Analysis report: Beijing's first "Bitcoin mining case" verdict

The second instance of Beijing's first Bitcoin "mining" contract case has been pronounced, and the Beijing No. 3 Intermediate People's Court, the second instance court, has clearly determined that the "mining" contract involved is invalid. Regarding this case, the Sajie team has previously conducted some discussions, and now that the second instance has been finalized, unless a retrial is initiated, the issue of the validity of the "mining" contract has been settled and has a certain degree of credibility.

Therefore, today’s article by Sister Sa’s team once again discusses “mining” and explains related issues.

1. Logic of the first and second instance judgments

By studying the judgments of the first and second instance, it can be clearly found that the first and second instance held the same logic in determining the invalidity of the "mining" contract. That is , the reason for the invalidity of the "mining" contract is that it damages the public interest and violates public order and good morals. Therefore, the contract is deemed invalid in accordance with the second paragraph of Article 153 of the Civil Code, which stipulates that "civil acts that violate public order and good morals are invalid."

Specifically, the reason why "mining" contracts harm the public interest is that: (1) Bitcoin trading activities have a bad impact on the national financial order and social order . Virtual currency "mining" activities fall within the scope of virtual currency-related business activities. In China, speculation in virtual currency-related business activities is prevalent, which has extremely bad effects. It disrupts the economic and financial order, breeds illegal and criminal activities such as gambling, illegal fundraising, fraud, pyramid schemes, and money laundering, and seriously endangers the property safety of the people and the national financial security. (2) Virtual currency "mining" activities are high-energy consumption activities. " Mining" activities at the cost of electricity resources and carbon emissions are contrary to the high-quality development of the economy and society and the goals of carbon peak and carbon neutrality, and are contrary to the public interest. Therefore, based on the above two reasons, out of consideration for protecting the public interest related to the property safety of the Chinese people, national financial security, and environmental resources, the "mining" contract should be deemed invalid.

2. “Mining” contract ≠ mining machine purchase and sale contract

With the judgment that the "mining" contract is invalid, a question worth pondering is, what about the validity of the mining machine purchase contract that is closely related to "mining"? Is the contract still invalid because it violates public order and good morals?

In this regard, Sister Sa’s team believes that the mining machine purchase contract should still be valid.

On the one hand, this is because the mining machine itself is still a legal commodity, and legal commodity trading should be protected by law . Both the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" and the "Notice on Rectifying Virtual Currency "Mining" Activities" only characterize the relevant behaviors and virtual currencies, but do not stipulate the nature of mining machines. Even for virtual currencies, the aforementioned notice only points out that it does not have the same legal status as legal currency, but does not deny its legal nature as a virtual commodity (this nature was recognized in the 2013 "Notice on Preventing Bitcoin Risks"). Therefore, as a computer, the mining machine itself has its own unique value and should be treated as a general commodity . Unless the commodity is expressly stipulated as a restricted or prohibited item, the circulation of the commodity is legal circulation, and the commodity trading behavior and sales contract involved should be valid.

On the other hand, this is also because the mining machine contract does not violate public order and good morals in essence. According to the judgment of the first and second instance courts, the "mining" contract is invalid because it disrupts the financial order, endangers the property safety of the people and the financial security of the country, and wastes resources and does not meet the carbon neutrality goal.

However, mining machine sales contracts cannot actually be classified as virtual currency-related business activities . According to the aforementioned notice, the so-called virtual currency-related business activities refer to the exchange of legal currency and virtual currency, the exchange of virtual currencies, the purchase and sale of virtual currency as a central counterparty, the provision of information intermediary and pricing services for virtual currency transactions, token issuance financing, and virtual currency derivatives transactions. Mining machine sales transactions obviously do not belong to the above activities, so this behavior cannot be identified as illegal financial activities. Under the premise that the mining machine sales behavior cannot be classified as illegal financial activities, it is obviously impossible to determine that this behavior disrupts the financial order and endangers the property safety of the people and the financial security of the country.

At the same time, the sale of mining machines does not constitute a waste of resources, and thus does not meet the goal of carbon neutrality. As mentioned above, the reason why the "mining" contract was deemed invalid is largely because it will greatly waste energy during its performance and cause damage to the public interest. However, the nature of a simple mining machine sale contract is not the same as that of a mining contract. Although the parties may subjectively enter into a sale contract for the purpose of mining, the sale contract itself is only a way to dispose of the subject matter. The mining machine sale contract with the disposal of the ownership of the mining machine as the main contract content does not violate public order and good morals .

Furthermore, this contract does not constitute a civil legal act related to virtual currency "mining" activities, and no energy will be wasted in the process of performing this contract, nor does it involve virtual currency-related business. Therefore, the mining machine purchase and sale contract cannot be deemed invalid based on the logic that the aforementioned "mining" contract is invalid.

To sum up, the invalidity of the "mining" contract does not mean that the mining machine sales contract is invalid, and the judicial authorities should make a judgment based on the facts .

3. Violation of public order and good morals√Violation of mandatory provisions of laws and regulations×

Although the two notices issued on September 24th both gave negative comments on the "mining" behavior, the determination of the validity of contracts in practice and the path to determine the validity of such contracts are still unclear. However, the second-instance court defined the reason for the invalidity of the contract as "violating public order and good morals" through reasonable arguments , which is a very reasonable and appropriate approach.

In fact, the validity of the "mining" contract can be denied on the grounds of the two notices only because the contract violates public order and good morals, but not because the contract violates the mandatory provisions of laws and regulations. Even if it clearly defines virtual currency-related business activities as illegal financial activities, it cannot directly produce the legal consequence of invalidating the contract.

The reason for this is that neither the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" nor the "Notice on Rectifying Virtual Currency "Mining" Activities" fall within the scope of laws and administrative regulations, and therefore the relevant contracts cannot be deemed invalid just because they involve the "mining" activities prohibited or denied thereon . This also applies to all virtual currency-related business activities. In other words, virtual currency-related business activities are not a legitimate reason to deny the validity of the relevant contracts. Even if the contract involves virtual currency-related business activities, the key to whether the contract is invalid still lies in whether its specific behavior violates public order and good morals . If the behavior does not violate public order and good morals, or the degree of violation is not high, then it should be more reasonable to determine that the contract is valid.

4. Final Thoughts

After the second-instance verdict of the first Bitcoin "mining" contract case in Beijing, the invalidity of the "mining" contract has basically become a foregone conclusion, which also shows that the policy of prohibiting mining has indeed played a role in China's judicial practice. Even so, the Sajie team would like to remind everyone that this does not mean that all "mining" contracts are invalid contracts, and all actions related to "mining" are invalid.

When making a specific judgment on whether a civil legal act is invalid, judicial organs should still use clear legal norms as the basis and the specific circumstances of the case as the standard for review. Only when the facts do conform to the legal norms can a judgment be made that the civil legal act is invalid. Judicial organs should not simply refer to prior judgments and ignore the differences between cases .