58 bitcoins were lost, but the exchange only compensated 8.7 + a power bank?

Bitcoin and Litecoin have attracted the attention of countless people since their birth. In recent years, with the surge in Bitcoin, investors, exchanges, cryptocurrency self-media, and various unidentified foundations and project parties have flocked in, creating a new "ecosystem" in the cryptocurrency circle.

In all the links of virtual currency transactions, the exchange is the core hub of the industry chain, connecting the project owners and the investors, especially the top virtual currency exchanges. Once the exchange is attacked by hackers, it is the wallets of the majority of investors that are threatened.

Recently, the China Judgment Documents Network published such a case. A cryptocurrency trader traded on a virtual currency exchange, which was attacked by hackers. The exchange was shut down, had a spike, and had its account liquidated, resulting in a loss of 49.2 bitcoins and 3,136 litecoins. The defendant exchange claimed that the virtual currency contract was an online game, not futures; the hacker attack was force majeure and could be exempted from liability.

The exchange was hacked and investors suffered liquidation

Recently, the Haidian District People's Court of Beijing announced the first-instance civil judgment on the infringement liability dispute between Wei and Beijing Lekuda Network Technology Co., Ltd.

The contents of the judgment show that the case of the plaintiff Wei suing the defendant Beijing Lekuda Network Technology Co., Ltd. (hereinafter referred to as "Lekuda Company") for infringement liability dispute was filed by the Haidian District People's Court of Beijing on May 6, 2016 and was heard in an open court.

According to the facts found by the court, Lekuda Company is the developer of the mobile application software "okcoin Bitcoin", through which one can log in to www.okcoin.com (okcoin international site address) and www.okcoin.cn (okcoin Chinese site address).

It is reported that on July 10, 2015, the price of Litecoin plummeted, and on July 13, Bitcoin plummeted. The OKCoin platform was paralyzed by hacker attacks. Hackers maliciously manipulated prices, and customers were unable to operate online, causing a large number of customers to suffer heavy losses. The two hacker attacks caused the website to shut down and the platform data was abnormal.

According to Wei, he was unable to operate on the platform and was unable to operate the stop loss on the Litecoin and Bitcoin on the platform, resulting in a loss of 57.9 Bitcoins and 3136 Litecoin. After negotiations with OKCoin, OKCoin compensated him for 15% of his losses, including 8.7 Bitcoins, a power bank and one month's transaction fees. OKCoin refused to compensate for the remaining 49.2 Bitcoins and 3136 Litecoin on the grounds that it had also suffered losses from the hacker attack.

In this case, the plaintiff Wei filed a lawsuit with the Haidian District People's Court of Beijing, requesting that Lekuda compensate him for the losses of 49.2 bitcoins and 3,136 litecoins that he suffered when he traded on the OKCoin platform on July 10, 2015 and July 13, 2015 due to the server being attacked by hackers.

Wei submitted screenshots of his account transaction information to the court. The contract bill showed that at 17:29:49 on July 10, 2015, the LTC0925 contract in his account was forcibly liquidated, the number of LTC contracts was -9.771, and the LTC equity was -3136.0919179; at 15:21:09 on July 13, 2015, the BTC0925 contract in his account was forcibly liquidated, the number of BTC contracts was -1.898, and the BTC equity was -57.957086.

Wei also accused Lekuda of illegally operating futures and manipulating the market to defraud customers. Because Lekuda was suspected of illegally operating futures and had low security technology, often experienced network paralysis, and illegally modified the website backend data without authorization, causing huge losses to the property placed on the platform, he sued the court and requested compensation for all his losses.

Exchanges: Bitcoin contracts are a kind of "online game"

Regarding Wei's accusation of illegal futures trading, Lekuda said that neither it nor the disputed website engaged in Bitcoin futures trading, nor did it meet the legal characteristics of futures trading, and was actually an online Bitcoin game. It also did not modify the K-line chart or manipulate prices artificially.

Lekuda said that the main difference between this online game and futures trading is that futures trading uses margin to buy and sell contracts, while its business uses Bitcoin to buy and sell Bitcoin contracts and Litecoin to buy and sell Litecoin contracts. Contracts are a concept in futures trading, and the contracts are purchased with margin, but Bitcoin and Litecoin are virtual online commodities and are not margin at all. The reason why Bitcoin and Litecoin trading is called an online game is that this kind of trading only borrows the concept of futures trading, but is actually just a game.

Secondly, Lekuda argued that even if Wei's loss objectively existed, the calculation method was wrong. Wei's loss was caused by hacker attacks, and the website's terms of service stipulate that hacker attacks are force majeure and can be exempted from liability.

Again, the defendant Lekuda argued that the disputed website www.okcoin.com (i.e. the international site) is operated by OKEXFINTECH, a company headquartered in Hong Kong, and that no matter what legal liability occurs on the website, it has nothing to do with Lekuda.

In addition, Lekuda also stated that the disputed website has a clear reminder on its homepage that "this website serves non-Chinese customers, Chinese customers please go to the Chinese site", and the Chinese site is www.okcoin.cn, and the Chinese site can also be accessed through the page of www.okcoin.com. The user agreement signed between the disputed website and the user clearly stipulates that Chinese users are not allowed to log in to the disputed website's international site, otherwise they will bear the consequences at their own risk. The user agreement and the reminder of the website's international site prohibit Chinese customers from using the disputed website's international site for transactions, and Wei was aware of this. Therefore, even if Wei suffers losses, he should bear them himself.

The court held that Lekuda Company claimed that it had transferred the operation of the www.okcoin.com website to a Hong Kong company and that it was not the operator of the website, but it did not provide sufficient evidence to prove this. In addition, Lekuda Company was the sponsor of the www.okcoin.com website registered with the Ministry of Industry and Information Technology. The www.okcoin.com website could be accessed through the okcoin mobile application software developed by Lekuda Company and the official website of Lekuda Company. The www.okcoin.cn website also released information to promote www.okcoin.com. After the hacker attack, the www.okcoin.cn website also explained the attack situation.

Based on the above circumstances, the court held that during the transaction of Bitcoin and Litecoin contracts by Wei, Lekuda Company provided services to Wei, and the two parties formed a contractual relationship. During the transaction, Lekuda Company provided services with defects, which caused the system to crash during the attack. Wei was unable to trade in time, resulting in the loss of Bitcoin and Litecoin. This loss was the loss of the subject matter of the contract between the two parties and should be resolved within the scope of the contract dispute.

However, after the court's explanation, Wei insisted on filing the lawsuit for tort liability dispute. This claim had no factual and legal basis, and the court did not support it. All of Wei's claims were dismissed.

Plaintiff: Already sued for contract dispute

The case did not end there. Beijing No. 1 Intermediate People's Court issued a second-instance civil ruling on the infringement liability dispute between Wei and Beijing Lekuda Network Technology Co., Ltd. The ruling showed that Wei was dissatisfied with the first-instance judgment and appealed, but later withdrew the appeal application, indicating that after careful consideration, he obeyed the first-instance judgment and voluntarily applied to withdraw the appeal in accordance with the law.

What happened to the withdrawal of the appeal? Is the case over? With these questions in mind, a reporter from the National Business Daily (WeChat ID: nbdnews) interviewed the party involved, Wei.

Wei said that at the end of 2014, he saw news about Bitcoin on the Internet and began trading on virtual currency platforms, mainly on a platform called OKCoin. At that time, the Bitcoin contracts on the platform were not called contracts, but futures.

He invested 200,000 or 300,000 yuan, and had both gains and losses, but after doing futures trading, he lost more than he earned. At that time, the futures platform "had an unstable server, often crashed, and was attacked by hackers."

"The time I sued them, it was a more serious problem. I couldn't log in at all and couldn't close my position. I negotiated with them and they said they would compensate me 15% (15% of the Bitcoin liquidation on July 13)." Wei said, "I have been appealing, through phone calls, complaint letters and other means, to the public security, China Securities Regulatory Commission and other administrative departments to protect my rights. Later, I protected my rights through legal means."

Wei showed reporters screenshots of his negotiations with OKCoin on July 10, 2015, when Litecoin plummeted and the OKCoin platform crashed.

Screenshot of Wei's negotiation with OKCoin (provided by the interviewee)

Wei gave an example to the reporter about what a spike is. For example, on November 10, 2015, OKCoin was manipulated by someone to maliciously short sell. Litecoin on the platform dropped from 35.75 yuan to 0.01 yuan in an instant, like a long needle, a 99.97% plunge, and the price was close to zero. But then it immediately returned to its original price. In such a sharp drop, any long contract would be hit and liquidated.

Screenshot of the K-line when OKCoin Litecoin plummeted (provided by the interviewee)

But in the K-line chart that OKCoin subsequently displayed, in the chart on November 10, 2015, the highest price of Litecoin was 35.75 yuan, the lowest price was 18.42 yuan, and there was no price of 0.01 yuan.

Screenshot of the K-line after the repair of the okoin platform (provided by the interviewee)

Regarding the next step, Wei said: "I have withdrawn the lawsuit. The first time I sued for infringement, now I sue for contract dispute. I have already filed the lawsuit. The lawsuit still requires full compensation for my losses on July 10 and 13, 2015."

Regarding the risks that investors face when trading in virtual currency exchanges, the National Business Daily (WeChat ID: nbdnews) previously interviewed Professor Deng Jianpeng of the Central University of Finance and Economics. Deng Jianpeng analyzed at the time:

"Because all virtual currency exchanges currently registered overseas and facing China are outside the supervision of China's financial regulatory authorities, it means that all their data are difficult for Chinese regulatory authorities to conduct real-time supervision on whether there is any covert operation, insider trading, market manipulation, and any other illegal and irregular behavior. Therefore, when traders trade through the above-mentioned virtual currency exchanges, their funds may suffer great losses or face negative impacts such as money laundering and crime." (Daily Economic News)