Contract effectiveness and risk prevention of virtual currency transactions
The “Notice of the National Development and Reform Commission and Other Departments on Rectifying Virtual Currency “Mining” Activities, which came into effect on September 3, 2021, hit domestic virtual currency mining hard. Not only does it mean that continuing domestic mining will be subject to administrative penalties, but it will also face corresponding civil and criminal risks. On December 15 of the same year, the Beijing Chaoyang District Court issuedBitcoinThe “mining” service contract invalidation case has important guiding significance for investors and relevant blockchain practitioners.
In the context of various notices issued by the government and industry associations, etc.,Is it legal for investors to trade virtual currency?If it's not an illegal financial activity,What is the effect of the relevant civil contract?This article analyzes judicial attitudes on virtual currency transactions based on cases published by the Referee Documents Network and virtual currency supervision policies, clarifies the nature of virtual currency, and finally makes suggestions on virtual currency transactions.
Contractual validity of virtual currency transactions
Through a case search on the Adjudicatory Documents Network, it was discovered that the types of cases involving virtual currency transactions include but are not limited to sales contract disputes, entrustment contract disputes, loan contract disputes, etc. To summarize, there are three types of court decisions on virtual currency transactions, namelyValid contract type、Contract invalid type及Unprotected。
The contract is valid
Some district courts have held that virtual currency transactions do not violate the provisions of current laws and policies, and that relevant legal acts should be protected, mainly for the following reasons:
First, our country's laws have a positive attitude towards the protection of online virtual assets. The “General Provisions of the Civil Code of the People's Republic of China” (the case cited in this article is a case before the Civil Code came into force; the “General Provisions of the Civil Code” were abolished after the Civil Code came into effect) and the relevant legal provisions of the Civil Code confirm that online virtual property is an object of civil rights and should be protected by law. Online virtual assets exist in the form of data, have certain value, and can be “produced”, held, and lawfully distributed.The right holder of virtual property can transfer the use value of virtual property based on virtual property transactions, thereby obtaining corresponding financial benefits.
Second isBTC、ETHVirtual currencies such as USDT are online virtual assets. Mainstream virtual currency (this refers to currency tokens) is generated through “miners” and “mining”. To obtain virtual currency, it is necessary not only to invest material costs to buy special machinery and equipment, and to pay for lost electricity and energy, it also takes a considerable amount of time. Therefore, the process of obtaining virtual currency condenses the abstract human labor force. Virtual currency can be transferred using money as consideration to generate economic benefits, and has characteristics such as value type, scarcity, and disposable.It complies with the constituent requirements of online virtual property and should be protected by law。
Third, our country's laws do not deny the property attributes of virtual currency; it can be traded as a virtual commodity. According to the “Notice on Preventing Bitcoin Risk” and the “Notice on Preventing the Risk of Token Issuance and Financing”, China currently does not recognize the monetary attributes of “virtual currencies” such as Bitcoin, and prohibits financial activities such as circulation and use as currency, butThere is no denying that virtual currency can be equally protected by law as property in the general legal sense, nor is it prohibited to trade and circulate as an ordinary virtual commodity.
In virtual currency transactions, it is neither token issuance and financing, nor is it a token financing trading platform that engages in mutual exchange of fiat currency, tokens, and virtual currencies or provides services such as pricing and information intermediation. It does not violate the regulations of financial institutions and non-bank payment institutions on token issuance and financing. The relevant transactions are not prohibited by China's laws and regulations and should be legal and effective.
Combined with the above reasons,The court found that the virtual currency transaction did not violate the provisions of current laws and policiesRight holders trade virtual currency lawfully held by them, and related civil acts should be protected.
Contract not valid
Some district courts are negative about the effectiveness of virtual currency transactions and consider the contract null and void.
After the contract was invalidated, two different adjudication opinions emerged. One isMutual return obligations under section 157 of the Civil Code and loss sharing according to the extent of each's fault; the other one isIt is determined that the virtual currency transaction is an illegal debt party to bear its own losses.
Handling in accordance with the relevant provisions on the validity of an invalid contract
A virtual currency transaction is a contract deemed invalid because it violates mandatory provisions of laws or administrative regulations, or violates public order and morals. Both parties shall, in accordance with the provisions of section 157 of the Civil Code, “After a civil legal act is invalid, revoked, or determined to have no effect, the property obtained by the perpetrator as a result of that act shall be returned; if it cannot be returned or is unnecessary, it shall be compensated at a discount.
The party at fault shall pay compensation to the other party for losses suffered as a result; if all parties are at fault, they shall bear corresponding responsibilities. Where the law stipulates otherwise, according to its provisions, “the parties are mutually obligated to return payments that have already occurred and share losses according to the extent of their own fault [for details, please refer to the cases: (2020) E01 Minzhang 7588; (2019) Qiong01 Minzhang 964 Case].
The party responsible for the illegal debt bears its own losses
The court that supports this view believes that the virtual currency transaction between the parties is an illegal debt. It is the relevant department that prohibits financial institutions, payment institutions, and any token financing trading platform from providing services such as pricing for virtual currencies on the grounds that virtual currency lacks legal economic evaluation standards, or that the virtual currency being traded without approval would impact and affect the country's legal currency and seriously disrupt the country's normal financial order, and further denied the legitimacy of the parties' lawsuit requesting the return of the virtual currency, thus denying it After the contract became effective, both parties were denied the return obligation, and the consequences and risks caused by the transaction shall be borne by the investors themselves [for details, see cases: (2020) Shaanxi 01 Minzhang No. 11210, (2019) Liao09 Minzhang 343, etc.].
Not protected
This view, on the other hand, is that the law does not provide relief for such transactions, which is an extension of the statement that the contract is invalid. Some regional courts/arbitration institutions find it difficult to file cases involving virtual currency transactions or decide to dismiss the lawsuit after filing a case. The main reason for this situation is that there are no clear legal provisions on current domestic acts relating to virtual currency transactions, and it will also involve issues of legality and feasibility of subsequent execution. Therefore, the court will directly determine that it is not within the scope of a civil case and is inadmissible [for details, see cases: (2021) Minzhang 4775, (2020) Ji 11 Minzheng 718, etc.]
What should I pay attention to when trading virtual currency?
The contractual validity of virtual currency transactions, that is, how to legally evaluate the transfer of virtual tokens between private entities, has been explained. Currently, some scholars suggest that if virtual currency has a trusted technical identity, it will be possible to trade virtual currency, but it is pending further updates to the law and innovative development of technology.
In the specific virtual currency transaction process, investors are advised to pay attention to the following points:
Agree on the exchange value between virtual currency and fiat currency
When a transaction involving virtual currency is involved, in the process of signing a paper contract, the parties request the return of the corresponding amount of virtual currency based on the contractual relationship. For example, the parties must clearly agree on the exchange value between virtual currency and fiat currency in the contract, such as agreeing that “Party B will lend Party A's USDT (capital) 500 coins, equivalent to 50,000 USD” [see (2021) Beijing0105 Minchu 57372], or the virtual currency value agreed to be repaid is the virtual currency value of a certain exchange at a certain time on a certain day. Generally, it can be grounded and enforceable in future lawsuits involving the case.
Pay close attention to national policies and regulations
Currently, the country's regulatory policy documents on virtual goods transactions are mainly as follows: “Notice on Preventing Bitcoin Risk”, “Notice on Preventing the Risk of Token Issuance and Financing”, “Risk Reminder on Preventing Illegal Fund-raising in the Name of “Virtual Currency” and “Blockchain”, and “Notice on Preventing the Risk of Hype in Virtual Currency Transactions”. In virtual currency transactions, Sister Sa's team warned that it is necessary not only to refer to judicial decisions in past cases, but also to understand national regulatory policies to better predict virtual currency trading behavior.
Write at the end
On September 24, 2021, 10 departments issued the “Notice on Further Preventing and Handling the Risk of Virtual Currency Trading Hype”. Based on virtual currency, the project party had to develop many new types of derivative virtual assets, and these virtual assets are highly sought after by fans in the cryptocurrency industry. In the future, virtual assets will be considerable wealth held by private individuals. The contractual validity of virtual currency transactions is bound to have certain guiding significance for virtual asset trading behavior.
