Analysis of Contract Effectiveness and Risk Prevention in Virtual Currency Transactions
Original Author: Xiao Sa Legal Team
Original source: Xiao Sa lawyer
Original Author: Xiao Sa Legal Team
The "Notice of the National Development and Reform Commission and other departments on rectifying virtual currency "mining" activities implemented on September 3, 2021 has dealt a greater blow to domestic virtual currency mining, which not only means that continuing to mine in the country will be subject to administrative penalties , and at the same time face corresponding civil and criminal risks. On December 15 of the same year, the Beijing Chaoyang District Court issued a case of invalidation of the Bitcoin "mining" service contract, which has important guiding significance for investors and related blockchain practitioners.
In the context of various notices and announcements issued by the government and industry associations, is it compliant for investors to engage in virtual currency transactions? If it is not an illegal financial activity, how effective is the relevant civil contract? This article combines the published cases of the Judgment Documents Network and virtual currency regulatory policies, analyzes the judicial attitude towards virtual currency transactions, clarifies the nature of virtual currencies, and finally provides suggestions for virtual currency transactions.
1. Contract validity of virtual currency transactions
Through the case search on Judgment Documents Network, it is found that the types of virtual currency transactions involved include but are not limited to sales contract disputes, entrustment contract disputes, loan contract disputes, etc. There are three types of court judgment results for virtual currency transactions, namely valid contracts and invalid contracts type and unprotected type.
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1. The contract is valid
Some district courts believe that virtual currency transactions do not violate the provisions of current laws and policies, and relevant legal acts should be protected, mainly based on the following reasons:
First, my country's law has a positive attitude towards the protection of network virtual property. The "General Principles of the Civil Law of the People's Republic of China" (the cases cited in this article are those before the "Civil Code" came into effect, and the "General Principles of the Civil Law" has been abolished after the entry into force of the Civil Code) and the relevant legal provisions of the "Civil Code" confirm that online virtual property is the object of civil rights , which should be protected by law.
Network virtual property exists in the form of data, has certain value, and can be "produced", held and legally circulated. The subject of virtual property rights can transfer the use value of virtual property based on virtual property transactions, so as to obtain corresponding economic benefits.
Second, virtual currencies such as BTC, ETH, and USDT are network virtual assets. The mainstream virtual currency (here refers to the currency token) is generated by "miners" and "mining". To obtain the virtual currency, it is necessary to invest in material costs to purchase special machinery and equipment, to pay for the power energy of the calculation loss, and to spend a considerable amount of money. Time costs.
Therefore, the process of obtaining virtual currency condenses human abstract labor. Virtual currency can be transferred with money as consideration, generating economic benefits. It has the characteristics of value, scarcity, and controllability. It meets the constituent elements of network virtual property and should be protected by law.
Third, the laws of our country do not deny the property attribute of virtual currency, which can be traded as a virtual commodity. According to the "Notice on Preventing Bitcoin Risks" and "Announcement on Preventing Token Issuance and Financing Risks", my country currently does not recognize the monetary attributes of "virtual currencies" such as Bitcoin, and prohibits them from being used as currency for circulation and other financial activities.
In the transaction of virtual currency, it neither belongs to token issuance and financing, nor does it belong to token financing trading platform engaged in the exchange business between legal currency and tokens, virtual currency or providing pricing, information intermediary and other services, which does not violate the financial regulations. The various regulations of institutions and non-bank payment institutions on token issuance and financing, and related transactions have not been prohibited by the laws and orders of our country, and should be legal and effective.
Combining the aforementioned reasons, the court determined that virtual currency transactions do not violate the provisions of current laws and policies, and the rights subject trades the virtual currency it legally holds, and related civil acts should be protected.
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2. The contract is void
Some district courts have a negative attitude towards the validity of virtual currency transactions, holding that the contract is invalid.
After the invalidation of the contract, there are two different adjudicative views. One is that according to Article 157 of the "Civil Code", the mutual obligation of restitution and the sharing of losses according to the degree of their respective faults; the other is that the virtual currency transaction is illegal.
(1) Handled in accordance with the relevant regulations on the effectiveness of invalid contracts
If a virtual currency transaction is a contract that is deemed to be invalid because it violates the mandatory provisions of laws and administrative regulations, or violates public order and good customs, both parties shall follow the provisions of Article 157 of the "Civil Code". After it becomes effective, the perpetrator shall return the property obtained by the act; if it cannot be returned or it is not necessary to return it, it shall be compensated at a discounted price.
The party at fault shall compensate the other party for its losses; if all parties are at fault, they shall bear corresponding responsibilities. If the law provides otherwise, in accordance with its provisions, "the parties shall bear the obligation of repayment of the payment that has already occurred and share the losses according to the degree of their respective faults [for details, please refer to the case: (2020) E 01 Min Zhong No. 7588 case, (2019) Qiong 01 Minzhong Case No. 964].
(2) The parties to the illegal debt shall bear the losses themselves
Or on the grounds that the virtual currency traded without approval will have an impact and impact on the country’s legal currency and seriously disrupt the country’s normal financial order, it is believed that the transaction is not protected by law, and the prosecution of the party’s request for the return of the virtual currency is procedurally denied. the legitimacy of the behavior.
Therefore, after negating the validity of the contract, the obligations of both parties to return should be negated, and the consequences and risks arising from the transaction should be borne by the investors themselves. Final Case No. 343, etc.].
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This point of view holds that the law does not provide relief for such transactions, which is an extension of the invalidity of the contract. Some district courts/arbitration institutions find it difficult to file a case involving virtual currency transactions or rule to reject the prosecution after the case is filed.
The main reason for this kind of situation is that there are no clear legal regulations on the behavior of virtual currency transactions in China, and it will also involve the legality and feasibility of subsequent execution. Therefore, the court will directly determine that it is not a civil case. [For details, please refer to the cases: (2021) Su 02 Min Zhong No. 4775 case, (2020) Ji 11 Min Zhong No. 718 case, etc.].
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Regarding the validity of contracts for virtual currency transactions, that is, how to legally evaluate the transfer of virtual tokens between private parties has been elaborated. At present, some scholars have proposed that virtual currency has a credible technical identity, and it will be possible to trade virtual currency, but this needs to be further updated by law and innovative development of technology.
In the specific virtual currency trading process, investors are advised to pay attention to the following points:
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When a transaction involving virtual currency is involved, in the process of signing a paper contract, the parties request to return the corresponding amount of virtual currency based on the contractual relationship, and the parties need to clearly agree in the contract on the exchange value of virtual currency and legal currency.
For example, it is agreed that "Party B will lend Party A USDT (in capital letters) 50,000 pieces, which is equivalent to 50,000 USD" [see (2021) Beijing 0105 Minchu No. 57372 Case], or the value of the virtual currency agreed to be repaid is the value of a certain exchange on a certain day and at a certain time virtual currency value. Generally speaking, it can be based and enforceable in future lawsuits involved.
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At present, the country's regulatory policy documents on virtual currency transactions mainly include the following: "Notice on Preventing Risks of Bitcoin", "Announcement on Preventing Financing Risks of Token Issuance", "On Preventing the Use of "Virtual Currency" and "Blockchain" Risk Reminder for Illegal Fund-raising in Name” and “Announcement on Preventing the Risk of Hype in Virtual Currency Transactions”.
In the case of virtual currency transactions, Sister Sa’s team reminded that not only should refer to the direction of judicial judgments in past cases, but also have insight into national regulatory policies to better predict virtual currency transactions.
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