reporter checked the judicial documents website and found that disputes arising from virtual currency investment or transactions are not uncommon. Although the courts generally rule that the sale or entrusted investment of virtual currency is invalid, there are differences in the judgment results in different places regarding the subsequent handling.

In some places, the courts will dismiss the plaintiff's request for the defendant to repay the principal and interest in accordance with the provisions in the documents that "the losses caused by this shall be borne by the defendant himself". In some places, the courts will further analyze the validity of the subsequent loan agreements, IOUs and other settlement agreements reached by the two parties on the basis of determining that the relevant agreements are invalid, and support the defendant to return or compensate the plaintiff, or comprehensively consider the degree of fault of both parties and determine the responsibilities of each party.

For example, last year, Beijing heard a debt dispute case involving virtual currency investment. The plaintiff Li entrusted Wei to buy and sell virtual currency on his behalf. Later, due to investment failure, Wei's account was forced to close. Wei issued an IOU to Li and promised to repay Li's losses in installments. The first instance court supported Li's claim and ordered Wei to pay Li's lost principal and interest of more than 50,000 yuan. However, after hearing the case, the second instance court determined that the entrustment contract between the two parties was invalid, and Li was responsible for the losses caused by his investment in virtual currency, and rejected Li's lawsuit.

During the same period, Shanghai also tried a case with basically similar facts. Lu entrusted Lu to manage virtual currency and suffered losses. The two parties later signed an IOU for the investment losses. After the trial, the court held that although the virtual currency entrusted management was invalid, the IOU was valid, and finally ruled that Lu should pay the principal and interest according to the IOU.

Xu Guilin, a partner at Beijing Times Jiuhe Law Firm, believes that because my country does not recognize the currency status of virtual currency and has not yet promulgated laws and regulations specifically targeting virtual currency transactions, the courts in various places have inconsistent judgments on virtual currency. He does not recommend that everyone participate in virtual currency investment and transactions; if you have already participated in it, after the investment transaction fails, investors should try their best to reach a written repayment agreement with the counterparty, and perhaps they can recover some of their losses.