The company borne the loss of 60 million yuan by itself and ruled that the contracts of multiple virtual currency trading disputes were invalid.

After the "September 24 Notice", more and more courts no longer protect virtual currency transactions, investments, and mining activities between ordinary citizens.

On December 23, 2021, the Guangzhou Internet Court announced a virtual currency civil dispute case involving an amount of 11.9 million yuan.

The plaintiff and the defendant jointly invested in XIN coins (virtual currency) and operated joint nodes to obtain profits. However, the defendant deleted the private key in his custody, resulting in the permanent loss of the virtual currency invested by both parties. The plaintiff sued the defendant in court to compensate for the losses.

The judge held that virtual currency investment and trading activities did not comply with the provisions of the "Announcement on Preventing the Risks of Token Issuance and Financing" and the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation", disrupted the economic and financial order, and harmed the public interest. They were not protected by law and the losses were borne by the parties themselves. The judge also rejected all the plaintiff's claims.

Coincidentally, courts in many places have recently disclosed similar virtual currency contract disputes, and the verdicts were highly consistent, all of which held that the contracts were invalid and the parties had to bear the losses themselves. Moreover, the amounts involved in the relevant cases were all large, with the highest reaching 60 million yuan.

60 million yuan mining loss, the court: risk at your own risk

According to Beijing Daily, the Beijing Dongcheng Court concluded a Bitcoin "mining" entrustment contract dispute case on October 25, 2021, and ruled that the contract was invalid.

In May 2020, Qinju Company, Yuner Company and Kunyin Company signed a contract and agreed to jointly engage in Bitcoin "mining". During the performance of the contract, there were multiple power outages. Qinju Company claimed that it had suffered huge economic losses and demanded that Yuner Company compensate for the loss of 33 bitcoins, totaling RMB 5.3 million.

The court stated that Bitcoin "mining" is a venture capital activity that consumes huge resources and is not conducive to the realization of the "dual carbon" goals. The companies ignored national regulatory requirements and allowed risks to occur. They were all at fault for the invalidity of the contract, and the consequences of the related losses should be borne by the parties themselves.

On December 15, 2021, Beijing Chaoyang Court also heard a similar dispute case.

In May 2019, Fengfu Jiuxin Company signed a contract with Zhongyan Zhichuang Company. Fengfu Jiuxin Company entrusted Zhongyan Zhichuang Company to purchase and manage "mining machines", provide data value-added services for Bitcoin "mining" and pay the income from value-added services. After Fengfu Jiuxin Company paid Zhongyan Zhichuang Company 10 million yuan in related fees, Zhongyan Zhichuang Company only paid 18 bitcoins in income to Fengfu Jiuxin Company. Fengfu Jiuxin Company requested the court to order Zhongyan Zhichuang Company to deliver 278 bitcoins (equivalent to approximately 60 million yuan at the price at the time) and other losses.

The Chaoyang Court held that the Bitcoin "mining" transaction model involved in the contract violated relevant national management policies, was a clearly prohibited transaction behavior, and was an invalid contract. It also dismissed all of the plaintiff's claims and required the plaintiff to bear the case acceptance fees of more than 450,000 yuan.

In the above three cases, the contracts were ruled invalid and the risks were borne by the parties themselves. The important basis for this was the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Transaction Speculation" and the "Notice on Regulating Virtual Currency "Mining" Activities" issued on September 24, 2021 (hereinafter collectively referred to as the "9.24 Notice").

Ding Feipeng, director of Beijing Liantong Law Firm, told Lianxin that before the "9.24 Notice" came into effect, most of the virtual currency transactions between ordinary citizens were classified as transactions of virtual commodities by relevant law enforcement agencies and were protected in accordance with the principle of autonomy of will. After the "9.24 Notice", more and more courts no longer protect virtual currency transactions, investments, and mining between ordinary citizens.

Virtual currency contracts were once deemed "valid"

As for the attitude towards virtual currency, as early as 2013, the central bank and five other ministries and commissions jointly issued the "Notice on Preventing Bitcoin Risks" (hereinafter referred to as the "Notice"). The "Notice" pointed out that Bitcoin is not issued by the monetary authorities, does not have monetary attributes such as legal tender and compulsion, and is not a real currency. In terms of nature, Bitcoin should be a specific virtual commodity that cannot and should not be circulated and used as currency in the market.

At the same time, the "Notice" also requires financial institutions and payment institutions not to conduct Bitcoin-related businesses, strengthen the management of Bitcoin websites, and prevent money laundering risks that may arise from Bitcoin, and other regulatory measures.

The "Notice" defines the virtual commodity attributes of Bitcoin.

Since then, the "Notice" has become an important basis for courts at all levels to hear cases.

In September 2017, the People's Bank of China and six other departments jointly issued the "Announcement on Preventing Risks of Token Issuance and Financing". In August 2018, the China Banking and Insurance Regulatory Commission and five other departments jointly issued the "Risk Warning on Preventing Illegal Fundraising in the Name of "Virtual Currency" and "Blockchain", further emphasizing the risks related to virtual currency and strengthening supervision.

However, at that time, the above-mentioned policy document warned of risks on the one hand, but did not recognize virtual currency transactions as illegal on the other hand. In fact, before the issuance of the "September 24 Notice" in 2021, in most virtual currency-related cases, virtual currency-related contracts were deemed valid and protected by law.

The first case involving Bitcoin on the China Judgments Online website occurred in January 2014. Since then, the number of cases related to virtual currency has increased year by year. "Chain News" has counted the cases related to "Bitcoin" based on the data from the China Judgments Online website and found that it is growing at a rate of almost doubling every year, from 11 cases in 2014 to 992 cases in 2020. In most years, civil cases account for more than half.

"Chain News" found that in the civil cases counted above, judges in the vast majority of cases recognized the validity of the relevant contracts and made judgments based on the terms of the contract and relevant laws and regulations.

For example, a judgment of the Yizhou City Court in Guangxi in January 2016 pointed out that contracts established in accordance with the law are protected by law. The plaintiff and the defendant reached a verbal agreement to speculate in Bitcoin, and a loan relationship in the form of entrusted financial management was formed between the plaintiff and the defendant. Both parties should fully perform their respective obligations in accordance with the provisions of the contract.

In January 2017, the Jianye District Court of Nanjing also wrote in a judgment: "Markcoin transactions are a commodity trading behavior on the Internet. Ordinary people have the freedom to participate under the premise of assuming their own risks. The "Markcoin Equity Transfer Certificate" does not violate the provisions of laws and regulations, so it is legal and valid and should be protected by law."

Even loan repayments made in the form of virtual currency are protected by law.

In a private loan dispute case heard by the Haidian District Court of Beijing in 2020, the plaintiff and the defendant used virtual currency Ethereum to borrow and repay in addition to cash, and the court recognized its validity. The judgment pointed out that my country's current laws do not stipulate that online virtual property such as Ethereum is a "thing" in property law, but in the process of commodity exchange in the online environment, transactions of virtual commodities such as Bitcoin and Ethereum actually exist, and holders hope to gain benefits from it. Therefore, Ethereum is a transaction object in contract law, and anyone can legally hold it, and it has a "civil interest" that should be protected by law.

Currently, virtual currency business is classified as illegal activity

However, based on the same Notice issued in 2013, a few courts reached different conclusions.

For example, in 2015, a man in Shandong transferred his 31 bitcoins to a friend due to a mistaken operation, but the friend refused to return it, so the man sued his friend in court. In January 2016, the Shanghe County Court of Shandong rejected the plaintiff's claim. According to the "Notice on Preventing Bitcoin Risks", the court held that Bitcoin is not protected by law in my country, and its transactions are not protected by law. The consequences of his actions are at his own risk.

In October 2017, the Jiangning District Court of Nanjing also made a similar determination. The verdict stated that according to the 2013 "Notice", Tiktok is similar to Bitcoin and is a virtual currency. The transaction of virtual currency is currently not protected by law. The debts generated by virtual currency transactions are illegal debts and are not protected by law.

According to statistics from "Chain News", in the civil cases related to virtual currency from 2014 to 2020, cases in which the courts determined that the contracts were invalid and the parties borne the risks themselves accounted for about 10% of the total, and the amounts involved were relatively small. For example, the amounts involved in the two cases mentioned above were approximately 70,000 yuan (31 bitcoins) and 36,000 yuan respectively, calculated based on the prices of those years.

In addition, there are some cases where the contracts are deemed invalid because they involve fraud, pyramid schemes, token issuance and financing, etc.

Guo Zhihao, director of the Legal Committee of the Shenzhen Information Service Industry Blockchain Association and partner of Beijing Yingke (Shenzhen) Law Firm, told ChainNews that my country's policy documents have a certain guiding role in the judgments of courts at all levels, but because some of the terms in the regulations have room for interpretation, there are still different enforcement standards in the public security, procuratorial and judicial organs in various places. In general, my country's policy on virtual currency is developing from risk warning announcements to clear specific regulatory directions and then to gradual standardization.

The "9.24 Notice" issued on September 24, 2021 is an important time node in the legal regulation of virtual currency.

Among them, the People's Bank of China and 10 other departments issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Transaction Speculation", which defined virtual currency-related business activities as illegal financial activities. It made it clear for the first time that if a natural person's investment in virtual currency and related derivatives violates public order and good morals, the relevant civil legal acts will be invalid, and the losses caused thereby shall be borne by the person himself; if it is suspected of disrupting financial order and endangering financial security, the relevant departments shall investigate and deal with it in accordance with the law.

The "Notice on Rectifying Virtual Currency "Mining" Activities" issued by the National Development and Reform Commission and 11 other departments pointed out that virtual currency "mining" consumes a lot of energy and emits a lot of carbon, and its contribution to the national economy is low. In addition, the risks derived from the production and trading of virtual currencies are becoming more and more prominent. Its blind and disorderly development has an adverse impact on promoting high-quality economic and social development and energy conservation and emission reduction. The notice proposes to comprehensively sort out and investigate virtual currency "mining" projects, strictly prohibit investment and construction of new projects, and accelerate the orderly withdrawal of existing projects.

Compared with previous policy documents, the "9.24 Notice" has a clearer characterization of virtual currency investment and trading, virtual currency mining and other behaviors, and the regulatory measures are more stringent.

Ding Feipeng said that although the latest precedents of Beijing Chaoyang District Court, Beijing Dongcheng District Court and Guangzhou Internet Court on virtual currency mining, trading and investment are not "guiding cases", as newer precedents after the "9.24 Notice", they will still have some reference significance for subsequent judgments of other courts. It is not ruled out that more and more places will not provide legal protection for disputes arising from virtual currency mining, trading and investment, and the risks will be borne by the participants themselves.